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MGM MIRAGE shines in Q4;
Caesars Entertainment slips a bit

Feb 3, 2004 6:55 AM

There was both good news and bad news for investors in gaming companies that operate casinos on the Las Vegas Strip. For the shareholders of MGM MIRAGE Inc. (MGG) the results of the fourth quarter were solid while for those holding investments in Caesars Entertainment Corp. (CZR) there were fewer smiles.

For the quarter ending on Dec. 31, MGM MIRAGE reported adjusted earnings from continuing operations of $0.38 per diluted share compared to the $0.27 reported a year earlier.

Net revenues rose to $530 million, easily topping the $496 million achieved a year earlier. Also rising was non-casino revenues that reached $443 million from the previous year’s $426 million. For the fiscal year, the company reported total revenues of $3.9 million, a 3% increase over 2002.

Income from discontinued operations included $6 million representing the results of MGM MIRAGE Online and the sale of the Golden Nugget Las Vegas and the Golden Nugget Laughlin.

As for the current quarter, CFO Jim Murren said that "at this point, the current earnings estimate consensus of $0.43 per share ”¦appears reasonable." He added that the company continued to see sequential improvement "in visitation and spending among our customers."

Prior to releasing the quarterly earnings, MGM MIRAGE announced it had agreed to purchase the troubled Wembley Plc, owner of dog tracks in the U.K. as well as in the U.S.

The company is under indictment, as well as two of its top officials, for allegedly conspiring to bribe a senior Rhode Island political figure in order to receive approval for more slot machines at its dog track, Lincoln Greyhound Park.

Working with the authorities in Rhode Island, the two companies were able to cobble a deal that permits Wembley to set up a separate company with a $16 million bankroll to answer the indictments while permitting MGM MIRAGE to move in and operate the dog track and its 2,500 slot machines.

During 2002, Wembley, owner of six dog tracks in the U.K. and three dog tracks and one horse track in Colorado, reported that 90% of its operating profits stemmed from the operation of Lincoln Greyhound Park.

The move was seen as an effort by MGM MIRAGE to further establish presence in England in anticipation of expanded gaming in that country.

Caesars Entertainment

Although the book says that the house always wins in a gambling game, that was not the case for Caesars Entertainment during the fourth fiscal quarter that ended on Dec. 31.

During that period, the company reported a net loss of $84 million or $0.28 per fully diluted share. That compares to a net loss of $21 million or $0.07 per share in the fourth quarter of 2002.

Not all the loss was attributable to the table action since the company said it had taken non-cash charges of $127 million, included an $89 million write-down of the book value of Flamingo Laughlin and a $38 million goodwill impairment at Caesars Tahoe. Both write-downs resulted from reduced earnings forecasts at the properties involved.

Other charges included $43 million related to the settlement of litigation involving Bally’s Lakeshore Casino in New Orleans; $9 million related to a contract settlement with the company’s former president and CEO, and a $4 million settlement of litigation involving a 2000 agreement to sell the Las Vegas Hilton.

But it was at the tables that the company took its gambling hit. At Caesars Palace, where the EBITDA (earnings before interest, depreciation and amortization) dropped to 419 million from $422 million, the company said that "abnormally low table hold of 11.3%, down from 15.6%, had a negative impact of approximately $16 million on the property’s EBITDA."

A similar situation developed at Paris/Bally’s where the table hold percentage dropped to 13.3% from last year’s "abnormally low 14%." Because of the poor hold at Paris Hotel/Casino, the company said it would eliminate high-end play, according to UBS gaming analyst Robin Farley.

Also impacting the company’s operations was the opening of the Borgata Hotel Casino Resort in Atlantic City where Caesars Entertainment’s properties were down 2% while table game volume declined by 9%.

Despite the losing quarter, Wally Barr, company president and CEO remained confident. "The work we undertook in 2003 on development activities, new capital projects, cost saving programs, debt reduction, entertainment events, customers marketing, asset rationalization and on many other fronts has positioned us for a successful year ahead," Barr said.

Station Casinos

After adjusting for non-recurring items, Station Casinos Inc. (STN) reported diluted earnings of $0.42 per share compared to $0.18 in the corresponding quarter of a year ago.

Boosting earnings were a so-called same store revenues from the Las Vegas operations that were 6% higher than a year ago while same store margins increased to 34.3% from last year’s 32.9%.

And looking at the current quarter, the company said it expected EBITDA to be somewhere between $87 million and $91 million while earnings should be between $0.44 and $0.48.

Non-recurring expenses included $11.4 million after tax impairment charge for the goodwill related to the acquisition of Fiesta Rancho and a $24.7 million litigation settlement involving alleged improper conduct by the company’s former Missouri legal counsel.

Also beefing up company earnings were the management fees paid to Station Casinos by the United Auburn Indian Community for the operation of its Thunder Valley Casino. The fee was $17.2 million for the quarter.

The company said it had reached an agreement with Mechoopda Indian Tribe of Chico Rancheria in California to assist the tribe in the development of a casino about 80 miles north of Sacramento.

Ameristar Casinos

Higher revenues helped Ameristar Casinos Inc. (ASCA) to increase its consolidated operating income to a record $139.9 million, a jump of 21.5% over last year. Net revenues for the period reached $197 million or 8.5% higher that 2002.

For the year, revenues increased 12% to $782 million while consolidated EBITDA reached a record $203.5 million or 24.4% more than a year ago.

In the fourth quarter that ended on Dec. 31, the company had diluted per share earnings of $0.35 compared to last year’s $0.19. This was one penny more than the analyst consensus of $0.34 per share.

The company said the outlook for the current year based on preliminary results of operations to date placed the estimate for operating income between $33 million and $35 million and earnings per share of $0.40 to $0.44.

Estimates for the year placed operating income between $144 million and $154 million with earnings per share ranging from $1.94 to $2.16.