PROFITS ON THE LION'S SHARES MGM RECOVERING AT THE BOX OFFICE.

Byline: Greg Hernandez Staff Writer

SANTA MONICA - Boosted by the surprise box-office success of the ensemble comedy ``Barbershop,'' Metro-Goldwyn-Mayer Inc. rebounded from steep losses to post a third-quarter profit, according to quarterly results released Tuesday.

MGM not only avoided any major film flops during the quarter but also experienced growth in its home-video and television divisions. The company reported net income of $11.7 million, or 5 cents a share for the third quarter, compared with a net loss of $16 million or 7 cents per share a year earlier.

The results beat analysts' forecasts and served as a dramatic contrast to a disastrous first two quarters of 2002 when MGM suffered through a string of high-profile and expensive box-office bombs. The company has seen its stock price plunge by more than half since January when it stood at a 52-week high of $23.25 per share.

The upbeat financial news Tuesday sent MGM's stock price upward by 35 cents or 2.8 percent to close at $12.75 on the New York Stock Exchange.

``Given the current market conditions, our stock is trading at what we consider to be a significant discount to the value of our assets,'' said MGM Chairman and Chief Executive Alex Yemenidjian. `'It's interesting that our stock is at its lowest point when the company's current performance and near-term outlook are at their best.''

The low stock price prompted MGM to initiate a 10 million-share buyback program in July. MGM has repurchased 2 million shares to date and could buy more, Yemenidjian said.

Company executives and analysts attribute the turnaround to MGM's return to a previous strategy of producing low-risk, mid-budget films like ``Barbershop'' rather than failed big-budget ventures like ``Windtalkers,'' ``Hart's War'' and ``Rollerball,'' which were expensive failures.

``Barbershop,'' for example, had a production budget of $12 million and has so far grossed a stellar $68.9 million at the box office as of Sunday and will be one of MGM's most-profitable films ever. Another similarly budgeted release, ``Crocodile Hunter: Collision Course,'' grossed about $28 million domestically.

``In our opinion, they lost their way, but I think they are back,'' said David Miller, a Los Angeles-based analyst with Sanders Morris Harris. ``This is exactly what happens when you stick to your discipline, the discipline they espoused in April 1999 when they said they weren't going to play the blockbuster game. They were going to try and hit singles and doubles, and that's exactly what they did this quarter and exactly what they did not do during the first two quarters.''

``Windtalkers,'' which had a price tag of more than $100 million, had dragged MGM to a $121.8 million net loss, or 48 cents per share, during this year's second quarter. The film grossed just over $40 million at the domestic box office, although the blow was softened somewhat since MGM received $30 million for foreign rights.

But much is expected of MGM's latest big-budget James Bond film, ``Die Another Day,'' which hits theaters Nov. 22. The previous three Bond films that have featured Pierce Brosnan in the title role have averaged a worldwide gross of $355-360 million.

Yemenidjian said the third-quarter results ``far exceeded'' expectations and specifically cited the company's commitment to making more movies with less capital.

``As we approach 2003, our investments in film and television will generate significant free cash flow,'' he said. ``These improved fundamentals, combined with the strongest balance sheet that MGM has ever had, allow us to look at the balance of this year and to 2003 with great confidence.''

Yemenidjian said strong performances from the company's expansive filmlibrary amid the DVD boom, as well as its television division, contributed to third-quarter revenues of $381.2 million, down just slightly from $393.3 million in last year's third quarter.

Looking ahead to the fourth quarter and 2003, MGM Vice Chairman and Chief Operating Officer Chris McGurk said the company's average investment in upcoming on-sequel films will be under $20 million. But the studio will spend considerably more money on the following sequels: ``Legally Blonde 2: Red, White and Blonde,'' targeted for July 4 release; ``Jeepers Creepers 2,'' set for March; and a sequel to ``Barbershop'' tentatively planned for release during the fourth quarter of 2003.

The explosive growth of DVD continued to improve the fortunes of MGM's home-entertainment division as DVD shipments increased during the third quarter by 18 percent domestically and 20 percent worldwide. During the first nine months of 2002, DVD shipments jumped by 72 percent domestically and 70 percent internationally.

The massive MGM library (more than 1,000 MGM titles are expected to be on DVD by the end of next year) have become what McGurk called ``evergreen generators.'' The film ``The Usual Suspects,'' for example, made $1 million in revenue when released on DVD in 1999. This year, it was reissued as a special edition and is expected to reach $8 million in revenue.

``We're growing not just with new releases but with innovative marketing campaigns and re-promotion of previously released titles,'' McGurk said.