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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2004

Commission File No. 1-13481

METRO-GOLDWYN-MAYER INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (310) 449-3000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes    ¨ No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x    No ¨

The number of shares of the Registrant’s common stock outstanding as of April 29, 2004 was [235,836,374].

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METRO-GOLDWYN-MAYER INC.

FORM 10-Q

March 31, 2004

INDEX

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PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements

METRO-GOLDWYN-MAYER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

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METRO-GOLDWYN-MAYER INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

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METRO-GOLDWYN-MAYER INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these consolidated statements.

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METRO-GOLDWYN-MAYER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these condensed consolidated statements.

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

Note 1—Basis of Presentation

Basis of Presentation.    The accompanying condensed consolidated financial statements include the accounts of Metro-Goldwyn-Mayer Inc. (“MGM”), Metro-Goldwyn-Mayer Studios Inc. and its majority owned subsidiaries (collectively, “MGM Studios”) and Orion Pictures Corporation and its majority owned subsidiaries (collectively, “Orion”) (collectively, the “Company”). MGM is a Delaware corporation formed on July 10, 1996 specifically to acquire MGM Studios, and is majority owned by an investor group comprised of Tracinda Corporation and a corporation that is principally owned by Tracinda Corporation (collectively ,the “Tracinda Group”) and Mr. Kirk Kerkorian. The acquisition of MGM Studios by MGM was completed on October 10, 1996, at which time MGM commenced principal operations. The acquisition of Orion was completed on July 10, 1997. The Company completed the acquisition of certain film libraries and film related rights that were previously owned by PolyGram N.V. and its subsidiaries (collectively, “PolyGram”) on January 7, 1999.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and the instructions to Form 10-Q related to interim period financial statements. Accordingly, these financial statements do not include certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. However, these financial statements contain all adjustments consisting only of normal recurring accruals which, in the opinion of management, are necessary in order to make the financial statements not misleading. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2003. As permitted by American Institute of Certified Public Accountants Statement of Position (“SOP”) 00-2, “Accounting by Producers or Distributors of Films,” the Company has presented unclassified balance sheets.

Earnings Per Share.    The Company computes earnings per share in accordance with SFAS No. 128, “Earnings Per Share” (“EPS”). The weighted average number of shares used in computing basic and diluted earnings or loss per share was 237,645,948 and 248,469,650 in the quarters ended March 31, 2004 and 2003, respectively. Dilutive securities of 1,983,693 and 1,434 are not included in the calculation of diluted EPS in the quarters ended March 31, 2004 and 2003, respectively, because they are antidilutive. Additionally, potentially dilutive securities of 18,796,648 and 30,326,072 have not been included in the calculation of diluted EPS in the quarters ended March 31, 2004 and 2003, respectively, because their exercise prices are greater than the average market price of the Company’s common stock during the periods.

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive Income (Loss).    The Company computes comprehensive income (loss) pursuant to SFAS No. 130, “Reporting Comprehensive Income.” This statement establishes standards for the reporting and display of comprehensive income (loss) and its components in financial statements and thereby reports a measure of all changes in equity of an enterprise that result from transactions and other economic events other than transactions with owners. Total comprehensive income (loss) for the Company includes net income (loss) and other comprehensive income (loss) items, including unrealized gain (loss) on derivative instruments, unrealized gain (loss) on securities, changes in unfunded pension plan obligations and cumulative foreign currency translation adjustments. Components of other comprehensive income (loss), net of related income tax effect, are shown below (in thousands):

Components of accumulated other comprehensive income (loss) are shown below (in thousands):

Stock-Based Compensation.    On January 1, 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Under the modified prospective method of adoption selected by the Company under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” stock-based employee compensation expense recognized in 2004 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards from its original effective date. During the quarter ended March 31, 2004, the Company recorded compensation expense of $7,498,000 regarding its employee stock incentive plan, which charge has been included in selling, general and administrative expenses in the statement of operations.

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Prior to January 1, 2004, the Company applied Accounting Principles Board Opinion No. 25, “Accounting For Stock Issued to Employees,” and related interpretations in accounting for its stock incentive plan. Had compensation cost for the plan been determined consistent with the fair value recognition provisions of SFAS No. 123 in each period, the Company’s net loss and loss per share would have been the following pro forma amounts (in thousands, except per share data, unaudited):

The fair value of option grants issued prior to January 1, 2004 were estimated using the Black-Scholes model and the fair value of option grants issued in 2004 were estimated using a binomial model. The fair values were determined using the following assumptions: the weighted average fair value of stock options granted in the quarters ended March 31, 2004 and 2003 was $7.21 and $4.05, respectively. The dividend yield was 0 percent in all periods, and expected volatility was 45.3 percent and 53.2 percent for the quarters ended March 31, 2004 and 2003, respectively. The weighted average expected life was 5.0 years in each quarter, and the weighted average assumed risk-free interest rate was 3.1 percent and 3.0 percent for the quarters ended March 31, 2004 and 2003, respectively.

New Accounting Pronouncements.    In January 2003, the FASB issued Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities,” which establishes criteria to identify variable interest entities (“VIE”) and the primary beneficiary of such entities. An entity that qualifies as a VIE must be consolidated by its primary beneficiary. All other holders of interests in a VIE must disclose the nature, purpose, size and activity of the VIE as well as their maximum exposure to losses as a result of involvement with the VIE. FIN 46 was revised in December 2003 and is effective for financial statements of public entities that have special-purpose entities, as defined, for periods ending after December 15, 2003. For public entities without special-purpose entities, it is effective for financial statements for periods ending after March 15, 2004. The Company does not have any special-purpose entities, as defined. The adoption of FIN 46 did not have a material effect on the Company’s financial statements.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This statement retains the disclosure

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. This statement is effective for financial statements with fiscal years ending after December 15, 2003. The Company implemented SFAS No. 132 (revised 2003) on December 31, 2003.

Note 2—Severance and Other Related Costs

In June 1999, the Company incurred $85,171,000 of severance and other related costs, as well as the estimated costs of withdrawing from the Company’s arrangements with United International Pictures B.V. (“UIP”) on November 1, 2000. The severance charge in 1999 included the termination of 46 employees, including the Company’s former Chairman and Vice Chairman, across all divisions of the Company.

In June 2000, the Company reduced previously charged reserves by $5,000,000 due to a negotiated settlement with UIP regarding the Company’s withdrawal from the joint venture. Additionally, in June 2000, the Company incurred severance and other related charges of $1,285,000 related to the closure of a foreign sales office.

As of March 31, 2004, the Company has paid $54,844,000 of the severance and other related costs. In January and February 2002, in accordance with certain agreements with the Company’s former Chairman and Vice Chairman, $16,964,000 of the severance and related costs were converted into 863,499 shares of common stock of the Company. The remaining unpaid severance at March 31, 2004 consists of 1,745,680 unexercised stock options held by the Company’s former Chairman. On January 1, 2004, upon adoption of the fair value recognition provisions of SFAS No. 123, such amount was transferred to additional paid-in capital.

Note 3—Film and Television Costs

Film and television costs, net of amortization, are summarized as follows (in thousands):

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest costs capitalized to theatrical productions were $1,353,000 and $2,970,000 during the quarters ended March 31, 2004 and 2003, respectively.

Note 4—Investments In and Advances to Affiliates

On July 18, 2003, the Company sold its 20 percent equity interest in the American Movie Classics, The Independent Film Channel and WE: Women’s Entertainment cable channels (the “Cable Channels”) to Cablevision Systems Corporation for $500,000,000, less sales-related expenses of $2,750,000. The Company received $250,000,000 in cash and a $250,000,000 promissory note that was collected in cash on December 18, 2003. As the Company’s cost basis in the Cable Channels exceeded the net selling price, the Company recorded a write-down of its investment in the cable channels of $93,059,000 during the quarter ended June 30, 2003.

The Company has accounted for its investment in the Cable Channels in accordance with APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” Pursuant to the requirements of APB No. 18, the Company has recorded its share of the earnings and losses in the Cable Channels based on the most recently available financial statements received from the cable channels. Due to a lag in the receipt of the financial statements from the Cable Channels, the Company reported its interest in the Cable Channels on a one-quarter lag. In the quarter ended March 31, 2003, the Company’s share of the Cable Channels’ net operating results was a profit of $4,781,000. Summarized financial information for the Cable Channels (including Bravo through December 5, 2002) for the quarter ended December 31, 2002, were as follows (in thousands):

Note 5—Property and Equipment

Property and equipment are summarized as follows (in thousands):

Note 6—Bank and Other Debt

Bank and other debt is summarized as follows (in thousands):

Credit Facilities.    On June 11, 2002, the Company, through its MGM Studios and Orion subsidiaries, entered into a third amended and restated credit facility with a syndicate of banks, which amended a pre-existing

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

credit facility, aggregating $1.75 billion (the “Amended Credit Facility”) consisting of a five-year $600,000,000 revolving credit facility (the “Revolving Facility”), a five-year $300,000,000 term loan (“Tranche A Loan”) and a six-year $850,000,000 term loan (“Tranche B Loan”) (collectively, the “Term Loans”). On October 27, 2003, the Company repaid the entire outstanding amount of the Term Loans. The Revolving Facility bears interest at 2.50 percent over the Adjusted LIBOR rate, as defined (3.63 percent at March 31, 2004).

The Company’s borrowings under the Amended Credit Facility are secured by substantially all the assets of the Company, with the exception of the copyrights in the James Bond series of motion pictures. The Amended Credit Facility contains various covenants including limitations on dividends, capital expenditures and indebtedness, and the maintenance of certain financial ratios. The Amended Credit Facility limits the amount of the investment in MGM which may be made by MGM Studios and Orion in the form of loans or advances, or purchases of capital stock of MGM, up to a maximum aggregate amount of $500,000,000. Such covenant does not preclude MGM from using its own resources to purchase its capital stock. As of March 31, 2004, $248,338,000 was loaned to MGM by MGM Studios primarily to fund the Dutch Auction Tender Offer and the purchase of treasury stock by MGM (see Note 8). Restricted net assets of MGM Studios and Orion at March 31, 2004 are approximately $2.1 billion. As of March 31, 2004, the Company was in compliance with all applicable covenants.

On April 26, 2004, the Company, through its MGM Studios and Orion subsidiaries, entered into a fourth amended and restated credit facility with a syndicate of banks, which replaced the Amended Credit Facility, aggregating $2.4 billion (the “2004 Credit Facility”) consisting of a five-year $400,000,000 revolving credit facility (the “2004 Revolving Facility”), a six-year $400,000,000 term loan (“Term A Facility”) and a seven-year $1.6 billion term loan (“Term B Facility”) (collectively, the “2004 Term Loans”). The 2004 Revolving Facility and Term A Facility bear interest at 2.25 percent over the Adjusted LIBOR rate, as defined, and the Term B Loan bears interest at 2.50 percent over the Adjusted LIBOR rate, as defined. The 2004 Revolving Facility matures on April 30, 2009.

Proceeds from the loans under the 2004 Credit Facility will be used to finance the payment of a $1.89 billion stockholder dividend payable on May 17, 2004 (see Note 13), to refinance loans existing under the Revolving Facility and for general corporate purposes.

Capitalized Lease Obligations and Other Borrowings.    Capitalized lease obligations and other borrowings relate principally to contractual liabilities and capitalized lease obligations.

Note 7—Financial Instruments

The Company is subject to market risks resulting from fluctuations in foreign currency exchange rates because approximately 25 percent of the Company’s revenues are denominated, and the Company incurs certain operating and production costs, in foreign currencies. In certain instances, the Company enters into foreign currency exchange forward contracts in order to reduce exposure to changes in foreign currency exchange rates that affect the value of the Company’s firm commitments and certain anticipated foreign currency cash flows. The Company currently intends to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks. As of March 31, 2004, the Company has outstanding foreign currency forward contracts aggregating Canadian $62,490,000 and EUR 208,600. As of March 31, 2004, the Company would be entitled to receive approximately $791,000 if all such foreign currency forward contracts were terminated. As of December 31, 2003, the Company had outstanding foreign currency forward contracts aggregating Canadian $26,100,000 and British pounds 8,100,000. As of December 31, 2003, the Company was entitled to receive approximately $2,770,000 if all such foreign currency forward contracts were terminated. The market value of the foreign currency forward contracts as of March 31, 2004 and December 31, 2003 have been included in other assets and, with respect to qualified hedged instruments, in accumulated other comprehensive income (loss).

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8—Stockholders’ Equity

Dutch Auction Tender Offer.    On December 4, 2003 the Company commenced a Dutch Auction tender offer (the “Dutch Auction Tender Offer”) to purchase up to 10,000,000 shares of its common stock at a purchase price not greater than $18.00 nor less than $16.25 per share. Under the procedures for the Dutch Auction Tender Offer, stockholders of the Company had the opportunity to tender some or all of their shares of common stock at prices specified by the stockholder. The Company then determined the lowest price per share within the range of $16.25 to $18.00 per share that would enable it to buy 10,000,000 shares, or such lesser number of shares that are properly tendered and not withdrawn. All shares accepted in the Dutch Auction Tender Offer were purchased by the Company at the same determined price per share regardless of whether the stockholder tendered at a lower price. The Tracinda Group and Mr. Kerkorian, the Company’s principal stockholders, did not participate in the Dutch Auction Tender Offer, nor did any members of the Company’s Board of Directors or executive management.

The Dutch Auction Tender Offer expired on January 15, 2004. Pursuant to the Dutch Auction Tender Offer, the Company purchased 10,000,000 shares of its common stock at a purchase price of $17.00 per share, or an aggregate amount of $170,000,000, plus offering expenses of approximately $1,000,000. The Dutch Auction Tender Offer was financed primarily from available cash on hand, net cash flow provided by operating activities and borrowings under the Revolving Facility. Following completion of the Dutch Auction Tender Offer, Mr. Kerkorian and the Tracinda Group together owned approximately 74.0 percent of the Company’s outstanding common stock.

Treasury Stock.    On July 26, 2002, the Company announced a share repurchase program authorizing the Company to purchase up to 10,000,000 shares of its common stock. The Company has funded the repurchase program from available cash on hand. On November 12, 2003, the Board of Directors of the Company increased its authorization for the Company’s share repurchase program by an additional 2,500,000 shares, to a total of 12,500,000 shares. As of March 31, 2004, under the share repurchase program, the Company had repurchased 8,104,300 shares of common stock, at an average price of $11.46 per share, for an aggregate cost of $92,890,000. During the quarters ended March 31, 2004 and 2003, the Company issued 1,176,349 and 108,236 shares of common stock, respectively, from treasury valued at $17,545,000 and $1,171,000, respectively, for directors, officers and employees.

Note 9—Retirement Plans

The Company has a non-contributory retirement plan (the “Plan”) covering substantially all regular full-time, non-union employees. Benefits are based on years of service and compensation, as defined. The Company’s disclosures are in accordance with SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which revised employers’ disclosures about pension and postretirement benefit plans.

Pension cost includes the following components (in thousands):

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The unrecognized net asset is being amortized over the estimated remaining service life of 19.4 years. Domestic pension benefits and expense were determined under the entry age actuarial cost method.

The Company is expected to contribute $3,500,000 to the Plan in the year ended December 31, 2004. No contribution for the year ended December 31, 2004 has been paid as of March 31, 2004.

A significant number of the Company’s production employees are covered by union sponsored, collectively bargained multi-employer pension plans. The Company contributed approximately $4,830,000 and $7,267,000, respectively, for such plans for the quarters ended March 31, 2004 and 2003. Information from the plans’ administrators is not sufficient to permit the Company to determine its share of unfunded vested benefits, if any.

The Company also provides each of its employees, including its officers, who have completed one year of service with the Company the opportunity to participate in the MGM Savings Plan (the “Savings Plan”). The Company contributed approximately $1,305,000 and $1,104,000, respectively, in shares of the Company’s common stock to the Savings Plan in the quarters ended March 31, 2004 and 2003.

Note 10—Segment Information

The Company applies the disclosure provisions of SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The Company’s business units have been aggregated into four reportable operating segments: feature films, television programming, cable channels and other (see Note 1). The Company sold its equity interest in the Bravo cable channel on December 5, 2002 and sold its equity interest in the remaining Cable Channels on July 18, 2003 (see Note 4). The factors for determining the reportable segments were based on the distinct nature of their operations. They are managed as separate business units because each requires and is responsible for executing a unique business strategy. Income or losses of industry segments and geographic areas, other than those accounted for under the equity method, exclude interest income, interest expense, goodwill amortization, income taxes and other unallocated corporate expenses. Identifiable assets are those assets used in the operations of the segments. Other corporate assets consist of cash and certain corporate receivables.

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Summarized financial information concerning the Company’s reportable segments is shown in the following tables (in thousands):

The following table presents the details of other operating segment income:

The following is a reconciliation of reportable segment income (loss) to loss from operations before provision for income taxes:

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a reconciliation of reportable segment assets to consolidated total assets:

Note 11—Commitments and Contingencies

Litigation.    The Company, together with other major companies in the filmed entertainment industry, has been subject to numerous antitrust suits brought by various motion picture exhibitors, producers and others. In addition, various legal proceedings involving alleged breaches of contract, antitrust violations, copyright infringement and other claims are now pending, which the Company considers routine to its business activities.

The Company has provided an accrual for pending litigation as of March 31, 2004 in accordance with SFAS No. 5, “Accounting for Contingencies.” In the opinion of Company management, any liability under pending litigation is not expected to be material in relation to the Company’s financial condition or results of operations.

Contractual Commitments.    Effective February 1, 2000, the Company entered into an International Home Video Subdistribution Services Agreement between Metro-Goldwyn-Mayer Home Entertainment LLC (“MGMHE”) and Twentieth Century Fox Home Entertainment, Inc. (“Fox Home Entertainment”), pursuant to which Fox Home Entertainment provides distribution services for the Company’s films in the international home video market. On June 24, 2003, MGMHE gave notice to Fox Home Entertainment of its intent to terminate the agreement as of January 31, 2004 as permitted under the agreement. Effective February 1, 2004, MGMHE and Fox Home Entertainment have entered into an amended agreement (the “Amended Agreement”) under which Fox Home Entertainment will continue to perform sub-distribution services in certain territories. All termination payments required under the Amended Agreement were paid by the Company during the quarter ended March 31, 2004. Under the terms of the Amended Agreement, the Company pays Fox Home Entertainment a distribution fee based on gross receipts, as defined.

Effective November 1, 2000, the Company entered into an International Theatrical Distribution Services Agreement with Twentieth Century Fox Film Corporation (“Fox”) for distribution of the Company’s film releases in international theatrical and non-theatrical markets in territories in which the Company owns or controls the right to perform distribution services. Under the terms of the agreement, the Company pays Fox a distribution fee based on gross film rentals.

Effective February 1, 2004, the Company amended the International Theatrical Distribution Services Agreement with Fox. The amended agreement eliminated the distribution by Fox in the international non-theatrical markets and changed the expiration date of the agreement to the earlier of July 31, 2006 or the expiration or earlier termination of the International Home Video Subdistribution Services Agreement, as amended.

Other Commitments.    The Company has various other commitments entered into in the ordinary course of business relating to operating leases for offices and equipment, contractual agreements for creative talent for future film production, employment agreements and letters of credit.

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METRO-GOLDWYN-MAYER INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 12—Supplementary Cash Flow Information

The Company paid interest, net of capitalized interest, of $237,000 and $13,865,000 during the quarters ended March 31, 2004 and 2003, respectively. The Company paid income taxes of $2,290,000 and $4,085,000 during the quarters ended March 31, 2004 and 2003, respectively.

Note 13—Subsequent Events

Stockholder Dividend.    On April 26, 2004, the Company declared a one-time cash dividend of $8.00 per share to stockholders of record on May 7, 2004, payable on May 17, 2004. The cash dividend, aggregating approximately $1.89 billion, will be financed by borrowings under a new $2.4 billion credit facility (see below).

Pursuant to the provisions of the Amended and Restated 1996 Stock Incentive Plan (the “Plan”), the Compensation Committee of the Board of Directors of the Company has adjusted the outstanding stock options issued under the Plan such that following the payment of the one-time cash dividend to stockholders, each option holder shall receive, upon exercise, a cash amount of $8 per share.

New Credit Facility.    On April 26, 2004, the Company, through its MGM Studios and Orion subsidiaries, entered into a fourth amended and restated credit facility with a syndicate of banks, which replaced the pre-existing $1.75 billion Amended Credit Facility, aggregating $2.4 billion (see Note 6). The new credit facility consists of a five-year $400,000,000 revolving credit facility, a six-year $400,000,000 term loan and a seven-year $1.6 billion term loan. Proceeds from the loans under the 2004 Credit Facility will be used to finance the payment of the $1.89 billion stockholder dividend (see above), to refinance loans existing under the Revolving Facility and for general corporate purposes. The Company incurred approximately $19,500,000 in fees and other costs associated with the refinancing of the credit facility.

In connection with the refinancing of the prior credit facility, the Company will write-off deferred loan fees of approximately $6,800,000 in the quarter ending June 30, 2004.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-Q.

General

We are engaged primarily in the development, production and worldwide distribution of theatrical motion pictures and television programming.

Recent Developments

Stockholder Dividend.    On April 26, 2004, we declared a one-time cash dividend of $8.00 per share to stockholders of record on May 7, 2004, payable on May 17, 2004. The cash dividend, aggregating approximately $1.89 billion, will be financed by borrowings under our new $2.4 billion credit facility (see Liquidity and Capital Resources-Bank Borrowings).

Pursuant to the provisions of the Amended and Restated 1996 Stock Incentive Plan, the Compensation Committee of the Board of Directors has adjusted the outstanding stock options issued under the plan such that following the payment of the one-time cash dividend to stockholders, each option holder shall receive, upon exercise, a cash amount of $8 per share.

New Credit Facility.    On April 26, 2004, we entered into a fourth amended and restated $2.4 billion credit facility with a syndicate of banks, which replaced a pre-existing $1.75 billion amended credit facility. The new credit facility consists of a five-year $400.0 million revolving credit facility, a six-year $400.0 million term loan and a seven-year $1.6 billion term loan. Proceeds from the loans under the new credit facility will be used to finance the payment of the $1.89 billion stockholder dividend (see above), to refinance loans under the pre-existing revolving credit facility and for general corporate purposes.

In connection with the refinancing of the prior credit facility, we will write-off deferred loan fees of approximately $6.8 million in the quarter ending June 30, 2004.

Dutch Auction Tender Offer.    On December 4, 2003 we commenced a Dutch Auction tender offer to purchase up to 10,000,000 shares of our common stock at a purchase price not greater than $18.00 nor less than $16.25 per share. Under the procedures for the Dutch Auction tender offer, our stockholders had the opportunity to tender some or all of their shares of common stock at prices specified by the stockholders. We then determined the lowest price per share within the range of $16.25 to $18.00 per share that would enable us to buy 10,000,000 shares, or such lesser number of shares that are properly tendered and not withdrawn. All shares accepted in the Dutch Auction tender offer were purchased by us at the same determined price per share regardless of whether the stockholders tendered at a lower price. The Tracinda Group and Mr. Kerkorian, our principal stockholders, did not participate in the Dutch Auction tender offer, nor did any members of our Board of Directors or executive management.

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The Dutch Auction tender offer expired on January 15, 2004. Pursuant to the Dutch Auction tender offer, we purchased 10,000,000 shares of our common stock at an average purchase price of $17.00 per share, or an aggregate amount of $170.0 million, plus offering expenses of approximately $1.0 million. The Dutch Auction tender offer was financed primarily from available cash on hand, net cash flow provided by operating activities and borrowings under the revolving credit facility. See “Liquidity and Capital Resources.” Following completion of the Dutch Auction tender offer, Mr. Kerkorian and the Tracinda Group together owned approximately 74.0 percent of our outstanding common stock.

Repayment of Term Loans.    On October 27, 2003, all $1.15 billion outstanding under our pre-existing term loans was repaid from cash on hand and $200.0 million of borrowings under our revolving facility (see “—Liquidity and Capital Resources—Bank Borrowings”).

Notice of Termination of Third Party International Subdistribution Agreement.    In June 1999, we entered into an agreement with Fox pursuant to which Fox provides distribution services for our films in the international home video market. This distribution arrangement became effective on February 1, 2000. On June 24, 2003, we gave notice to Fox of our intent to terminate the agreement as of January 31, 2004 as permitted under the agreement. Effective February 1, 2004, we entered into an amended agreement with Fox under which Fox will continue to perform sub-distribution services in certain territories. All termination payments required under the amended agreement were paid during the quarter ended March 31, 2004. Under the terms of the amended agreement, we pay Fox a distribution fee based on gross receipts, as defined.

Cost Structure

General.    In the motion picture industry, the largest component of the cost of producing a motion picture generally is the negative cost, which includes the “above-the-line” and “below-the-line” costs of producing the film. Above-the-line costs are costs related to the acquisition of picture rights and the costs associated with the producer, the director, the writer and the principal cast. Below-the-line costs are the remaining costs involved in producing the picture, such as film studio rental, principal photography, sound and editing.

The major studios generally fund production costs from cash flow generated by motion picture and related distribution activities or bank and other financing methods. Over the past decade, expenses in the motion picture industry have increased rapidly as a result of increased production costs and distribution expenses. Additionally, each of the major studios must fund substantial overhead costs, consisting primarily of salaries and related costs of the production, distribution and administrative staffs, as well as facilities costs and other recurring overhead.

Distribution Expenses.    Distribution expenses consist primarily of the costs of advertising and preparing release prints. The costs of advertising associated with a major domestic theatrical motion picture release are significant and typically involve national and target market media campaigns, as well as public appearances of a film’s stars. These advertising costs are separate from the advertising costs associated with other domestic distribution channels and the international market.

Advertising and other promotional costs are included in selling, general and administrative expenses. The Company includes the cost of duplicating prints, which is a physical product, in operating costs. However, the Company considers the costs of shipping the prints to customers to be a selling cost as it is part of the Company’s distribution activities, and categorizes such activities as selling costs together with advertising, marketing and other promotional costs. Shipping and handling costs of $22.8 million and $15.6 million for the quarters ended March 31, 2004 and 2003, respectively, have been included in selling, general and administrative expense in the statements of operations, respectively.

Production Overhead.    The Company capitalizes production overhead as a component of film costs, including allocable costs of individuals or departments with exclusive or significant responsibility for the production of films in accordance with SOP 00-2 “Accounting by Producers or Distributors of Films.” Such

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allocable costs of departments are those with exclusive responsibility for the production of films, including physical production and post production. Allocable costs of such departments principally include compensation costs of employees as well as certain other direct costs, such as travel costs and outside services.

The Company computes the overhead to be allocated to film and television costs based on the criteria noted in the above paragraph, and allocates such costs to film and television properties in proportion to the direct production expenditures of each property on an annual basis.

Collective Bargaining Agreements.    The motion picture and television programs produced by MGM Studios, and the other major studios in the United States, generally employ actors, writers and directors who are members of the Screen Actors Guild, Writers Guild of America and Directors Guild of America, respectively, pursuant to industry-wide collective bargaining agreements. The collective bargaining agreement with the Writers Guild of America expires on May 1, 2004 and negotiations for a successor agreement have commenced. The collective bargaining agreement with the Screen Actors Guild has been extended and expires on June 30, 2005. The Directors Guild of America collective bargaining agreement expires on June 30, 2005. Many productions also employ members of a number of other labor organizations including, without limitation, the International Alliance of Theatrical and Stage Employees and the International Brotherhood of Teamsters. The collective bargaining agreement with Teamsters Local 399, which represents significant numbers of persons within the motion picture and television industry, expires on July 31, 2004 and the collective bargaining agreement with the International Alliance of Theatrical and Stage Employees expires on July 31, 2006. A strike by one or more of the unions that 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 programs 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.

Critical Accounting Estimates

Accounting for Motion Picture and Television Costs.    In accordance with accounting principles generally accepted in the United States and industry practice, we amortize the costs of production, including capitalized interest and overhead, as well as participations and talent residuals, for feature films and television programming using the individual-film-forecast method under which such costs are amortized for each film or television program in the ratio that revenue earned in the current period for such title bears to management’s estimate of the total revenues to be realized from all media and markets for such title. All exploitation costs, including advertising and marketing costs, are expensed as incurred. Theatrical print costs are amortized over the periods of theatrical release of the respective territories.

Management regularly reviews, and revises when necessary, its total revenue estimates (defined as “ultimates”) on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. The Company determines the estimated fair value for individual film and television properties based on the estimated future cash flows resulting from the ten year ultimate revenues and costs (in accordance with SOP 00-2). These ten year ultimates are also used to amortize the capitalized film costs in accordance with SOP 00-2. The estimated future cash flows are discounted using a net present value model.

Any revisions to ultimates can result in significant quarter-to-quarter and year-to-year fluctuations in film write-downs and amortization. A typical film or television program recognizes a substantial portion of its ultimate revenues within the first two years of release. By then, a film has been exploited in the domestic and international theatrical markets and the domestic and international home video markets, as well as the domestic and international pay television and pay-per-view markets, and a television program has been exploited on network television or in first-run syndication. A similar portion of the film’s or television program’s capitalized costs should be expected to be amortized accordingly, assuming the film or television program is profitable.

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The commercial potential of individual motion pictures and television programming varies dramatically, and is not directly correlated with production or acquisition costs. Therefore, it is difficult to predict or project a trend of our income or loss. However, the likelihood that we report losses, particularly in the year of a motion picture’s release, is increased by the industry’s method of accounting which requires the immediate recognition of the entire loss (through increased amortization) in instances where it is estimated the ultimate revenues of a motion picture or television program will not recover our capitalized costs. On the other hand, the profit of a profitable motion picture or television program must be deferred and recognized over the entire revenue stream generated by that motion picture or television program. This method of accounting may also result in significant fluctuations in reported income or loss, particularly on a quarterly basis, depending on our release schedule, the timing of advertising campaigns and the relative performance of individual motion pictures or television programs.

Other Estimates.    We estimate reserves for future returns of product in the home video markets as well as provisions for uncollectible receivables. In determining the estimate of home video product sales that will be returned, we perform an analysis that considers historical returns, changes in customer demand and current economic trends. Based on this information, a percentage of each sale is reserved provided that the customer has the right of return. We estimate provisions for uncollectible receivables by monitoring delinquent accounts and estimating a reserve based on contractual terms and other customer specific issues. Specifically reviewed receivables include all receivables with past due balances greater than ninety days. Additionally, we record a general reserve against all customers not reviewed on a specific basis. We compute the percentage to be used to calculate the general reserve by reviewing historical write-offs of receivables not previously specifically reserved.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which establishes criteria to identify variable interest entities and the primary beneficiary of such entities. An entity that qualifies as a variable interest entity must be consolidated by its primary beneficiary. All other holders of interests in a variable interest entity must disclose the nature, purpose, size and activity of the variable interest entity as well as their maximum exposure to losses as a result of involvement with the variable interest entity. Interpretation No. 46 was revised in December 2003 and is effective for financial statements of public entities that have special-purpose entities, as defined, for periods ending after December 15, 2003. For public entities without special-purpose entities, it is effective for financial statements for periods ending after March 15, 2004. We do not have any special-purpose entities, as defined. The adoption of Interpretation No. 46 did not have a material effect on our financial statements.

In December 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions,” Statement of Financial Accounting Standards No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This statement retains the disclosure requirements contained in Statement of Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original Statement of Financial Accounting Standards No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. This statement is effective for financial statements with fiscal years ending after December 15, 2003. We implemented the Statement of Financial Accounting Standards No. 132 (revised 2003) on December 31, 2003.

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On January 1, 2004, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” Under the modified prospective method of adoption selected by us under the provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” stock-based employee compensation expense recognized in 2004 is the same as that which would have been recognized had the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 been applied to all awards from its original effective date. During the quarter ended March 31, 2004, the Company recorded compensation expense of $7.5 million regarding its employee stock incentive plan, which charge has been included in selling, general and administrative expenses in the statement of operations.

Results of Operations

The following table sets forth our reported operating results for the quarters ended March 31, 2004 and 2003 (in thousands):

Overview

In the quarter ended March 31, 2004 (the “2004 Quarter”), our revenues increased $68.8 million, or 17 percent, to $464.0 million from $395.2 million in the quarter ended March 31, 2003 (the “2003 Quarter”). The increase in the 2004 Quarter principally reflected substantially higher home video revenues due to increased DVD sales, as well as additional sales of library product in worldwide television markets.

Operating loss in the 2004 Quarter improved to $16.8 million from $39.1 million in the 2003 Quarter. The improvement reflected the increase in revenues combined with lower theatrical releasing costs and film write-downs than in the 2003 Quarter. Partially offsetting the improved results were increased bad debt charges of $18.6 million principally due to the bankruptcy of a significant international television customer, and higher general and administrative expenses of $17.4 million principally due to our adoption on January 1, 2004 of the fair value recognition provisions of employee stock option accounting, as well as increased provisions under our employee benefit plans.

Net loss in the 2004 Quarter improved to $21.3 million, or $0.09 per share, from a net loss of $55.8 million, or $0.22 per share, in the 2003 Quarter. The improvement reflected the reduced operating loss noted above as

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well as a $16.9 million reduction in interest expense due to the repayment of $1.15 billion of bank debt in October 2003.

While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for or superior to, operating income, net earnings, cash flow and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States. EBITDA does not reflect cash available to fund cash requirements, and the items excluded from EBITDA, such as depreciation and non-film amortization, are significant components in assessing our financial performance. Other significant uses of cash flows are required before cash will be available to us, including debt service, taxes and cash expenditures for various long-term assets. We use EBITDA to evaluate the operating performance of our business segments and as a measure of performance for compensation purposes. We believe that EBITDA is also used by some investors, equity analysts and others as a measure of performance to make informed investment decisions. Our calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

The following table reconciles EBITDA to net loss for the quarters ended March 31, 2004 and 2003 (in thousands):