<PAGE>

-------------------------------------------------------------------------------
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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 June 30, 2001

                          Commission File No. 1-13481

                           METRO-GOLDWYN-MAYER INC.
            (Exact name of registrant as specified in its charter)

                               ----------------

<TABLE>
<S>                                            <C>
                  Delaware                                       95-4605850
        (State or other jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                     Identification No.)
</TABLE>

<TABLE>
<S>                                            <C>
   2500 Broadway Street, Santa Monica, CA                          90404
  (Address of principal executive offices)                       (Zip Code)
</TABLE>

      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

  The number of shares of the Registrant's common stock outstanding as of July
27, 2001 were 239,413,772.

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<PAGE>

                            METRO-GOLDWYN-MAYER INC.

                                   FORM 10-Q

                                 June 30, 2001

                                     INDEX

<TABLE>
<CAPTION>
                                                                            Page
                                                                            No.
                                                                            ----
<S>                                                                         <C>
Part I. Financial Information

Item 1. Financial Statements

    Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited)
     and December 31, 2000.................................................   1

    Condensed Consolidated Statements of Operations for the Quarters and
     Six Months ended June 30, 2001 and 2000 (unaudited)...................   2

    Condensed Consolidated Statements of Stockholders' Equity for the Six
     Months ended June 30, 2001 (unaudited)................................   3

    Condensed Consolidated Statements of Cash Flows for the Six Months
     ended June 30, 2001 and 2000 (unaudited)..............................   4

    Notes to Condensed Consolidated Financial Statements...................   5

Item 2. Management's Discussion and Analysis of Financial Condition and
 Results of Operations.....................................................  13

Item 3. Quantitative and Qualitative Disclosures About Market Risk.........  23

Part II.  Other Information

Item 1. Legal Proceedings..................................................  25

Item 4. Submission of Matters to a Vote of Security Holders................  25

Item 5. Other Information..................................................  26

Item 6. Exhibits and Reports on Form 8-K...................................  26

Signatures.................................................................  27
</TABLE>

                                       i
<PAGE>

                         PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                            METRO-GOLDWYN-MAYER INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                       June 30,    December 31,
                                                         2001          2000
                                                      -----------  ------------
                                                      (unaudited)
<S>                                                   <C>          <C>
                       ASSETS
                       ------
Cash and cash equivalents............................ $    13,265   $   77,140
Accounts and contracts receivable (net of allowance
 for doubtful accounts of $26,518 and $22,947,
 respectively).......................................     424,919      416,084
Film and television costs, net.......................   2,079,861    2,422,799
Investments in and advances to affiliates............     837,816       12,403
Property and equipment, net..........................      41,826       47,071
Excess of cost over net assets of acquired
 businesses, net.....................................     524,073      531,440
Other assets.........................................      32,464       41,253
                                                      -----------   ----------
                                                      $ 3,954,224   $3,548,190
                                                      ===========   ==========
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
Liabilities:
  Bank and other debt................................ $   882,129   $  709,952
  Accounts payable and accrued liabilities...........     207,497      168,144
  Accrued participants' share........................     227,365      217,231
  Income taxes payable...............................      32,990       34,056
  Advances and deferred revenues.....................      99,358       92,137
  Other liabilities..................................      28,358       16,983
                                                      -----------   ----------
    Total liabilities................................   1,477,697    1,238,503
                                                      -----------   ----------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value, 25,000,000 shares
   authorized, none issued...........................         --           --
  Common stock, $.01 par value, 500,000,000 shares
   authorized, 239,403,185 and 207,217,585 shares
   issued and outstanding............................       2,394        2,072
  Additional paid-in capital.........................   3,714,010    3,072,611
  Deficit............................................  (1,226,651)    (765,507)
  Accumulated other comprehensive (loss) income......     (13,226)         511
                                                      -----------   ----------
    Total stockholders' equity.......................   2,476,527    2,309,687
                                                      -----------   ----------
                                                      $ 3,954,224   $3,548,190
                                                      ===========   ==========
</TABLE>

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

                                       1
<PAGE>

                            METRO-GOLDWYN-MAYER INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except share and per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                           Quarter Ended June 30,     Six Months Ended June 30,
                          --------------------------  --------------------------
                              2001          2000          2001          2000
                          ------------  ------------  ------------  ------------
<S>                       <C>           <C>           <C>           <C>
Revenues................  $    274,859  $    294,486  $    618,755  $    633,481
Expenses:
  Operating.............       129,081       163,736       269,258       355,383
  Selling, general and
   administrative ......       181,668       110,351       386,763       231,548
  Recoveries of
   severance and related
   costs................           --         (3,715)          --         (3,715)
  Depreciation and non-
   film amortization....         8,056         6,369        16,001        12,782
                          ------------  ------------  ------------  ------------
    Total expenses......       318,805       276,741       672,022       595,998
                          ------------  ------------  ------------  ------------
Operating income
 (loss).................       (43,946)       17,745       (53,267)       37,483
Other income (expense):
  Equity in net earnings
   of affiliates........        (1,147)          424        (1,259)          603
  Interest expense, net
   of amounts
   capitalized..........       (13,475)      (14,722)      (22,928)      (29,615)
  Interest and other
   income, net..........         1,360         5,742         7,137        10,100
                          ------------  ------------  ------------  ------------
    Total other
     expense............       (13,262)       (8,556)      (17,050)      (18,912)
                          ------------  ------------  ------------  ------------
Income (loss) from
 operations before
 provision for income
 taxes..................       (57,208)        9,189       (70,317)       18,571
Income tax provision....        (4,097)       (2,895)       (8,509)       (7,062)
                          ------------  ------------  ------------  ------------
Net income (loss) before
 cumulative effect of
 accounting change......       (61,305)        6,294       (78,826)       11,509
Cumulative effect of
 accounting change......           --            --       (382,318)          --
                          ------------  ------------  ------------  ------------
Net income (loss).......  $    (61,305) $      6,294  $   (461,144) $     11,509
                          ============  ============  ============  ============
Income (loss) per share:
  Basic and diluted
    Net income (loss)
     before cumulative
     effect of
     accounting change..  $      (0.26) $       0.03  $      (0.35) $       0.06
    Cumulative effect of
     accounting change..           --            --          (1.70)          --
                          ------------  ------------  ------------  ------------
    Net income (loss)...  $      (0.26) $       0.03  $      (2.05) $       0.06
                          ============  ============  ============  ============
Weighted average number
 of common shares
 outstanding:
  Basic.................   234,002,719   203,625,034   224,521,913   202,548,203
                          ============  ============  ============  ============
  Diluted...............   234,002,719   210,595,555   224,521,913   209,039,749
                          ============  ============  ============  ============
</TABLE>

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

                                       2
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

           CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                          Preferred Stock       Common Stock                             Accumulated
                         ------------------  ------------------ Additional                  Other         Total
                           No. of      Par     No. of     Par    Paid-in                Comprehensive Stockholders'
                           Shares     Value    Shares    Value   Capital     Deficit    Income (Loss)    Equity
                         -----------  -----  ----------- ------ ---------- -----------  ------------- -------------
<S>                      <C>          <C>    <C>         <C>    <C>        <C>          <C>           <C>
Balance December 31,
2000....................         --   $ --   207,217,585 $2,072 $3,072,611 $  (765,507)   $    511     $2,309,687
Preferred stock issued
to Tracinda, net........  15,715,667    157          --     --     324,843         --          --         325,000
Conversion of preferred
stock into common
stock................... (15,715,667)  (157)  15,715,667    157        --          --          --             --
Common stock issued to
outside parties, net....         --     --    16,080,590    161    310,478         --          --         310,639
Common stock issued to
directors, officers and
employees, net..........         --     --       389,343      4      6,078         --          --           6,082
Other comprehensive
income (loss):
 Cumulative effect of
 accounting change......         --     --           --     --         --          --          469            469
 Unrealized loss on
 derivative
 instruments............         --     --           --     --         --          --      (13,543)       (13,543)
 Unrealized loss on
 securities.............         --     --           --     --         --          --         (301)          (301)
 Foreign currency
 translation
 adjustments............         --     --           --     --         --          --         (362)          (362)
 Net loss...............         --     --           --     --         --     (461,144)        --        (461,144)
                         -----------  -----  ----------- ------ ---------- -----------    --------     ----------
Balance June 30, 2001
(unaudited).............         --   $ --   239,403,185 $2,394 $3,714,010 $(1,226,651)   $(13,226)    $2,476,527
                         ===========  =====  =========== ====== ========== ===========    ========     ==========
</TABLE>

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

                                       3
<PAGE>

                            METRO-GOLDWYN-MAYER INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                          -------------------
                                                            2001       2000
                                                          ---------  --------
<S>                                                       <C>        <C>
Net cash used in operating activities.................... $ (44,583) $ (3,498)
                                                          ---------  --------
Investing activities:
  Investment in Cable Channels...........................  (825,185)      --
  Additions to property and equipment....................    (3,310)   (3,813)
  Other investing activities.............................    (1,050)   (1,000)
                                                          ---------  --------
  Net cash used in investing activities..................  (829,545)   (4,813)
                                                          ---------  --------
Financing activities:
  Net proceeds for issuance of preferred stock to
   Tracinda..............................................   325,000       --
  Net proceeds from issuance of equity securities to
   outside parties.......................................   310,639   121,539
  Net proceeds from issuance of equity securities to
   related parties.......................................     4,801     3,506
  Additions to borrowed funds............................   171,500       --
  Repayments of borrowed funds...........................    (1,323)   (5,337)
                                                          ---------  --------
  Net cash provided by financing activities..............   810,617   119,708
                                                          ---------  --------
Net change in cash and cash equivalents from operating,
 investing and financing activities......................   (63,511)  111,397
Net increase (decrease) in cash due to foreign currency
 fluctuations............................................      (364)       76
                                                          ---------  --------
Net change in cash and cash equivalents..................   (63,875)  111,473
Cash and cash equivalents at beginning of the year.......    77,140   152,213
                                                          ---------  --------
Cash and cash equivalents at end of the quarter.......... $  13,265  $263,686
                                                          =========  ========
</TABLE>


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

                                       4
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 June 30, 2001

Note 1--Basis of Presentation

  The accompanying unaudited condensed consolidated financial statements
include the accounts of Metro-Goldwyn-Mayer Inc. ("MGM"), Metro-Goldwyn-Mayer
Studios Inc. and its majority owned subsidiaries ("MGM Studios") and Orion
Pictures Corporation and its majority owned subsidiaries ("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, "Tracinda"), and
certain current and former executive officers of the Company. 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 ("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 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, 2000. 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. Certain reclassifications have been made to amounts presented
in the prior year period to conform to the current presentation.

  New Accounting Pronouncements. In June 2000, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 139, "Rescission of FASB Statement No. 53 and Amendments to FASB
Statements No. 63, 89 and 121," which, effective for financial statements for
fiscal years beginning after December 15, 2000, rescinds SFAS No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films."
The companies that were previously subject to the requirements of SFAS No. 53
shall now follow the guidance in SOP 00-2 issued in June 2000. SOP 00-2
establishes new accounting and reporting standards for all producers and
distributors that own or hold the rights to distribute or exploit films. SOP
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." The Company adopted SOP 00-2 on January 1, 2001 and recorded a one-
time, non-cash cumulative effect charge to earnings of $382,318,000, primarily
to reduce the carrying value of its film and television costs. The new rules
also require that advertising costs be expensed as incurred as opposed to the
old rules which generally allowed advertising costs to 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, the Company anticipates that the new rules will significantly impact
its results of operations for the foreseeable future. Additionally, under SFAS
No. 53 the Company classified additions to film costs as an investing activity
in the Statement of Cash Flows. In accordance with SOP 00-2, the Company now
classifies additions to film costs as an operating activity. For comparative
purposes, the Company has revised its June 30, 2000 Statement of Cash Flows to
conform to this presentation in the current year period.


                                       5
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities --Deferral of the Effective
Date of FASB Statement No. 133," and by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities-an Amendment of FASB No.
133," which is effective for all quarters of fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
contracts, and for hedging activities. The Company adopted SFAS No. 133 on
January 1, 2001 and recorded a one-time, non-cash cumulative effect adjustment
to stockholders' equity and other comprehensive income (loss) of $469,000. The
Company does not expect the adoption of SFAS No. 133 to materially impact its
results of operations.

  In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement has eliminated the flexibility to account for some mergers and
acquisitions as pooling of interests, and effective as of July 1, 2001, all
business combinations are to be accounted for using the purchase method. The
Company will adopt SFAS No. 141 as of July 1, 2001, and the impact of such
adoption is not anticipated to have a material adverse impact on the Company's
financial statements.

  In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather an annual
assessment of impairment by applying a fair-value-based test. The Company will
adopt SFAS No. 142 beginning January 1, 2002, and upon adoption the Company
does not currently anticipate any impairment of goodwill and other intangible
assets already included in the financial statements. The Company expects to
receive future benefits from previously acquired goodwill and other intangible
assets over an indefinite period of time, and as such plans to forego all
related amortization expense.

  Comprehensive Income (Loss). Total comprehensive income (loss) for the
Company includes net earnings (loss) and other comprehensive income items,
including unrealized loss on derivative instruments, unrealized loss on
securities and cumulative foreign currency translation adjustments. Components
of other comprehensive income (loss) are shown below (in thousands,
unaudited):

<TABLE>
<CAPTION>
                                           Quarter Ended     Six Months Ended
                                              June 30,           June 30,
                                          -----------------  ------------------
                                            2001      2000     2001      2000
                                          ---------  ------  ---------  -------
   <S>                                    <C>        <C>     <C>        <C>
   Net income (loss) ...................  $ (61,305) $6,294  $(461,144) $11,509
   Other comprehensive income (loss):
     Cumulative effect of accounting
      change for derivative
      instruments.......................        --      --         469      --
     Unrealized loss on derivative
      instruments.......................       (702)    --     (13,543)     --
     Unrealized gain (loss) on
      securities........................       (119)     68       (301)      68
     Cumulative foreign currency
      translation adjustments...........       (214)   (112)      (362)     274
                                          ---------  ------  ---------  -------
     Total comprehensive income (loss)..  $ (62,340) $6,250  $(474,881) $11,851
                                          =========  ======  =========  =======
</TABLE>

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

<TABLE>
<CAPTION>
                              Unrealized                          Accumulated
                                loss on   Unrealized Cumulative      other
                              derivative   loss on   translation comprehensive
                              instruments securities adjustments income (loss)
                              ----------- ---------- ----------- -------------
   <S>                        <C>         <C>        <C>         <C>
   Balance at December 31,
    2000.....................  $     --     $  --       $ 511      $     511
   Current period change.....    (13,074)     (301)      (362)       (13,737)
                               ---------    ------      -----      ---------
   Balance at June 30, 2001
    (unaudited)..............  $ (13,074)   $ (301)     $ 149      $ (13,226)
                               =========    ======      =====      =========
</TABLE>


                                       6
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 2--Investment in Cable Channels

  On April 2, 2001, the Company invested $825,000,000 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), collectively referred to as the "Cable Channels."
These partnerships were wholly-owned by Rainbow Media Holdings, Inc., a 74
percent subsidiary of Cablevision Systems Corporation ("Rainbow Media"). The
proceeds of the $825,000,000 investment were used as follows: (i) $365,000,000
was used to repay bank debt of the partnerships; (ii) $295,500,000 was used to
repay intercompany loans from Cablevision and its affiliates; and (iii)
$164,500,000 was added to the working capital of the partnerships. The Company
financed the investment through the sale of equity securities (see Note 6),
which provided aggregate net proceeds of approximately $635,600,000, and
borrowings under our credit facilities. Based upon currently available
information and upon certain assumptions that management of the Company
believes are reasonable, the Company's preliminary determination of the
difference between the Company's cost basis in their investment in the Cable
Channels and the Company's share of the underlying equity in net assets is
approximately $750,000,000. There can be no assurance that the actual amount
will not differ significantly from this estimate.

  The Company is accounting for its investment in the Cable Channels in
accordance with Accounting Principles Board ("APB") Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock." Pursuant to the
requirements of APB No. 18, the Company is recording its share of the earnings
and losses in the Cable Channels based on the most recently available
financial statements received from the Cable Channels. At this date, the
Company has not received the financial statements from the Cable Channels from
the acquisition date of April 2, 2001 through June 30, 2001. Therefore, the
Company will be reporting its interest in the Cable Channels on a one quarter
lag. Thus, the results of operations of the Company through June 30, 2001 do
not include the Company's share of the Cable Channels' income or loss, or any
amortization related to the difference between the Company's cost of its
investment in the Cable Channels and the Company's underlying equity in the
Cable Channels' net assets.

  While the Company is not involved in the day-to-day operations of the Cable
Channels, the Company's approval is required before either partnership may:
(i) declare bankruptcy or begin or consent to any reorganization or assignment
for the benefit of creditors; (ii) enter into any new transaction with a
related party; (iii) make any non-proportionate distributions; (iv) amend the
partnership governing documents; or (v) change its tax structure.

  The Company has 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 the Company to participate in any such sale. If a third party
invests in either partnership, the Company's interest and that of Rainbow
Media will be diluted on a pro rata basis. Neither the Company nor Rainbow
Media will be required to make additional capital contributions to the
partnerships. However, if Rainbow Media makes an additional capital
contribution and the Company does not, the Company's interest in the
partnerships will be diluted accordingly. If the partnerships fail to attain
certain financial projections provided to the Company by Rainbow Media for the
years 2002 through 2005, inclusive, the Company will be entitled, 30 days
after receipt of partnership financial statements for 2005, to require Rainbow
Media to acquire the Company's partnership interests for fair market value, as
determined pursuant to the agreement. The Company formed a wholly-owned
subsidiary, MGM Networks U.S. Inc., which made the above-described investment,
serves as a general partner of the applicable Rainbow Media companies and is
the MGM entity which holds the aforesaid partnership interests and rights
attendant thereto.

                                       7
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 3--Restructuring and Other Charges

  In June 1999, the Company incurred certain restructuring and other charges,
in association with a change in senior management and a corresponding review
of the Company's operations, aggregating $214,559,000 million, including (i) a
$129,388,000 million reserve for pre-release film cost write-downs and certain
other charges regarding a re-evaluation of film properties in various stages
of development and production and (ii) $85,171,000 million 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. As of June 30, 2001, the Company has utilized
all $129,388,000 of the pre-release film cost write-down reserves and has paid
$54,778,000 of the severance and related costs.

Note 4--Film and Television Costs

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

<TABLE>
<CAPTION>
                                                        June 30,     December
                                                          2001       31, 2000
                                                       -----------  -----------
                                                       (unaudited)
   <S>                                                 <C>          <C>
   Theatrical productions:
     Released......................................... $ 3,410,496  $ 3,396,540
     Less: accumulated amortization...................  (1,974,813)  (1,779,647)
                                                       -----------  -----------
     Released, net....................................   1,435,683    1,616,893
     Completed not released, net .....................      45,965       74,665
     In production....................................     321,517      393,615
     In development...................................      29,392       21,407
                                                       -----------  -----------
       Subtotal: theatrical productions...............   1,832,557    2,106,580
                                                       -----------  -----------
   Television programming:
     Released.........................................     806,679      786,574
     Less: accumulated amortization...................    (585,219)    (498,005)
                                                       -----------  -----------
     Released, net....................................     221,460      288,569
     In production....................................      25,271       24,988
     In development...................................         573        2,662
                                                       -----------  -----------
       Subtotal: television programming...............     247,304      316,219
                                                       -----------  -----------
                                                       $ 2,079,861  $ 2,422,799
                                                       ===========  ===========
</TABLE>

  Interest costs capitalized to theatrical productions were $6,030,000 and
$13,361,000 during the quarter and six months ended June 30, 2001, and
$2,174,000 and $2,976,000 during the quarter and six months ended June 30,
2000, respectively.

Note 5--Bank and Other Debt

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

<TABLE>
<CAPTION>
                                                       June 30,   December 31,
                                                         2001         2000
                                                      ----------- ------------
                                                      (unaudited)
   <S>                                                <C>         <C>
   Revolving Facility................................  $171,500     $    --
   Term Loans........................................   700,000      700,000
   Capitalized lease obligations and other
    borrowings.......................................    10,629        9,952
                                                       --------     --------
                                                       $882,129     $709,952
                                                       ========     ========
</TABLE>

                                       8
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  On October 15, 1997, the Company entered into an amended and restated credit
facility with a syndicate of banks aggregating $1.3 billion (the "Amended
Credit Facility") consisting of a six year $600,000,000 revolving credit
facility (the "Revolving Facility"), a $400,000,000 seven and one-half year
term loan ("Tranche A Loan") and a $300,000,000 eight and one-half year term
loan ("Tranche B Loan") (collectively, the "Term Loans"). The Amended Credit
Facility was subsequently amended and restated on July 21, 2000, with less
restrictive operating and financial covenants. The Amended Credit Facility
contains provisions allowing, with the consent of the requisite lenders and
subject to syndication thereof, for an additional $200,000,000 tranche,
raising the potential amount of Amended Credit Facility to $1.5 billion. The
Revolving Facility and the Tranche A Loan bear interest at 2.50 percent over
the Adjusted LIBOR rate, as defined (6.36 percent at June 30, 2001). The
Tranche B Loan bears interest at 2.75 percent over the Adjusted LIBOR rate, as
defined (6.59 percent at June 30, 2001). Scheduled amortization of the Term
Loans under the Amended Credit Facility commences with $31,500,000 in 2001,
$73,000,000 in 2002, $103,000,000 in 2003, $103,000,000 in 2004 and
$103,000,000 in 2005, with the remaining balance due at maturity. The
Revolving Facility matures in October 2003, subject to extension under certain
conditions.

  The Company has entered into three year fixed interest rate swap contracts
in relation to a portion of the Amended Credit Facility for a notional value
of $575,000,000 at an average rate of approximately 5.46 percent, which expire
at various times no later than July 2003. The Company has also entered into
additional forward interest rate swap contracts commencing on various dates in
2001 for a notional value of $470,000,000 at an average rate of approximately
5.95 percent, which expire in July 2003. At June 30, 2001, the Company would
be required to pay approximately $13,080,000 if all such swap contracts were
terminated, and this amount has been included in other comprehensive income
during the six months ended June 30, 2001.

  The Company's borrowings under the Amended Credit Facility are secured by
substantially all the assets of the Company. 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 the
Company which may be made by MGM Studios and Orion in the form of loans or
advances, or purchases of capital stock of the Company, up to a maximum
aggregate amount of $500,000,000. As of June 30, 2001, there are no
outstanding loans or advances to the Company by such subsidiaries, nor have
such subsidiaries purchased any capital stock of the Company. Restricted net
assets of MGM Studios and Orion at June 30, 2001 are approximately $2.5
billion. As of June 30, 2001, the Company was in compliance with all
applicable covenants.

  Lease and other borrowings. Capitalized lease and other borrowings relate
principally to contractual liabilities and computer equipment financing at
interest rates ranging from approximately nine to ten percent.

Note 6--Stockholders' Equity

  Sale of Common Stock. In February and March 2001, pursuant to a Form S-3
shelf registration statement filed on May 5, 2000 with the Securities and
Exchange Commission, the Company sold 16,080,590 shares of its common stock
for aggregate net proceeds of $310,639,000. On April 2, 2001, the Company used
the net proceeds from these sales to partially finance its investment in the
Cable Channels (see Note 2).

  Sale of Preferred Stock to Tracinda. On February 7, 2001, the Company sold
15,715,667 shares of Series B preferred stock ("Preferred Stock") to Tracinda
for net proceeds of $325,000,000. On April 2, 2001, the Company used the net
proceeds of this sale to partially finance its investment in the Cable
Channels (see Note 2). On May 2, 2001, upon approval of the shareholders of
the Company, the Preferred Stock was converted into 15,715,667 shares of
common stock of the Company. Tracinda currently beneficially owns
approximately 81.5 percent of the Company's outstanding common stock.

                                       9
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Earnings Per Share. Dilutive securities of 4,101,574 and 3,537,124 related
to stock options are not included in the calculation of diluted EPS in the
quarter and six months ended June 30, 2001 because they are antidilutive.
Dilutive securities of 6,970,521 and 6,491,546 related to stock options have
been included in the calculation of diluted EPS for the quarter and six months
ended June 30, 2000.

Note 7--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 three reportable operating segments:
feature films, television programming and other. 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 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. Corporate assets consist of cash, certain corporate receivables and
intangibles.

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

<TABLE>
<CAPTION>
                                         Feature   Television
                                          Films     Programs   Other    Total
                                        ---------  ---------- ------- ---------
   <S>                                  <C>        <C>        <C>     <C>
   Quarter Ended June 30:
   2001:
   Revenues............................ $ 230,588   $ 36,182  $ 8,089 $ 274,859
   Segment income (loss)............... $ (22,421)  $  4,640  $ 4,503 $ (13,278)

   2000:
   Revenues............................ $ 253,653   $ 33,924  $ 6,909 $ 294,486
   Segment income...................... $  45,346   $ (2,834) $ 3,769 $  46,281

<CAPTION>
                                         Feature   Television
                                          Films     Programs   Other    Total
                                        ---------  ---------- ------- ---------
   <S>                                  <C>        <C>        <C>     <C>
   Six Months Ended June 30:
   2001:
   Revenues............................ $ 531,141   $ 73,190  $14,424 $ 618,755
   Segment income...................... $ (10,432)  $ 10,966  $ 5,241 $   5,775

   2000:
   Revenues............................ $ 533,243   $ 73,728  $26,510 $ 633,481
   Segment income...................... $  77,166   $    846  $15,111 $  93,123
</TABLE>

  The following is a reconciliation of the change in reportable segment
assets:

<TABLE>
<CAPTION>
                                             December 31,             June 30,
                                                 2000     Decrease      2001
                                             ------------ ---------  -----------
                                                                     (unaudited)
   <S>                                       <C>          <C>        <C>
   Feature films............................  $2,479,639  $(284,428) $2,195,211
   Television programs......................     401,776    (64,055)    337,721
   Other....................................      14,772    (13,368)      1,404
                                              ----------  ---------  ----------
     Total reportable segment assets........  $2,896,187  $(361,851) $2,534,336
                                              ==========  =========  ==========
</TABLE>

                                      10
<PAGE>

                           METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                               Quarter Ended     Six Months
                                                 June 30,      Ended June 30,
                                               --------------  ----------------
                                                2001    2000    2001     2000
                                               ------  ------  -------  -------
<S>                                            <C>     <C>     <C>      <C>
Licensing and merchandising................... $1,551  $2,436  $ 2,444  $ 3,685
Interactive media.............................    690     318    1,206    9,001
Music.........................................  2,842   1,497    3,432    2,748
Other income (loss)...........................   (580)   (482)  (1,841)    (323)
                                               ------  ------  -------  -------
  Total other operating segment income........ $4,503  $3,769  $ 5,241  $15,111
                                               ======  ======  =======  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                         Quarter Ended       Six Months Ended
                                            June 30,             June 30,
                                       -------------------  -------------------
                                         2001       2000      2001       2000
                                       ---------  --------  ---------  --------
<S>                                    <C>        <C>       <C>        <C>
Segment income (loss)................  $ (13,278) $ 46,281  $   5,775  $ 93,123
General and administrative expenses..    (22,612)  (25,882)   (43,041)  (46,573)
Recoveries of severance and related
 costs...............................        --      3,715        --      3,715
Depreciation and non-film
 amortization........................     (8,056)   (6,369)   (16,001)  (12,782)
                                       ---------  --------  ---------  --------
  Operating income (loss)............    (43,946)   17,745  $ (53,267) $ 37,483
Equity in net earnings (losses) of
 affiliates..........................     (1,147)      424     (1,259)      603
Interest expense, net of amounts
 capitalized ........................    (13,475)  (14,722)   (22,928)  (29,615)
Interest and other income, net.......      1,360     5,742      7,137    10,100
                                       ---------  --------  ---------  --------
  Income (loss) from operations
   before provision for income
   taxes.............................  $ (57,208) $  9,189  $ (70,317) $ 18,571
                                       =========  ========  =========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                         June 30,   December 31,
                                                           2001         2000
                                                        ----------- ------------
                                                        (unaudited)
   <S>                                                  <C>         <C>
   Total assets for reportable segments................ $2,534,336   $2,896,187
   Investments in and advances to affiliates...........    837,816          --
   Goodwill not allocated to segments..................    524,073      531,440
   Cash and other unallocated amounts..................     57,999      120,563
                                                        ----------   ----------
     Consolidated total assets......................... $3,954,224   $3,548,190
                                                        ==========   ==========
</TABLE>

Note 8--Commitments and Contingencies

  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.

  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.

                                      11
<PAGE>

                            METRO-GOLDWYN-MAYER INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 9--Supplementary Cash Flow Information

  The Company paid interest, net of capitalized interest, of $18,299,000 and
$25,172,000 during the six months ended June 30, 2001 and 2000, respectively.
The Company paid income taxes of $7,896,000 and $8,492,000 during the six
months ended June 30, 2001 and 2000, respectively.

                                       12
<PAGE>

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
unaudited condensed 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

  Cable Investment. On April 2, 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 Holdings, Inc., a 74 percent subsidiary of Cablevision
Systems Corporation. The proceeds of the $825.0 million investment were used
as follows: (i) $365.0 million was used to repay bank debt of the
partnerships; (ii) $295.5 million was used to repay intercompany loans from
Cablevision and its affiliates; and (iii) $164.5 million was added to the
working capital of the partnerships. We financed the investment through the
sale of equity securities and borrowings under our credit facilities. See
"Liquidity and Capital Resources." Based upon currently available information
and upon certain assumptions that management believes are reasonable, our
preliminary determination of the difference between our cost basis in our
investment in the cable channels and our share of the underlying equity in net
assets is approximately $750 million. There can be no assurance that the
actual amount will not differ significantly from this estimate.

  We are accounting for our investment in the cable channels in accordance
with Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock." Pursuant to the requirements of
this pronouncement, we are recording our share of the earnings and losses in
the cable channels based on the most recently available financial statements
received from the cable channels. At this date, we have not received the
financial statements from the cable channels from the acquisition date of
April 2, 2001 through June 30, 2001. Therefore, we will be reporting our
interest in the cable channels on a one quarter lag. Thus, our results of
operations through June 30, 2001 do not include our share of the cable
channels' income or loss, or any amortization related to the difference
between the cost of our investment in the cable channels and our underlying
equity in the cable channels' net assets.

  While we are not involved in the day-to-day operations of the cable
channels, our approval is required before either partnership may: (i) declare
bankruptcy or begin or consent to any reorganization or assignment for the
benefit of creditors; (ii) enter into any new transaction with a related
party; (iii) make any non-proportionate distributions; (iv) amend the
partnership governing documents; or (v) 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 us nor

                                      13
<PAGE>

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, as determined pursuant to the agreement. We formed a
wholly-owned subsidiary, MGM Networks U.S. Inc., which made the above-
described investment, serves as general partner of the applicable Rainbow
Media companies and is the MGM entity which holds the aforesaid partnership
interests and rights attendant thereto.

  Industry Accounting Practices. 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 (see below) 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 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 and the relative
performance of individual motion pictures or television programs.

  Additionally, beginning January 1, 2001 we adopted new accounting rules (see
below) which require, among other changes, that advertising costs be expensed
as incurred as opposed to the old rules which generally allowed advertising
costs to be capitalized as part of film costs and amortized using the film
forecast model. This practice dramatically increases the likelihood of
reporting losses upon a film's theatrical release, but will provide for
increased returns when a film is released in the ancillary markets of home
video and television, when we incur a much lower proportion of advertising
costs. As we have scheduled for 2001 a significantly increased release slate
of up to 19 films, we will incur significant advertising costs which will be
expensed as incurred, but due to a reduced film release slate in 2000 when we
only released eight films (four of which were released on a limited
distribution basis only), we will not benefit from ancillary market revenues
that we would have with a normalized theatrical release schedule. Additional
provisions under the new accounting rules include changes in revenue
recognition and accounting for development costs and overhead, and reduced
amortization periods for film costs. Due to the aforementioned changes, the
likelihood that we will report operating losses in 2001 has been significantly
increased as compared to 2000.

  In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 139, "Rescission of FASB No. 53 and
Amendments to FASB Statements No. 63, 89 and 121," which, effective for
financial statements for fiscal years beginning after December 15, 2000,
rescinds Statement of Financial Accounting Standards No. 53, "Financial
Reporting by Producers and Distributors of Motion Picture Films." The
companies that were previously subject to the requirements of Statement of
Financial Accounting Standards No. 53 are following 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 the
statement of position 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 generally allowed advertising costs to 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.

                                      14
<PAGE>

  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of Financial Accounting Standards
Board No. 133,"and by Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities--an Amendment of Financial Accounting Standards Board Statement No.
133," which is effective for all quarters of fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We adopted Statement of Financial
Accounting Standards No. 133 beginning January 1, 2001, and recorded a one-
time, non-cash cumulative effect adjustment in stockholder's equity and other
comprehensive income (loss) of $0.5 million. We do not expect the adoption of
Statement of Financial Accounting Standards No. 133 to materially impact our
results of operations.

  In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations." This
statement has eliminated the flexibility to account for some mergers and
acquisitions as pooling of interests, and effective as of July 1, 2001, all
business combinations are to be accounted for using the purchase method. We
will adopt SFAS No. 141 as of July 1, 2001, and the impact of such adoption is
not anticipated to have a material adverse impact on our financial statements.

  In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." According to this statement, goodwill and intangible assets with
indefinite lives are no longer subject to amortization, but rather an annual
assessment of impairment by applying a fair-value-based test. We will adopt
Statement of Financial Accounting Standards No. 142 beginning January 1, 2002,
and upon adoption we do not currently anticipate any impairment of goodwill
and other intangible assets already included in the financial statements. We
expect to receive future benefits from previously acquired goodwill and other
intangible assets over an indefinite period of time, and as such plan to
forego all related amortization expense.

  Collective Bargaining Agreements. 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 Writers Guild of America was successfully renegotiated and
became effective beginning May 2, 2001 for a term of three years. Negotiations
regarding the collective bargaining agreement with Screen Actors Guild were
successfully completed on July 3, 2001, and await the likely ratification by
Screen Actors Guild members. Public reports indicate that a strike is highly
unlikely. The Directors Guild of America collective bargaining agreement
expires in mid-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 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.

                                      15
<PAGE>

Results of Operations

 Periods Ended June 30, 2001 Compared to Periods Ended June 30, 2000

  As discussed above, on January 1, 2001 we adopted Statement of Position 00-
2, which established new accounting and reporting standards for all producers
and distributors that own or hold the rights to distribute or exploit films
(see--"Industry Accounting Practices"). As a result of the adoption of the new
accounting rules, as of January 1, 2001 we recorded a one-time, non-cash
cumulative effect charge to the consolidated statement of operations of $382.3
million, primarily to reduce the carrying value of our film inventory.

  In the quarter and six months ended June 30, 2001, our operating income,
EBITDA, and net income were reduced by $6.3 million and $36.4 million due to
the implementation of the new accounting rules as compared to the accounting
rules in place in the prior year periods under Statement of Financial
Accounting Standards No. 53. These earnings reductions are solely related to
adopting the new accounting standard and will not impact how we manage our
businesses.

  The following table sets forth our reported operating results for the
quarters ended June 30, 2001 (the "2001 Quarter") and June 30, 2000 (the "2000
Quarter"), as well as the six months ended June 30, 2001 (the "2001 Period")
and June 30, 2000 (the "2000 Period"). The operating results in the 2001
periods, for the reasons discussed above, are not comparable to the operating
results in the 2000 periods.

<TABLE>
<CAPTION>
                                     Quarter Ended June    Six Months Ended
                                            30,                June 30,
                                     -------------------  -------------------
                                       2001       2000      2001       2000
                                     ---------  --------  ---------  --------
                                          (in thousands) (unaudited)
<S>                                  <C>        <C>       <C>        <C>
Revenues:
  Feature films..................... $ 230,588  $253,653  $ 531,141  $533,243
  Television programs...............    36,182    33,924     73,190    73,728
  Other.............................     8,089     6,909     14,424    26,510
                                     ---------  --------  ---------  --------
    Total revenues..................   274,859   294,486    618,755   633,481
                                     ---------  --------  ---------  --------
Operating income (loss):
  Feature films.....................   (22,421)   45,346    (10,432)   77,166
  Television programs...............     4,640    (2,834)    10,966       846
  Other.............................     4,503     3,769      5,241    15,111
  General and administration
   expenses.........................   (22,612)  (25,882)   (43,041)  (46,573)
  Severance and related (costs)
   recoveries.......................       --      3,715        --      3,715
  Depreciation and non-film
   amortization.....................    (8,056)   (6,369)   (16,001)  (12,782)
                                     ---------  --------  ---------  --------
Operating income (loss).............   (43,946)   17,745    (53,267)   37,483
Equity in net earnings of
 affiliates.........................    (1,147)      424     (1,259)      603
Interest expense, net of amounts
 capitalized........................   (13,475)  (14,722)   (22,928)  (29,615)
Interest and other income...........     1,360     5,742      7,137    10,100
                                     ---------  --------  ---------  --------
Income (loss) before provision for
 income taxes.......................   (57,208)    9,189    (70,317)   18,571
Income tax provision................    (4,097)   (2,895)    (8,509)   (7,062)
                                     ---------  --------  ---------  --------
Net income (loss) before cumulative
 effect of accounting change........   (61,305)    6,294    (78,826)   11,509
Cumulative effect of accounting
 change ............................       --        --    (382,318)      --
                                     ---------  --------  ---------  --------
    Net income (loss)............... $ (61,305) $  6,294  $(461,144) $ 11,509
                                     =========  ========  =========  ========
</TABLE>

                                      16
<PAGE>

  Operating Results

  As previously discussed under "Industry Accounting Practices" above, on
January 1, 2001 we adopted new accounting rules for motion picture producers
and distributors. Had we been reporting under the accounting rules in place
prior to January 1, 2001, in the 2001 Quarter consolidated operating income
would have decreased by $55.3 million, or 312 percent, to a loss of $37.6
million, and consolidated EBITDA would have decreased by $53.7 million, or 223
percent, to a loss of $29.6 million, as compared to the 2000 Quarter. In the
2001 Period, under the prior accounting rules, consolidated operating income
would have decreased by $54.3 million, or 145 percent, to a loss of $16.8
million, and consolidated EBITDA would have decreased by $51.1million, or 102
percent, to a loss of $0.8 million, as compared to the 2000 Period.

  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. Our calculation of EBITDA
may be different from the calculation used by other companies and, therefore,
comparability may be limited.

  See further details of quarterly changes under segments discussion below.

  Feature Films

  Consolidated feature films revenues, operating income and EBITDA are as
follows:

<TABLE>
<CAPTION>
                                            Quarter Ended    Six Months Ended
                                              June 30,           June 30,
                                          ------------------ ------------------
                                            2001      2000     2001      2000
                                          --------  -------- --------  --------
                                              (in thousands) (unaudited)
<S>                                       <C>       <C>      <C>       <C>
Revenues................................. $230,588  $253,653 $531,141  $533,243
Operating income (loss) and EBITDA....... $(22,421) $ 45,346 $(10,432) $ 77,166
</TABLE>

 Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000

  Feature film revenues decreased by $23.1 million, or 9 percent, to $230.6
million in the 2001 Quarter compared to the 2000 Quarter.

  Worldwide theatrical revenues increased by $6.7 million, or 32 percent, to
$27.5 million in the 2001 Quarter, principally due to the release of What's
The Worst That Could Happen as well as continuing contributions from
Heartbreakers and Hannibal, which were released in the first quarter. In the
2000 Quarter, we released Return To Me which generated lower revenues than the
combined releases in the 2001 Quarter.

  Worldwide home video revenues decreased by $53.2 million, or 33 percent, to
$110.4 million in the 2001 Quarter. In the 2001 Quarter, we released Antitrust
in the domestic home video marketplace, as well as the re-promotion of the
Rocky series on digital video disc (DVD). In the 2000 Quarter, significantly
higher revenues were generated by the initial home video release of The World
Is Not Enough, which contributed over $67.0 million in revenues in the period,
and the international home video release of The Thomas Crown Affair. Partially
offsetting this decrease was the continued growth in home video sales of film
library product, which increased by 40 percent in the 2001 Quarter.
Additionally, DVD sales increased to $74.5 million from $70.6 million in the
2000 Quarter, which included $24.0 million of DVD sales attributable to the
release of The World Is Not Enough.

                                      17
<PAGE>

  Worldwide pay television revenues from feature films increased by $4.5
million, or 13 percent, to $39.7 million in the 2001 Quarter, principally due
to the delivery of two new films, Return To Me and Three Strikes, to domestic
pay television as compared to the delivery in the 2000 Quarter of The Rage:
Carrie 2 and Tea With Mussolini, which generated lower license fees than the
films in the 2001 Quarter. Network and worldwide syndicated television
revenues from feature films increased by $20.6 million, or 70 percent, to
$50.0 million in the 2001 Quarter, principally due to the licensing of Ronin
in domestic markets as well as additional films in the James Bond series to
network television, and increased sales in international markets from The
World Is Not Enough and Tomorrow Never Dies.

  Other feature film revenues decreased by $1.7 million, or 35 percent, to
$3.1 million in the 2001 Quarter to lower third party royalty income.

  Operating income and EBITDA from feature films in the 2001 Quarter decreased
by $67.8 million to a loss of $22.4 million compared to a profit of $45.3
million in the 2000 Quarter. The decrease in operating income and EBITDA from
feature films reflected the disappointing performances of What's The Worst
That Could Happen and Josie and the Pussycats, as well as the implementation
of the new accounting rules upon the adoption of Statement of Position 00-2 on
January 1, 2001, which resulted in $18.1 million of additional theatrical
advertising and print costs expensed in the 2001 Quarter. The 2000 Quarter
benefited from the accounting rules in effect prior to January 1, 2001 in
which theatrical advertising and print costs were capitalized and amortized
under the income forecast method in accordance with Statement of Financial
Accounting Standards No. 53. The remaining decrease in operating income and
EBITDA reflected the significant revenues realized in the 2000 Quarter from
the home video release of The World Is Not Enough. There were no comparable
home video releases in the 2001 Quarter.

 Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

  Feature film revenues decreased by $2.1 million, or one percent, to $531.1
million in the 2001 Period compared to the 2000 Period.

  Worldwide theatrical revenues increased by $15.1 million, or 14 percent, to
$121.4 million in the 2001 Period, principally due to the successful releases
of Hannibal and Heartbreakers. In the 2000 Period, significant worldwide
theatrical revenues were generated by The World Is Not Enough, which was
initially released in November 1999, and by the domestic theatrical release of
Return To Me. Overall, in the 2001 Period, we released four new feature films
domestically and three new films internationally. In the 2000 Period, we
released three new feature films domestically and one new film
internationally.

  Worldwide home video revenues decreased by $65.7 million, or 22 percent, to
$227.1 million in the 2001 Period. In the 2001 Period, we released Autumn In
New York and Antitrust in the domestic home video marketplace, as well as the
re-release of When Harry Met Sally and the Rocky series, among others, on DVD.
In the 2000 Period, our home video releases included The World Is Not Enough,
which alone generated over $67.0 million in revenues, The Thomas Crown Affair
and Stigmata, which in the aggregate generated significantly higher revenues
than the releases in the 2001 Period. Partially offsetting this decrease was
the continued growth in home video sales of film library product, which
increased by 64 percent in the 2001 Period. DVD sales alone increased to
$145.1 million from $109.4 million in the 2000 Period.

  Worldwide pay television revenues from feature films increased by $10.9
million, or 18 percent, to $71.2 million in the 2001 Period, principally due
to the delivery of four new films, Return To Me, Three Strikes, Supernova and
Things You Can Tell Just By Looking At Her, to domestic pay television.
Correspondingly, in the 2000 Period we delivered three films, The Mod Squad,
The Rage: Carrie 2 and Tea With Mussolini, to domestic pay television. Network
and worldwide syndicated television revenues from feature films increased by
$43.7 million, or 70 percent, to $106.2 million in the 2001 Period,
principally due to the licensing of Ronin and Species 2 in domestic markets,
additional sales of the James Bond series to network television, and sales in
international markets for The World Is Not Enough and The Man In The Iron
Mask, among others.


                                      18
<PAGE>

  Other feature film revenues decreased by $6.1 million, or 54 percent, to
$5.2 million in the 2001 Period due to lower third party royalty income and
corporate audit recoveries.

  Operating income and EBITDA from feature films in the 2001 Period decreased
by $87.6 million to a loss of $10.4 million from a profit of $77.2 million in
the 2000 Period. The decrease in operating income and EBITDA from feature
films reflected the disappointing performances of What's The Worst That Could
Happen and Josie and the Pussycats, as well as the implementation of the new
accounting rules upon the adoption of Statement of Position 00-2 on January 1,
2001, which resulted in $60.3 million of additional theatrical advertising and
print costs expensed in the 2001 Period. Partially offsetting the additional
advertising and print costs expensed in the period were significant operating
profits generated from the successful theatrical release of Hannibal and
increased film library sales from various home video promotions, as well as
lower third party distribution expenses.

  The 2000 Period benefited from prior accounting rules in which theatrical
advertising and print costs were capitalized and amortized under the income
forecast method in accordance with Statement of Financial Accounting Standards
No. 53. Operating results in the 2000 Period also included profits earned from
the worldwide theatrical receipts generated by The World Is Not Enough, and
the home video release of The World Is Not Enough, The Thomas Crown Affair and
Stigmata.

  Television Programming

  Consolidated television programming revenues, operating income and EBITDA
are as follows:

<TABLE>
<CAPTION>
                                                Quarter Ended     Six Months
                                                  June 30,      Ended June 30,
                                               ---------------  ---------------
                                                2001    2000     2001    2000
                                               ------- -------  ------- -------
                                                 (in thousands) (unaudited)
<S>                                            <C>     <C>      <C>     <C>
Revenues...................................... $36,182 $33,924  $73,190 $73,728
Operating income (loss) and EBITDA............ $ 4,640 $(2,834) $10,966 $   846
</TABLE>

 Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000

  Television programming revenues increased by $2.3 million, or seven percent,
to $36.2 million in the 2001 Quarter.

  Worldwide pay television revenues increased by $0.1 million, or two percent,
to $5.2 million in the 2001 Quarter. We had one series, Stargate SG-1, in
broadcast on domestic pay television in both the 2001 Quarter and the 2000
Quarter. Worldwide syndicated television programming revenues increased by
$3.0 million, or 13 percent, to $26.4 million in the 2001 Quarter, primarily
due to increased license fees for Outer Limits in domestic markets and
increased international sales for Stargate SG-1 and Outer Limits. Worldwide
home video revenues with respect to television programming decreased by $1.0
million, or 19 percent, to $4.3 million in the 2001 Quarter, primarily due to
lower sales of animated videos.

  Operating income and EBITDA from television programming increased by $7.5
million, or 264 percent, to $4.6 million in the 2001 Quarter, principally due
to the increase in revenue discussed above and lower programming write-downs
than in the 2001 Quarter.

 Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

  Television programming revenues decreased by $0.5 million, or one percent,
to $73.2 million in the 2001 Period.

  Worldwide pay television revenues decreased by $1.9 million, or 16 percent,
to $9.6 million in the 2001 Period. We had only one series, Stargate SG-1,
airing on domestic pay television in the 2001 Period, compared to two series,
Outer Limits and Stargate SG-1, in the 2000 Period. Worldwide syndicated
television programming

                                      19
<PAGE>

revenues increased by $4.6 million, or nine percent, to $56.5 million in the
2001 Period, primarily due to increased cense fees for Outer Limits in
domestic markets and increased international sales for Stargate SG-1 and Outer
Limits. Worldwide home video revenues with respect to television programming
decreased by $2.9 million, or 30 percent, to $6.7 million in the 2001 Period,
primarily due to lower sales of animated videos.

  Operating income and EBITDA from television programming increased by $10.1
million, or 1,196 percent, to $11.0 million in the 2001 Period, principally
due to a favorable settlement of a contractual dispute with a customer as well
as lower programming write-downs than in the 2000 Period.

  Other Businesses

  Consolidated revenues, operating income and EBITDA from other businesses,
including consumer products, interactive media and branded programming
services, music soundtrack and royalty income, are as follows:

<TABLE>
<CAPTION>
                                                  Quarter Ended   Six Months
                                                    June 30,    Ended June 30,
                                                  ------------- ---------------
                                                   2001   2000   2001    2000
                                                  ------ ------ ------- -------
                                                   (in thousands) (unaudited)
<S>                                               <C>    <C>    <C>     <C>
Revenues......................................... $8,089 $6,909 $14,424 $26,510
Operating income and EBITDA...................... $4,503 $3,769 $ 5,241 $15,111
</TABLE>

 Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000

  Revenues from other businesses increased by $1.2 million, or 17 percent, to
$8.1 million in the 2001 Quarter. The 2001 Quarter included consumer products
revenue of $2.8 million and increased music soundtrack and royalty revenue of
$3.4 million, as compared to consumer products revenue of $3.1 million and
music soundtrack and royalty revenue of $2.0 million in the 2000 Quarter.
Interactive media revenues were $1.6 million in the 2001 Quarter, principally
from interactive game royalties, as compared to revenues of $0.6 million in
the 2000 Quarter. Additionally, revenues in the 2001 Quarter include the
receipt of $0.3 million in third party audit recoveries and other
miscellaneous income as compared to $1.2 million in such revenues in the 2000
Quarter.

  Operating income and EBITDA from other businesses increased by $0.8 million,
or 22 percent, to $4.6 million in the 2001 Quarter. Expenses for other
businesses include interactive product costs of $0.9 million in the 2001
Quarter as compared to $0.2 million of such costs in the 2000 Quarter.
Consumer products cost of sales were $0.6 million in the 2001 Quarter as
compared to $0.1 million in the 2000 Quarter. Overhead costs related to other
businesses aggregated $2.0 million in the 2001 Quarter as compared to $1.8
million in the 2000 Quarter. Other expenses aggregated $0.2 million in the
2001 Quarter and $1.1 million in the 2000 Quarter.

 Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

  Revenues from other businesses decreased by $12.1 million, or 46 percent, to
$14.4 million in the 2001 Period. The 2001 Period included consumer products
revenue of $4.8 million and music soundtrack and royalty revenue of $4.8
million, as compared to consumer products revenue of $6.1 million and music
soundtrack and royalty revenue of $4.1 million in the 2000 Period. Interactive
media revenues were $3.8 million in the 2001 Period as compared to revenues of
$12.4 million in the 2000 Period, which included revenues realized from the
successful release of the interactive game version of Tomorrow Never Dies.
There were no comparable interactive game releases in the 2001 Period.
Additionally, revenues from other businesses in the 2001 Period include the
receipt of $1.1 million in third party audit recoveries and other
miscellaneous income as compared to higher recoveries of $4.0 million in the
2000 Period.

  Operating income and EBITDA from other businesses decreased by $9.9 million,
or 65 percent, to $5.2 million in the 2001 Period, principally due to the lack
of new interactive game releases compared to the prior year period. Expenses
for other businesses include interactive product costs of $2.4 million in the
2001 Period as

                                      20
<PAGE>

compared to $3.2 million of such costs in the 2000 Period. Consumer products
cost of sales were $1.0 million in the 2001 Period as compared to $1.3 million
in the 2000 Period. Overhead costs related to other businesses aggregated $4.2
million in the 2001 Period and $3.3 million in the 2000 Period. Other expenses
aggregated $1.6 million in the 2001 Period and $3.6 million in the 2000
Period.

  Corporate and Other

  General and Administration Expenses. General and administration expenses in
the 2001 Quarter decreased by $3.3 million, or 13 percent, to $22.6 million,
and in the 2001 Period decreased by $3.5 million, or eight percent, to $43.0
million, primarily due to lower headcount, legal and professional fees and
other cost savings.

  Recovery of Severance and Related Costs. In June 2000, we reduced previously
charged reserves for severance and related costs by $5.0 million due to a
negotiated settlement with United International Pictures regarding our
withdrawal from the joint venture. Additionally, in June 2000 we incurred
severance and other related charges of $1.3 million associated with the
closure of a foreign sales office.

  Depreciation and Non-Film Amortization. Depreciation and non-film
amortization in the 2001 Quarter increased by $1.7 million, or 26 percent, to
$8.1 million, and in the 2001 Period increased by $3.2 million, or 25 percent,
to $16.0 million, due to increased fixed assets placed in service.

  Equity in Net Earnings of Unconsolidated Companies. Equity in net earnings
of unconsolidated companies include various interests in 14 international
cable channels. Earnings in the Rainbow Media Group cable channels acquired on
April 2, 2001 are being reported on a one quarter lag. See "Recent
Developments. Cable Investment." Our interest in these cable channels earnings
aggregated a loss of $1.1 million in the 2001 Quarter as compared to earnings
of $0.4 million in the 2000 Quarter, and in the 2001 Period EBITDA aggregated
a loss of $1.3 million as compared to earnings of $0.6 million in the 2000
Period.

  Interest Expense, Net of Amounts Capitalized. Net interest expense in the
2001 Quarter decreased by $1.2 million, or eight percent, to $13.5 million,
and in the 2001 Period decreased by $6.7 million, or 23 percent, to $22.9
million, due to reduced cost of capital and increased capitalized interest on
feature film production.

  Interest and Other Income. Interest and other income in the 2001 Quarter
decreased by $4.4 million, or 76 percent, to $1.4 million, and in the 2001
Period decreased by $3.0 million, or 29 percent, to $7.1 million, due to lower
interest income earned on our short-term investments, which decreased due to
the $825 million cash investment in the Rainbow Media Group cable channels on
April 2, 2001.

  Income Tax Provision. The provision for income taxes in the 2001 Quarter
increased by $1.2 million, or 42 percent, to $4.1 million, and in the 2001
Period increased by $1.4 million, or 20 percent, to $8.5 million, due to
increased foreign remittance taxes attributable to international distribution
revenues.

Liquidity and Capital Resources

  General. Our operations are capital intensive. In recent years we have
funded our operations primarily from (i) the sale of equity securities, (ii)
bank borrowings and (iii) internally generated funds. During the 2001 Period,
the net cash used by operating activities was $44.6 million, which included
additions to film and television costs of $248.7 million; net cash used in
investing activities was $829.5 million, which included our $825 million
investment in the Rainbow Media Group cable channels; and net cash provided by
financing activities (primarily sale of equity securities and bank borrowings)
was $810.6 million.

  Sales of Equity Securities. Historically, sales of our equity securities
have included proceeds from our initial public offering and Tracinda
Corporation's concurrent purchase of our common stock, which were completed in
November 1997, our 1998 rights offering, which was completed in November 1998,
and our 1999 rights offering, which was completed in November 1999.
Additionally, pursuant to a Form S-3 shelf registration

                                      21
<PAGE>

statement filed with the Securities and Exchange Commission, in 2000 we sold
of 5,363,800 shares of our common stock for aggregate net proceeds of $133.4
million.

  In February and March 2001, pursuant to our shelf registration statement, we
sold 16,080,590 shares of common stock for aggregate net proceeds of $310.6
million. Additionally, Tracinda purchased 15,715,667 shares of Series B
preferred stock for net proceeds of $325.0 million. On May 2, 2001, upon
approval of the shareholders of the Company, the Series B preferred stock was
converted into 15,715,667 shares of common stock.

  On April 2, 2001, the proceeds of the equity offerings were used to pay a
portion of the $825.0 million cost to acquire a 20 percent interest in two
general partnerships which own and operate four cable channels, American Movie
Channel, Bravo, the Independent Film Channel and WE: Women's Entertainment
(formerly the Romance Classics). These partnerships were wholly-owned by
Rainbow Media Holdings, Inc., a majority-owned subsidiary of Cablevision
Systems Corporation. The acquisition was completed on April 2, 2001. We
obtained the rest of the funds needed for the purchase through borrowings of
$164.5 million under our credit facilities.

  Bank Borrowings. We have a $1.3 billion syndicated credit facility
consisting of (i) a six year $600.0 million revolving credit facility, (ii) a
$400.0 million seven and one-half year term loan and (iii) a $300.0 million
eight and one-half year term loan. As of July 27, 2001, $404.9 million,
including outstanding letters of credit, was available under our credit
facility, which also contains provisions allowing, under certain
circumstances, for an additional $200.0 million tranche.

  Currently, the revolving facility and the $400.0 million term loan bear
interest at 2.50 percent over the Adjusted LIBOR rate, as defined therein
(6.28 percent at July 27, 2001), and the $300.0 million term loan bears
interest at 2.75 percent over the Adjusted LIBOR rate (6.45 percent at July
27, 2001). We have entered into three-year fixed interest rate swap contracts
in relation to a portion of our credit facility for a notional value of $575.0
million at an average rate of approximately 7.82 percent, which expire at
various times no later than July 2003. We have also entered into additional
forward interest rate swap contracts commencing in various dates in 2001 for a
notional value of $325.0 million at an average rate of approximately 8.71
percent, which expire in July 2003.

  Scheduled amortization of the term loans under our credit facility commences
with $31.5 million in 2001, $73.0 million in 2002, $103.0 million in 2003,
$103.0 million in 2004, and $103.0 million in 2005, with the remaining balance
due at maturity. The revolving facility was entered into in October 1997 and
matures on September 30, 2003, subject to extension under certain conditions.

  Our credit facility contains various covenants, including limitations on
indebtedness, dividends and capital expenditures, and maintenance of certain
financial ratios. Our credit facility was amended and restated on July 21,
2000, with less restrictive operating and financial covenants. Our credit
facility limits the amount of the investment in MGM which may be made by
Metro-Goldwyn-Mayer Studios Inc. and Orion Pictures Corporation, both of which
are wholly-owned subsidiaries, in the form of loans or advances, or purchases
of capital stock of MGM, up to a maximum aggregate amount of $500.0 million.
As of June 30, 2001, there are no outstanding loans or advances to MGM by such
subsidiaries, nor have such subsidiaries purchased any capital stock of MGM.
Restricted net assets of Metro-Goldwyn-Mayer Studios Inc. and Orion Pictures
Corporation at June 30, 2001 are approximately $2.5 billion. There can be no
assurances that we will remain in compliance with such covenants or other
conditions under our credit facility in the future. We anticipate substantial
continued borrowing under our credit facility.

  Cash Used by Operating Activities. In the 2001 Period, cash used by
operating activities was $44.6 million compared to cash used by operating
activities of $3.5 million in the 2000 Period. Included in cash used by
operating activities were additions to film and television costs of $248.7
million in the 2001 Period and $340.6 million in the 2000 Period.


                                      22
<PAGE>

  Cash Used in Investing Activities. In the 2001 Period, cash used in
investing activities was $829.5 million, which included the $825 million
investment in the Rainbow Media Group cable channels, compared to cash used in
investing activities of $4.8 million in the 2000 Period.

  Cash Provided by Financing Activities. In the 2001 Period, cash provided by
financing activities was $810.6 million, which included $635.6 million in net
proceeds from the sale of our equity securities, $171.5 million of bank
borrowings and $4.8 million for the exercise of stock options, partially
offset by net repayments of borrowed funds of $1.3 million. In the 2000
Period, cash provided by financing activities was $119.7 million, consisting
of $121.5 million in net proceeds from the sale of equity securities and $3.5
million received from the exercise of stock options, partially offset by $5.3
million in net repayments of borrowed funds.

  Anticipated Needs. Our current strategy and business plan call for
substantial on-going investments in the production of new feature films and
television programs. Furthermore, we may wish to continue to make investments
in new distribution channels to further exploit our motion picture and
television library. We plan to continue to evaluate the level of such
investments in the context of the capital available to us and changing market
conditions.

  We do not expect our obligations for property and equipment expenditures,
including the purchase of computer systems and equipment and other
improvements, to exceed $35.0 million per year.

  We are obligated to fund 50 percent of the expenses of MGM Networks Latin
America up to a maximum of approximately $24.0 million. We have funded
approximately $22.0 million under such obligation as of June 30, 2001.

  As a result of the change in senior management in June 1999, we did not
commence production as anticipated under our business plan. Therefore, we
released a reduced number of major films in 2000, which may adversely impact
cash flows and results of operations at least through 2001. However, as
opportunities arise, we will pursue the purchase of feature films from third
parties that may be released during this period.

  We believe that the amounts available under the revolving facility and cash
flow from operations will be adequate for us to conduct our operations in
accordance with our business plan for at least the next twelve months. This
belief is based in part on the assumption that our future releases will
perform as planned. In addition to the foregoing sources of liquidity, we are
currently considering various film financing alternatives.

  If necessary in order to manage our cash needs, we may also delay or alter
production or release schedules or seek to reduce our aggregate investment in
new film and television production costs. There can be no assurance that any
such 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, such steps
could adversely affect long term cash flow and results of operations in
subsequent periods.

  We intend to continue to pursue our goal of becoming an integrated global
entertainment content company. In connection with our pursuit of this goal, we
may consider various strategic alternatives, such as business combinations
with companies with strengths complementary to those of 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  We are exposed to the impact of interest rate changes as a result of our
variable rate long-term debt. Our amended and restated credit agreement
requires that we maintain interest rate swap agreements or other appropriate
hedging arrangements to convert to fixed rate or otherwise limit the floating
interest rate risk on at least 66 2/3% of term loans outstanding through July
2003. Accordingly, we have entered into several interest

                                      23
<PAGE>

rate swap agreements whereby we agree with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
amounts calculated by reference to an agreed notional principal amount. The
swap agreements expire at various times but no later than July 2003. Based on
scheduled loan amortization, we will be in compliance with the credit
agreement's hedge provisions through that time.

  At June 30, 2001, $125.0 million of our term debt was not hedged.
Additionally, future borrowings under our revolving credit facility will be
exposed to interest rate risk.

  The following table provides information about our interest rate swaps
outstanding at June 30, 2001:


<TABLE>
<CAPTION>
                                               Amounts scheduled
                                               for maturity for
                                                the year ending
                                                 December 31,        Estimated
                                               ------------------  fair value at
                                                 2001      2003    June 30, 2001
                                               --------  --------  -------------
<S>                                            <C>       <C>       <C>
Interest Rate Swaps
Variable to fixed:
  Notional value (in thousands)............... $450,000  $125,000     $(5,738)
  Average pay rate............................    5.394%    5.700%
  Average receive rate........................    4.134%    4.040%
Foreign Currency Forward Contracts
Contract amount (receive DEM, pay $US)........ $    640  $    --      $    33
  Spot rate...................................   2.3031
  Forward rate................................   2.3040
</TABLE>

  We have also entered into additional forward interest rate swap contracts
commencing in 2001 for a notional value of $470.0 million at an average pay
rate of approximately 5.949 percent, which expire in July 2003. At June 30,
2001, these forward contracts had an estimated fair value of $(7.3) million.

  Because approximately 25 percent of our revenues are denominated, and we
incur certain operating and production costs in foreign currencies, we are
subject to market risks resulting from fluctuations in foreign currency
exchange rates. In certain instances, we enter into foreign currency exchange
contracts in order to reduce exposure to changes in foreign currency exchange
rates that affect the value of our firm commitments and certain anticipated
foreign currency cash flows. We currently intend to continue to enter into
such contracts to hedge against future material foreign currency exchange rate
risks.

                                      24
<PAGE>

                          PART II. OTHER INFORMATION

Item 1. Legal Proceedings

  On July 3, 2001, MGM and eight of its subsidiaries were served with a
complaint in Brian Rector, Citizens for Truth in Movie Advertising ("CTMA"),
et al. v. Metro-Goldwyn-Mayer Inc., et al. (L.A.S.C. Case No. BC253405), which
is a class action lawsuit alleging deceptive and unfair business practices,
fraudulent concealment, fraudulent inducement, false and misleading
advertising, and claims under the Consumers Legal Remedies Act arising from
the studio's use of reviewer quotes in film advertisements without disclosing
that the reviewers allegedly received things of value from the studio in
connection with press junkets and publicity efforts. The same plaintiffs
simultaneously sued nine other major studios in identical but separate class
action lawsuits. The complaints against the studios seek restitution and
disgorgement of all monies attributable to the alleged wrongdoing, as well as
compensatory and punitive damages and an injunction requiring the studios to
make certain disclosures in their advertising. We deny any wrongdoing or
unlawful activity, and we will defend ourselves vigorously against plaintiffs'
claims.

Item 2. Changes In Securities and Use of Proceeds

  Reference is made to Note 6 to the Condensed Consolidated Financial
Statements contained elsewhere herein regarding issuance of the Company's
Preferred Stock to Tracinda, which was subsequently converted into common
stock of the Company. The Company relied upon the exemption under Rule 506 of
Regulation D in connection with this transaction.

Item 4. Submission of Matters to a Vote of Security Holders

  At the Annual Meeting of Stockholders held on May 2, 2001, five proposals
were submitted to the Company's stockholders. The Company nominees for
directors were elected and each of the other proposals was approved. A brief
description of those proposals and the results of the voting are as follows:

Proposal One--Election of twelve directors to serve for a year term

<TABLE>
<CAPTION>
                                                                        Votes
        Nominee                                            Votes For  Withheld
        -------                                           ----------- ---------
   <S>                                                    <C>         <C>
   James D. Aljian....................................... 202,447,863 6,199,694
   Francis Ford Coppola.................................. 208,225,282   422,275
   Willie D. Davis....................................... 208,223,652   423,905
   Alexander M. Haig, Jr................................. 207,896,037   751,520
   Michael R. Gleason.................................... 202,448,708 6,198,849
   Kirk Kerkorian........................................ 202,451,393 6,196,164
   Frank G. Mancuso...................................... 208,227,432   420,125
   Christopher J. McGurk................................. 202,451,583 6,195,974
   Priscilla Presley..................................... 208,214,496   433,061
   Henry D. Winterstern.................................. 208,217,564   429,993
   Alex Yemenidjian...................................... 202,450,803 6,196,754
   Jerome B. York........................................ 208,225,432   422,125
</TABLE>

Proposal Two--Approval and issuance of common stock to principal stockholder

<TABLE>
<CAPTION>
      Voting
      Results
      -------
   <S>                                                              <C>
   For............................................................. 205,291,856
   Against.........................................................      47,542
   Abstain.........................................................     138,774
   Broker Non-Votes................................................   3,169,385
</TABLE>

Proposal Three--Approval of an amendment to Amended and Restated 1996 Stock
Incentive Plan

<TABLE>
<CAPTION>
      Voting
      Results
      -------
   <S>                                                              <C>
   For............................................................. 196,381,643
   Against.........................................................   8,949,728
   Abstain.........................................................     146,802
   Broker Non-Votes................................................   3,169,384
</TABLE>

                                      25
<PAGE>

Proposal Four--Approval of an amendment to 2000 Employee Incentive Plan

<TABLE>
<CAPTION>
      Voting
      Results
      -------
   <S>                                                              <C>
   For............................................................. 201,920,339
   Against.........................................................   3,413,772
   Abstain.........................................................     132,877
   Broker Non-Votes................................................   3,180,569
</TABLE>

Proposal Five--Ratification of appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending December 31,
2001

<TABLE>
<CAPTION>
      Voting
      Results
      -------
   <S>                                                              <C>
   For............................................................. 208,620,367
   Against.........................................................      22,077
   Abstain.........................................................       5,113
   Broker Non-Votes................................................           0
</TABLE>

Item 5. Other Information

  (1) Reference is made to Note 2 to the Condensed Consolidated Financial
Statements contained elsewhere herein for information regarding an agreement
with Rainbow Media Holdings, Inc.

  (2) In June 2001, we launched the MGM Channel in New Zealand. The channel,
which is wholly-owned, is carried on the Sky Digital platform.

Item 6. Exhibits and Reports on Form 8-K

  (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit No.                       Document Description
 -----------                       --------------------
 <C>         <S>
   10.1      Form of Director Stock Option Agreement Pursuant to the Amended
             and Restated 1996 Stock Incentive Plan
</TABLE>

  (b) Reports on Form 8-K and Form 8-K/A

<TABLE>
<CAPTION>
     Date:                                         Relating to:
     -----                                         ------------
<S>                                                <C>
April 2, 2001..................................... Item 5. Other Information(1)
April 2, 2001 8-K/A............................... Item 5. Other Information(1)
</TABLE>

                                      26
<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

July 30, 2001

                                          METRO-GOLDWYN-MAYER INC.

                                                  /s/ Alex Yemenidjian
                                          By: _________________________________
                                                      Alex Yemenidjian
                                                  Chairman of the Board of
                                                       Directors and
                                                  Chief Executive Officer

                                                  /s/ Daniel J. Taylor
                                          By: _________________________________
                                                      Daniel J. Taylor
                                              Senior Executive Vice President
                                                and Chief Financial Officer

                                       27