Big year for Station Casinos as they overcome 9/11 slowdown

Feb 4, 2003 9:41 AM

Despite the problems of recovering from the effects of 9/11, Station Casinos Inc. (STN), the Las Vegas valley’s dominant locals casinos operator, was able to put together a year of solid growth with free cash flow increasing by 12% to $118.2 million.

Helping to fuel the results was Green Valley Station that set a first-year record of $43 million in cash flow, the most ever for a Station property. The company also noted proudly that the property, co-owned with a company operated by the Greenspun Family, received a four-diamond rating from the American Automobile Association.

But, company officers, led by Chairman and CEO Frank Fertitta, III, have trouble containing their enthusiasm for their current project, Thunder Valley Casino, a property Station Casinos Inc. is building near Sacramento, Cal., for the United Auburn Indian Community. The $215 million project is expected to be open for business this summer.

Fertitta said he believes the casino, for which the company has a seven-year contract that provides for a payment of 24% of revenues, has demographics similar to those of Foxwoods and Mohegan Sun in Connecticut, considered the two most successful Indian casinos in America. He was quoted as saying, "We have long-term vision of what this property can turn into”¦This thing can grow into one of the biggest and most complete gaming complexes in the country."

Analysts have estimated that without nearby tribal competition, Thunder Valley could produce more than $100 million in revenues during the last six months of the calendar year, providing Station Casinos with some $25 million in management fees.

Under the existing compact with the State of California, the casino is entitled to 1,900 slot machines and 100 table games, including a private VIP gaming area. The property will feature three specialty restaurants, a 500-seat buffet, a food court and parking for about 3,000 vehicles. There also is speculation that negotiations with Gov. Gray Davis could produce an increase in the number of slot machines permitted at each tribal casino.

During the final quarter of the fiscal year that ended on Dec. 31, 2002, the company had net revenues of $202 million, flat with the previous year. However, earnings improved to $10.9 million or $0.18 a share compared to $0.13 a share the previous year.

The company noted that during the past year it had repurchased 742,990 shares of its common stock for approximately $10.2 million or $13.75 per share.

MGM MIRAGE Inc.

Record earnings for calendar 2002 were reported by MGM MIRAGE Inc. (MGG) but the numbers for the fourth quarter were substantially below what gaming analysts expected forcing the price of an individual share to plummet during the month of January.

Terry Lanni, chairman and CEO, explained the fourth quarter this way:

"The fourth quarter proved that we are still in a challenging environment and that the economic recovery in the United States is still a work in progress. We continue to refine the manner in which we market to our national customers, as we remain alert to global and national conditions which could have a short-term impact on leisure travel."

Adjusted earnings per share for the fourth quarter reached $0.28 a share, slightly above the pre-announcement made two weeks earlier when shares that had been trading at a price in the low $30 range fell to the mid $20 level.

For the full year, the company reported record net income of $292 million compared to $169.8 million during fiscal year 2001. Earnings per share came in at $1.85, substantially higher than 2001 earnings per share of $1.07.

"We are proud of our 2002 results," said Lanni. "This was clearly due to the tireless efforts of our 43,000 employees and their focus on our customers and cost efficiencies."

In addition to repurchasing 6.4 million shares of the company’s stock for an investment of $208 million, the company repaid $314 million of its debt.

Previously, the company announced it had entered into an agreement with International Game Technology (IGT) to install cashless gaming systems and covert existing games to IGT’s EZ-Pay system.

Kerzner International

Kerzner International Limited (KZL), formerly known as Sun International Inc.(SIH), reported record cash flow for the fiscal year ended on Dec. 31, 2002, but that was despite the failure of an attempt to operate an internet gaming site from the Isle of Man.

Butch Kerzner, company president, reported the company had EBITDA (earnings before interest, taxes, depreciation and amortization) of $142 million on gross revenues of $507 million. Earnings per share grew to $2.11 from $1.48 in 2001 and $1.93 in 2000.

"Atlantis’s strong results continued despite a general downturn in the travel market," Kerzner explained. "During the year, Paradise Island achieved several significant new milestones, including record levels of EBITDA in each of the first, third and fourth quarters of the year. Further, Paradise Island exceeded the $500 million growth revenue level for the first time and reported record EBITDA of $142 million for the year," he said.

Part of the company’s revenue came from Mohegan Sun through a partnership with the Trading Cove Associates whose agreement with the Mohegan Tribal Gaming Authority provides Trading Cove with 5% of the property’s gross operating revenues.

As for the company’s internet gaming activities, Kerzner explained that play was permitted only from certain jurisdictions that became more restrictive. That reduced the market size and competition intensified, making it more difficult to grow the activity. Therefore, the company has decided to shut down the operation during the current quarter.

It also was announced that Kerzner International and Station Casinos Inc. had agreed to terminate the arrangement