MGM cuts losses, stays mum on Sony

Discs king of the quarter as shipments surge 58%

This article was updated at 6:53 p.m.

NEW YORK — MGM sliced its losses in half as revenue jumped 17% last quarter, driven by strong DVD sales.

But the Lion lowered its full-year forecasts due to expected higher interest costs stemming from the extraordinary $8 a share dividend MGM will pay shareholders in May.

Losses shrank to $21 million from $56 million the year before. Revenue rose to $464 million from $395 million.

During a conference call with a dozen financial analysts, MGM chairman-CEO Alex Yemenidjian wasn’t asked about and didn’t volunteer any comment on the Lion’s merger talks with Sony or with other possible suitors, like Time Warner.

Chief financial officer Dan Taylor put what he said was a “minimum value” of $5.4 billion on MGM’s library.

Responding to a query about MGM’s strategy, Yemenidjian said he’s focused on two areas, running the businesses well and pursuing a transaction for “vertical or horizontal integration” to capture other revenue streams. He noted the paucity of attractive acquisition targets like Vivendi Universal Entertainment, which MGM tried to buy last year. Meanwhile, he said MGM will continue to buy back its own stock.

Yemenidjian revealed some months ago that he intended to court Pixar. “There’s nothing new to report on Pixar, but you can expect to hear more from us in the future,” he said.

DVDs were the king of the quarter as shipments surged 58%. Vice chairman and chief operating officer Chris McGurk said the DVD sales mix was encouraging — a combination of new releases, franchise and library titles and lucrative box sets.

A quarter of MGM’s titles have been released on DVD so far. But McGurk said it’s a “misconception that once you release a title on DVD it’s gone forever. You can package and re-promote the titles again and again.”

Revenue rose 15% at the feature film division to $409 million, due in part to “Barbershop 2: Back in Business.”

McGurk was upbeat on the ’04 slate, which includes “Soul Play,” “De-lovely” (which will close the Cannes fest), Queen Latifah starrer “Beauty Shop,” “The Amityville Horror,” “Get Shorty” sequel “Be Cool,” “The Pink Panther,” “Into the Blue” and the 21st James Bond pic.

He acknowledged that Pink Panther and Bond were “outliers” from the studio’s stated intent to spend no more than $25 million-$30 million per pic but said the rest of the slate will be in line. On the marketing side, he said MGM “has been pretty successful in spending less than the industry because our pictures are high-concept, directed at very targeted audiences. We’ve been able to use a ‘rifle shot’ methodology.”

Revenue at MGM’s TV unit rose 48% to $46.6 million.

CFO Taylor noted that the Lion’s quarterly loss included a charge of $7.5 million related to the expensing of employee stock options. The SEC will require all companies to expense stock options next year. MGM decided to start a year earlier because of option considerations related to the dividend.

The latest quarter also included $16.7 million of bad-debt expense. Without that and the options expense, MGM would have reported a small profit for the quarter.

The hit for options expense will be about $32 million for the year. MGM will also incur higher interest expenses related to financing the dividend. That means the Lion will lose $75 million-$85 million in 2004 instead of breaking even, as it had earlier predicted. Cash from operations and cash flow will also be lower than anticipated.

MGM shares eased 0.81% to close Thursday at $20.89.

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