Culinary urges shareholders oppose Stations stock option plan

May 6, 2003 5:37 AM

Business was soft during the quarter that ended on March 31 for Station Casinos Inc. (STN) but early signs during the current quarter indicated a rebound, according to the company executives who reported on the company’s first quarter last week.

Still for the current quarter, the company said it expects to earn between $0.19 and $0.20 per share. Full year earnings were projected at $1.07 per share.

Despite some positive news, indications were that there may be a problem at the company’s annual shareholders’ meeting. The Culinary Union in Las Vegas went on record last week as urging share owners to vote against the company’s proposal to renew its Stock Compensation Program.

In the recommendation, the Culinary charged that:

Option grants have overwhelmingly benefited the top three executives and members of the Fertitta Family, who are controlling shareholders of the company.

The scale of Station’s option grants threatens to significantly dilute existing shareholders.

Station has repriced or reissued options to insiders after management has failed to generate value for outside shareholders, and the extension of the program does not prohibit repricing.

And, Station’s board of directors is dominated by those insiders who have been the primary recipients of options and restricted stock grants under the program.

Net revenues for the first quarter were slightly less than $200 million, or down one percent from last year’s first quarter. Adjusted earnings were $14.3 million or $0.23 a share compared to last year’s $12.6 million or $0.21 a share.

Officials announced a new promotion program called Jumbo Jackpot that they called a "ground-breaking player reward program." Also, they noted that the company had signed a contract with the Federated Indians of Graton Rancheria for a proposed casino for southern Sonoma County in northern California.

During the past quarter, the company said it had repurchased 1.4 million shares of its common stock for a cost of just under $25 million for an average price of $17.92 a share.

Next month, the company will open a casino near Sacramento that is owned by the United Auburn Indian Community. Stations will manage the property for a $25 million fee.

Park Place Entertainment

A failure by management of Park Place Entertainment Corp. (PPE) to provide positive guidance for the company and the industry during the coming months caused a minor reaction within the industry last week.

Initially, many of the more prominent gaming companies saw a minor drop in their share prices but the reaction was only temporary. By Friday of last week, most had recovered what minor sell off they had experienced earlier.

Park Place reported net income of $41 million or $0.14 for the first quarter that ended on March 31. This was in line with analysts consensus and was slightly better than last year when earnings per share was $0.13 a share before a major accounting charge.

Extending its guidance for the year, company officials said they believed earnings would be between $0.40 and $0.48 per share.

"Fundamental weakness in the economy, aggravated by the war in Iraq, made revenue increases hard to achieve in the first quarter," said Harry Hagerty, PPE chief financial officer. He added, "We expect these challenges to continue."

Underscoring the company’s negative view was the observation that, "April performance has already been lower relative to internal expectations," thus the cautious outlook for the remainder of 2003.

Las Vegas Sands

Sheldon Adleson’s Las Vegas Sands Inc., owner and operator of The Venetian Casino/Resort, reported net revenues of $158.7 million, an increase of 16.3% from the net revenues in the first quarter of 2002. Income before preferred return was $19.4 million as compared to $10.8 million last year.

Bill Weidner, president and COO, called the results strong and said they pushed income from operations to record levels.

"We believe that our group room business strategy again has proven resilient during difficult economic times, as evidenced by the company’s record average daily room rates of $217 which is consistent with average room occupancy of 98% in the same period of 2002," said.

Weidner also said that the company’s exposure to the Asian market through its development activities in Macao, has raised the company’s profile in Asia and "we experienced an upturn in Asian high-end casino business as a result."

Casino revenues for the quarter were $73.3 million during the reporting quarter as compared to $50.5 million in the first quarter of 2002.

This summer, the company will open a new 1,013 suites tower named "Venezia" that will offer an exclusive concierge-level of 122 suites complete with private access, upgraded amenities, a business lounge and an appointed staff of hotel personnel.

WMS Industries

Increased research and development costs, as well as higher selling and administrative and depreciation expenses caused WMS Industries Inc. (WMS) to report a net loss of $1.9 million or $0.06 a share for the fiscal third quarter that ended on March 31.

Revenues for the period, however, increased to $41.8 million compared with $26.1 million in the March 2002 quarter. The increase, the company said, was primarily due to higher gaming machine sales to customers outside North America, and that this accounted for 67% of units sold in the quarter compared to 56% in the prior year quarter.

Total gross profit increased to $24.3 million from last year’s $22 million while the gross profit margin on product sales this year was 37%, up from last year’s 20%.

"During this period, " said Brian Gamache, president and CEO, "we began implementing a comprehensive re-emergence plan in all operating areas. This re-emergence plan will ensure that all critical tasks and responsibilities are completed on time so we are prepared for our re-launch, which is about six months away."

Gamache also noted that the company’s balance sheet "remains strong. We’ve actively managed our working capital while investing in licensed brands and technologies." Also, he said, the board had authorized a new $10 million stock buy-back program for the next 12 months.

Magna Entertainment

Business was down at most racetracks owned and operated by Magna Entertainment Corp. (MECA) resulting in a drop in earnings to $0.12 per share compared to last year’s first quarter earnings of $0.22 per share.

Jim McAlpine, president and CEO, blamed the "war in Iraq, severe weather conditions and a generally weaker U.S. economy" as factors causing company quarterly earnings to fall to $31,829,000 from last year’s $37,046,000.

"Our strategic plan remains on track," McAlpine said. "Through synergies, cost reductions and revenue enhancements, we are well positioned for future growth in profitability which will result in improved shareholder value in the months and year ahead."

He announced that the company had entered the "racino" business with the acquisition on April 16 of Flamboro Downs Holding Limited, owner and operator of a harness racetrack in Ontario, Canada. The track also operates 750 slot machines.

Penn National

With every one of their properties performing better than last year, Penn National Gaming Inc. (PENN) posted a first quarter profit of $13.2 million or $0.33 a share compared to last year’s $4.1 million or $0.12 a share.

Peter Carlino, company CEO, said earnings before taxes, interest and depreciation for the period that ended on March 31, rose 56% from $33.5 million on revenues of $153.5 million in the quarter of 2002 to $53.1 million on revenues of $225.2 million.

"This is a significant accomplishment given the weather, global events and current state of the economy," Carlino said.

Apparently Wall Street agreed. Before week’s end, the company’s share price rose from $19.35 a share to Friday’s closing of $23 a share.

Still awaited by investors is action in Pennsylvania where lawmakers are considering a bill that will permit racetracks, such as Penn National Race Course and the company’s Pocono Downs, to install slot machines.

Carlino told analysts in a conference call that he was "cautiously optimistic" the legislation would pass.

Ameristar Casinos

Ameristar Casinos Inc. (ASCA) failed to equal last year’s earnings during the first quarter of the current fiscal year but easily surpassed analysts consensus "despite adverse weather conditions, a sluggish economy, construction disruption in Kansas City and the war in Iraq."

Net income for the period that ended on March 31 was $11.7 million or $0.44 a share compared to last year’s $15.4 million or $0.57 a share. However, the consensus of analysts monitored by Thomson First Call expected per share earnings to be $0.35.

But for the forthcoming quarter, the company said it expected per share earnings to come in at between $0.31 and $0.35 a share, below the analysts’ estimates of $0.39 a share.