D-V-D SPELLS PROFITS SALES GIVE MGM A RECORD QUARTER.

Byline: Greg Hernandez Staff Writer

SANTA MONICA- Fueled by stronger-than-ever DVD sales, Metro- Goldwyn-Mayer on Wednesday reported the most profitable quarter in its 77-year history.

MGM Chief Operating Officer Chris McGurk said two of the studio's biggest box office hits of 2001, ``Hannibal'' and ``Legally Blonde,'' sold briskly on DVD during the fourth quarter and the company also released more than 300 titles from its film library on the DVD format.

``We are clearly capitalizing on the rapid growth of DVD,'' McGurk said during a conference call.

During the fourth quarter, MGM earned $39.1 million, or 16 cents per share, more than triple the net income of $12.4 million, or 6 cents per share, in the like period a year ago.

Fourth-quarter revenues totaled $375.5 million, a 29 percent increase from year-earlier revenues of $292 million.

Since the studio delayed the release of the film ``Windtalkers,'' its only scheduled fourth-quarter release, the increase is due largely to the explosion of the DVD sales market.

``Blonde'' and ``Hannibal,'' the sequel to ``The Silence of the Lambs,'' each shipped approximately 2.6 million units. Drafting off that success, the decade-old ``Lambs'' was released on DVD and shipped 1 million copies, an example of how MGM continues to find new ways to leverage its massive film library of more than 4,000 titles.

In 2001, DVD sales jumped 172 percent to 31 million units.

The studio released more than 300 DVD titles during the year and plans to match that in 2002. It will also have a marketing program around its James Bond franchise to coincide with the November release of the newest Bond film in theaters, the 20th in the series.

The movie, starring Pierce Brosnan and Halle Berry, is in its third week of filming in London.

In addition to the newest Bond film, McGurk touted a 2001 release schedule that will kick off Friday with the release of the remake of ``Rollerball,'' to be followed a week later by the military drama ``Hart's War,'' starring Bruce Willis and Colin Farrell.

``Windtalkers,'' directed by John Woo and starring Nicolas Cage, has been rescheduled for a June release.

``They have four nice big tent-pole pictures,'' said Joseph A. Gomes Jr., an analyst with C.L. King & Associates. ``That's a pretty good release schedule for this year.''

The studio's movies grossed $450 million domestically last year, led by blockbuster box office performances from ``Hannibal'' and ``Blonde.''

``I think the year showed the power of the MGM model both in terms of new releases and exploitation of its film library,'' said Gomes. ``I think it was a great quarter and a great year.''

MGM will release eight films this year and an additional 12 movies through its United Artists specialty banner. MGM Chairman and Chief Executive Alex Yemenidjian said even though the company had a solid year at the box office, it was still ``not good enough.''

``We need to do much better in 2002,'' he said.

MGM Chief Financial Officer Dan Taylor said the company expects revenues to rise by 20 percent this year over last year's $1.2 billion. Taylor said MGM expects quarterly losses during the first and second quarters of 2002 due to the expense of marketing and promoting some of its big-budget films.

New industry accounting rules adopted last year require studios to report production and marketing expenses upfront as opposed to over the commercial life span of the picture. These rules hit MGM harder than other studios because it remains the only pure-play studio that is not a part of a huge conglomerate.

``They have heavy marketing expenses upfront, but if 'Rollerball' and 'Hart's War' are hits, they will be selling those on DVD by the fourth quarter,'' Gomes said.

Taylor said the company expects to break even in the third quarter, then have a fourth-quarter profit of between 7 cents and 9 cents a share.

For the full year, the studio reported a net loss of $438.1 million in 2001, or $1.89 a share, due to the accounting changes, compared with earnings of $50.9 million, or 25 cents a share, in 2000. Revenues totaled $1.39 billion, up from $1.24 billion a year earlier.

Yemenidjian also made clear Wednesday that the company would have no comment on recent takeover speculation, saying it is MGM's policy not to discuss ``market rumors.''

It was reported last month that MGM had put itself up for sale for $7 billion and had hired the investment bank Goldman Sachs to search for a buyer.

Yemenidjian would only say that MGM has for the past two years stated its desire to find a merger partner to enhance the company's product distribution and revenues and said that has not changed.

``The nature and timing of any transaction or series of transactions will, of course, depend on market forces and on opportunities that might arise,'' Yemenidjian said.

MGM advanced 10 cents, or 0.52 percent, to close Wednesday at $19.25 on the New York Stock Exchange.

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DVD sales of box office hit ``Legally Blonde,'' starring Reese Witherspoon, helped fuel the best quarter in Metro-Goldwyn-Mayer's 77-year history.