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MGM's Loss for Quarter Grows to $249.8 Million

Studios: Results include $225.2 million in charges related to restructuring under new managers.

July 28, 1999| From Bloomberg News

Metro-Goldwyn-Mayer Inc., owner of one of the world's largest film libraries, said its second-quarter loss widened amid a reorganization aimed at revitalizing the struggling studio.

MGM's loss grew to $249.8 million, or $1.65 a share, from $55 million, or 84 cents, in the same period a year ago. Results include $225 million in one-time charges related to the cutback in MGM's work force, the shelving of some film projects, severance expenses for former Chairman Frank Mancuso and other restructuring moves.

Since arriving in April, Chairman Alex Yemenidjian and Vice Chairman Chris McGurk have begun to overhaul MGM, seeking to return the studio to profitability by cutting costs, forming alliances for television distribution of its library of 5,000-plus movies and converting its United Artists unit into a specialty-film division. Those moves, among others, will result in savings of $40 million a year, the company said.

"The quiet revolution undertaken by MGM's new management team will begin to attract much greater attention and strong, favorable reviews," said Stewart Halpern, analyst at ING Barings.

The Santa Monica-based company's cash flow loss, including the charges, widened to $221.5 million from $28 million a year earlier. Cash flow--or earnings before interest, taxes, depreciation and amortization--is used by many analysts to measure the performance of heavily indebted companies because it focuses on the operations of the underlying business and excludes interest payments and noncash charges.

Excluding the charges, MGM said it had positive cash flow of $3.6 million and a profit of $24.6 million, or 16 cents a share.

The quarter's $225.2 million in charges included a $140-million write-down on shelved films and $85.2 million in severance and other personnel expenses related to restructuring.

"We cleared the decks in the second quarter so we could start July 1 with a clean slate," Yemenidjian said in a conference call with analysts.

He said he expects MGM to be "cash-flow positive" in 2000, or even sooner, though the company might use the excess cash flow to invest in new business ventures, such as the Internet or satellite and cable-TV distribution agreements.

MGM's film library is expected to generate about $250 million in cash flow in the next six to nine months, Yemenidjian said. The company said it created a task force charged with increasing cash flow from the current $200 million.

MGM has long sought alliances to better exploit its library. "We'll be very disappointed if we don't have a major announcement" by year's end, Yemenidjian said.

The company said the expanding business of digital videodiscs will help boost cash flow. MGM said it will release 70 films on DVD this year, up from 55 last year. In 2000, the company expects to release about 120.

MGM also talked about how it has revamped the way it will make movies. It said it will release 15 to 20 major films a year under the MGM brand and will seek to co-finance more of its movies as a way to control costs at the studio, which has not turned a profit since 1988.

In the most recent quarter, MGM released one film, "Tea With Mussolini," an "art house" movie starring Cher, Lily Tomlin and Judi Dench. The movie has been a success for MGM after a string of flops.

"Tea With Mussolini" cost MGM about $2.5 million to distribute domestically and will generate about $13 million in box-office sales, the company said.

The studio hopes to snag more big-name actors, directors and producers to do mainstream films at MGM by offering them opportunities to do smaller, less commercial art films at United Artists.

MGM also said it will focus on luring younger people to its films, with such possible projects as a new "Pink Panther" movie.

MGM is optimistic that its new first-run syndicated TV show, "National Enquirer," a newsmagazine based on the supermarket tabloid by the same name, will be a hit when it debuts in the fall.

MGM's shares sank 94 cents on Tuesday to close at $19.44 on the New York Stock Exchange.

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