Press Release: Harrah's Entertainment, Inc.
July 18, 2002
LAS VEGAS, NV -- Harrah's Entertainment, Inc. (NYSE:HET) yesterday reported record second-quarter revenues of $1.030
billion, up 17.9 percent from revenues of $873.4 million in the year-earlier quarter.
Second-quarter income from operations rose 43.8 percent to a record $203.7 million from $141.7 million in the year-ago
quarter. Diluted earnings per share was a record 75 cents, up 66.7 percent from pro forma diluted earnings per
share of 45 cents in second quarter of 2001.
For the first six months of 2002, revenues rose 15.7 percent to a record $2.014 billion from $1.741 billion in
the year-earlier first half. Income from operations increased 40.4 percent to a record $401.9 million from $286.3
million. First-half diluted earnings per share before charges due to a change in accounting principle was $1.50,
up 70.5 percent from pro forma diluted earnings per share of 88 cents in the 2001 first half.
The pro forma amounts for the prior year are required under Generally Accepted Accounting Principles (GAAP) to
reflect the add-back of prior year goodwill amortization expense to the company's previously reported results due
to the change in accounting for goodwill and other intangible assets adopted January 1, 2002, as required by Statement
of Financial Accounting Standards No. 142.
In addition to GAAP-defined results, casino companies have historically reported two additional performance measurements
- Property Earnings Before Interest, Taxes, Depreciation and Amortization (Property EBITDA) and Adjusted Earnings
Per Share (Adjusted EPS). Analysts' estimates are comparable to Adjusted EPS. As has been the company's practice,
a reconciliation of Adjusted EPS to GAAP EPS is attached to this earnings release.
Harrah's second-quarter Property EBITDA rose 26.5 percent to a record $296.8 million, compared with $234.7 million
in the second quarter of 2001.
Second-quarter Adjusted EPS increased to a record 77 cents, up 42.6 percent from the 2001 second quarter's pro
forma Adjusted EPS of 54 cents.
"We were able to achieve record quarterly results despite additional accruals for increased gaming tax rates
in Illinois and Indiana," said Phil Satre, Harrah's Chairman and Chief Executive Officer.
"For properties subject to a graduated tax rate, Harrah's accrues its gaming tax liability over the course
of the year based on an estimate of the annual effective gaming tax rate for the property," Satre said. "Therefore,
we charged $14.6 million in additional gaming taxes in the second quarter to adjust our year-to-date accruals to
reflect the recently enacted higher rates.
"Our 2002 results benefited from the acquisition of Harveys Casino Resorts in last year's third quarter and
operating gains from capital investments we made in Louisiana, Illinois, Missouri and New Jersey," Satre said.
"We have also sustained improved performance at the Rio in Las Vegas as a result of changes made in that operation
during last year's third quarter.
"Finally, we saw same-store sales growth of 7.9 percent -- the 14th consecutive quarter of same-store revenue
gains -- and we enjoyed the benefits of continued historically low interest rates," Satre said.
"Looking ahead, we believe the gaming industry will continue to flourish," Satre said. "Harrah's
will release a nationwide survey later this week showing that consumer demand for casino entertainment continues
to grow. Casino supply hasn't kept pace with that demand, one reason some states are considering legalization of
casino gaming.
"Harrah's is well-positioned to move quickly should expansion occur," Satre said. "Our strong balance
sheet provides us with the flexibility to pursue growth opportunities in both new and existing jurisdictions.
"Yet even without additional jurisdictions, our new capabilities and proven track record in generating strong
same-store sales growth during a faltering economy bode well for our future," Satre said. "We expect
the opening during the second quarter of new hotel and casino facilities at Harrah's Atlantic City and Harrah's
Cherokee will lead to further operating gains as the year progresses.
"We are especially excited about the Harrah's Rincon hotel-casino scheduled to open on August 8 this year
near San Diego and the opportunity it presents to extend our brand to the California market," Satre said.
"Harrah's Rincon will feature 1,500 slots, 36 table games, 201 hotel rooms and six restaurants, and will bring
true Las Vegas-style gaming to Southern California for the first time.
"New capabilities such as a casino-floor management system and hotel-yield management system will enable us
to continue providing the most popular games, rooms and services to our customers and should further increase player
loyalty to the Harrah's Entertainment brands, thus boosting same-store results," Satre said. "We are
optimistic about our future."
Among second-quarter highlights:
"The Casino Player awards clearly demonstrate casino customers have a growing appreciation for our ability
to provide superior service and high-quality gaming experiences," Satre said. "Because we take pride
in the quality and transparency of our financial reporting, we are especially pleased that our 2001 annual report
received such high marks for its financial presentation from the LACP."
Western Region Reports Record Revenues, Property EBITDA
Eastern Region Posts Record Results
Eastern Region Results
(in millions)
2002 2001 Percent 2002 2001 Percent
Second Second Increase First First Increase
Quarter Quarter(Decrease) Six Six (Decrease)
Months Months
--------------- -------- -------------- --------
Harrah's Atlantic City
Total revenues $107.8 $99.1 8.8% $201.3 $191.7 5.0%
Operating profit 35.5 31.1 14.1% 63.3 56.6 11.8%
Property EBITDA 42.9 37.9 13.2% 77.6 70.1 10.7%
Showboat Atlantic City
Total revenues $86.1 $84.7 1.7% $164.7 $158.0 4.2%
Operating profit 20.5 17.5 17.1% 34.1 29.3 16.4%
Property EBITDA 29.0 24.5 18.4% 51.2 42.8 19.6%
Total Eastern Region
Total revenues $193.9 $183.8 5.5% $366.0 $349.7 4.7%
Operating profit 56.0 48.6 15.2% 97.4 85.9 13.4%
Property EBITDA 71.9 62.4 15.2% 128.8 112.9 14.1%
Aided by results from the Harvey's casinos in Northern Nevada and Colorado, Harrah's Western Region properties
produced record second-quarter revenues, operating profit and Property EBITDA. Northern Nevada properties set second-quarter
revenue and Property EBITDA records.
Harrah's Las Vegas revenues rose 4.6 percent, operating profit was up 5.0 percent and Property EBITDA increased
2.9 percent to second-quarter records due to continued improvement in business, particularly after the post-September
11 downturn. The Rio posted higher revenues, and operating profit and Property EBITDA improved significantly because
of a focus on its key customer base as well as lower costs resulting from exiting the high-end international table-game
business.
Laughlin achieved record revenues, but operating profit and Property EBITDA were lower due to costs incurred and
revenue lost due to a motorcycle gang incident in late April that resulted in a 17-hour closure of the casino.
Laughlin's business returned to normal in May.
For the first half, Western Region revenues were up 12.0 percent, while operating profit gained 43.5 percent and
Property EBITDA rose 30.2 percent, due primarily to the addition of the Harveys properties and improved results
at the Rio.
Eastern Region Posts Record Results
Eastern Region Results
(in millions)
2002 2001 Percent 2002 2001 Percent
Second Second Increase First First Increase
Quarter Quarter(Decrease) Six Six (Decrease)
Months Months
--------------- -------- -------------- --------
Harrah's Atlantic City
Total revenues $107.8 $99.1 8.8% $201.3 $191.7 5.0%
Operating profit 35.5 31.1 14.1% 63.3 56.6 11.8%
Property EBITDA 42.9 37.9 13.2% 77.6 70.1 10.7%
Showboat Atlantic City
Total revenues $86.1 $84.7 1.7% $164.7 $158.0 4.2%
Operating profit 20.5 17.5 17.1% 34.1 29.3 16.4%
Property EBITDA 29.0 24.5 18.4% 51.2 42.8 19.6%
Total Eastern Region
Total revenues $193.9 $183.8 5.5% $366.0 $349.7 4.7%
Operating profit 56.0 48.6 15.2% 97.4 85.9 13.4%
Property EBITDA 71.9 62.4 15.2% 128.8 112.9 14.1%
Capital improvements, including the mid-May opening of a 452-room hotel addition and placement of 450 new slot
machines, helped Harrah's Atlantic City achieve record second-quarter revenues, operating profit and Property EBITDA.
Despite ongoing construction of a 544-room hotel addition, the Atlantic City Showboat posted record second-quarter
revenues and Property EBITDA and near-record operating profit.
First-half Eastern Region revenues rose 4.7 percent, operating profit gained 13.4 percent and Property EBITDA increased
14.1 percent due to higher-margin marketing programs.
Central Region Sets Second-Quarter Records
Central Region Results
(in millions)
2002 2001 Percent 2002 2001 Percent
Second Second Increase First First Increase
Quarter Quarter(Decrease) Six Six (Decrease)
Months Months
--------------- -------- -------------- --------
Central Region
Total revenues $492.3 $388.5 26.7% $975.7 $786.2 24.1%
Operating profit 101.1 81.9 23.4% 219.2 170.2 28.8%
Property EBITDA 129.8 107.8 20.4% 275.7 220.6 25.0%
The addition of results from the two Council Bluffs, Iowa, facilities acquired in the Harveys transaction last
July, the consolidation of Harrah's New Orleans' results since June 7, 2002, and significant capital investments
at Harrah's Indiana, Illinois and Shreveport, Louisiana, casinos, helped the Central Region set second-quarter
revenue, operating profit and Property EBITDA records.
The addition of $58.6 million of revenues from the Iowa casinos helped total Central Region revenues rise 26.7
percent in the second quarter. Operating profit increased 23.4 percent and Property EBITDA was up 20.4 percent
despite approximately $15 million of incremental expense recorded in the second quarter of 2002 to increase the
year-to-date accrual for gaming taxes related to higher gaming tax rates enacted in Illinois and Indiana.
Property enhancements helped Harrah's Illinois and Indiana casinos in Joliet, East Chicago and Metropolis each
set revenue records. Operating profit rose slightly at Metropolis, but declined in Joliet and East Chicago as a
result of the higher gaming taxes. Combined Illinois and Indiana operating profit was flat compared with the year-ago
quarter while Property EBITDA declined 2.6 percent.
On a combined basis, record results were also achieved at Harrah's North Kansas City and St. Louis, Missouri, properties,
where revenues rose 0.9 percent, operating profit gained 11.6 percent and Property EBITDA increased 5.8 percent.
New Orleans results, including revenues, operating profit and Property EBITDA, have been consolidated into the
company's financial statements since Harrah's acquisition of an additional stake in JCC Holding Company on June
7 that raised Harrah's interest in JCC to 63 percent. Prior to the acquisition, Harrah's financial statements reflected
only management fees and income from non-consolidated affiliates from the New Orleans casino. Management fees from
Harrah's New Orleans rose 113.0 percent in the period from April 1, 2002, through June 7, 2002, compared with fees
from the year-ago second quarter due to improved results at that property.
Combined revenues at the Harrah's Shreveport and Harrah's Lake Charles properties in Louisiana rose 4.4 percent,
operating income increased 2.5 percent and Property EBITDA was up 6.3 percent from the year-ago quarter despite
lower results at Lake Charles due to additional competition and higher gaming tax rates in Shreveport than in the
2001 second quarter.
Combined second-quarter revenues from Harrah's Mississippi properties rose 7.3 percent, operating income was up
77.1 percent and Property EBITDA was 41.7 percent higher.
For the first six months of 2002, Central Region revenues were up 24.1 percent, operating profit gained 28.8 percent
and Property EBITDA rose 25.0 percent due to the addition of the Iowa properties and capital enhancements in Illinois
and Indiana and at Shreveport.
MANAGED PROPERTIES:
Second-quarter and first six months management fees from the three Indian casinos Harrah's manages rose from the
year-ago periods due to improved results at those casinos.
OTHER ITEMS:
Corporate expenses declined 12.0 percent in the 2002 second quarter and 17.2 percent for the first six months of
2002 from the year-ago periods due to cost savings and the timing of the incurrence of certain expenses. Goodwill
amortization declined because of the change in accounting standards adopted January 1, 2002.
Despite an increase in debt related to share repurchases and the Harveys acquisition, interest expense declined
7.5 percent and 5.9 percent for the second quarter and year-to-date, respectively, from the year-earlier second
quarter and first half due to lower interest rates. The company repurchased 2.3 million shares during the second
quarter of 2002 at an average price of $45.09 per share. The company's effective income tax rate for the 2002 second
quarter and first six months increased from the year-ago rates due to an increase in exposure to state income taxes.
Harrah's Entertainment hosted a conference call for interested parties yesterday, Wednesday, July 17, 2002, at
9:00 a.m. Eastern Daylight Time to review its 2002 second-quarter and first-half financial results. A taped replay
of the conference call can be accessed at 1-800/642-1687, or 1-706/645-9291 for international callers, beginning
at 1 p.m. EDT Wednesday, July 17. The replay will be available through 11:59 p.m. EDT on Tuesday, July 23. The
passcode number for the replay is 4839896.
Interested parties wanting to listen to the live conference call on the Internet may do so on the company's web
site -- www.harrahs.com -- in the Investor Relations section behind the "About
Us" tab.
Founded more than 60 years ago, Harrah's Entertainment, Inc. operates 25 casinos in the United States, primarily
under the Harrah's brand name. Harrah's Entertainment is focused on building loyalty and value with its target
customers through a unique combination of great service, excellent products, unsurpassed distribution, operational
excellence and technology leadership.
This release includes "forward-looking statements" intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact
that they do not relate strictly to historical or current facts. These statements contains words such as "may,"
"will," "project," "might," "expect," "believe," "anticipate,"
"intend," "could," "would," "estimate," "continue" or "pursue,"
or the negative or other variations thereof or comparable terminology. In particular, they include statements relating
to, among other things, future actions, new projects, strategies, future performance, the outcome of contingencies
such as legal proceedings and future financial results. We have based these forward-looking statements on our current
expectations and projections about future events.
We caution the reader that forward-looking statements involve risks and uncertainties that cannot be predicted
or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to, the following factors as well as other
factors described from time to time in our reports filed with the Securities and Exchange Commission:
Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED SUMMARY OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenues(/) $1,030,356 $873,445 $2,014,049 $1,740,621
Property operating
expenses (733,603) (638,701) (1,436,119) (1,270,521)
Depreciation
and amortization (76,998) (68,331) (153,033) (134,460)
---------- ---------- ---------- ----------
Operating profit 219,755 166,413 424,897 335,640
Corporate expense (11,997) (13,632) (22,681) (27,408)
Equity in
nonconsolidated
affiliates (937) (849) 4,808 (423)
Amortization of
intangible assets (195) (5,697) (1,771) (11,299)
Reserves for
New Orleans casino -- -- -- (2,322)
Project opening costs
and other
nonrecurring items (2,973) (4,503) (3,321) (7,930)
---------- ---------- ---------- ----------
Income from operations 203,653 141,732 401,932 286,258
Interest expense, net
of interest
capitalized (58,470) (63,189) (119,852) (127,415)
Loss on equity interests
in subsidiaries -- (5,410) -- (5,040)
Other (expense) income,
including interest
income (887) 6,173 1,035 (305)
---------- ---------- ---------- ----------
Income before
income taxes and
minority interests 144,296 79,306 283,115 153,498
Provision for
income taxes (54,607) (29,026) (104,088) (55,837)
Minority interests (3,573) (2,417) (7,750) (5,587)
---------- ---------- ---------- ----------
Income before
extraordinary loss and
cumulative effect of change
in accounting
principle 86,116 47,863 171,277 92,074
Extraordinary loss, net
of tax benefit of $71 -- -- -- (131)
Cumulative effect
of change in accounting
principle, net of tax
benefit of $2,831 -- -- (91,169) --
---------- ---------- ---------- ----------
Net income $86,116 $47,863 $80,108 $91,943
========== ========== ========== ==========
Earnings per share - basic
Before extraordinary
loss and cumulative
effect of change in
accounting principle $0.76 $0.41 $1.52 $0.80
Extraordinary loss,
net of tax -- -- -- --
Cumulative effect
of change in accounting
principle, net -- -- (0.81) --
---------- ---------- ---------- ----------
Net income $0.76 $0.41 $0.71 $0.80
========== ========== ========== ==========
Earnings per share - diluted
Before extraordinary loss
and cumulative effect
of change in
accounting principle $0.75 $0.40 $1.50 $0.78
Extraordinary loss,
net of tax -- -- -- --
Cumulative effect
of change in accounting
principle, net -- -- (0.80) --
---------- ---------- ---------- ----------
Net income $0.75 $0.40 $0.70 $0.78
========== ========== ========== ==========
Proforma earnings per share - basic
Before
extraordinary loss $0.76 $0.46 $1.52 $0.89
Extraordinary loss, net -- -- -- --
Cumulative effect of change
in accounting
principle, net -- -- (0.81) --
---------- ---------- ---------- ----------
Net income $0.76 $0.46 $0.71 $0.89
========== ========== ========== ==========
Proforma earnings per share - diluted
Before
extraordinary loss $0.75 $0.45 $1.50 $0.88
Extraordinary loss,
net of tax -- -- -- --
Cumulative effect of change
in accounting
principle, net -- -- (0.80) --
---------- ---------- ---------- ----------
Net income $0.75 $0.45 $0.70 $0.88
========== ========== ========== ==========
Weighted average
common shares
outstanding 112,688 116,124 112,281 115,382
========== ========== ========== ==========
Weighted average
common and common
equivalent shares
outstanding 115,148 119,026 114,631 117,892
========== ========== ========== ==========
(/) See note (a) on Supplemental Operating Information.
HARRAH'S ENTERTAINMENT, INC.
SUPPLEMENTAL OPERATING INFORMATION
(UNAUDITED)
(In thousands)
Second Quarter Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Revenues (a)
Western Region $328,112 $283,341 $637,192 $568,870
Eastern Region 193,923 183,799 365,950 349,686
Central Region 492,330 388,468 975,653 786,197
Managed 17,192 15,967 34,734 32,052
Other (1,201) 1,870 520 3,816
---------- ---------- ---------- ----------
Total Revenues $1,030,356 $873,445 $2,014,049 $1,740,621
========== ========== ========== ==========
Operating Profit
Western Region $55,735 $32,356 $98,649 $68,687
Eastern Region 56,012 48,599 97,421 85,887
Central Region 101,076 81,934 219,204 170,213
Managed 15,354 12,431 29,814 26,004
Other (8,422) (8,907) (20,191) (15,151)
---------- ---------- ---------- ----------
Total Operating
Profit $219,755 $166,413 $424,897 $335,640
========== ========== ========== ==========
Property EBITDA (b)
Western Region $84,750 $58,435 $157,279 $120,777
Eastern Region 71,878 62,452 128,811 112,865
Central Region 129,830 107,786 275,706 220,645
Managed 15,364 12,463 29,893 26,069
Other (5,069) (6,392) (13,759) (10,256)
---------- ---------- ---------- ----------
Total Property
EBITDA $296,753 $234,744 $577,930 $470,100
========== ========== ========== ==========
Project opening and other
nonrecurring costs
Project opening costs $(793) $(2,108) $(1,669) $(4,267)
Writedowns, reserves and
recoveries (2,180) (1,163) (1,652) (931)
Venture restructuring
costs -- (1,232) -- (2,732)
---------- ---------- ---------- ----------
Total $(2,973) $(4,503) $(3,321) $(7,930)
========== ========== ========== ==========
(a) New accounting guidance issued in and effective for first
quarter 2001 requires that the cost of the cash-back component
of the Company's Total Rewards program be treated as a
reduction of revenues. Previously, these costs had been
treated as a casino expense. The new guidance impacts only the
income statement classification of these costs. It does not
impact operating profit or Property EBITDA. The prior year's
results have been restated to reflect the impact of
implementing this new guidance.
(b) Property EBITDA (earnings before interest, taxes,
depreciation and amortization) consists of Operating Profit
before depreciation and amortization expenses. Property EBITDA
is a supplemental financial measure used by management, as
well as industry analysts, to evaluate our operations.
However, Property EBITDA should not be construed as an
alternative to Income from operations (as an indicator of our
operating performance) or to Cash flows from operations (as a
measure of liquidity) as determined in accordance with
generally accepted accounting principles. All companies do not
calculate EBITDA in the same manner. As a result, Property
EBITDA as presented by our Company may not be comparable to
similarly titled measures presented by other companies.
HARRAH'S ENTERTAINMENT,INC.
SUPPLEMENTAL INFORMATION
(UNAUDITED)
Computation of diluted earnings per share
excluding items not typically included
in analyst estimates
(In thousands)
Second Quarter Ended Six Months Ended
---------------------- ---------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- -----------
Income before taxes
and minority interests $144,296 $79,306 $283,115 $153,498
Add/(deduct):
Reserves for
New Orleans casino -- -- -- 2,322
Project opening costs
and other
nonrecurring items 2,973 4,503 3,321 7,930
Incremental riverboat
depreciation -- 3,844 -- 6,237
Settlement of litigation -- -- (931) --
ESSP incentive
interest expense -- 2,742 -- 2,742
Loss on equity interests 2,077 5,410 2,077 5,040
---------- ---------- ---------- ----------
Adjusted income before taxes
and minority interests 149,346 95,805 287,582 177,769
Provision for income taxes (56,560) (35,254) (105,776) (64,999)
Minority interests (3,573) (2,417) (7,750) (5,587)
---------- ---------- ---------- ----------
Adjusted income before
extraordinary loss 89,213 58,134 174,056 107,183
Proforma adjustment:
Add back amortization of
intangible assets with
infinite lives -- 5,697 -- 11,299
---------- ---------- ---------- ----------
Proforma adjusted income
before extraordinary loss $89,123 $63,831 $174,056 $118,482
========== ========== ========== ==========
Diluted earnings per share
before extraordinary loss,
as adjusted $0.77 $0.49 $1.52 $0.91
========== ========== ========== ==========
Proforma diluted earnings per
share before extraordinary
loss, as adjusted $0.77 $0.54 $1.52 $1.00
========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 115,148 119,026 114,631 117,892
========== ========== ========== ==========
----------------------------------------------
Contact:
Harrah's Entertainment, Inc.
Charles Atwood, 702/407-6406 (investors)
Gary Thompson, 702/407-6529 (media)