Harrah’s reports strong fourth-quarter earnings

David Strow

Wednesday, Feb. 6, 2002 | 11:09 a.m.

Harrah's Entertainment Inc. today confirmed a strong financial performance in the quarter ending Dec. 31, with net income, cash flow and revenue all rising significantly over year-ago levels.

The Las Vegas-based casino operator posted earnings of $55.1 million, or 49 cents per diluted share, for its fourth quarter -- a substantial improvement from the loss of $161.3 million, or $1.41 per share, reported in the year-ago period.

"Adjusted" earnings, which do not include one-time items, rose 130 percent to 46 cents per share. This was in the middle of the range announced by Harrah's in its pre-announcement of earnings in mid-January.

"We basically knew what they were going to earn ... there were virtually no surprises," said gaming analyst Dennis Forst of McDonald Investments.

Still, Harrah's officials were happy to report it.

"For Harrah's as a whole, the fourth quarter was a great story," Harrah's President Gary Loveman said on a conference call with analysts this morning. "We had the benefit of some external factors, but we also have benefitted from a well thought out strategy to drive same store sales growth. We consistently outperform our (competitors), quarter in and quarter out."

A grab bag of factors were cited by Harrah's officials for higher earnings, including the success of the company's "Total Rewards" players club marketing system, unusually mild weather, success in encouraging cross-market play, growth through expansion of properties and acquisitions and lower interest costs. Harrah's acquired Harveys Casino Resorts for $661 million last July.

The company set records for both cash flow and revenue during the quarter. Revenues increased 17 percent to $960.6 million, while cash flow rose 25 percent to $194.9 million.

One of the most dramatic improvements came at the long-suffering Rio near the Las Vegas Strip. After years of disappointing results, the property moved aggressively away from high-end play last year.

Though revenue at the Rio dipped 7 percent to $92.7 million, cash flow there shot up nearly 60 percent to $18 million. The property cut expenses by about $10 million during the quarter, compared to the year-ago quarter, Harrah's officials said.

"I'm very encouraged (by the Rio)," Forst said. "They've got terrific control over the costs. As they build revenues, we should see a lot of that come to the bottom line."

But despite improving results, Harrah's officials don't appear in a hurry to expand the Rio soon, despite a recent application filed with Clark County that would allow a dramatic expansion of the Rio -- or the construction of an entirely new hotel-casino.

"That (the application) is just taking some steps to preserve future opportunities for us," said Harrah's Chairman and Chief Executive Phil Satre. "We really don't have any specifics yet."

Harrah's two other southern Nevada properties -- Harrah's Las Vegas and Harrah's Laughlin -- saw cash flow decline 14 percent to $25.6 million, as both properties were caught in the area's general slowdown after the September terrorism.

"(Room rate) suffered a bit through January, but looking forward, there are appealing trends," Loveman said. "There's likely to be a convergence between room rates we saw before Sept. 11 ... and the room rates we'll experience later this year, as we look into the early to mid-spring period. We're encouraged by that."

Northern Nevada properties also suffered, but the company's cash flow from that region still rose 14 percent, thanks to the addition of Harveys Lake Tahoe.

In all, Harrah's netted $60.5 million in cash flow from its Nevada casinos, up 8 percent.

Away from Nevada, results were much stronger. The company's two Atlantic City casinos produced $53.2 million in cash flow, up 20 percent. And in the Central Region, cash flow soared 35 percent to $122.1 million.

Record quarters were recorded by Harrah's Atlantic City; its two casinos near Chicago; and its casinos in North Kansas City and St. Louis, Mo.

These casinos could be slowed by new taxes in 2002; tax increases are either being considered or are expected to be considered in Illinois, Mississippi, Indiana and Missouri, Satre said. However, these could be offset by liberalizations of gaming laws, such as the lifting of the cap on the number of slots Indiana casinos may have, or the elimination of loss limits in Missouri.

Satre also made it clear Harrah's is positioning itself for further expansion if new jurisdictions open to gaming. He mentioned Kentucky and New York specifically as possibilities.

"We continue to be very mindful of what's going on (with new jurisdictions)," Satre said. "We've been to New York, and continue to monitor that situation very carefully. We consider that to be an opportunity for the company."

Satre also announced on the conference call that he had sold about 17 percent of his stock holdings in Harrah's through the exercise of options.

Forms documenting the sale with the Securities and Exchange Commission were not yet available this morning, but company spokesman Gary Thompson said Satre previously had 1.92 million shares -- which would put the number of shares sold at about 326,000.

Recent filings with the SEC indicate Loveman and Chief Financial Officer Charles Atwood also recently sold shares. Loveman sold 22,500 of his 1.05 million-share stake, while Atwood sold 3,000 shares out of 201,000. Atwood exercised options; Loveman's forms did not indicate if options were used.

Satre emphasized the sales had nothing to do with the executives' outlook for the company, but instead were associated with personal financial planning issues.

"It is simply an opportunity for our executives to recognize an important part of their compensation," Satre said.

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