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Arnold M. Knightly

Harrah's reverses quarterly loss

28 February 2007

LAS VEGAS, Nevada -- A strong showing locally could not help the world's largest casino company meet analysts' earnings expectations despite better-than-expected revenues for the fourth quarter.

Harrah's Entertainment on Tuesday reported net income of $47.6 million, or 25 cents per share, for the quarter ended Dec. 31, reversing a loss of $142.2 million, or 78 cents per share, a year earlier.

Losses and costs associated with Hurricane Katrina and planned property sale write-offs affected year-earlier results.

Quarterly revenue rose 15.7 percent to $2.43 billion from $2.1 billion, topping Reuters Estimates' forecast of $2.31 billion.

Property cash flow -- defined as earnings before interest, taxes, depreciation and amortization -- for the fourth quarter increased to $562.8 million from $533.1 million in the same period the previous year.

But adjusted earnings from continuing operations dropped to $85.3 million, or 45 cents per share, from $143.4 million, or 77 cents per share, last year.

Analysts polled by Thomson Financial expected a profit of 64 cents per share.

In a 15-minute morning conference call without questions taken from analysts, Harrah's Chief Executive Officer Gary Loveman said the per-share price reflected recent acquisitions, increased development expenses and lower margins in the Atlantic City market.

In December, the company completed its $570 million acquisition of the London Clubs International, which operates seven casinos in the United Kingdom with four more in development. It also operates two casinos in Egypt and one in South America.

The five properties in Atlantic City showed a 10.5 percent decrease in cash flow for the quarter. The properties struggled to post a 3.9 percent total revenue increase to $500 million.

Cash flow in the Atlantic City market did increase 25.9 percent for the year with total revenues increasing 39.4 percent to approximately $2.1 billion.

Loveman also noted a December judgment of $30 million for the Pauma Band of Luiseno Mission Indians of the Pauma Yuima Reservation outside San Diego against the company adversely affected the company's bottom line.

For the year, the company earned $535.8 million, or $2.85 per share, compared with $236.4 million, or $1.57 per share, in 2005.

Twelve-month revenue rose 37.9 percent to $9.67 billion from $7.01 billion.

Property cash flow increased 35.9 percent to $2.61 billion.

Termed an "excessively strong showing" in Las Vegas by Loveman, Harrah's reported fourth-quarter revenues of $825.8 million in Las Vegas, a 15.5 percent increase compared with $715 million last year.

Total local revenues for the year surged to approximately $3.27 billion, a 67.5 percent increase from the previous year.

Property cash flow at local casinos increased to $246.5 million, a 19.8 percent increase for the quarter, and $1.04 billion, a 77.7 percent increase, year-to-year.

Company officials attribute the large Las Vegas increase to the growth of its Total Rewards customer marketing program, because the program was fully expanded to the Caesars properties the Imperial Palace.

Companywide, Total Rewards trips were up nearly 5 percent while spending per visit increased 8 percent.

The company owned and operates Harrah's, Rio, Bally's, Paris Las Vegas, Flamingo, Imperial Palace and Caesars Palace in Las Vegas during the reporting period.

In an acquisition that will not be reflected until future earnings, Harrah's completed its acquisition Monday of the Barbary Coast in a property swap with Boyd Gaming Corp.

Loveman said the move "largely completes our assemblage of land here in Las Vegas," which covers 350 acres of developed and undeveloped land.

"Let me assure all doubters that our master planning work continues at a pace equal to, or greater than, that of the last five years," Loveman said.

The company, which owns or operates 47 casinos worldwide, agreed in December to a $17.1 billion private-equity buyout by Texas Pacific Group and Apollo Management. A special stockholder meeting was also announced Tuesday for April 5 at Caesars Palace to consider and vote on the buyout offer.

Harrah's shares fell 64 cents, or 0.75 percent, Tuesday to close at $84.28.

Analysts said they expect the stock price to hover around the buyout offer price of $90 per share.

Harrah's reverses quarterly loss is republished from