Write-offs hurt bottom lines of Station, Caesars

Thursday, Jan. 29, 2004 | 11:08 a.m.

Losses at Caesars Entertainment Inc. of Las Vegas widened in the fourth quarter after the company wrote down the value of two resorts and performance declined in Las Vegas and Atlantic City. But the company today said it is tracking better results so far this year for the Super Bowl and convention attendance and will reap bigger rewards from an expansion under way at its Caesars Palace flagship.

And locals' gaming giant Station Casinos Inc. of Las Vegas today reported strong gains in revenue and cash flow, but posted a loss because of special charges.

Caesars reported a loss of $84 million or 28 cents per share compared with a loss of $21 million or 7 cents per share for the same quarter a year ago. It expects to earn from 11 cents to 13 cents per share in the first quarter of next year.

Cash flow at Caesars Palace declined because of a lower percentage of bets won from high-rollers -- an expected cost of doing business, officials said. Yet the property still reported a 14 percent increase in table game volume and a 13 percent increase in slot machine volume in part from new machines and increased traffic from the Celine Dion show. The property also reported record cash room rates for most of last year and the highest average cash room rate in history for 2003, officials said.

Convention business is driving higher room rates in Las Vegas, where the company will be increasingly focusing on convention-goers and leisure travelers who pay top rates for rooms, said Tony Santo, senior vice president of the company's western and mid-south regions.

"The Las Vegas trends are starting the year out right," Santo said.

The company's fourth-quarter loss included a writedown of $89 million in the book value of the Flamingo Laughlin and a writedown in goodwill -- the intangible value of an asset -- of $38 million at Caesars Tahoe. Both were the result of reduced earnings forecasts brought on by increased competition from tribal casinos in California and Arizona.

Also included was a $43 million charge to settle a lawsuit involving a long-running dispute about the management of Bally's Lakeshore Casino in New Orleans. The riverboat license was originally set aside for a black-majority owner who eventually sold his 50.1 percent share in the casino to a subsidiary of Caesars Entertainment, which held the other share and runs the casino. The company paid another $9 million to settle a contract with Tom Gallagher, the company's former president and chief executive who left after two years and $4 million to settle lawsuits involving the aborted sale of the Las Vegas Hilton to developer Ed Roski Jr. in 2000.

Fourth-quarter revenue rose 1 percent to $1.1 billion from a year ago and cash flow declined 7.6 percent to $206 million.

Cash flow across the company's Western properties dropped 5.4 percent to $87 million. Cash flow rose $1 million at Paris and Bally's resorts to $45 million. Cash flow fell by $3 million at Caesars Palace to $19 million. Cash flow was also down $2 million at Flamingo Las Vegas.

On the East Coast, Caesars properties reported a 14.8 percent drop in cash flow to $69 million. Cash flow at Bally's Atlantic city fell by $6 million to $29 million. Caesars Atlantic City reported a $5 million decline to $28 million. The Atlantic City Hilton was flat at $11 million.

Cash flow fell by $3 million in the Mid-South.

The company's outlook remains bullish, executives said.

"The work we undertook in 2003 on development activities, new capital projects, cost saving programs, debt reduction (and) entertainment events ... has positioned us for a successful year ahead," Chief Executive Wally Barr said.

The company has paid down about $1 billion in debt since early 2002, he said.

Excluding non-recurring items, Caesars reported earnings of $13 million or 4 cents per share -- a penny short of analysts' expectations -- compared to earnings of $16 million or 5 cents per share a year earlier.

Separately, Station Casinos said a writedown of the value of Fiesta Rancho and a lawsuit settlement contributed to a decline in profit for the company during the fourth quarter, though revenue still rose 14 percent on growth in the locals' casino market and $17.2 million in fees to manage the Thunder Valley tribal casino near Sacramento.

Station also said today it has struck an agreement with the Mechoopda Indian Tribe of Chico Rancheria to develop and manage a casino in Butte County, Calif., about 80 miles north of Sacramento. Station said it expects to advance $5 million to $10 million to the tribe to help acquire land and develop the casino, which would include 500 slot machines and open in 2005 at a cost of less than $80 million.

Chico residents are supportive of the casino, Station officials said, though the tribe still needs a state compact and land taken into trust by the federal government. The deal marks the company's fourth with an Indian tribe and the third in California alone.

"Given our unique locals' market qualifications, we believe we will have even more opportunities to manage (tribal casinos) in the future," Chief Financial Officer Glenn Christenson said.

The company reported a loss of $8.6 million or 14 cents per share compared to a profit of $4.5 million or 7 cents per share for the same quarter a year ago.

That includes an after-tax charge of $11.4 million related to the acquisition of Fiesta Rancho from the Maloof family in 2001 and an after-tax charge of $24.7 million to settle a lawsuit filed over allegations of improper conduct by Station Casinos' former legal counsel in Missouri, where the company entered, then exited the casino market. A rival gaming company sued Station, contending improper contacts between attorney Michael Lazaroff and a former state official enabled the company to obtain a casino license.

"We're closing the chapter on the Missouri portion of our company's history," Christenson said.

Fourth-quarter charges also include $1.5 million in costs to develop new gambling venues primarily with Indian tribes.

Revenue was flat at the Fiesta Rancho in the fourth quarter and for all of 2003 compared to prior periods in part because of prolonged road construction at the front and back of the property, the company said. As a result, the company has reduced its growth assumptions for the property but expects performance to rebound after construction is completed, Christensen said.

Officials said the company expects to report cash flow of $87 million to $91 million in the first quarter of 2004, excluding development costs and non-recurring items. Earnings per share will be in the range of 44 to 48 cents on a 4 to 5 percent increase in revenue. Over the next three years, the addition of new projects and expansions should yield double-digit growth in cash flow and earnings per share, officials said.

Cash flow rose 40 percent to $84.6 million during the quarter.

Revenue across all properties rose 14 percent to $229.9 million. Revenue at properties open at least a year, including operations from its 50-percent owned Green Valley Ranch Station Casino in Henderson, increased 6 percent to $241 million.

The Greenspun family, owner of the Las Vegas Sun, is Station's partner in the Green Valley Ranch resort. The partners are now expanding the property.

Excluding non-recurring items, the company reported earnings of $27.1 million or 42 cents per share compared to earnings of $10.8 million or 18 cents a year earlier. Analysts had expected the company to earn an average of 40 cents per share.