MGM WOES EASED BY DVD SALES Q1 LOSSES DOWN SHARPLY.

Byline: Gregory J. Wilcox Staff Writer

SANTA MONICA - Strong DVD sales and better box office performance combined for a narrower first-quarter loss at Metro-Goldwyn-Mayer Inc., the company said Thursday.

The Santa Monica-based entertainment conglomerate reported a loss of $55.8 million, or 22 cents a share, down from a loss of $90.8 million, or 37 cents a share, in the same period a year ago.

A consensus of nine analysts polled by Thomson Financial/First Call pegged the loss at 21 cents a share.

First-quarter revenues increased 25 percent to $395.2 million versus $315.1 million in the prior-year period.

MGM, a diversified international company that makes movies, operates satellite and cable channels and produces television programs, said it had a strong quarter cash-wise.

Net cash from operating activities during the quarter was $108.3 million - a $153.4 million positive swing from the $45.1 million consumed by operating activities in the first quarter of 2002.

The money will be used for stock buybacks, debt reduction and acquisition opportunities.

``This quarter marks an inflection point for MGM in terms of generating significant free cash flow,'' Alex Yemenidjian, company chairman and chief executive officer, said in a statement.

During the quarter, worldwide home-entertainment revenues increased 16 percent, worldwide DVD unit shipments increased 25 percent and the home-entertainment group's library market share in the United States increased to 18 percent. The latter has doubled since 2002.

Winners for the company include the movie ``Agent Cody Banks,'' which was released March 14 and has grossed more than $45 million so far at the domestic box office, and the 20th James Bond film, ``Die Another Day,'' which set new franchise box office records in Japan and Italy and has now grossed almost $430 million worldwide.

Also, the company's United Artists release ``Bowling For Columbine'' won this year's best documentary Oscar and has grossed $21 million, a record for the genre, the company said.

``This is a huge return on the $3 million acquisition price,'' Chris McGurk, company vice chairman and chief operating officer, said during a conference call.

Jill Krutick, an entertainment-sector analyst for Citigroup Smith Barney, said in analyzing first-quarter results that MGM is making progress in diversifying its revenue streams away from feature films and is taking other steps to limit risk.

``In the film division, the production of sequel films, lower per-film investment and improved harvesting of the film library should help to increase predictability of income,'' she said.

To that end, MGM will start shooting this summer on ``Barbershop 2,'' based on last year's hit. Most of the original cast is back, including Queen Latifah. She will also star in a spinoff, ``Beauty Shop,'' which is in development, McGurk said.

``Barbershop 2'' and ``Beauty Shop'' fit squarely within MGM's economic and creative strategy. Both films will cost about $25 million each with some of the hottest talent in Hollywood, he said.

Also due out this summer are sequels to ``Legally Blonde'' and ``Jeepers Creepers.''

``We made solid progress in each of our four key operating businesses. This quarter has set the stage for continued strong operating cash contribution for the remainder of this year and beyond,'' McGurk said.

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SOURCE: Company reports

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