Park Place Entertainment profit increases

Park Place Entertainment Inc. today reported first-quarter net income before pre-opening charges of $49 million or 16 cents a share, up from a pro forma profit of $43 million or 14 cents in the year-ago quarter.

The earnings were reported a day after Park Place announced plans to buy Caesars World for $3 billion from Starwood Hotels & Resorts.

After the special charge and accounting changes, Park Place earnings were 15 cents a share. Revenue rose to $748 million from $718 million.

Cash flow, or earnings before interest, taxes, depreciation and amortization, pre-opening expense and noncash items (EBITDA), was $193 million, up 10 percent.

Park Place said the cash flow increases were driven by strong performances in its Mid-South and Western regions, including EBITDA gains of 28 percent and 59 percent at the Flamingo Hilton Las Vegas and the Las Vegas Hilton, respectively.

The Flamingo Hilton Las Vegas generated $32 million of EBITDA, compared with $25 million last year. It reported a 10 percent increase in revenue per available room and a 6 percent improvement in total gaming drop.

The Las Vegas Hilton reported EBITDA of $27 million in the first quarter, compared with last year's $17 million. "Continued success in marketing through international and domestic sales networks increased table game drop by 15 percent over last year. A 7- percentage-point increase in hold levels also contributed to the improvement in the quarter," Park Place said.

Bally's Las Vegas reported EBITDA of $24 million, down from $25 million. The property reported both a higher slot handle and an increase in operating expenses.

"Las Vegas is a deep market that has proven its resilience over the years, and we expect it to grow with the recent supply additions over the next 12 to 18 months," said Park Place Chief Executive Arthur Goldberg.

Goldberg said in a conference call today that Park Place is "fairly pleased with the results." He also said "two interesting things happened in the quarter" and took a few thinly veiled shots at Mirage Resorts Inc.

"Las Vegas didn't disappear and Beau Rivage hasn't decimated the Gulf Coast," Goldberg said. He added that Bally's Las Vegas and the Flamingo Hilton both recorded higher returns on investment than Mirage.

Goldberg and Mirage Resorts Inc. Chairman Steve Wynn have been at odds over Wynn's plans to expand into Atlantic City and were competing for the Caesars World assets Park Place agreed to acquire Tuesday.

Park Place would cooperate on building a monorail linking the Mirage with Bellagio in Las Vegas, even though its newest property -- Caesars Palace -- sits smack in the middle of the two Mirage Resorts properties and would have to be served by the transportation link, Goldberg indicated.

"Steve brings a lot of business to Las Vegas. We'd look forward to working together on a monorail, but it has to make sense to Caesars, as well. We're no longer a step child."

Goldberg said he expects "at least" a 30 percent return on more than $60 million face value of Aladdin bonds Park Place bought at a steep discount, as well as "a seat at the table" if that project runs into trouble.

He also said he believes the new Paris-Las Vegas hotel-casino expected to open in September is on budget at $760 million and will have the highest return on investment on the Las Vegas Strip.

Paris contains 2,916 guest rooms, an 85,000-square-foot casino, eight restaurants, five lounges, more than 130,000 square feet of meeting and convention space, and a 50-story replica of the Eiffel Tower. The Paris employment office opened on April 5 and so far has filled approximately 40 percent of the 4,000 new positions.

Goldberg said he expects a drop in promotional costs in Atlantic City, a market marked by frequent costly slot-marketing programs.

Room rates and bookings in Las Vegas should also remain strong for the second quarter, though the third quarter will be affected by the opening of The Venetian, Park Place executives said.

Goldberg said Caesars World President Peter Boynton is "an old friend" and they will discuss what Boynton's role may be in the merged company Thursday, their first conversation since the acquisition was announced.

Park Place said it bought back about 1.7 million of its shares in 1999 at an average price of $7.50 each.

Meanwhile, two ratings agencies placed the bonds of Park Place on watch status in anticipation of possible downgrades. But several buy-side stock analysts raised or confirmed their "buy" ratings on Park Place equity.

Standard & Poor's said it has put Park Place on CreditWatch with negative implications due to the company's plan to borrow $3 billion to acquire Caesars World Inc. from Starwood Hotels & Resorts Worldwide.

Duff & Phelps Credit Rating Co. took a similar action, saying that the added debt is likely to "result in at least a one-notch rating downgrade" for $400 million of senior subordinated notes.

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