Harrah’s expects annual savings of $500 million

Casino giant warns cash flow might fall short to make debt payments

Tuesday, March 17, 2009 | 1:38 p.m.

Headlines from the Vegas gaming industry

Harrah’s reports loss, says LV properties hit hard (3-13-09)
Harrah’s announces plan to reduce debt burden (3-4-09)
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)

Download the recent Harrah's earnings report

Cost-cutting measures and debt-refinancing programs at Harrah's Entertainment Inc. may help the company work its way through the recession gripping the gaming industry, Harrah's suggested in its 2008 annual report today.

Harrah's, predicted by some analysts to be headed toward bankruptcy, today noted the majority of its $24.5 billion in debt is due in 2010 and beyond and that for now, "We believe that our cash and cash equivalents balance, our cash flows from operations and the financing sources ... will be sufficient to meet our normal operating requirements during the next 12 months and to fund capital expenditures.''

But Las Vegas-based Harrah's cautioned that because of the recession, its cash flow has declined and that it cannot assure investors it will generate sufficient cash flow or have access to financing to fund its liquidity needs and make debt payments.

"If we are unable to meet our liquidity needs or pay our indebtedness when it is due, we may have to reduce or delay refurbishment and expansion projects, reduce expenses, sell assets or attempt to restructure our debt,'' the company said.

Both statements are similar to what Harrah's said last year in its 2007 annual report.

One of the big year-to-year differences in the reports is that Harrah's, facing declining revenue and cash flow, has worked to slash costs to leave enough cash to make its debt payments and fund operations.

Harrah's said cost-reduction efforts initiated in August are now expected, by the end of the year, to generate savings at an annual rate of $500 million. These include restructuring of corporate and property operations, reductions in travel and entertainment expenses, an examination of marketing expenses and headcount reductions through layoffs and other means at the company's casinos and hotels.

The company has also cut capital spending for this year to between $465 million to $645 million, down from $1.14 billion in 2008. These savings should help the company make its debt payments, which totaled $1.7 billion in 2008.

And despite the concerns about Harrah's potentially headed to bankruptcy, auditors Deloitte & Touche LLP signed off on today's report without issuing a "going-concern'' statement. Auditors issue such "going-concern'' statements only when they feel a company is not financially viable.

Despite the cost-cutting program, Harrah's disclosed that total compensation for Chairman and Chief Executive Gary Loveman jumped from $15.4 million in 2007 to $39.6 million in 2008. The 2008 numbers include stock and option awards granted to Loveman as part of his contract; as well as expenses for corporate aircraft use and security for Loveman and his family authorized or ordered by the Harrah's board of directors. Loveman's base salary of $2 million was cut to $1.9 million as part of the company-wide expense-reduction program.

Harrah's, with 53 casino properties in six nations and 80,000 employees, is in the midst of a debt-exchange program involving $2.8 billion in notes aimed at reducing its interest costs. And with its debt trading at a discount because of uncertainties about the company, Harrah's owners Apollo Management LP and TPG Inc. have been buying Harrah's debt to give them leverage and maintain their ownership stakes in the event of a bankruptcy filing.

For the fourth quarter of 2008, Harrah's reported a loss from continuing operations of $4.78 billion vs. a loss in the fourth quarter of 2007 of $56.1 million. The 2008 quarter loss included a one-time, noncash accounting charge of $5.49 billion to write down the value of goodwill and other intangible assets.

Quarterly revenue of $2.28 billion was down 13.3 percent while cash flow declined from $622.8 million to $478 million.

Steve Green can be reached at 990-7714 or steve.green@hbcpub.com.

Discussion: 7 comments so far…

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By matts7052

March 17, 2009

1:49 p.m.

Suggest removal

I'm so glad that Gary's compensation jumped $24.2 million last year! That's super! After they cut roughly 8,000 employees, that means he got $3,000 for each laid off employee. Good for you, buddy!
By neiman1

March 17, 2009

4:25 p.m.

Suggest removal

How many more jobs are being cut to save this next $500 million. How many more homes going to foreclosure or sitting empty as these people have to move to find work.. It's an Obamanation and we have been targeted as the villains.
By feed_the_pigeon

March 17, 2009

4:32 p.m.

Suggest removal

Harrahs & Harveys in Tahoe have been stripped by the layoffs, the current employees working here are overworked and some only work 4 hours a day. I will never visit any Harrah's property nor MGM in my lifetime. I hope both companies break and bring back independent casino owners again, but that is wishful thinking.
By bdover

March 17, 2009

9:37 p.m.

Suggest removal

Gary's from Mass. A Harvard empty suit with no clue about the casino business. But he made 39 Mil. Harrah's losing 25 Bil-maybe he should go back to business school? Nah, BK is easier.

Sheldon's from Mass. His old man was a cab driver, so maybe Sheldon can grab a buck or two on weekends picking up fares from the airport to the Venetian, prior to BK..

Lanni was a genius until he wasn't a genius, and MGM started their Titanic downfall. 'Way to bail out, Terry.

Obviously Steve Wynn and the Gaughans have the unfair advantage of actually understanding the casino business, having been here since forever. Let's hope they succeed....
By dave54

March 18, 2009

4:20 a.m.

Suggest removal

I lived in Vegas since 1968, with my last 13yrs spent at Caesars Palace. Great place to work until Harrah's took over.They thought they could reinvent the wheel so to speak.Ran off all the competent help and along with them went the quality customers. I quit last year and got the hell out of that town. RIP "old" Vegas
By kenodave

March 19, 2009

9:57 a.m.

Suggest removal

Let's see, cut 8% of the workforce, get a 157% pay increase. Take that money out of Nevada and live in Massachusetts. Well now, Nevada really made out like a bandit to have that fat pig running Harrahs.
By Beavis

March 19, 2009

5:42 p.m.

Suggest removal

Nice! I took a 5% pay cut, lost my 401k match, laid off qualified help, no raise, working more hours than ever to cover my understaffed department. I am also unable to meet guests needs. We have gone beyond "trim the fat" We have cut all the way into the bone! It's nice to see Gary get his HUGE pay increase...