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Harrah's expects annual savings of $500 million

18 March 2009

Las Vegas Sun

LAS VEGAS, Nevada -- 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.

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