MGM Paints Rosy Financial Picture for Federal Judge

MGM, the movie studio that once spun out such sunny fare as “Meet Me in St. Louis,” “The Wizard of Oz” and the “Andy Hardy” pictures, apparently still believes in happy endings.

The beleaguered company has told a federal judge in Los Angeles that its financial problems can be resolved within a year once bankruptcy court proceedings are dismissed.

In court declarations, MGM-Pathe Communications Co. says it expects to generate a positive cash flow of $90 million in 1992, after losing $130 million this year. The projections have been termed “very aggressive” by one entertainment industry analyst, who said they appeared to be based on the assumption that every upcoming movie will make money or at least break even.

But MGM insists that the numbers are realistic. The company will “regain its position as one of the world’s major motion picture studios,” Vice Chairman Stephen D. Silbert wrote in a court declaration defending the studio’s prospects.

MGM, which has been moribund since January, expects to receive court approval this week to settle more than $15 million in claims by creditors who had filed an involuntary bankruptcy petition against the company in March. The settlement will then trigger a $145-million loan from Credit Lyonnais Bank Nederland, its main lender.

The studio will use the funds to release a string of completed films and to pay off $70 million in accumulated bills. In court declarations, MGM says it expects to cover its costs for the remainder of this year with normal operating cash flow and the balance of the $145-million loan.

MGM executives say they will also market existing properties, such as the studio’s film and television library, more aggressively. One court declaration estimates the library’s long-term value to the studio at more than $2 billion, apart from rights already sold off.

“You need real tough financial and administrative management to pull this off,” one studio source said. “The movies must also produce according to the industry averages.”

The MGM bankruptcy file, which has swelled to more than 1,500 pages since the suit was filed, paints a picture of a company in wild disarray under its former management.

MGM executives suggest that the studio’s parent company, Pathe Communications Corp., inadvertently helped to throw it into a financial tailspin when it purchased MGM for about $1.4 billion last November by laying off the very people who were hired to keep the books.

Trevor Fetter, MGM’s executive vice president, said in court declarations that bills often went unpaid because people “with knowledge of the status of the company’s accounts payable and other obligations had left the company’s employ.” The company discovered that “many employees had simply left the premises with invoices in their desk drawers, on top of their desks, uncoded, not yet approved, reviewed or verified,” he added.

Those problems have now been corrected, Fetter said. But the company’s fate seems far from secure. Securities documents filed by MGM show that Credit Lyonnais has effectively taken control of the studio. The bank engineered the ouster of MGM Chief Executive Giancarlo Parretti, also the company’s majority shareholder, in favor of Alan Ladd Jr. Most of MGM’s stock sits in a trust account administered by Credit Lyonnais. The bank has also put 40% of the company up for sale, with the option of increasing the percentage to 51% in late November.

Fetter characterizes the bank as MGM’s white knight in his declaration, saying the studio’s entire cash shortfall for this year will be eliminated by the $145-million Credit Lyonnais loan. By Fetter’s calculation, MGM’s positive cash flow will continue from 1992 until 1996, when the company will have to reorganize its debt to meet $200 million in bond payments that come due.

A separate projection has MGM taking in $617 million from film receipts during the final nine months of this year. More than half of the money, about $340 million, is supposed to come from “current productions.” That figure has raised more than a few eyebrows, since the studio has released only one film this year, the box-office failure “Not Without My Daughter.”

MGM says the projection is based on anticipated returns from upcoming releases, such as the highly touted “Thelma and Louise,” and from foreign and video markets. But MGM’s last six films reportedly have brought in only $120 million in gross revenue domestically. Major studios generally receive back about half the amount taken in at the box office.

Bankruptcy Judge Arthur M. Greenwald will determine whether MGM’s projections are realistic when he rules this week on the company’s solvency. But entertainment analysts are skeptical about the numbers, especially given MGM’s poor performance in recent times.

“I would dare say that’s an exceptionally optimistic view that the films could generate that much,” said analyst Jeffrey Logsdon of Seidler Amdec Securities in Los Angeles.

MGM’s television projections are equally optimistic. It projects that annual revenue will rise from $106.8 million in 1991 to $185.8 million in 1996, for a cumulative total of $853.9 million. The figures include receipts from network program license fees, syndication and “future production.” Costs, meanwhile, are projected to increase from $119.3 million in 1991 to $162.4 million in 1996, for a cumulative total of $831.6 million.

One senior MGM-Pathe executive said the projections were based on assumptions that the studio will sell a specific number of shows to the network--assumptions drawn from the studio’s recent track record. But the executive also acknowledged that the studio has no way of knowing how many shows it will have on the network for any given season.

All studios make such assumptions when doing internal budget forecasts, he said. But the process is largely guesswork.

Nonetheless, MGM’s TV division has had remarkable success in recent years, despite the financial travails of its parent company. Under veteran TV producer David Gerber, the television group has four series on the networks’ prime-time schedule. So far, only one has been renewed for next season. Last season, all of MGM’s network shows were renewed.

Current revenue projections for films are based on the judgment of MGM’s in-house marketing and distribution people, according to Fetter’s declaration. John Hyde, a bankruptcy expert who filed a declaration on MGM’s behalf, argued that the studio stands a better chance of succeeding if the bankruptcy petition is dismissed and MGM has a chance to earn its way back to prosperity.

Bankruptcy “would cast doubt in the industry upon MGM’s status as a major studio and thereby impair its ability to negotiate and secure, among other things, a superior average percentage of box-office receipts,” which can account for millions of dollars, Hyde wrote.

The studio has run into trouble over cash projections before. In a confidential memorandum prepared after he purchased the studio in November, Parretti projected that MGM’s cash flow to service debt would exceed $200 million a year by 1992 and that the studio would be sitting on nearly $1 billion in cash by 1995.

That was based largely on misguided expectations for MGM’s films. “Rocky V,” for instance, was projected to earn more than $100 million at the box office, according to the memorandum. Instead, it took in about $40 million.