MGM Grand, Aztar buck trend, report higher earnings

Gary Thompson

Thursday, July 24, 1997 | 11:02 a.m.

Bucking a summer slowdown that's affected several Las Vegas gaming operators, MGM Grand Inc. and Aztar Inc. posted sharply higher second-quarter earnings.

MGM said today net income soared to a record $33 million, or 56 cents a share, from $20.6 million, or 41 cents a share on fewer shares, in the 1996 quarter. Revenue rose to $209.1 million from $189.2 million, the company said.

Aztar said second-quarter net climbed to $3.4 million, or 7 cents a share, from break-even results for the 1996 quarter. Revenue rose to $200.4 million from $189.5 million, while cash flow for the quarter jumped 27 percent, to $39.7 million from $31.2 million, the company said.

Marketing costs associated with the Holyfield-Tyson fight at the MGM Grand led to a decline in cash flow to $56.4 million in the 1997 second period from $65.7 million in the year-ago quarter, the company said.

But a 52.7 percent cash flow margin at MGM's 50 percent-owned New York-New York and improved results from the MGM Grand Australia during the latest quarter helped offset the decline, according to Terry Lanni, MGM chairman.

"Our continued strong operating results, combined with the $2 billion financing package announced Wednesday, afford us the opportunity to actively pursue growth opportunities at our existing properties as well as new jurisdictions," Lanni said.

Later this year, MGM will begin offering gaming tournaments, including baccarat events, that should attract large number of international players, he said.

Alex Yemenidjian, the president of MGM, said baccarat drop was up 44 percent in the most recent quarter, but more than half of the $11 million increase in casino expenses was attributable to the title fight, he said.

"God knows what the additional revenue and profits would have been if things had gone more normally," he added, referring to the bizarre ending of the fight when Tyson bit Holyfield's ears.

Yemenidjian said there are no plans to issue additional equity, other than a relatively small amount owed fight promoter Don King, in any new financing. He said the company is "clearly under-leveraged, with a significant amount of unused debt capacity.

"I used to say we've loaded up the bullets in our gun, but it's more like cannons right now," he said, indicating MGM would use its average 6.16 percent borrowing cost and large credit facility to fuel future growth.

Lanni said much of the exterior work on MGM's $700 million expansion, including 700 feet of video walls, a revamped lion, and a significant portion of the casino renovations, will be completed by December.

In March 1998, he said, the 6.7-acre pool and spa and 380,000 square foot convention center will be completed and construction will begin on the 1,500-room Marriott hotel and the Mansion, a high-roller facility.

MGM has acquired all but one of the 34.5 acres needed to develop a resort in Atlantic City, Lanni said, but the final parcel is owned by about nine individuals "who are speculators who've been unwilling to come to the table."

MGM is working with Atlantic City officials to resolve the problem, he said.

Lanni also said MGM is "committed to Detroit," but cited some uncertainties in the licensing process and noted that any potential casino operation there "has to make financial sense."

He said MGM and its South African partner have won two provincial licenses in that country so far, and expect to open temporary casinos later this year. Ultimately, he said, MGM hopes to win licenses in seven to eight locales.

Yemenidjian said MGM and its joint venture partner, Primadonna Resorts Inc., can add 1,100 rooms to New York-New York on a recently acquired two-acre parcel if demand warrants.

The bulk of Aztar's improvement came from the Tropicana Casino & Resort in Atlantic City, where promotional expenses fell sharply. Results at the Las Vegas Tropicana and Ramada Express in Laughlin improved marginally.

Paul Rubeli, Aztar chairman, said that "these increases were achieved despite increasingly competitive and difficult overall market conditions, particularly in the Las Vegas and Atlantic City markets."

First-half net rose to $6.1 million, or 12 cents a share fully diluted, from $809,000, or 1 cent a share, in the 1996 first half, Aztar said. Revenue rose to $390.1 million from $369.7 million.