Nevada cash flow plunges for Park Place

David Strow

Wednesday, Oct. 31, 2001 | 10 a.m.

Park Place Entertainment Corp. reported a big loss for the quarter ending Sept. 30, as cash flow plunged at the company's Las Vegas resorts and it racked up $175 million in mostly non-cash special charges.

Park Place reported a loss of $101 million, or 34 cents per share, for the quarter. This compares to net income of $67 million, or 22 cents per share, in the year-ago period.

When one-time charges are factored out, Park Place would have earned $17 million, or 6 cents per share -- a decline of 75 percent on a net income basis. Still, this met analyst expectations for the quarter.

Park Place stock rose 7 cents to $7.23 in morning trading.

Revenues fell 2.5 percent to $1.22 billion, while cash flow was off 23 percent to $259 million. Park Place's Nevada casinos suffered the worst, reporting a cash flow decline of more than 50 percent.

While business is recovering, Park Place warned investors to expect more of the same in the next quarter -- Chief Financial Officer Scott LaPorta said the company was "comfortable" with estimates of a net loss of 2 to 7 cents per share for the quarter ending Dec. 31.

"We're not out of this yet, and the fourth quarter is going to be challenging for us," said Park Place Chief Executive Tom Gallagher. "I'm not at all happy with how it is looking at the bottom line.

"This is a tough environment, but we're very comfortable in the long term. This, too, shall pass. Long term, we're going to be fine. The industry will come back, and we're looking forward to the future."

The largest one-time charge posted during the quarter was a $124 million non-cash write-down of the value of the Las Vegas Hilton. This property has struggled for more than a year, and Park Place has been repositioning it as a convention hotel following a failed effort to sell the Paradise Road hotel-casino to Los Angeles investor Ed Roski Jr. In recent quarters, Park Place officials said, the depreciation recorded on the property has been exceeding its cash flow.

"This is an important facet of our new management team ... face reality and move forward," Gallagher said.

Park Place also wrote off its $29 million investment in the Aladdin's junk bonds, following the Strip property's Chapter 11 bankruptcy. It's often been speculated Park Place would use its one-third position in the junk bonds to take an ownership position in the Aladdin, but Gallagher sent the strongest signal yet that this may not happen.

"We're going to continue to monitor the situation closely, and will carefully monitor any opportunities that may result," Gallagher said. "But the bottom line is, don't hold your breath on this one."

Park Place also took a $19 million non-cash loss on its pending sale of the Flamingo Reno. Park Place closed that property earlier this month in preparation for the sale.

Park Place's results varied sharply from region to region during the quarter. While Las Vegas struggled badly, Atlantic City held firm, and the midwest slipped.

In Nevada, Park Place's cash flow was down 50 percent to $60 million.

Caesars Palace managed to generate just $3 million in cash flow during the quarter, an 88 percent decline from the year-ago period. Caesars did suffer a downturn after Sept. 11, but bad table game hold in July also played a key role; the company said cash flow fell $12 million in the quarter because of poor hold at Caesars. Higher high-roller marketing expenses also reduced cash flow.

Still, Gallagher said, "we're feeling quite good about the direction there, and frankly, we're expecting (profit) margins to return fairly quickly to the pre-Sept. 11 experience and move up from there."

Paris Las Vegas and Bally's Las Vegas reported a combined $30 million in cash flow, a 35 percent decline from the year-ago period, while Flamingo Las Vegas was down 20 percent to $20 million.

The Las Vegas Hilton was the worst performer for the company in the quarter, with negative cash flow of $5 million. In the year-ago period, it reported $1 million in negative cash flow.

Las Vegas is starting to show signs of a rebound, Park Place officials said. Occupancy has exceeded 95 percent each weekend in October, and table play is up 13 percent. But slot play is down 7 percent, and midweek occupancy ran at 84 percent in October, down 11 percentage points from October 2000.

Atlantic City fared far better in the quarter. Park Place's casinos there generated $136 million in cash flow, down just 1.5 percent from the year-ago quarter. But cash flow was propped up by the Claridge, acquired by Park Place on June 1.

Caesars Atlantic City's cash flow was down 7 percent, Bally's Atlantic City was off 5 percent, and the Atlantic City Hilton fell 4 percent. Business has nearly returned to normal in Atlantic City in October, Park Place said.

Park Place's properties in Mississippi and Indiana fell somewhere in between Las Vegas and Atlantic City, as cash flow fell 14 percent to $64 million. Cash flow improved at Caesars Indiana and Grand Gulfport in Mississippi, but fell at Grand Biloxi and Grand Tunica.

"It will take a couple of quarters for us to get back to where we were," LaPorta said. "We should see some improvements, but it will take a couple of quarters for us to get back to where we were."

Park Place is the second large gaming operator to report a third-quarter loss in as many days. On Tuesday, MGM MIRAGE reported a loss of $14.4 million, as cash flow fell 59 percent. MGM MIRAGE also blamed a considerable slowdown in Las Vegas tourism following Sept. 11.