Woes, as expected, hurt Harrah’s profit

David Strow

Wednesday, Feb. 7, 2001 | 11:21 a.m.

As expected, Harrah's Entertainment Inc. of Las Vegas today reported a heavy loss for the fourth quarter of 2000, as harsh weather, low hold and the bankruptcies of National Airlines and Harrah's New Orleans took their toll.

The Las Vegas-based gaming giant posted a net loss of $161.3 million, or $1.41 per share, for the quarter ending Dec. 31. That compares to net income of $59.2 million, or 47 cents per share, in the year-ago period.

Revenues rose 14 percent to $854.9 million, while cash flow from all properties rose 11 percent to $195 million.

Those earnings were heavily impacted by a $220 million reserve established for the bankruptcy reorganization of the operating company of Harrah's New Orleans, of which Harrah's owns 43 percent. Harrah's also recorded a $39 million charge related to National's bankruptcy; Harrah's owns 48 percent of the airline. Together, these charges reduced Harrah's earnings by $1.46 per share on an after-tax basis.

These reserves are based on Harrah's estimates of the losses it expects to incur in the bankruptcy proceedings, and may need to be increased if reorganization plans change, Chairman and Chief Executive Phil Satre said.

Harrah's would have posted net income of 20 cents per share without non-recurring charges. That's still down 31 percent from Harrah's earnings in the year-ago quarter, excluding non-recurring charges.

Gary Loveman, Harrah's chief operating officer, called the situation "a bit of a three-headed monster" -- record results at many Harrah's properties being offset by continued poor performance at the Rio and the struggles of New Orleans and National.

"But we expect those results to turn around significantly in 2001, and we've already seen some evidence of that turnaround early this year," Loveman said.

The poor earnings were expected -- in mid-January, Harrah's warned it expected to record a net loss of roughly $160 million, or $1.36 to $1.40 per share. As a result, Harrah's fell just 7 cents in morning trading to $30.95.

Once again, earnings from the Rio were a disappointment for the company, as the off-Strip property posted cash flow of $11.3 million, down 20 percent from the year-ago quarter. As in previous quarters, Harrah's attributed this decline to "much lower than normal" hold percentage at the Rio's tables. Cash flow also dropped 10.3 percent at Harrah's Reno and Lake Tahoe properties, to $14.8 million, despite a 5.4 percent increase in revenues.

Harrah's officials said they're taking steps to turn the Rio around by reducing its dependence on table play while cutting costs. Table game play fell by about 25 percent in the quarter while slot play rose slightly, and costs were reduced at the property by about 10 percent.

Results at Harrah's Las Vegas and Laughlin were more encouraging, as cash flow increased 22.6 percent to $29.8 million. The strong gain in cash flow there was enough to allow Harrah's to post a 1.8 percent gain in Nevada cash flows, to $55.9 million.

In Atlantic City, results were mixed. Harrah's Atlantic City posted $28 million in cash flow, up 2.2 percent, a record for the property. Harrah's attributed this to continued implementation of its "Total Rewards" customer loyalty program. Harrah's is putting more cash behind this property, with plans to open a 450-room, $110 million hotel tower in early 2002.

But at Showboat Atlantic City, cash flow fell 10 percent to $16.2 million as operations were disrupted by construction. Harrah's said its Total Rewards system , together with property enhancements set for completion in mid-2001, will help improve the property's future performance.

In the Central Region, cash flow leapt 38.5 percent to $90.5 million, the result of the acquisition of Players International Inc., which added properties in Maryland Heights, Mo., Metropolis, Ill., and Lake Charles, La. Harrah's Chicagoland properties saw cash flow increase 40 percent due to Illinois' new dockside gaming rules and a luxury hotel added to Harrah's Joliet in November 1999. Total Rewards helped boost the cash flow of the Missouri properties by 42 percent. But cash flow fell 15 percent in Shreveport as construction disrupted operations.

Despite bad weather conditions, Harrah's officials said that its properties in Joliet, East Chicago, Kansas city and St. Louis all reported record quarters for both cash flow and revenues.

"Even excluding the impact of Players, we have record revenues and (cash flow)" in the midwest, said Chief Financial Officer Colin Reed.