Harrah’s loses $164.8 million in third quarter

By Steve Green

Published Friday, Nov. 5, 2010 | 7:40 a.m.

Updated Friday, Nov. 5, 2010 | 8:53 a.m.

Harrah's Entertainment Inc. of Las Vegas today posted a third quarter loss as costs expanded and customers spent less on the Las Vegas Strip and around the country.

The company lost $164.8 million in the quarter, a turnaround from 2009's third quarter when Harrah's lost $1.7 billion.

Both quarters included charges against earnings for impairment of intangible assets. The charges were $44 million in the 2010 quarter and $1.328 billion in the 2009 quarter.

Net revenue of $2.289 billion in the third quarter of 2010 was up slightly from $2.282 billion in the year-ago quarter, with revenue affected positively by the acquisition of Planet Hollywood on the Las Vegas Strip but hurt nationwide by "the continuing impact of the recession on customers’ discretionary spending."

In the company's important Las Vegas market, which includes properties like Caesars Palace and Paris Las Vegas, same-store revenue declined 1.9 percent because of lower spend per visitor, though hotel occupancy remained high in the mid-90 percent range.

Because of the Planet Hollywood deal, net revenue in Las Vegas in the quarter advanced 8.4 percent to $712.6 million. But profitability in the Las Vegas market was hurt by higher marketing, labor, depreciation and remediation costs as well as write-offs of indefinitely deferred capital projects.

The profitability measure EBITDA at the Las Vegas properties fell 4.6 percent during the quarter to $165 million. EBITDA means earnings before interest, taxes, depreciation and amortization.

Besides Caesars Palace, Planet Hollywood and Paris, Harrah's properties in Las Vegas are Bally's, Bill's Gamblin' Hall & Saloon, Flamingo, Harrah's Las Vegas, Imperial Palace and the Rio.

Elsewhere around the country:

• Laughlin, Reno & Lake Tahoe: Net revenue fell 6.2 percent to $133 million on lower visitation numbers as well as lower spend per trip.

• Atlantic City: Net revenue fell 3.9 percent to $537 million.

• Louisiana/Mississippi: Net revenue fell 2.4 percent to $303 million.

• Iowa/Missouri: Net revenue fell 3.3 percent to $187 million.

• Illinois/Indiana: Net revenue increased 1.7 percent to $289 million.

With Harrah's reporting casino operating expenses grew from $998 million in the 2009 quarter to $1.01 billion in the 2010 quarter, and that expenses also grew in the food and beverage, hotel room and administrative areas, the company today signaled it's now looking to reduce those expenses.

"Although visitation ... increased slightly in certain markets, including Las Vegas, and there are signs consumer spending may be stabilizing, we're continuing to exercise cost discipline while pursuing innovative ways to provide rewarding customer experiences. We have targeted $129 million in additional expense reductions for the 2010 fourth quarter," CEO Gary Loveman said in a statement.

"We're also focused on potential growth opportunities," Loveman said, noting one opportunity is a Philadelphia casino expected to open in 2012. Harrah's would hold a minority equity position there and would design, develop and manage the project.

Harrah's today also filed an updated prospectus for an initial public stock offering under its planned new name: Caesars Entertainment Corporation.

The planned offering would raise $469.4 million and Loveman said the money would be used for growth projects and general corporate purposes.

"Growth projects under consideration include a previously-announced retail, dining and entertainment development between the Flamingo and Imperial Palace hotel-casinos in Las Vegas, completion of a 660-room hotel tower at Caesars Las Vegas when demand warrants and a potential joint venture with Rock Gaming LLC to build casinos in Cleveland and Cincinnati," Loveman said in the statement.

Harrah's today said it has commenced the initial public offering of 31.25 million shares under the Caesars Entertainment name at an estimated price of $15 to $17 per share.

Harrah's has applied to have the shares listed on the Nasdaq Global Select Market under the symbol "CZR."

Underwriters of the deal were granted a 30-day option to purchase up to another 4,687,500 shares.

Citi, Credit Suisse Securities (USA) LLC, BofA Merrill Lynch, Deutsche Bank Securities and Goldman, Sachs & Co. plan to lead the stock sale.

Harrah's noted the stock can't be sold until a registration statement for the securities filed with the Securities and Exchange Commission becomes effective.