Layoff charges contribute to MGM MIRAGE loss

David Strow

Tuesday, Oct. 30, 2001 | 9:54 a.m.

Las Vegas Strip casino giant MGM MIRAGE today reported a loss for the quarter ended Sept. 30, as the post-Sept. 11 tourism slowdown and one-time charges took their toll on the company's earnings.

Though its ongoing businesses were profitable, MGM MIRAGE reported a loss after one-time charges of $14.4 million, or 9 cents per share, compared to net income of $67.4 million, or 42 cents per share, in the year-ago quarter. MGM MIRAGE took $12.9 million in after-tax charges from layoffs during the quarter, and $30.8 million in after-tax charges from write-downs, primarily in the value of one of the company's two Atlantic City land parcels.

At the height of the layoffs, MGM MIRAGE had reduced its workforce by 6,400 "full-time equivalents," or 17 percent of its Nevada workforce, MGM MIRAGE President and Chief Financial Officer Jim Murren said. Since that time, the Las Vegas company has brought back about 2,100 FTEs. (Full-time equivalents are a measure of hours worked by employees, rather than a direct measure of employees.)

"We worked very hard not only to be compassionate, but fair to our employees (with severance pay and benefits)," Murren said. "That's why you're seeing this ($12.9 million) charge."

The picture improves only marginally when the $43.7 million in one-time charges are factored out. MGM MIRAGE earned $30.1 million, or 19 cents per share, before one-time charges, down 59 percent from the year-ago quarter on a net income basis.

Murren said the company operated at a loss from Sept. 11 through early October, but has returned to profitability.

Revenues fell 5 percent to $993 million, while operating cash flow plunged 59 percent to $236.5 million. Casino revenues fell 3.5 percent to $551.7 million; hotel room revenue was off 7 percent to $196.2 million; food and beverage revenue declined 4.5 percent to $174.3 million; and entertainment and retail revenue was down 7 percent to $164.3 million.

The slowdown caused by Sept. 11 was quite evident; not one of MGM MIRAGE's properties reported a cash flow increase for the quarter. Indeed, the "best" performance recorded by an MGM MIRAGE property during the quarter was Beau Rivage's 17 percent decline to $16.9 million in cash flow.

Bellagio, the company's most profitable resort casino, reported $62.3 million in cash flow for the quarter, a 28 percent decline from the year-ago quarter. Only New York-New York posted a lower decline during the quarter; its $18 million in cash flow was down 26.5 percent from last year.

MGM Grand Las Vegas posted the worst decline of MGM MIRAGE's Strip casinos. Its $30.8 million in cash flow was down 39 percent from the year-ago period -- and its occupancy ran below 50 percent at some points last month. Both Mirage and Treasure Island were down 33 percent -- Mirage reported $26.9 million in cash flow, Treasure Island $18.5 million. In downtown Las Vegas, the Golden Nugget reported $4 million in cash flow, down 47 percent from last year.

From Sept. 11 to Sept. 30, the company said its Strip casinos reported average occupancy of 64 percent. Typically, September is one of Las Vegas' busiest months, with occupancy easily exceeding 90 percent.

But the company's properties outside of Las Vegas did not perform much better. MGM Grand Detroit posted $33.2 million in cash flow, down 23 percent. The company's three Primm properties were down 43 percent at $11.2 million, and Golden Nugget Laughlin reported just $82,000 in cash flow, down 91 percent.

MGM MIRAGE officials today blamed the poor numbers in Primm on low rates in Las Vegas that prompted California gamblers to drive the extra 35 miles to the gambling capital.

But company officials said the Detroit downturn was the result of competition from the new Greektown casino, not a slowdown in Detroit. In fact, MGM Grand Resorts Chief Executive John Redmond said the property actually benefitted after tighter security at the U.S.-Canada border forced gamblers who had been going to Casino Windsor to stay in Detroit.

Though occupancy has largely recovered at most company properties, room rates still remain below normal. And November and December typically aren't Las Vegas' strongest months.

In the past, investors had grown accustomed to quarter after quarter of record-breaking results from MGM MIRAGE. Today, Murren told them to expect a profit in the fourth quarter, but not much more.

"Based on the results so far in October, we have confidence we are going to make money, but I don't know how much," Murren said. "A nickel (per share) seems to be as good as any (estimate) right now. At this stage, that's an appropriate place to be."

MGM MIRAGE stock fell 50 cents to $22.05 in this morning's trading.