MGM Reports Loss on Rising Marketing Costs

Metro-Goldwyn-Mayer Inc. reported Tuesday that it lost $32.6 million in the third quarter because of higher film marketing costs, although the red ink was smaller than company projections and Wall Street expectations.

MGM’s loss of 13 cents a share stemmed largely from accounting measures that executives said masked sharp cash-flow improvements and the contributions of three films expected to end up highly profitable: “Legally Blonde 2: Red, White and Blonde,” “Jeepers Creepers 2” and “Uptown Girls.”

MGM also said $5.1 million of the loss, or 2 cents a share, came from due diligence costs incurred in its unsuccessful bid to buy the entertainment assets of Vivendi Universal.

Analysts had expected a loss of 15 cents a share, according to Thomson First Call, and the company had forecast a per-share loss of 14 cents to 17 cents. Revenue for the Los Angeles studio rose 20% to $457.1 million in the quarter. A year earlier, MGM earned $11.7 million, or 5 cents, on revenue of $381.2 million.

MGM also said it bolstered its balance sheet by paying off $1.15 billion in debt. Analyst Jeffrey Logsdon of investment bank Harris Nesbitt Gerard estimated that the move could save $34 million a year in interest costs.

“It’s rare to see a movie studio debt free,” Logsdon said.

MGM said its operations in the quarter generated $21 million in cash, a sharp turnaround from a year earlier when it consumed $98.6 million. MGM Vice Chairman Chris McGurk said the company’s 2003 film slate would be more profitable than in any year since it went public in 1997, including periods when James Bond films were released.

MGM’s net results will be dampened for a number of years because of noncash amortization adjustments to its books stemming from the acquisition in the late 1990s of the Orion and Polygram film libraries.

MGM and other studios also are required under recent accounting changes to book marketing costs immediately, even before revenue flows in from box office receipts. In the third quarter, for example, MGM incurred marketing expenses on two films -- the Denzel Washington movie “Out of Time,” and the family film “Good Boy!” -- that didn’t debut until the fourth quarter.

“Out of Time” has been a box office disappointment, but “Good Boy!” has exceeded company expectations and is forecast to be solidly profitable.

MGM executives have been hinting that the company may share some of its wealth with stockholders, such as an offer to buy some shares at a premium. Directors of the firm controlled by billionaire Kirk Kerkorian are expected to discuss that when they meet next month.

MGM shares rose 17 cents to $15.50 on the New York Stock Exchange.