REGISTRATION FILED
PURSUANT TO RULE 424(b)(2)
AND 424(b)(3)
REGISTRATION NUMBER
333-35950
Prospectus Supplement to Prospectus dated May 5, 2000.
10,550,000 Shares
[LOGO OF METRO GOLDWYN MAYER INC.]
METRO-GOLDWYN-MAYER INC.
Common Stock
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Our common stock is listed on the New York Stock Exchange under the symbol
"MGM." The last reported sale price of the common stock on March 13, 2002 was
$18.16 per share.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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Investment in these securities involves a high degree of risk. See "Risk
Factors" beginning on page S-3.
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Per
Share Total
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Initial price to public................................... $ 16.50 $174,075,000
Underwriting discount..................................... $ 0.825 $ 8,703,750
Proceeds, before expenses, to Metro-Goldwyn-Mayer Inc..... $15.675 $165,371,250
To the extent that the underwriters sell more than 10,550,000 shares of
common stock, the underwriters have the option to purchase up to an additional
1,582,500 shares from us at the initial price to public less the underwriting
discount.
The underwriters expect to deliver the initial shares in book-entry form
only through the facilities of The Depository Trust Company against payment in
New York, New York on March 18, 2002.
Goldman, Sachs & Co.
Banc of America Securities LLC
Gerard Klauer Mattison & Co., Inc.
JPMorgan
Salomon Smith Barney
UBS Warburg
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Prospectus Supplement dated March 13, 2002.
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. We urge you to carefully
consider these risk factors, together with all of the other information
included in this prospectus supplement and the accompanying prospectus as well
as the information incorporated by reference in this prospectus supplement and
the accompanying prospectus, before you decide to invest in our securities.
We have had significant losses, and we may have future losses.
We did not report an operating profit for any fiscal year from 1989 through
1999. Although we had an operating profit in 2000 and 2001, we reported a net
loss in 2001 which included a $382.3 million charge related to the adoption of
new Industry accounting guidelines. On February 26, 2002, we announced that we
expect a net loss in the first quarter of 2002 in the range of $0.35 to $0.37
per share and $0.46 to $0.48 per share for the full year as a result of recent
film releases that did not meet our revenue expectations. Also, while
controlled by former management in 1991, our subsidiary MGM Studios was the
subject of an involuntary bankruptcy. We cannot assure you we will be
profitable in future periods.
The accounting standards our financial statements are governed by have
changed.
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 139, which, effective for financial
statements for fiscal years beginning after December 15, 2000, rescinds
Statement of Financial Accounting Standards No. 53. The companies that were
previously subject to the requirements of Statement of Financial Accounting
Standards No. 53 shall now follow the guidance in American Institute of
Certified Public Accountants Statement of Position 00-2, "Accounting by
Producers or Distributors of Films," issued in June 2000. Statement of
Position 00-2 establishes new accounting and reporting standards for all
producers and distributors that own or hold the rights to distribute or
exploit films. Statement of Position 00-2 provides that the cumulative effect
of changes in accounting principles caused by its adoption should be included
in the determination of net income in conformity with Accounting Principles
Board Opinion No. 20, "Accounting Changes." We adopted Statement of Position
00-2 on January 1, 2001 and recorded a one-time, non-cash cumulative effect
charge to earnings of $382.3 million, primarily to reduce the carrying value
of our film and television costs. The new rules also require that advertising
costs be expensed as incurred as opposed to the old rules which allowed
advertising costs to generally be capitalized as part of film costs and
amortized using the "individual film forecast" method. Due to the significant
advertising costs incurred in the early stages of a film's release, we
anticipate that the new rules will significantly impact our results of
operations for the foreseeable future. Additionally, under the prior
accounting rules we classified additions to film costs as an investing
activity in the Statement of Cash Flows. In accordance with Statement of
Position 00-2, we now classify additions to film costs as an operating
activity. For comparative purposes, we have reclassified prior period cash
flow statements to conform with the new presentation.
We are adversely affected by gaps in our motion picture production schedule.
Our revenues and operating results have been and may continue to be
adversely affected by the change in ownership of MGM Studios in 1996 and by
management changes in 1999. Such changes may result in a degree of uncertainty
among top artistic and creative talent about the viability of projects, which
could result in projects first being offered to our competitors. Additionally,
management changes have resulted in delays in commencement of production of
motion pictures. We released nine motion pictures between August 1, 1996 and
August 1, 1997, most of which were produced by others, ten motion pictures in
1999, eight motion pictures in 2000 and 11 motion pictures in 2001.
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We require outside financing to meet our anticipated cash requirements.
Our operations are capital intensive and our capacity to generate cash from
operations is presently insufficient to meet our anticipated cash
requirements. Accordingly, we utilize substantial sources of outside
financing. Such financing may not be available in sufficient amounts for us to
implement our business plan or may be available only on terms which are
disadvantageous to our stockholders. While our revolving credit facility is
scheduled to expire in September 2003, we have begun discussions with our
lenders to extend the term and increase the size of the facility. We cannot
assure you that we will be able to complete such amendments on favorable terms
or at all.
Under our current strategy and business plan, we will continue to require a
substantial amount of cash for the following reasons:
. We will continue to make substantial investments in the production of
new feature films and television programs; and
. We may make additional investments to develop new distribution channels
to further exploit our motion picture library, including video-on-
demand; however, we will evaluate the level of our investments in light
of our available capital and changing market conditions.
If there are cash shortfalls, cash conserving measures may adversely affect
our long term prospects.
If necessary in order to manage our cash needs, we could delay or alter
production or release schedules or reduce our aggregate investment in new film
and television production costs. We cannot assure you that any of these steps
would be adequate or timely, or that acceptable arrangements could be reached
with third parties if necessary. In addition, although these steps would
improve our short-term cash flow and, in the case of partnering, reduce our
exposure should a motion picture perform below expectations, these steps could
reduce our long-term cash flow, leave us with a revenue base insufficient to
sustain our production and distribution activities and adversely affect our
results of operations.
Our credit facility contains restrictive covenants.
While our credit facility was amended in 2000 to eliminate restrictive
covenants relative to strategic investments and acquisitions, as well as off-
balance sheet film financings, it still contains various covenants limiting
indebtedness, dividends and capital expenditures and requires maintenance of
certain financial ratios. We cannot assure you that we will be able to comply
with these or other covenants or conditions in the future, or that we will
generate sufficient cash flow to repay our indebtedness. We further cannot
assure you that, in the event the need arises, we will be able to obtain
additional financing or to refinance our indebtedness on terms acceptable to
us, or at all.
Our substantial leverage could adversely affect our financial health.
We are highly leveraged. Our substantial indebtedness could have important
adverse consequences to you. For example, it could:
. require us to dedicate a substantial portion of our cash flow to the
repayment of our indebtedness, reducing the amount of cash flow
available to fund film and television production and other operating
expenses;
. limit our ability to obtain additional financing, if necessary, for
operating expenses;
. place us at a disadvantage compared to competitors with less debt or
greater financial resources;
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. limit our flexibility in planning for, or reacting to, downturns in our
business, in our industry or in the economy in general; and
. limit our ability to pursue strategic acquisitions and other business
opportunities that may be in our best interests.
Our revenues and results of operations may fluctuate significantly.
Our revenues and results of operations are dependent significantly upon the
commercial success of the motion pictures and television programming that we
distribute, which cannot be predicted with certainty, as well as the timing of
our releases. Accordingly, our revenues and results of operations may
fluctuate significantly from period to period, and the results of any one
period may not be indicative of the results for any future periods. These
fluctuations may be more pronounced since we are not part of a large
diversified corporate group like most of the other major studios.
In addition, entertainment industry accounting practices may accentuate
fluctuations in our operating results. In accordance with generally accepted
accounting principles and industry practice, we amortize film and television
programming costs using the "individual-film-forecast" method. Under this
accounting method, we amortize film and television programming costs for each
film or television program based on the following ratio:
Revenue earned by title in the current period
----------------------------------
Estimated total revenues by title
We regularly review, and revise when necessary, our total revenue estimates
on a title-by-title basis. This may result in a change in the rate of
amortization and/or a write-down of the film or television asset to net
realizable value. Results of operations in future years depend upon our
amortization of our film and television costs. Periodic adjustments in
amortization rates may significantly affect these results. The likelihood of
our reporting of losses is increased because the industry's accounting method
requires the immediate recognition of the entire loss where it is expected
that a motion picture or television program will not recover our investment.
In addition, as a result of adopting Statement of Position 00-2 on January 1,
2001, we are required to expense film advertising costs as incurred as opposed
to our prior practice of capitalizing these costs and amortizing them as part
of film costs. On the other hand, the profit of a successful motion picture or
television program must be recognized over the entire revenue stream expected
to be generated by the individual picture or television program.
We may have lower revenues as a result of our motion picture production
strategy.
Based on our current business plan, our annual release slate may include
proportionately fewer large budget "event" motion pictures than the current
release slates of the other major studios. We also contemplate a stronger
focus on pictures which will appeal to a younger demographic and a greater
number of co-productions than our prior strategy. We cannot assure you that
our strategic approach will enable us to produce commercially successful
motion pictures. Additionally, our current motion picture strategy involves
co-producing or co-financing a substantial portion of our motion pictures.
These co-production arrangements could reduce our long-term cash flow from
pictures which perform above expectations.
Due to the uncertainties inherent in the production of motion pictures, films
may not be completed or released on schedule or on budget.
The production, completion and distribution of motion pictures are subject
to a number of uncertainties, including delays and increased expenditures due
to creative differences among key cast,
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other key creative personnel, disruptions caused by weather, cast or crew
illness, or accidents or other events beyond our control. As such, the
projected costs of an MGM-produced motion picture at the time it is set for
production or acquired may increase significantly, and the date of completion
may be substantially delayed due to the exigencies of production. Increased
costs may make it less likely that such film will recoup its production costs,
and delays in production may result in such film not being ready for release
at the intended time and postponement to a potentially less favorable time,
all of which could cause a decline in gross receipts for such film.
The costs of producing and marketing motion pictures may increase.
The production and marketing of theatrical motion pictures requires
substantial capital. The costs of producing and marketing motion pictures have
generally increased in recent years. According to the Motion Picture
Association of America, the average direct negative cost (which includes all
costs associated with creating a motion picture, including pre-production,
production and post-production, but excluding capitalized overhead and
interest, marketing and distribution costs) of a motion picture produced by
one of the major studios has grown from $26.1 million in 1991 to $47.7 million
in 2001, an increase of 83 percent, and the average domestic marketing cost
per picture has grown from $12.06 million in 1991 to $31.01 million in 2001,
an increase of 157 percent. These costs may continue to increase in the
future, thereby increasing the costs of our motion pictures. Production costs
and marketing costs are rising at a faster rate than increases in either
domestic admissions to movie theaters or admission ticket prices, leaving us
more dependent on other media, such as home video, television and foreign
markets, and new media.
We could be adversely affected by strikes or other union job actions.
The motion picture and television programs produced by MGM Studios, and the
other major U.S. studios, generally employ actors, writers and directors who
are members of the Screen Actors Guild, Writers Guild of America, and
Directors Guild of America, pursuant to industry-wide collective bargaining
agreements. The collective bargaining agreement with WGA was successfully
renegotiated and became effective beginning May 2, 2001 for a term of three
years. Negotiations regarding the collective bargaining agreement with SAG
were successfully completed on July 3, 2001, and the agreement was ratified as
of July 1, 2001 for a term of three years. The DGA collective bargaining
agreement was successfully renegotiated and has been ratified. It has a term
of three years from July 1, 2002. Many productions also employ members of a
number of other unions, including without limitation the International
Alliance of Theatrical and Stage Employees and Teamsters. A strike by one or
more of the unions who provide personnel essential to the production of motion
pictures or television programs could delay or halt our ongoing production
activities. Such a halt or delay, depending on the length of time involved,
could cause delay or interruption in our release of new motion pictures and
television programs and thereby could adversely affect our cash flow and
revenues. Our revenues from motion pictures and television product in our
library should not be affected and may partially offset the effects of a
strike to the extent, if any, that television exhibitors buy more library
product to compensate for interruption in their first-run programming.
We are limited in our ability to exploit our library.
Our rights to the titles in our library vary. In some cases we have only
the right to distribute titles in certain media and territories for a limited
term. Our rights in approximately 33 percent of our titles are limited in
time. Our rights with respect to approximately six percent of our titles will
expire over the next two years (i.e., through the end of 2003) and with
respect to another approximately 23 percent over the seven years thereafter
(from 2004 to 2011). While in the past we have generally been able to renew
expiring rights on acceptable terms, we cannot assure you that we will
continue to be able to do so in the future. In accordance with industry
practice, for purposes of calculating the size of our library, we include any
title in which we have any distribution rights.
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Additionally, prior managements granted long-term domestic and major
international television licenses covering a substantial portion of our
library, in exchange for pre-paid fees. A cross-section of our library is
subject to one or more of these licenses, including substantially all of the
MGM/UA titles produced prior to 1990, which have been licensed in the United
States and Europe, and approximately 51 percent (some are starting to expire)
of the Orion and PolyGram titles, which have been licensed in one or more of
France, Spain, Germany and the United Kingdom. Until these agreements expire
and the rights revert to us, we expect contributions to earnings and cash flow
from these markets to continue to be below those of our competitors for
similar products. We cannot assure you that our sales or profitability will
increase after these agreements expire.
We may not be able to realize the anticipated benefits of business
combinations.
We believe that we should, through business combinations or other strategic
alternatives, either grow into or become part of a larger, vertically
integrated organization, in order to maximize the value of our assets. To that
end, we have been regularly evaluating business combination opportunities and
other strategic alternatives as opportunities arise, and intend to continue to
do so. No agreements regarding a transaction of such nature have been reached
and there can be no assurance that we will decide to enter into any such
transaction. In addition, business combinations and other strategic
alternatives involve numerous risks, including diversion of management's
attention away from our operating activities. We cannot assure you that we
will not encounter unanticipated problems or liabilities with respect to any
business combinations that have been or may be completed by us, nor can we
assure you that the anticipated benefits of any such transactions will be
achieved.
We face risks relating to the international distribution of our product.
Because we have historically derived approximately 40 percent of our
revenues from non-U.S. sources, our business is subject to risks inherent in
international trade, many of which are beyond our control. These risks
include:
. changes in laws and policies affecting trade, investment and taxes,
including laws and policies relating to the repatriation of funds and to
withholding taxes;
. differing degrees of protection for intellectual property;
. the instability of foreign economies and governments; and
. fluctuating foreign exchange rates.
Until October 31, 2000, we distributed our motion pictures in theatrical
markets outside the U.S. and Canada through United International Pictures
B.V., or "UIP," a partnership among the company, Paramount Pictures
Corporation and Universal Studios, Inc. Effective November 1, 2000, we
withdrew from UIP and our international theatrical distribution is now
conducted through Fox Filmed Entertainment. While our cost structure is lower,
we cannot assure that we will realize the anticipated revenue enhancements of
our withdrawal from UIP.
Piracy of motion pictures, including digital and Internet piracy, may decrease
the gross receipts received from the exploitation of our films.
Motion picture piracy is extensive in many parts of the world, including
South America, Asia (including Korea, China and Taiwan), the countries of the
former Soviet Union and other former Eastern bloc countries. The Motion
Picture Association, the American Motion Picture Marketing Association and the
American Motion Picture Export Association monitor the progress and efforts
made by various countries to limit or prevent piracy. In the past, these
various trade associations have enacted voluntary embargoes on motion picture
exports to certain countries in order to pressure the governments of those
countries to become more aggressive in preventing motion picture piracy. In
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addition, the United States government has publicly considered implementing
trade sanctions against specific countries that, in the opinion of the United
States government, do not make appropriate efforts to prevent copyright
infringements of United States produced motion pictures. There can be no
assurance, however, that voluntary industry embargoes or United States
government trade sanctions will be enacted. If enacted, such actions could
impact the amount of revenue that we realize from the international
exploitation of motion pictures depending upon the countries subject to such
action and the duration and effectiveness of such action. If not enacted or if
other measures are not taken, the motion picture industry (including MGM) may
continue to lose an indeterminate amount of revenue as a result of motion
picture piracy.
Additionally, as motion pictures begin to be distributed using emerging
technologies such as the Internet and online services, digital piracy will
reduce the ability to protect intellectual property rights in motion pictures.
This is because digital formats currently do not contain mechanisms for
tracking the source or ownership of digital content. As a result, users may be
able to download and distribute unauthorized or "pirated" copies of
copyrighted motion pictures over the Internet. As long as pirated content is
available to download digitally, many consumers may choose to digitally
download such pirated motion pictures rather than paying for legitimate motion
pictures. Digital piracy of our films may adversely impact the gross receipts
received from the exploitation of such films.
Production of first-run syndicated television programming may involve
financial risks.
Our television products have historically been first-run cable or
syndicated television programming that is generally licensed based on a pilot
episode that we finance. On occasion, we may also produce network television
programming. In the case of syndicated programming, if an insufficient number
of stations license the programming, our pilot costs will not be recouped.
There is also financial exposure to us after television programming is
licensed to the extent that advertising revenues and/or license fees we
receive are not sufficient to cover production costs. In addition, we may have
certain financial obligations to the producer of a first-run television series
if we cancel production prior to commencement of production for any broadcast
season for which the series was licensed.
Risks relating to implementing our branded cable and satellite programming
channels.
We may consider strategic opportunities to create branded cable and
satellite programming channels. We cannot assure you that we will have the
financing that may be necessary for such acquisitions or investments, that we
will consummate any such transactions or that we will be able to realize any
anticipated benefits from any such transactions. See "Recent Developments."
We cannot predict the effect that rapid technological change or alternative
forms of entertainment may have on MGM or the motion picture industry.
The entertainment industry in general, and the motion picture industry in
particular, continue to undergo significant changes, primarily due to
technological developments. Due to this rapid growth of technology and
shifting consumer tastes, we cannot accurately predict the overall effect that
technological growth or the availability of alternative forms of entertainment
may have on the potential revenue from and profitability of feature-length
motion pictures and television programming. In addition, certain outlets for
the distribution of motion pictures may not obtain the public acceptance that
is or was previously predicted. In addition, while we have benefited from the
rapid growth in the DVD market, we cannot give assurance that such growth and
penetration rate will continue.
The motion picture industry is highly competitive and at times may create an
oversupply of motion pictures in the market.
Despite a general increase in market use, the number of motion pictures
released by competitors, particularly the major U.S. motion picture studios,
may create an oversupply of product in the market,
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and may reduce our share of gross box-office receipts and make it more
difficult for our films to succeed. Oversupply may become most pronounced
during peak release times, such as school holidays and national holidays, when
theater attendance is expected to be highest. An oversupply of competing
motion pictures may cause us to lose market share. Moreover, we cannot
guarantee that we will be able to release all of our films during peak release
times as scheduled and, therefore, may miss potentially higher gross box-
office receipts.
This oversupply problem is compounded since the supply of motion picture
screens is limited. Currently, a substantial majority of the motion picture
screens in the United States typically are committed at any one time to only
10 to 15 films distributed nationally by major studio distributors. However,
as a result of recent changes in the theater-owner industry, including
consolidations and bankruptcies, the amount of available motion picture
screens may decrease, thus reducing the number of films that may be
distributed nationally at any one time. For example, twelve theater companies
have recently filed for bankruptcy protection. If the number of motion picture
screens decreases, gross receipts may also decrease.
Some of our competitors have greater financial resources than we do.
Most of the other major studios are part of large diversified corporate
groups with a variety of other operations, including television networks and
cable channels, that can provide both a means of distributing their products
and stable sources of earnings and cash flows that offset fluctuations in the
financial performance of their motion picture and television operations.
The Tracinda Group owns a majority of our common stock and has the power to
elect our board of directors and influence our affairs.
Tracinda and one of its affiliates, which we refer to collectively as the
Tracinda Group, beneficially own 194,992,644 shares, approximately 80.9
percent of our outstanding common stock (approximately 77.5 percent after
giving effect to the sale of the shares offered hereby). In the aggregate, the
Tracinda Group and our directors and executive officers beneficially own
approximately 81.4 percent of our outstanding common stock (approximately 78.0
percent after giving effect to the sale of the shares offered hereby). Our
common stock does not have cumulative voting rights and, since we anticipate
that the Tracinda Group will continue to own greater than 50 percent of our
outstanding common stock for the foreseeable future, it will have the ability
to elect our entire board of directors and determine the outcome of other
matters submitted to our stockholders, such as the approval of significant
transactions, and otherwise to influence our affairs.
Our common stock has a relatively small public "float."
Of the 241,115,082 shares of our common stock outstanding as of March 13,
2002, approximately 44,871,597 shares are owned by persons other than the
Tracinda Group and our executive officers and directors. Without a
significantly larger public float, our common stock will be less liquid than
the common stock of companies with broader public ownership and, as a result,
the trading prices for our common stock may be more volatile. Among other
things, trading of a relatively small volume of our common stock may have a
greater impact on the trading price for our stock than would be the case if
our public float were larger.
Future sales of shares of the common stock could decrease its market price.
We will have approximately 251,665,082 shares of our common stock
outstanding after giving effect to this offering, of which approximately
196,243,485 will be "restricted" securities under Rule 144 of the Securities
Act and/or held by directors, officers or holders of ten percent or more of
our outstanding common stock. We have also granted, as of February 28, 2002,
options to purchase a
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total of 27,463,972 shares of our common stock. Furthermore, we have granted
to Tracinda, and certain other holders of our common stock or outstanding
options, registration rights with respect to the shares they own or that we
may issue to them. Possible or actual sales of any of these shares,
particularly by our directors and officers, under Rule 144 or otherwise, may
in the future decrease the price of shares of our common stock.
RECENT DEVELOPMENTS
Cable Investment and Joint Venture
In April 2001, we invested $825.0 million in cash for a 20 percent interest
in two general partnerships which own and operate the American Movie Channel,
Bravo, the Independent Film Channel and WE: Women's Entertainment (formerly
Romance Classics). These partnerships were wholly-owned by Rainbow Media,
which is 74 percent owned by Cablevision Systems Corporation and 26 percent
owned by NBC. The proceeds of our $825.0 million investment were used as
follows: (1) $365.0 million was used to repay bank debt of the partnerships;
(2) $295.5 million was used to repay intercompany loans from Cablevision and
its affiliates; and (3) $164.5 million was added to the working capital of the
partnerships.
While we are not involved in the day-to-day operations of the cable
channels, our approval is required before either partnership may: (1) declare
bankruptcy or begin or consent to any reorganization or assignment for the
benefit of creditors; (2) enter into any new transaction with a related party;
(3) make any non-proportionate distributions; (4) amend the partnership
governing documents; or (5) change its tax structure.
We have the right to participate on a pro rata basis in any sale to a third
party by Rainbow Media of its partnership interests, and Rainbow Media can
require us to participate in any such sale. If a third party invests in either
partnership, our interest and that of Rainbow Media will be diluted on a pro
rata basis. Neither we nor Rainbow Media will be required to make additional
capital contributions to the partnerships. However, if Rainbow Media makes an
additional capital contribution and we do not, our interest in the
partnerships will be diluted accordingly. If the partnerships fail to attain
certain financial projections provided to us by Rainbow Media for the years
2002 through 2005, inclusive, we will be entitled, 30 days after receipt of
partnership financial statements for 2005, to require Rainbow Media to acquire
our partnership interests for fair market value at the time, as determined
pursuant to the agreement. We formed a wholly-owned subsidiary, MGM Networks
U.S. Inc., which made the above-described investment, and is the MGM entity
which holds the aforesaid general partnership interests and rights attendant
thereto.
In February and March 2001, pursuant to our shelf registration statement,
we sold 16,080,590 shares of common stock to unaffiliated investors in private
placements for aggregate net proceeds of $310.6 million. In addition, we sold
15,715,667 shares of our Series B preferred stock to Tracinda for $325.0
million. We used the net proceeds of this sale to help finance our cable
channel investment. The preferred stock does not bear dividends but has a
liquidation preference of $0.01 per share. The preferred stock became
convertible, at the option of the holder, into common stock on a share-for-
share basis upon stockholder approval of the issuance of the common stock to
Tracinda on May 2, 2001, at which time the preferred stock was converted into
approximately 15,715,667 shares of common stock. Tracinda had a demand
registration right for the common stock it received upon conversion of the
preferred stock. The Tracinda Group currently beneficially owns approximately
81 percent of our outstanding common stock.
In August 2001, through our wholly-owned subsidiary MGM On Demand Inc., we
acquired a 20 percent interest in a joint venture established to create an on-
demand movie service to offer a broad selection of theatrically-released
motion pictures via digital delivery for broadband internet users in the
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United States. Other partners in the joint venture include Sony Pictures
Entertainment, Universal Studios, Warner Bros. and Paramount Pictures. We
funded $7.5 million for our equity interest and our share of operating
expenses of the joint venture as of December 31, 2001. We financed our
investment through borrowings under our credit facilities. We are committed to
fund our share of the joint venture's operating expenses, as required.
USE OF PROCEEDS
We expect to raise approximately $164.8 million in this offering, after
deducting our expenses. We will use the net proceeds for general corporate
purposes, including reduction of the revolving portion of our credit facility,
financing our business operations and potential acquisitions. Our business
plan calls for substantial continued borrowing under this facility, subject to
our compliance with its terms. As of March 13, 2002, we owed $189 million
under the revolving portion of our credit facility, which currently bears
interest at the rate of 4.4% per annum and is due in September 2003, subject
to extension under certain conditions. During the past 12 months, borrowings
under the credit facility were used principally to finance a portion of the
purchase of a 20 percent interest in two general partnerships which own and
operate four cable channels, and for general operating purposes.
PRICE RANGE OF COMMON STOCK
The common stock is listed on the NYSE and trades under the symbol "MGM."
The following table sets forth for the quarters indicated the high and low
composite per share closing sales prices as reported by the NYSE.
High Low
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2000
First Quarter............................................... $28.06 $21.69
Second Quarter.............................................. 30.38 23.94
Third Quarter............................................... 26.50 22.00
Fourth Quarter.............................................. 22.81 14.94
2001
First Quarter............................................... $21.77 $15.35
Second Quarter.............................................. 22.93 15.76
Third Quarter............................................... 22.47 13.86
Fourth Quarter.............................................. 21.90 15.81
2002
First Quarter (through March 13)............................ $22.27 $16.96
The last reported sales price of the common stock on the NYSE on March 13,
2002 was $18.16 per share. As of March 13, 2002, there were more than 2,000
beneficial holders of our common stock.
DIVIDEND POLICY
We have not paid any dividends to date on the common stock and currently
intend to retain any earnings to fund the operation and expansion of our
business and to service and repay our debt. Therefore, we do not intend to pay
cash dividends on our common stock for the foreseeable future. Furthermore, as
a holding company with no independent operations, our ability to pay dividends
will depend upon the receipt of dividends or other payments from our
subsidiaries. In addition, our primary credit facility contains financial
covenants that restrict our ability to pay dividends. Subject to the
foregoing, our Board of Directors has the sole discretion to pay cash
dividends.
S-11
CAPITALIZATION
The following table sets forth our consolidated cash and capitalization as
of December 31, 2001 (A) on a historical basis and (B) as adjusted to give
effect to this offering as if the foregoing had occurred as of December 31,
2001, with an assumed offering price of $16.50 per share and estimated
expenses of $9.3 million.
As of December 31, 2001
----------------------------------------
Actual As Adjusted(1)(2)
---------------- ----------------------
(unaudited)
(in thousands, except share data)
Cash.................................. $ 2,698 $ 8,469
================ =================
Debt:
Credit facility:
Term loans.......................... $ 668,500 $ 668,500
Revolving credit facility........... 159,000 --
Other borrowings...................... 8,686 8,686
---------------- -----------------
Total debt........................ 836,186 677,186
---------------- -----------------
Stockholders' equity:
Preferred stock, $.01 par value per
share, 25,000,000 shares
authorized;
none issued; ...................... -- --
Common stock, $.01 par value per
share, 500,000,000 shares
authorized;
239,629,500 shares issued and
outstanding; 250,179,500 shares
issued and outstanding as
adjusted........................... 2,396 2,502
Additional paid-in capital........... 3,717,767 3,882,432
Deficit.............................. (1,203,565) (1,203,565)
Accumulated other comprehensive
loss................................ (27,116) (27,116)
---------------- -----------------
Total stockholders' equity............ 2,489,482 2,654,253
---------------- -----------------
Total capitalization.............. $ 3,325,668 $ 3,331,439
================ =================
--------
(1) Subsequent to December 31, 2001, 1,485,582 additional shares of common
stock were issued pursuant to incentive plans.
(2) To the extent that the underwriters sell more than the 10,550,000 shares
of common stock set forth above, the underwriters have the option to
purchase up to an additional 1,582,500 shares from us at $16.50 less the
underwriting discount, or aggregate additional net proceeds of
approximately $24.8 million.
S-12
PLAN OF DISTRIBUTION
The Company and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co. is the representative of the Underwriters.
Underwriters
Number of Shares
----------------
Goldman, Sachs & Co. ....................................... 7,050,000
Banc of America Securities LLC.............................. 500,000
Gerard Klauer Mattison & Co., Inc. ......................... 500,000
J.P. Morgan Securities Inc. ................................ 500,000
Salomon Smith Barney Inc. .................................. 500,000
UBS Warburg LLC............................................. 500,000
Robertson Stephens, Inc. ................................... 500,000
Scotia Capital (USA) Inc. .................................. 500,000
----------
Total..................................................... 10,550,000
==========
The Underwriters are committed to take and pay for all of the shares being
offered, if any are taken other than the shares covered by the option
described below unless and until this option is exercised.
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
1,582,500 shares from the Company to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by the Company. Such amounts
are shown assuming both no exercise and full exercise of the Underwriters'
option to purchase 1,582,500 additional shares.
Paid by the Company
No Full
Exercise Exercise
---------- -----------
Per share................................................ $ 0.825 $ 0.825
Total.................................................... $8,703,750 $10,009,313
Shares sold by the Underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this Prospectus
Supplement. Any shares sold by the Underwriters to securities dealers may be
sold at a discount of up to $0.25 per share from the initial price to public.
Any such securities dealers may resell any shares purchased from the
Underwriters to certain other brokers or dealers at a discount of up to $0.10
per share from the initial price to public. If all the shares are not sold at
the initial price to public, the representative may change the offering price
and the other selling terms.
The Company and its directors and officers have agreed with the
Underwriters not to dispose of or hedge any of their Common Stock or
securities convertible into or exchangeable for shares of Common Stock during
the period from the date of this Prospectus Supplement continuing through the
date 90 days after the date of this Prospectus Supplement, except with the
prior written consent of the representative. This agreement does not apply to
any existing employee benefit plans. The Tracinda
S-13
Group has agreed with the Underwriters not to dispose of or hedge any of their
Common Stock or securities convertible into or exchangeable for shares of
Common Stock during the period from the date of this Prospectus Supplement
continuing through the date 90 days after the date of this Prospectus
Supplement except with the prior written consent of the representative except
that the Tracinda Group is permitted (i) to pledge its Common Stock under its
existing credit facility as the same may be amended or refinanced and (ii) to
convey to LINCY Foundation, a charitable foundation, an unlimited number of
its shares of Common Stock and LINCY is permitted, after 30 days from the date
of this Prospectus and until 90 days after the date of this Prospectus, to
sell up to 700,000 shares of such Common Stock. See "Shares Available for
Future Sale" for a discussion of certain transfer restrictions.
In connection with the Offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the Offering. "Covered"
short sales are sales made in an amount not greater than the Underwriters'
option to purchase additional shares from the Company in the offering. The
Underwriters may close out any covered short position by either exercising
their option to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the Underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase additional shares pursuant to the option granted to
the Underwriter. "Naked" short sales are any sales in excess of such option.
The Underwriters must close out any naked short position by purchasing shares
in the open market. A naked short position is more likely to be created if the
Underwriters are concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Common Stock while the Offering is in
progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such Underwriter in
stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by
the Underwriters at any time. These transactions may be effected on the NYSE,
in the over-the-counter market or otherwise.
Certain of the Underwriters or their affiliates are currently and may from
time to time be lenders under the Company's bank credit facilities. In the
ordinary course of business, certain of the Underwriters or their affiliates
have engaged in and may engage in investment banking transactions with and the
provision of advisory services for the Company.
The Underwriters have informed us that they do not expect discretionary
sales by the Underwriters to exceed 5% of the Common Stock offered by this
Prospectus Supplement.
The Company estimates that the total expenses of the Offering, excluding
underwriting discounts and commissions, will be approximately $600,000.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
S-14
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for us by Jay Rakow, Senior Executive Vice President and General
Counsel. Certain legal matters with respect to the offering will be passed
upon for the Underwriters by O'Melveny & Myers LLP.
EXPERTS
The audited consolidated financial statements and schedules incorporated by
reference into this prospectus supplement and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in giving said reports.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain or
incorporate by reference forward-looking statements, within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Forward-looking statements typically can be identified by the use of
forward-looking words, such as "may," "will," "could," "project," "believe,"
"anticipate," "expect," "estimate," "continue," "potential," "plan," "intend,"
"forecast" and the like. These statements appear in a number of places in this
prospectus supplement and the accompanying prospectus and the information
incorporated by reference and include statements regarding our current
intentions, plans, strategies, beliefs and expectations.
Forward-looking statements do not guarantee future performance and involve
risks and uncertainties that could cause actual results to differ materially
from those anticipated. The information contained in this prospectus
supplement and the accompanying prospectus, including the information
contained in "Risk Factors" beginning on p. S-3, or incorporated by reference,
identifies important factors that could cause such differences.
S-15
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC, in accordance with the Securities Exchange Act of
1934. You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from the SEC's web
site at: http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus
supplement and the accompanying prospectus the information we file with them,
which means that we can disclose important information to you by referring to
our filed SEC documents. The information incorporated by reference is
considered to be part of this prospectus supplement and the accompanying
prospectus. Information we file with the SEC after the date of this document
will update and supersede the information in this prospectus supplement and
the accompanying prospectus. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed:
(1) Our Annual Report on Form 10-K for the year ended December 31, 2001;
(2) Our Current Reports on Form 8-K dated February 15, 2002 and February
26, 2002; and
(3) The description of capital stock contained in Item 1 of our
Registration Statement on Form 8-A, filed with the SEC on October 14,
1997, as amended.
We have also filed a Registration Statement on Form S-3 with the SEC for
the securities offered by this prospectus supplement and the accompanying
prospectus. This prospectus supplement and the accompanying prospectus do not
contain all of the information set forth in the registration statement. You
should read the registration statement for further information about our
common stock and us. The registration statement can be found in the SEC's
public reference room or on the SEC's website referred to above, and you may
request a copy of any of these filings, at no cost, by writing or calling
William A. Jones, Senior Executive Vice President and Secretary of the
company, at:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404
(310) 449-3000
You can find additional information by visiting our website at:
http://www.mgm.com.
S-16
PROSPECTUS
METRO-GOLDWYN-MAYER INC.
$750,000,000
Common Stock
----------------
We may use this prospectus to offer and sell from time to time, separately
or together, shares of our common stock. These securities will have a total
initial public offering price not to exceed $750,000,000 and will be offered
and sold at prices and on terms to be determined at the time of sale. The
terms of any offering will be set forth in one or more prospectus supplements
to this prospectus.
The prospectus supplement will also set forth, among other things, the
total number of shares offered, the offering price and the terms of the
offering. Our common stock trades on the New York Stock Exchange under the
symbol "MGM." On May 3, 2000, the closing price of our common stock was $27
3/4 per share.
As will be described in more detail in any prospectus supplement, the
securities may be offered through an underwriter or underwriting syndicates
represented by one or more managing underwriters, or through dealers. The
securities may also be sold directly or through agents to investors. See "Plan
of Distribution."
This prospectus may not be used to consummate sales of offered securities
unless accompanied by a prospectus supplement.
----------------
Investment in these securities involves a high degree of risk. See "Risk
Factors" beginning on page 3.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is May 5, 2000.
TABLE OF CONTENTS
Page
----
About this Prospectus...................................................... 2
Forward-Looking Statements................................................. 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 8
Price Range of Common Stock................................................ 8
Dividend Policy............................................................ 8
The Company................................................................ 9
Description of Common Stock................................................ 11
Plan of Distribution....................................................... 12
Legal Matters.............................................................. 13
Experts.................................................................... 13
Where You Can Find More Information........................................ 14
----------------
ABOUT THIS PROSPECTUS
This prospectus is part of a Registration Statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may from time to time over approximately the next two
years, sell any combination of the securities described in this prospectus in
one or more offerings up to a total dollar amount of $750,000,000. This
prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement also may add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information" on page 14 below.
You should rely only on the information or representations incorporated by
reference or provided in this prospectus and in the accompanying prospectus
supplement. We have not authorized anyone to provide you with different
information. You may obtain copies of the Registration Statement, or any
document which we have filed as an exhibit to the Registration Statement or to
any other SEC filing, either from the SEC or from our Secretary as described
below. We are not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or in the accompanying prospectus supplement is accurate as of any
date other than the dates printed on the front of each such document.
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference forward-looking
statements, within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. Forward-looking statements
typically can be identified by the use of forward-looking words, such as
"may," "will," "could," "project," "believe," "anticipate," "expect,"
"estimate," "continue," "potential," "plan," "intend," "forecast" and the
like. These statements appear in a number of places in this prospectus and the
information incorporated by reference and include statements regarding our
current intentions, plans, strategies, beliefs and expectations.
Forward-looking statements do not guarantee future performance and involve
risks and uncertainties that could cause actual results to differ materially
from those anticipated. The information contained in this prospectus,
including the information contained in "Risk Factors" beginning on p. 3, or
incorporated by reference, identifies important factors that could cause such
differences.
2
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. We urge you to carefully
consider these risk factors, together with all of the other information
included in this prospectus and the information incorporated in this
prospectus by reference, before you decide to invest in our securities.
We have had significant losses, and we may have future losses.
We have not reported an operating profit for any fiscal year since 1988,
and while controlled by former management in 1991, our subsidiary MGM Studios
was the subject of an involuntary bankruptcy. We cannot assure you when, or
if, we will have a profitable year.
The accounting standards our financial statements are governed by are expected
to change.
The Financial Accounting Standards Board (known as FASB) is expected to
adopt certain changes that will alter reporting by motion picture companies.
FASB Statement No. 53, which previously allowed wide latitudes for booking
movie revenues and amortization, is expected to be rescinded shortly. The new
regulations will impose numerous changes to reporting, and many motion picture
companies will take a one-time, non-cash charge of significant proportions to
conform to the new rules.
We anticipate that the new rules will have a significant impact on our
results of operations for the foreseeable future. We are currently calculating
the financial impact of these new rules.
We are adversely affected by gaps in our motion picture production schedule.
Our revenues and operating results have been and may continue to be
adversely affected by the change in ownership of MGM Studios in 1996 and by
recent management changes. Such changes may result in a degree of uncertainty
among top artistic and creative talent about the viability of projects, which
could result in projects first being offered to our competitors. Additionally,
management changes have resulted in delays in commencement of production of
motion pictures. We released nine motion pictures between August 1, 1996 and
August 1, 1997, most of which were produced by others, ten motion pictures in
1999, and we expect to release less than ten motion pictures in 2000.
We require outside financing to meet our anticipated cash requirements.
Our operations are capital intensive and our capacity to generate cash from
operations is presently insufficient to meet our anticipated cash
requirements. Accordingly, we must obtain substantial sources of outside
financing. Such financing may not be available in sufficient amounts for us to
implement our business plan or may be available only on terms which are
disadvantageous to our stockholders.
Our cash flow in 1999 was adversely affected by the following factors,
among others:
. Our slate of motion pictures released during the first half of 1999
performed below expectations;
. We paid PolyGram N.V. $235 million to acquire certain of the PolyGram
film libraries;
. We paid Warner Home Video $225 million, plus interest, under our
agreement to terminate Warner Home Video's right to distribute our
product in the home video market;
. We incurred corporate restructuring expenses;
. We incurred approximately $9 million in costs to integrate the PolyGram
library into our operations and transition to domestic home video self-
distribution; and
3
. We funded 50 percent of the expenses of MGM Networks Latin America,
approximately $6.1 million.
Under our current strategy and business plan, we will continue to require a
substantial amount of cash for the following reasons:
. We will continue to make substantial investments in the production of
new feature films and television programs; and
. We may make additional investments to develop new distribution channels
to further exploit our motion picture library; however, we will evaluate
the level of our investments in light of our available capital and
changing market conditions.
If there are cash shortfalls, cash conserving measures may adversely affect
our long term prospects.
If necessary in order to manage our cash needs, we could delay or alter
production or release schedules or reduce our aggregate investment in new film
and television production costs. We cannot assure you that any of these steps
would be adequate or timely, or that acceptable arrangements could be reached
with third parties if necessary. In addition, although these steps would
improve our short-term cash flow and, in the case of partnering, reduce our
exposure should a motion picture perform below expectations, these steps could
reduce our long term cash flow and adversely affect our results of operations.
Our credit facility contains restrictions which limit our operating
flexibility.
Our credit facility contains various covenants, including certain
limitations on indebtedness, dividends and capital expenditures and
maintenance of certain financial ratios. We cannot assure you that we will be
able to comply with these or other covenants or conditions in the future, or
that we will generate sufficient cash flow to repay our indebtedness. We
further cannot assure you that, in the event the need arises, we will be able
to obtain additional financing or to refinance our indebtedness on terms
acceptable to us, or at all.
Our substantial leverage could adversely affect our financial health.
We are highly leveraged. Our substantial indebtedness could have important
adverse consequences to you. For example, it could:
. require us to dedicate a substantial portion of our cash flow to the
repayment of our indebtedness, reducing the amount of cash flow
available to fund film and television production and other operating
expenses;
. limit our ability to obtain additional financing, if necessary, for
operating expenses;
. place us at a disadvantage compared to competitors with less debt or
greater financial resources;
. limit our flexibility in planning for, or reacting to, downturns in our
business, in our industry or in the economy in general; and
. limit our ability to pursue strategic acquisitions and other business
opportunities that may be in our best interests.
Our revenues and results of operations may fluctuate significantly.
Our revenues and results of operations are dependent significantly upon the
commercial success of the motion pictures and television programming that we
distribute, which cannot be predicted with
4
certainty, as well as the timing of our releases. Accordingly, our revenues
and results of operations may fluctuate significantly from period to period,
and the results of any one period may not be indicative of the results for any
future periods.
In addition, entertainment industry accounting practices may accentuate
fluctuations in our operating results. In accordance with generally accepted
accounting principles and industry practice, we amortize film and television
programming costs using the "individual-film-forecast" method. Under this
accounting method, we amortize film and television programming costs for each
film or television program based on the following ratio:
Revenue earned by title in the current period
----------------------------------
Estimated total revenues by title
We regularly review, and revise when necessary, our total revenue estimates
on a title-by-title basis. This may result in a change in the rate of
amortization and/or a write-down of the film or television asset to net
realizable value. Results of operations in future years depend upon our
amortization of our film and television costs. Periodic adjustments in
amortization rates may significantly affect these results. The likelihood of
our reporting of losses is increased because the industry's accounting method
requires the immediate recognition of the entire loss where it is expected
that a motion picture or television program will not recover our investment.
On the other hand, the profit of a successful motion picture or television
program must be recognized over the entire revenue stream expected to be
generated by the individual picture or television program.
We may have lower revenues as a result of our motion picture production
strategy.
Based on our current business plan, MGM's annual release slate may include
proportionately fewer large budget "event" motion pictures than the current
release slates of the other major studios. We also contemplate a stronger
focus on pictures which will appeal to a younger demographic and a greater
number of co-productions than our prior strategy. We cannot assure you that
our strategic approach will enable us to produce commercially successful
motion pictures. Additionally, our current motion picture strategy involves
co-producing or co-financing a substantial portion of our motion pictures.
These co-production arrangements could reduce our long-term cash flow from
pictures which perform above expectations.
We may not be able to meet our production goals and schedule.
The production, completion and distribution of motion pictures are subject
to numerous uncertainties, including financing requirements, the availability
of desired talent and quality material and the release schedule of the motion
pictures of our competitors. We cannot assure you that any of the pictures
scheduled for release in the remainder of 2000 or future periods will be
completed or released on schedule or budget, or at all.
We are limited in our ability to exploit our library.
Our rights to the titles in our library vary. In some cases we have only
the right to distribute titles in certain media and territories for a limited
term. Our rights in approximately 35 percent of our titles are limited in
time. Our rights with respect to approximately 20 percent of our titles will
expire before 2010. While in the past we have generally been able to renew
expiring rights on acceptable terms, we cannot assure you that we will
continue to be able to do so in the future. In accordance with industry
practice, for purposes of calculating the size of our library, we include any
title in which we have any distribution rights.
5
Additionally, a prior management granted long-term domestic and major
international television licenses covering a substantial portion of our
library, in exchange for pre-paid fees. A cross-section of our library is
subject to one or more of these licenses, including substantially all of the
MGM/UA titles produced prior to 1990, which have been licensed in the U.S. and
Europe, and approximately 40 percent of the Orion and PolyGram titles, which
have been licensed in Europe. Until these agreements expire and the rights
revert to us, we expect contributions to earnings and cash flow from these
markets to continue to be below those of our competitors for similar products.
We cannot assure you that our sales or profitability will increase after these
agreements expire.
We may not be able to realize the anticipated benefits of acquisitions.
In January 1999, we acquired over 1,300 feature film titles in the PolyGram
film libraries. In addition, we may consider strategic acquisitions as
opportunities arise, subject to the obtaining of any necessary financing.
Acquisitions involve numerous risks, including diversion of our management's
attention away from our operating activities. We cannot assure you that we
will not encounter unanticipated problems or liabilities relating to any of
our previous acquisitions or the integration of an acquired company's
operations, nor can we assure you that we will realize the anticipated
benefits of any past or future acquisitions.
We face risks relating to the international distribution of our product.
Because we have historically derived approximately 40 percent of our
revenues from non-U.S. sources, our business is subject to risks inherent in
international trade, many of which are beyond our control. These risks
include:
. changes in laws and policies affecting trade, investment and taxes,
including laws and policies relating to the repatriation of funds and to
withholding taxes;
. differing degrees of protection for intellectual property;
. the instability of foreign economies and governments; and
. fluctuating foreign exchange rates.
Until October 31, 2000, we will distribute our motion pictures in
theatrical markets outside the U.S. and Canada through United International
Pictures B.V., or "UIP," a partnership among the company, Paramount Pictures
Corporation and Universal Studios, Inc. Effective November 1, 2000, we will
withdraw from UIP and our international theatrical distribution will be
conducted through Fox Filmed Entertainment. While our cost structure is lower,
we cannot assure that we will realize the anticipated revenue enhancements of
our withdrawal from UIP or the early termination of our agreement with Warner
Home Video.
Production of first-run syndicated television programming may involve
financial risks.
First-run syndicated television programming is generally licensed based on
a pilot episode that we finance. If an insufficient number of stations license
the programming, our pilot costs will not be recouped. There is also financial
exposure to us after the programming is licensed to the extent that
advertising revenues and/or license fees we receive are not sufficient to
cover production costs. In addition, we may have certain financial obligations
to the producer of a first-run syndicated series if we cancel production prior
to commencement of production for any broadcast season for which the series
was licensed.
Risks relating to implementing our branded cable and satellite programming
channels.
We may consider strategic opportunities to create branded cable and
satellite programming channels. We cannot assure you that we will have the
financing that may be necessary for such
6
acquisitions or investments, that we will consummate any such transactions or
that we will be able to realize any anticipated benefits from any such
transactions.
Advances in technology may create alternate forms of entertainment.
The entertainment industry in general, and the motion picture industry in
particular, continue to undergo significant changes, primarily due to
technological developments. Due to this rapid growth of technology and
shifting consumer tastes, we cannot accurately predict the overall effect that
such changes may have on the potential revenue from and profitability of
feature-length motion pictures and television programming.
Some of our competitors have greater financial resources than we do.
Most of the other major studios are part of large diversified corporate
groups with a variety of other operations, including television networks and
cable channels, that can provide both a means of distributing their products
and stable sources of earnings and cash flows that offset fluctuations in the
financial performance of their motion picture and television operations. The
number of films released by our competitors, particularly the other major film
studios, in any given period may create an oversupply of product in the
market, thereby potentially reducing our share of gross box office admissions
and making it more difficult for our films to succeed. In addition, television
networks are now producing more programs internally and thus may reduce their
demand for outside programming.
The Tracinda Group owns a majority of our common stock and has the power to
elect our board of directors and influence our affairs.
Tracinda and one of its affiliates, which we refer to as the Tracinda
Group, beneficially own 179,276,977 shares, approximately 89.0 percent of our
outstanding common stock. In the aggregate, the Tracinda Group and our
directors and executive officers beneficially own approximately 89.8 percent
of our outstanding common stock. Our common stock does not have cumulative
voting rights and, since we anticipate that the Tracinda Group will continue
to own greater than 50 percent of our outstanding common stock for the
foreseeable future, it will have the ability to elect our entire board of
directors and determine the outcome of other matters submitted to our
stockholders, such as the approval of significant transactions, and otherwise
to influence our affairs.
Our common stock has a relatively small public "float."
Of the 201,557,214 shares of our outstanding common stock, only
approximately 21,303,000 shares are owned by persons other than the Tracinda
Group and our executive officers and directors. Without a significantly larger
public float, our common stock will be less liquid than the common stock of
companies with broader public ownership and, as a result, the trading prices
for our common stock may be more volatile. Among other things, trading of a
relatively small volume of our common stock may have a greater impact on the
trading price for our stock than would be the case if our public float were
larger.
Future sales of shares of the common stock could decrease its market price.
We have approximately 201,557,214 shares of our common stock outstanding,
of which approximately 180,355,145 are "restricted" securities under Rule 144
of the Securities Act and/or held by directors, officers or holders of ten
percent or more of our outstanding common stock. We have also granted, as of
March 31, 2000, options to purchase a total of 23,712,023 shares of our common
stock. Furthermore, we have granted to Tracinda, and certain other holders of
our common stock or outstanding options, registration rights with respect to
the shares they own or that we may issue to them. Possible or actual sales of
any of these shares, particularly by our directors and officers, under Rule
144 or otherwise, may in the future decrease the price of shares of our common
stock.
7
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement, we plan to use
substantially all of the net proceeds from the sale of the offered securities
for general corporate purposes.
PRICE RANGE OF COMMON STOCK
The common stock is listed on the NYSE and trades under the symbol "MGM."
The following table sets forth for the quarters indicated the high and low
composite per share closing sales prices as reported by the NYSE.
High Low
---- ----
1998
First Quarter.......................................... $24 3/16 $17 3/4
Second Quarter......................................... 26 1/2 21 15/16
Third Quarter.......................................... 22 1/2 13 7/8
Fourth Quarter......................................... 13 3/4 8
1999
First Quarter.......................................... $13 9/16 $10 3/8
Second Quarter......................................... 18 5/8 12 11/16
Third Quarter.......................................... 21 5/8 16 7/8
Fourth Quarter......................................... 25 1/8 15 1/2
2000
First Quarter.......................................... $28 1/16 $21 11/16
Second Quarter (through May 3)......................... 30 3/8 23 15/16
The last reported sales price of the common stock on the NYSE on May 3,
2000 was $27 3/4 per share. As of May 3, 2000, there were more than 2,000
beneficial holders of our common stock.
DIVIDEND POLICY
We have not paid any dividends to date on the common stock and currently
intend to retain any earnings to fund the operation and expansion of our
business and to service and repay our debt. Therefore, we do not intend to pay
cash dividends on our common stock for the foreseeable future. Furthermore, as
a holding company with no independent operations, our ability to pay dividends
will depend upon the receipt of dividends or other payments from our
subsidiaries. In addition, our primary credit facility contains financial
covenants that restrict our ability to pay dividends. Subject to the
foregoing, our Board of Directors has the sole discretion to pay cash
dividends.
8
THE COMPANY
Overview
We develop, produce and distribute worldwide theatrical motion pictures and
television programs. Our subsidiaries include Metro-Goldwyn-Mayer Studios Inc.,
United Artists Corporation and Orion Pictures Corporation. We are one of only
seven major film and television studios worldwide. Our library contains over
4,100 theatrically released feature film titles and 8,900 television episodes
and is the largest collection of post-1948 feature films in the world. Films in
our library have won over 200 Academy Awards(R), including the Best Picture
Award for Annie Hall, The Apartment, The Best Years of Our Lives, Dances with
Wolves, Hamlet, In the Heat of the Night, Marty, Midnight Cowboy, Platoon, Rain
Man, Rocky, Silence of the Lambs, Tom Jones and West Side Story. Our library
also includes 21 titles in the James Bond film franchise, five titles in the
Rocky film franchise and nine titles in the Pink Panther film franchise.
As used in this prospectus, the terms "we," "our," "us," "MGM" and "the
company" refer to Metro-Goldwyn-Mayer Inc. and our subsidiaries unless the
context indicates otherwise.
Business Strategy
Our goal is to become a fully-integrated global entertainment content
company, thereby maximizing the value of our assets, including our film and
television library and our film and television production and distribution
units. To achieve this goal we seek to:
Build and Leverage Our Library. We plan to build and leverage our film and
television library by:
. Producing new motion pictures and television episodes;
. Aggressively marketing and repackaging our library's titles;
. Developing new distribution channels;
. Capitalizing on developments in technology;
. Further penetrating emerging international markets; and
. Incentivizing our employees to drive growth in sales of our library's
titles.
Create Branded Cable and Satellite Programming Channels. We believe we can
create significant value by utilizing our library and current production to
establish MGM branded cable and satellite channels. We have been actively
exploring strategic alternatives to gain carriage for our proposed channels.
Increase Film and Television Production While Improving Our Risk Profile. We
intend to increase production in a financially disciplined manner by:
. Tightly controlling development and production expenditures;
. Involving members of senior management from all areas of our company in
the greenlighting process for films;
. Aggressively seeking production agreements and/or co-financing partners
for our pictures and television product;
. Entering into production agreements and joint ventures with key
producers of motion pictures and television product;
. Increasing our focus on the production of commercially successful motion
pictures which appeal to a younger demographic; and
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. Using our film library as a proven source for sequels and remakes and
the expansion of certain well-tested, familiar film franchises.
We intend to produce or co-produce and distribute ten to 15 motion pictures
annually through MGM Pictures across a variety of genres. Through UA Films, we
also intend to distribute annually an additional seven to ten specialty motion
pictures that will have substantially lower average costs and will be produced
mainly by third parties.
We plan to develop, produce and distribute television programs focusing on
low financial risk formats, such as pre-clearing a television series for
distribution prior to committing to development expenditures, as well as joint
ventures, co-productions and other partnering arrangements for certain of our
series.
Increase Distribution Revenues. We have taken steps to obtain greater
flexibility in distributing our own product to enable us to realize additional
revenue opportunities while reducing the costs associated with distribution.
In 1999 we terminated our agreement with Warner Home Video so that, on
February 1, 2000, we regained full control over the home video exploitation of
our films. We have actively planned the transition of our international
distribution from Warner Home Video and United International Pictures or "UIP"
to Fox to gain more control over our international distribution and to
maximize our revenue opportunities.
We plan to increase distribution revenues by:
. Self-distributing in the U.S. and Canada our library, as well as all
motion pictures produced by MGM Pictures and UA Films;
. Distributing films that we co-produce with a third party in those
territories where we have distribution rights and capabilities; and
. Distributing motion pictures produced by others.
Capitalize On A Well Recognized Brand Name. We believe that the MGM name
and lion logo are among the most recognized in the world. We intend to
capitalize on the value inherent in our name and logo through the distribution
of branded programming and the development of consumer products.
Streamline Operations. We have taken steps to make our operating process
more efficient in the following ways:
. Consolidating overhead across the MGM Pictures and UA production units;
and
. Consolidating and centralizing operating and corporate functions.
We intend to continue to pursue our goal of becoming an integrated global
entertainment content company. In pursuit of this goal, we may consider
various strategic alternatives, such as business combinations with companies
with strengths complementary to ours, other acquisitions and joint ventures,
as opportunities arise. The nature, size and structure of any such transaction
could require us to seek additional financing. Acquisitions and other
strategic alternatives, however, involve numerous risks, including diversion
of management's attention away from our operative activities. We cannot assure
you that we will not encounter unanticipated problems or liabilities with
respect to any acquisitions that have been or may be completed by MGM or with
the integration of an acquired company's operations with those of MGM, and we
cannot assure you that the anticipated benefits of any acquisitions and
alternatives that have been, or will be, completed by us will be achieved.
10
DESCRIPTION OF COMMON STOCK
Our authorized common stock consists of 500,000,000 shares of common stock.
All authorized shares of common stock have a par value of $0.01 per share and
are entitled to one vote per share on all matters submitted to a vote of
stockholders. In the event of a liquidation, dissolution or winding up of the
company, the holders of the common stock are entitled to share ratably in all
assets remaining after all liabilities and the liquidation preference
attributable to any outstanding preferred stock have been paid. The holders of
the common stock have no pre-emptive rights or cumulative voting rights and no
rights to convert their common stock into any other securities.
As of March 31, 2000, there were outstanding 201,557,214 shares of the
common stock. As of March 31, 2000, there were reserved for issuance upon the
exercise of options 30,156,251 shares of the common stock, of which options
for 23,868,274 shares are outstanding, 8,265,007 of which are vested and
exercisable or will become vested and exercisable within 60 days.
The transfer agent and registrar for our common stock is Mellon Investor
Services, LLC, 400 S. Hope Street, Los Angeles, California 90071.
11
PLAN OF DISTRIBUTION
We may sell the securities being offered hereby:
. directly to one or more purchasers;
. through agents;
. to or through one or more dealers;
. to or through one or more underwriters; or
. through a combination of any such methods of sales.
The distribution of such securities pursuant to any prospectus supplement
may occur from time to time in one or more transactions either:
. at a fixed price or prices which may be changed;
. at market prices prevailing at the time of sale;
. at prices related to such prevailing market prices; or
. at negotiated prices.
Offers to purchase the securities being offered hereby may be solicited
directly by us or by agents designated by us from time to time. Any such
agent, who may be deemed to be our "underwriter" as that term is defined in
the Securities Act, involved in the offer or sale of such securities will be
named, and any commissions payable by us to such agent will be set forth, in
the applicable prospectus supplement.
If a dealer is utilized in the sale of such securities, we will sell such
securities to the dealer, as principal. The dealer, who may be deemed to be an
"underwriter" as that term is defined in the Securities Act, may then resell
such securities to the public at varying prices to be determined by such
dealer at the time of resale.
If an underwriter is, or underwriters are, utilized in the sale, we will
execute an underwriting agreement with such underwriters at the time of sale
to them and the names of the underwriters will be set forth in the applicable
prospectus supplement, which will be used by the underwriters to make resales
of such shares to the public. In connection with the sale of such securities,
such underwriters may be deemed to have received compensation from us in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of such securities for whom they may act as agents.
Underwriters may sell such shares to or though dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act
as agents. Any underwriting compensation paid by us to underwriters in
connection with the offering of such securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement.
Underwriters, dealers, agents, dealer managers, and other persons,
including the Tracinda group, may be entitled, under agreements that may be
entered into with us, to indemnification by us against certain civil
liabilities, including the liabilities under the Securities Act, or to
contribution with respect to payments which they may be required to make in
respect thereof. Underwriters, dealers, dealer managers and agents may engage
in transactions with, or perform services for us in the ordinary course of
business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers, dealer managers, or other persons to solicit offers by
certain institutions to purchase from us securities
12
offered hereby pursuant to contracts providing for payment and delivery on a
future date or dates set forth in the applicable prospectus supplement.
Institutions with which such contacts may be made may include, but are not
limited to, commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others. The
obligations of any purchaser under any such contract will not be subject to
any conditions except that (a) the purchase of such securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject and (b) if such securities are also being sold to
underwriters, we shall have sold to such underwriters the securities offered
hereby which are not sold for delayed delivery. The underwriters, dealers,
dealer managers and such other persons will not have any responsibility in
respect to the validity or performance of such contracts. The prospectus
supplement relating to such contracts will set forth the price to be paid for
such securities pursuant to such contracts, the commissions payable for
solicitation of such contracts and the date or dates in the future for
delivery of such shares pursuant to such contracts.
The anticipated date of delivery of securities offered hereby will be set
forth in the applicable prospectus supplement relating to each offer.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for us by Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP, Los Angeles, California.
EXPERTS
Our consolidated financial statements and schedules for the years ended
December 31, 1999, 1998 and 1997 incorporated by reference into this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
13
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC, in accordance with the Securities Exchange Act of
1934. You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from the SEC's web
site at: http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with them, which means that we can disclose important
information to you by referring to our filed SEC documents. The information
incorporated by reference is considered to be part of this prospectus.
Information we file with the SEC after the date of this document will update
and supersede the information in this prospectus. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until this offering is completed:
(1) Our Annual Report on Form 10-K for the year ended December 31, 1999;
and
(2) The description of capital stock contained in Item 1 of our
Registration Statement on Form 8-A, filed with the SEC on October 14,
1997, as amended.
We have also filed a Registration Statement on Form S-3 with the SEC for
the securities offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement. You should
read the registration statement for further information about our common stock
and us. The registration statement can be found in the SEC's public reference
room or on the SEC's website referred to above, and you may request a copy of
any of these filings, at no cost, by writing or calling William A. Jones,
Senior Executive Vice President and Secretary of the company, at:
Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404
(310) 449-3000
You can find additional information by visiting our website at:
http://www.mgm.com.
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus supplement and
prospectus. You must not rely on any unauthorized information or
representations. This prospectus supplement and prospectus is an offer to sell
only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus supplement and prospectus is current only as of their respective
dates.
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TABLE OF CONTENTS
Page
----
Prospectus Supplement
Risk Factors .............................................................. S-3
Recent Developments........................................................ S-10
Use of Proceeds............................................................ S-11
Price Range of Common Stock ............................................... S-11
Dividend Policy............................................................ S-11
Capitalization............................................................. S-12
Plan of Distribution....................................................... S-13
Legal Matters.............................................................. S-15
Experts.................................................................... S-15
Forward Looking Statements................................................. S-15
Where You Can Find More Information........................................ S-16
Prospectus
About this Prospectus...................................................... 2
Forward-Looking Statements................................................. 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 8
Price Range of Common Stock................................................ 8
Dividend Policy............................................................ 8
The Company................................................................ 9
Description of Common Stock................................................ 11
Plan of Distribution....................................................... 12
Legal Matters.............................................................. 13
Experts.................................................................... 13
Where You Can Find More Information........................................ 14
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10,550,000 Shares
Metro-Goldwyn-Mayer Inc.
Common Stock
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[LOGO OF METRO GOLDWYN MAYER]
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Goldman, Sachs & Co.
Banc of America Securities LLC
Gerard Klauer Mattison & Co., Inc.
JPMorgan
Salomon Smith Barney
UBS Warburg
Representatives of the Underwriters
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