Interest hike forces Landry's into Q4 loss

Mar 18, 2008 6:00 PM

Earnings by Ray Poirier | A revamped credit agreement caused Landry’s Restaurants Inc. (LNY) to report a loss of $1.9 million for the three months that ended on Dec. 31, 2007.

During the comparable quarter a year earlier, the company earned $3.2 million. On a per share basis, the current loss was $0.12 each while last year’s net profit results in a $0.15 gain per share.

The cause of the decline was attributed to the new credit agreement on $400 million of senior notes that increased the interest rate from 7.5% to 9.5%. This additional interest expense caused an approximate impact of $3.8 million or $0.24 per share.

Revenues from continuing operations during the period totaled $280.5 million compared to $272 million in 2006. For the entire fiscal year, the company said revenues from continuing operations totaled $1.17 billion up from the previous year’s $1.11 billion.

Meanwhile, company shareholders have expressed their frustration with the board of directors and are trying to light a fire under them. For the past two months, the directors have failed to act on a $1.3 billion buyout bid from company chairman and CEO Tilman Fertitta.

In January, Fertitta, who saw that Wall Street failed to recognize the value of his restructured company, offered to acquire 69% of the outstanding shares that he didn’t already own for $23.50 per share in cash.

At the time, the shares had fallen to the $16 level, thus the offer provided a premium of some 40% to shareholders.

Immediately, investors reacted by causing a substantial spike in the share price, pushing it about the $21 level.

The board of directors said they would set up a committee to review the bid.

And then, nothing.

Time passed and still nothing.

Observers believed that with a dearth of interest in mergers and acquisitions because of the credit crisis, there must be a banker or two available to gladly accept a fee to evaluate Fertitta’s bid.

Now, the board faces a pair of class-action lawsuits filed by shareholders who are getting tired of waiting. They note that there haven’t been any competing bids since Fertitta made his offer.

Does anyone remember that prior to the credit crunch, Riviera Holdings Corp. (RIV) shareholders were offered $34 a share, a bid that was never acted on by company management? Shares now trade under $20 apiece.

The only response from Landry’s executives to the lawsuits was one by its chief financial officer who reportedly bemoaned the world’s "litigious nature."

Shuffle Master

While still searching for a chief executive officer, Shuffle Master Inc. (SHFL) reported an increase in total revenue but a loss in net income for the first quarter of 2008 that ended on Jan. 31.

The company said total revenue reached $37.8 million compared to last year’s $37.3 million but that it suffered a loss of $1.8 million or $0.05 per share compared to last year’s net income of $2.0 million or $0.06 per share.

Principal reason for the loss was a major increase in total costs and expenses, including a 40% rise in the section titled "selling, general and administrative" expenses.

Part of that, the company said, were the severance and legal costs associated with corporate executive employee severance. That number came in at $1.2 million, net of tax, or $0.04 per share.

On a positive note, the company said its leased shuffler installed base reached a record high of approximately 5,200 units and the leased electronic table systems also set a record of 1,300 seats.

Churchill Downs

For the past couple of years, investors have looked kindly on Churchill Downs Inc. (CHDN) even while the share price of its advanced deposit wagering partner, Magna Entertainment Corp. (MECA) fell below the $1 level.

However, that favorable opinion has been declining in the past few weeks, just as the company’s earnings have fallen.

For the fourth quarter of 2007, the company reported a net loss from continuing operations of $4.1 million or $0.38 per share compared to the previous year’s net profit of $2.5 million or $0.18 per share.

Among the reasons cited for the loss were a reduction in the insurance recoveries for damages in Louisiana and Florida in the previous year; an equity loss in its unconsolidated investments involving the advanced deposit wagering acquisitions, and an increase in tax rate from 39% to 42%.

Without referring to the lessening chance of slot machines in Kentucky, the company said it was encouraged by the approval for video lottery machines in Florida and by the potential growth of its advanced deposit wagering systems.