Lion downsizes loss

Accounting changes help MGM 3rd-qtr. numbers

NEW YORK — The addition of Orion Pictures helped Metro-Goldwyn-Mayer Inc. shrink its net loss 75% to $16.5 million in the third quarter, the Lion said Wednesday in its first quarterly earnings report since going public last month.

The result was slightly better than expected, helped by accounting changes relating to the sale of MGM last year and despite sharply higher overhead expenses and losses on the four pics released in the quarter, primarily “Hoodlum.”

MGM’s revenues fell 24% to $221 million in the quarter, largely because film revenue fell 30% to $185 million. MGM released just four pics in the quarter, compared with seven a year earlier, and three of the four were low-profile pics from Samuel Goldwyn Co. such as “This World Then the Fireworks.”

The only MGM pic was “Hoodlum.” The Lion wrote off just over $10 million on that picture and much smaller amounts on the three Goldwyn pics, bringing the total film write-offs to less than $15 million, sources said. MGM declined comment.

In contrast, the Lion will write off $30 million on “Red Corner” when it reports the fourth-quarter earnings, MGM CFO Michael Corrigan told Wall Street analysts in a conference call.

Television revenue, in contrast, rose slightly to $32.2 million, which MGM said was due to “both domestic and international pay television markets, network license fees and worldwide syndication revenues.”

The quarterly result was helped by accounting changes that accompanied the completion of MGM’s acquisition by Kirk Kerkorian and Kerry Stokes last October. As is usual at such an acquisition, the new owners revalued MGM’s assets, including its film library, thereby reducing future film amortization costs.

Orion helps

Partly as a result, MGM’s film cash flow (earnings before interest, taxes, depreciation and goodwill amortization) was $30.7 million compared with a loss of $25.6 million a year earlier. The film earnings were also helped by the Orion acquisition, although MGM did not specify how much Orion contributed.

The quarterly result showed that the Lion’s overhead expenses rose 50% to $23.2 million. Corrigan told analysts the higher overhead was a result of costs related to the initial public offering and was not a sign that overhead costs had risen permanently.

Total cash flow was $6.6 million compared with a loss of $35.4 million a year earlier.

The Lion played down the significance of the result, however. MGM chairman Frank Mancuso warned in a statement that it is “difficult to view these results as a meaningful indicator either of what has been accomplished or the promising future we see ahead.

“This year is essentially a transition period for MGM, with a number of unusual factors not the least of which was the absence of a substantial slate of films in release,” Mancuso said.

Wall Street agreed, leaving the stock unchanged at $20.37. “I don’t think Wall Street was looking for anything particularly meaningful from the quarter,” said Furman Selz analyst Stewart Halpern.

For the first nine months of the year, the Lion earned cash flow of $7.8 million compared with a loss of $75.1 million last year.

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