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Harrah's earnings fall with Las Vegas woes

LAS VEGAS, Nevada -- They came to Las Vegas, but they didn't spend much.

That's what Harrah's Entertainment Inc. said today in reporting financial results for the second quarter ending June 30.

The big operator of Las Vegas Strip hotel-casinos said it filled a strong percentage of its Las Vegas region hotel rooms in the quarter. Nevertheless, Harrah's Las Vegas revenue fell 19.2 percent in the quarter compared to the second quarter of 2008, from $873.1 million to $705.2 million.

This contributed to an overall 12.7 percent decline in quarterly revenue for the world's largest casino operator, from $2.602 billion in 2008's second quarter to $2.271 billion in the 2009 second quarter.

Hurt by the recession, its operating profit worldwide fell from $469.8 million in the 2008 quarter to $416.7 million in the 2009 quarter.

But because of a one-time gain of $4.279 billion for the early extinguishment of debt, Harrah's reported a quarterly profit of $2.273 billion vs. a loss in the year-ago quarter of $97.6 million.

Conditions were so difficult in Las Vegas that Harrah's took a one-time $297.1 million charge against earnings for impairment of goodwill for certain Las Vegas properties during the quarter. Goodwill is an accounting term reflecting the intangible value of an asset and measures its ability to produce future revenue.

"While hotel occupancy was strong at nearly 95 percent, second-quarter and first-half revenues declined in the Las Vegas region from the year-earlier periods due to lower spend per visitor and weakness in the group-travel business, which led to lower average daily room rates," Harrah's said in a statement.

In a presentation to investors in May, Harrah's indicated its Las Vegas room rates were averaging just over $90 in March.

Including the goodwill charge, the Las Vegas properties turned in a quarterly operating loss of $123.3 million vs. a profit in the 2008 quarter of $199 million. The 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 and generate about 23 percent of total revenue on the Las Vegas Strip.

The Las Vegas results are in line with numbers compiled by the Las Vegas Convention and Visitors Authority.

The LVCVA reports that this year through May, visitation to the U.S. gambling capital fell 6.9 percent from the same period of 2008 to 15.2 million people.

This led to a substantial decline in the room occupancy rate of 6.4 percentage points to 82.8 percent; and a troubling 27 percent decline in the average daily room rate citywide to $97.23.

Among Harrah's hotel-casinos around the United States, Harrah's properties in Las Vegas and other parts of Nevada experienced the steepest declines in revenue.

Its properties in Laughlin, Reno and Lake Tahoe generated quarterly revenue of $114.5 million, down 18.7 percent.

Elsewhere around the country for Harrah's:

--Atlantic City revenue of $516.2 million was down 13.9 percent.

--Louisiana and Mississippi revenue of $314.9 million was down 14.5 percent.

--Iowa and Missouri revenue of $190.6 million was down 2.9 percent.

--Illinois and Indiana revenue of $313.1 million was up 6.3 percent.

The privately held Las Vegas-based company reported progress in reducing its debt and associated interest expenses during the quarter.

Subsidiary Harrah's Operating Company Inc. exchanged $3.6 billion of new 10 percent notes due 2018 for approximately $5.4 billion of outstanding debt with maturity dates ranging from 2010 to 2018.

The deal reduced Harrah's Operating Company's overall debt by about $1.8 billion, decreasing its annual interest expense by $73 million.

In other debt-related deals, holders of certain Harrah's notes waived covenants and events of default and Harrah's bought about $1.3 billion of Harrah's Operating Company notes through tender offers or open market purchases, saving another $142 million in annual interest costs.

"The second-quarter financing activities enabled us to extend our average debt maturity and improve our overall liquidity," Gary Loveman, Harrah's chairman, president and chief executive officer, said in a statement.

He said the deals "have strengthened our balance sheet and enhanced our financial flexibility."

"We still face challenges, particularly in Las Vegas and Atlantic City, though our cost-reduction efforts led to improved second-quarter EBITDA margins in other markets we serve," Loveman said. "A bright spot in Las Vegas was the on-schedule opening this month of our new state-of-the-art convention and meeting center at Caesars Palace."

EBITDA is a financial measure meaning earnings before interest, taxes, depreciation and amortization.

Copyright © Las Vegas Sun. Inc. Republished with permission.

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