Profit rebounds for MGM MIRAGE

Wednesday, Oct. 23, 2002 | 11:16 a.m.

MGM MIRAGE today reported a third-quarter increase in earnings driven largely by an easy comparison to last year's quarter, which was profoundly hurt by the effect of the Sept. 11 terrorist attacks.

The company reported operating earnings per share of 51 cents for the quarter compared to 19 cents in the third quarter of 2001, beating Wall Street's average estimate of 47 cents per share. In actual terms, net income jumped from $30.1 million a year ago to $81.8 million for the quarter.

The company continues to recover from the business decline that followed Sept. 11 last year, executives said.

Table game volume and hold percentages -- which determine the amount won from gamblers -- are still down from the prior year. This was offset by an increase in slot machine revenue, the company said. At Bellagio, its most profitable property, slot machine revenue increased by almost 13 percent for the quarter.

The company's earnings growth is a sign that "the pace of our recovery is firmly under way," Chief Financial Officer Jim Murren said during a conference call this morning to discuss third quarter results.

"Our customers are coming back," he said.

Business from foreign customers, though posting a small quarterly increase compared to a year ago, is still behind pre-Sept. 11 levels.

MGM MIRAGE's Chairman and Chief Executive Officer Terry Lanni was unavailable for the conference call because he is traveling in Asia in an attempt to drum up business, Murren said.

"Terry goes to the Far East two or three times a year," he said. "He is our greatest weapon in building up Far East business."

The government of Thailand disclosed this week that Lanni has been in talks about opening am MGM MIRAGE gambling business there.

Including one-time items such as pre-opening expenses, restructuring and writeoffs, net income was 43 cents per share compared with a net loss of 9 cents in the third quarter of 2001. Earnings were $69.6 million, compared with a loss of $14.4 million.

Third quarter earnings also were aided by a reversal of previously accrued bad debt reserves used to offset losses when gambling debts aren't paid. MGM MIRAGE attributed the reversal to better-than-expected collections from gamblers.

Revenue grew from $993 million to $1.01 billion during the period. Cash flow -- a key indicator of performance in the casino industry -- jumped 30 percent, from $236.5 million to $306.3 million.

MGM MIRAGE recently announced plans to shelve an as-yet-unnamed luxury casino resort planned in Atlantic City in favor of pushing into new gambling markets and investing further in existing properties, such as a $375 million hotel tower at Bellagio in Las Vegas.

As part of the plan, the company is strengthening its balance sheet by paying down debt and repurchasing shares of common stock.

MGM MIRAGE paid down $150 million in debt in the third quarter and will be on track to surpass its $200 million goal for the last two quarters, Murren said. The company has paid down roughly $1.4 billion in debt since the merger of MGM Grand Inc. and Mirage Resorts Inc. in 2000.

The company repurchased 1 million shares during the quarter and is authorized to repurchase about 5.8 million shares over the next year to year and a half, he said.

Cash flow increased at all the company's largest properties. Bellagio once again led the pack, reporting a 47 percent increase in cash flow from $62.3 million for the year ago quarter to $91.3 million this year. Cash flow at MGM Grand increased 74 percent, to $53.5 million. At the Mirage, cash flow rose 60 percent, to $43.1 million. Treasure Island and New York-New York properties experienced increases of 17 percent and 21 percent, respectively.

Cash flow at the firm's Beau Rivage casino near the Gulf Coast was down about 2 percent, hurt by $8 million in damages and $2 million in business losses due to hurricane Isidore.

Occupancy rates and hotel rates were up slightly or relatively flat from the year ago quarter at Bellagio, MGM Grand and Mirage. Bellagio experienced the biggest jump, from an average daily rate of $159 last year to $169 for the third quarter of this year.

Some properties in Las Vegas, particularly the Golden Nugget downtown, continue to feel pricing pressure from the year ago quarter, when hotels slashed their rates to bring back business following the terrorist attacks, executives said.

Some Wall Street analysts said the bad debt reversal may have been enough to put the company just over the top of earnings estimates. Better-than- expected returns at flagship properties like the Bellagio offset lower-than-expected results at non-core properties like the Golden Nugget, they said.