Harrah's in Mississippi, Louisiana, Preparing to RebuildCompany Still Unsure When the Properties Will Reopen |
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Harrah's Entertainment Inc. released a report on the conditions of its Coast casinos in the wake of hurricanes Katrina and Rita. Damage to its properties in Mississippi is as bad as was initially feared.
An insurance policy with a $15 million deductible will cover the repairs or replacement of its two Grand Casinos in Gulfport and Biloxi. Insurance companies already dished out more than $30 million in funds. Harrah's also has insurance to cover interruption of business and at this time it doesn't know how long it will take to reopen.
The company expects to receive insurance payments at least equal to the value of the properties in Mississippi. This is good news for investors because Harrah's also estimates that the cost incurred by the storm will be less than the costs from anticipated business interruption. That means the costs should not have an impact on the company's current income statement.
In New Orleans, an insurance policy with a $10 million deductible will take care of the physical damage done there. Although the company has a policy to cover business interruptions there, it still expects to record a $10 million charge in its third-quarter report. It will be recorded under the line "Writedowns, Reserves, and Recoveries." Although it will be recorded, Harrah's doesn't expect that the interruption will affect the company's current income statement.
Harrah's was in the middle of constructing a 450-room luxury hotel in New Orleans, which was damaged by Hurricane Katrina. A builder's risk insurance policy will cover the unknown costs of the damage. Harrah's doesn't know how much more time or money it will cost to complete the tower.
In Lake Charles, Louisiana, the Harrah's there received enough damage that current estimates say repair costs will surpass the $10 million insurance deductible. But the company is also quick to say it is unable to estimate the extent of the loss. The company is still determining whether the net book value of the damaged assets will be recovered.
The report also warned that damage to the communities that are home to the casinos could negatively affect the local gaming industry and tourism for an "extended period of time." It also could delay the reconstruction and reopening of Harrah's properties.
Despite the storm-related losses, the company doesn't expect the closures will have a material effect on its liquidity, financial position, capital resources, or operations.
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