Harrah's Entertainment reports results
COMPANY WIDE RESULTS
(in millions, except per share)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $2,701.7 $2,373.9 13.8% $5,357.4 $4,730.8 13.2%
Property
EBITDA (A) 713.9 672.7 6.1% 1,412.4 1,362.9 3.6%
Adjusted EPS
from
Continuing
Operations (a) 0.96 0.95 1.0% 1.84 1.97 -6.6%
(A) Property EBITDA and Adjusted EPS from Continuing Operations are not
Generally Accepted Accounting Principles (GAAP) measurements but are
commonly used in the gaming industry as measures of performance and as
bases for valuation of gaming companies. In addition, analysts'
per-share earnings estimates for gaming companies are comparable to
Adjusted EPS from Continuing Operations. Reconciliations of Adjusted
EPS from Continuing Operations to GAAP EPS and Property EBITDA to
income from operations are attached to this release.
On a GAAP basis, second-quarter income from operations was $478 million, compared to $432 million in the year-ago quarter. Net income was $238 million, up 84.5 percent from $129 million in the 2006 second quarter. Diluted earnings per share from continuing operations were $1.03, an increase of 49 percent from the 69 cents achieved in the year-ago quarter.
Second-quarter highlights
-- On April 5, Harrah's Entertainment stockholders approved an all-cash
offer by affiliates of TPG and Apollo Management, L.P., to acquire the
company for $90 per share. The transaction is expected to close in
late 2007 or early 2008, pending the receipt of regulatory approvals
and other customary closing conditions.
-- On May 15, Harrah's Entertainment and Jimmy Buffett unveiled plans to
develop the Margaritaville Casino and Resort in Biloxi, Mississippi, a
46-acre, $704 million Gulf Coast property featuring 100,000 square feet
of casino space, 250,000 square feet of retail space, 66,000 square
feet of meeting space, 420 new hotel rooms and 378 renovated rooms.
-- Also during the quarter, the company opened the Pool and Red Door Spa
at Harrah's Atlantic City in the first major phase of innovations and
renovations at the property. A 964-room hotel tower is slated to open
in 2008.
-- On May 30, London Clubs International, Harrah's U.K. subsidiary, opened
London's largest facility, the Casino at the Empire, at Leicester
Square in London's West End.
-- The 2007 World Series of Poker Presented by Milwaukee's Best Light ran
from June 1 through July 17 at the Rio All-Suites Hotel and Casino.
The 55-event tournament drew more than 54,000 entrants, up from 48,000
in 2006, and the total net prize pool exceeded $159 million.
-- During the first weeks of the third quarter, Harrah's announced an
approximately $1 billion expansion and renovation of Caesars Palace Las
Vegas designed to reinforce the property's standing as one of the Las
Vegas Strip's premier integrated-resort destinations. The plan includes
a new 650-room hotel tower, including 75 luxury suites, additional
meeting space, and a remodeled and expanded pool area.
Summaries of results by region follow:
LAS VEGAS REGION
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $922.5 $803.3 14.8% $1,821.1 $1,629.0 11.8%
Income from
operations 238.8 209.7 13.9% 474.5 443.8 6.9%
Property
EBITDA 306.5 265.4 15.5% 604.1 553.5 9.1%
Las Vegas Region properties include Harrah's Las Vegas, Rio, Bally's Las
Vegas, Paris, Flamingo Las Vegas, Caesars Palace, Imperial Palace and
Bill's Gamblin' Hall & Saloon.
Continued strong visitor volume in the Las Vegas region drove double-digit
percentage increases across all key performance metrics during the second
quarter, building on already strong momentum established during the first
quarter of 2007.
ATLANTIC CITY REGION
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $592.6 $521.0 13.7% $1,138.7 $1,011.2 12.6%
Income from
operations 77.2 124.2 -37.8% 149.3 220.0 -32.1%
Property
EBITDA 143.4 170.0 -15.6% 276.2 310.4 -11.0%
Atlantic City Region properties include Harrah's Atlantic City, Showboat
Atlantic City, Caesars Atlantic City, Bally's Atlantic City and Harrah's
Chester.
Competition from new slot operations in New York and Pennsylvania, the implementation of new smoking regulations in New Jersey beginning April 15, and increased costs associated with marketing and promotional programs continued to hurt results in the Atlantic City region. However, strong results at Harrah's Chester Casino and Racetrack, which opened its slot operations in early first quarter 2007, helped buoy the region's overall revenues.
LOUISIANA/MISSISSIPPI REGION
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $389.0 $337.5 15.3% $779.5 $643.2 21.2%
Income from
operations 93.6 62.8 49.0% 169.2 128.0 32.2%
Property
EBITDA 88.8 83.9 5.8% 172.9 169.1 2.2%
Louisiana/Mississippi Region properties include Harrah's New Orleans,
Horseshoe Bossier City, Louisiana Downs, Horseshoe Tunica, Grand Casino
Tunica, Sheraton Tunica and Grand Casino Biloxi.
Results from Grand Casino Biloxi, which was closed in the year-ago quarter, as well as strong performances at Harrah's New Orleans and Horseshoe Bossier City, helped to boost the Louisiana/Mississippi region's overall revenues and Property EBITDA and offset weak revenues in the Tunica market. Second-quarter income from operations included insurance proceeds of $37 million that are in excess of the net book value of impacted assets and reimbursable costs and expenses.
IOWA/MISSOURI REGION
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $205.3 $199.5 2.9% $407.0 $400.6 1.6%
Income from
operations 37.2 33.8 10.1% 70.3 65.4 7.5%
Property
EBITDA 56.9 54.7 4.0% 109.8 108.7 1.0%
Iowa/Missouri Region properties include Harrah's St. Louis, Harrah's
Council Bluffs, Horseshoe Council Bluffs and Harrah's North Kansas City.
Modest combined revenue gains for the region flowed through to income from operations, and Property EBITDA grew 4.0 percent over the region's total for the corresponding period in 2006.
ILLINOIS/INDIANA REGION
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $321.8 $300.5 7.1% $646.2 $612.2 5.6%
Income from
operations 50.1 54.1 -7.4% 101.2 116.4 -13.1%
Property
EBITDA 66.3 67.7 -2.1% 134.4 143.4 -6.3%
Illinois/Indiana Region properties include Horseshoe Hammond, Harrah's
Joliet, Harrah's Metropolis and Caesars Indiana.
Combined revenue at the company's Illinois and Indiana properties increased over the region's second-quarter total for the corresponding period in 2006, but income from operations and Property EBITDA were down, due in part to a supplemental 3 percent tax assessed by Illinois since July 2006. An Illinois state court declared the supplemental tax unconstitutional in the second quarter of 2007, but Harrah's continues to accrue and pay the tax pending a final resolution.
The company's new, two-level vessel at Horseshoe Hammond currently is
expected to open in the second half of 2008, pending all requisite regulatory
approvals.
OTHER NEVADA
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $154.2 $158.5 -2.7% $307.9 $311.4 -1.1%
Income from
operations 22.3 25.7 -13.2% 42.7 49.1 -13.0%
Property
EBITDA 34.7 39.2 -11.5% 67.5 75.5 -10.6%
Other Nevada properties include Harrah's Reno, Harrah's Lake Tahoe,
Harvey's Lake Tahoe, Bill's Casino and Harrah's Laughlin.
Results in the company's Other Nevada region declined from the corresponding period in 2006, owing to disappointing visitor volumes brought about by a poor end to the spring ski season in Reno and Lake Tahoe. The late June Angora Lakes fire at Lake Tahoe also negatively impacted traffic and spending in the region.
MANAGED/INTERNATIONAL/OTHER
(in millions)
2007 2006 Percent 2007 2006 Percent
Second Second Increase First Six First Six Increase
Quarter Quarter (Decrease) Months Months (Decrease)
Total
revenues $116.3 $53.6 117.0% $257.0 $123.2 108.6%
Income from
operations (11.2) (26.5) 57.7% (10.4) (29.9) 65.2%
Property
EBITDA 17.3 (8.2) N/M 47.5 2.3 N/M
Managed, international and other results include income from our managed
properties, results of our international properties and certain marketing
and administrative expenses, including development costs, and income from
our non-consolidated subsidiaries.
The addition of the London Clubs International properties, which were acquired by the company in the fourth quarter of 2006, coupled with lower master-planning and development costs, drove improved revenue, income from operations and Property EBITDA as compared to the prior year period.
Other items
Second quarter 2007 corporate expenses declined 41.8 percent compared to the prior-year period, to $26.6 million from $45.7 million, due to corporate cost reductions and the allocation of a portion of the company's stock-based compensation expenses to individual property units.
Interest expense for the second quarter rose 8.9 percent, to $176.6 million, versus $162.2 million for the same period in 2006, due to higher debt levels and higher interest rates. Partially offsetting the higher interest in 2007 is income of $14.3 million in income representing an increase in the market value of our interest rate swap agreements for second quarter. The prior year's second quarter included charges of $61 million due to the early extinguishment of debt during that period.
Other income in the second quarter of 2007 includes gains on the sales of corporate aircraft.
The effective tax rate for the second quarter, after minority interest, was 37.3 percent, compared with 37.7 percent in the second quarter of 2006.
Discontinued operations for second quarter 2007 reflect insurance proceeds of $42.0 million, after taxes, that are in excess of the net book value of the impacted assets and accumulated costs and expenses that are expected to be reimbursed under the company's insurance claims for Harrah's Lake Charles and Grand Casino Gulfport, both of which were sold in 2006. Pursuant to the terms of the sales agreements, Harrah's will retain all insurance proceeds related to these properties.
Weighted average common and common equivalent shares outstanding for the second quarter were 190.2 million shares, compared with 187.1 million in the second quarter of 2006.