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StumbleEarly results show Harrah’s took hit in fourth quarter
Thursday, March 5, 2009 | 3:14 p.m.
Sun archives
- Harrah’s announces plan to reduce debt burden (2-4-09)
- Strip building boom, buyouts were ill-timed, and many see more pain in ’09 (3-1-09)
- Harrah’s wants class-action suit over debt swap dismissed (2-27-09)
- Harrah's hit with class-action lawsuit over debt plan (2-16-09)
- Harrah’s seeking $740 million from credit line (2-13-09)
- Harrah’s makes cost-cutting moves (2-12-09)
Harrah's Entertainment Inc. today disclosed preliminary financial results for the fourth quarter of 2008 and, as expected, they showed steep declines in revenue and cash flow as the recession deterred visitation to Las Vegas and slowed activity at many of Harrah's casinos nationwide.
The hotel-casino company also said that when it reports final numbers for the fourth quarter later this month, it will take a huge noncash writeoff to reflect the decline in value of its goodwill and other intangible assets. Unlike real estate and equipment, goodwill is an intangible asset. It reflects the value of the company's brands in the marketplace.
In a regulatory filing, the Las Vegas company said the writedown will total $5.288 billion to $5.504 billion.
Harrah's said this "reflects factors impacted by current market conditions, including lower valuation multiples for gaming assets and higher discount rates resulting from on-going turmoil in the credit markets.'' The writedown won't affect ongoing operations, Harrah's said.
The company estimated that revenue for the quarter totaled $2.232 billion to $2.324 billion and that cash flow was $468 million to $488 million, compared to revenue in the 2007 fourth quarter of $2.627 billion and cash flow of $622.8 million.
The loss from continuing operations for the 2008 quarter, after the goodwill writedown, was estimated at $4.596 billion to $4.784 billion.
Harrah's also said it will post a one-time gain for the quarter of $927 million to $965 million for the early extinguishment of debt.
Deutsche Bank analyst Andrew Zarnett said in a research note on the quarterly numbers that Harrah's continues to face "deteriorating fundamentals in Las Vegas, competitive pressure in Missouri and Atlantic City and a tepid economic environment.''
"While management did not break out results by property, we believe that fourth-quarter results benefited from management's aggressive cost-cutting initiatives (lay-offs, eliminating employee benefits, canceling matched contributions and deferring project capital expenditure - Caesars Octavius hotel expansion) and stronger performances'' at properties in Indiana, Iowa and Missouri, he wrote.
The numbers were disclosed one day after Harrah's, struggling to service a debt load last reported at more than $24 billion, announced a plan to exchange $2.8 billion in bonds for new notes with an extended due date.
Steve Green can be reached at 990-7714 or steve.green@hbcpub.com.
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So when do they BK out?
I know its been pointed out in these pages before, but it bears repeating; the quality of the gaming experience at Harrah's (and other Las Vegas) properties has been in decline for several years. This has been a deterrent to repeat business and that is the lifeline of the gaming and entertainment industry. Improve the games (go back to previous table game rules), loosen up the slots, improve the entertainment value and the market will recover.
Absoulutely correct 'rocketcar!' I've lived in this desert paradise for nearly 32 years. While my gaming expenditures averaged less than $400 a year - until recently (in the past five years or so) it was worth the expense for the fantasy. The excitement, bright lights, entertainers, etc. The mega-resorts need to bring their room prices down to $35 - $50 a night. Filling up their rooms will fill their casinos and Nevada tax coffers. "Discounted" rates per Vegas.com for strip hotels for this weekend start as low as $56 for Circus, Circus - and Steve Wynn is truly trolling barrel bottom at $220 a night. The average overnight price for "major" strip properties this weekend is $122 - way too high and pricing out the "average" mid-income tourist. We won't even look at the $27 p/p buffets. Time for these hotels to look inward and reflect. I'll betcha if Wynn lowered room rates to $59 (or less) a night - he'd still get at least $300 per person drops in the casino. Volume, volume, etc. If these hotels faced some reality - then higher taxes on their rake would not be in play.
NevadaFive, here's a question for you: If the hotels need to cut their rates to "$35-$50 a night," how have they remained as full as they have for so long? In your spare time, please visit MGM Mirage's investor relations page and look at the supplemental financial data. You will see that all of their properties are in the high 90% range with average daily rates much, much higher than "$35-$50 a night." For example, The Mirage had a 98.4% occupancy rate with an average rate of $150. The Bellagio was 96.4% full with a $247 rate.
So, if you were running the show, here's how it would pan out:
If the Bellagio had 1000 rooms at $247, they are currently making $238,108 (at 96.4% occupancy). If you had your way, they would be 100% full at $50/night and make $50,000. You're down $188,108 - per night. The fanny packers from Missouri aren't going to pony up that much in the casino, buddy, and, even if they did, it's just shifting money around. That, sir, is why you don't run the casinos and neither does your buddy Rocketcar.