<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 March 31, 1999
 
                          Commission File No. 0-13481
 
                           METRO-GOLDWYN-MAYER INC.
            (Exact name of registrant as specified in its charter)
 
                               ----------------
 

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


            2500 Broadway Street,                                  90404
              Santa Monica, CA                                   (Zip Code)
  (Address of principal executive offices)
 
      Registrant's telephone number, including area code: (310) 449-3000
 
          Securities registered pursuant to Section 12(b) of the Act:
 

                                       Name of each exchange
          Title of each class           on which registered
          -------------------         -----------------------

       Common Stock, par value $0.01  New York Stock Exchange

 
       Securities registered pursuant to Section 12(g) of the Act: None
 
                               ----------------
 
  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
April 30, 1999 was 150,902,382.
 
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<PAGE>
 
                   METRO-GOLDWYN-MAYER INC. AND SUBSIDIARIES
 
                                   FORM 10-Q
 
                                 March 31, 1999
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                             Page
                                                                             No.
                                                                             ----
 <C>      <S>                                                                <C>
 Part I.  Financial Information
 
 Item 1.  Financial Statements
          Condensed Consolidated Balance Sheets as of March 31, 1999
           (unaudited) and December 31, 1998..............................     1
          Condensed Consolidated Statements of Operations and
           Comprehensive Income (Loss) for the Quarters ended March 31,
           1999 and 1998 (unaudited)......................................     2
          Condensed Consolidated Statement of Stockholders' Equity for the
           Quarter ended March 31, 1999 (unaudited).......................     3
          Condensed Consolidated Statements of Cash Flows for the Quarters
           ended March 31, 1999 and 1998 (unaudited)......................     4
          Notes to Condensed Consolidated Financial Statements............     5
 
          Management's Discussion and Analysis of Financial Condition and
 Item 2.   Results of Operations..........................................    10
 
 Item 3.  Quantitative and Qualitative Disclosures About Market Risk......    18
 
 Part II. Other Information
 
 Item 1.  Legal Proceedings...............................................    20
 
 Item 5.  Other Information...............................................    20
 
 Item 6.  Exhibits and Reports on Form 8-K................................    20
 
 Signatures................................................................   21
</TABLE>
 
                                       i
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
Item 1. Financial Information
 
                            METRO-GOLDWYN-MAYER INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
 
                       (in thousands, except share data)
 
<TABLE>
<CAPTION>
                                                         March 31,   December 31,
                                                           1999          1998
                                                        -----------  ------------
                                                        (unaudited)
                                    ASSETS
                                    ------
<S>                                                     <C>          <C>
Cash and cash equivalents.............................  $    7,285    $   54,839
Accounts and contracts receivable (net of allowance
 for doubtful accounts of $27,694 and $23,220,
 respectively)........................................     400,045       365,067
Film and television costs, net........................   2,297,392     2,076,663
Investments and advances to affiliates................      14,786        17,674
Property and equipment, net...........................      38,216        38,636
Excess of cost over net assets of acquired businesses,
 net..................................................     557,342       561,026
Other assets..........................................      45,024        45,073
                                                        ----------    ----------
                                                        $3,360,090    $3,158,978
                                                        ==========    ==========
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
Liabilities:
  Bank and other debt.................................  $1,105,492    $  715,574
  Contractual note payable............................     112,500           --
  Accounts payable and accrued liabilities............     119,023       100,377
  Accrued participants' share.........................     225,227       232,515
  Income taxes payable................................      34,179        34,869
  Advances and deferred revenues......................     125,662       130,664
  Other liabilities...................................      24,278        25,322
                                                        ----------    ----------
    Total liabilities.................................   1,746,361     1,239,321
                                                        ----------    ----------
Commitments and contingencies
Stockholders' equity:
  Common stock, $.01 par value, 250,000,000 shares
   authorized, 150,886,946 and 150,856,424 shares
   issued and outstanding.............................       1,509         1,509
  Additional paid-in capital..........................   2,204,182     2,203,490
  Deficit.............................................    (592,218)     (285,596)
  Accumulated other comprehensive income..............         256           254
                                                        ----------    ----------
    Stockholders' equity..............................   1,613,729     1,919,657
                                                        ----------    ----------
                                                        $3,360,090    $3,158,978
                                                        ==========    ==========
</TABLE>
 
     The accompanying Notes to Condensed Consolidated Financial Statements
                   are an integral part of these statements.
 
                                       1
<PAGE>
 
                            METRO-GOLDWYN-MAYER INC.
 
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
                          COMPREHENSIVE INCOME (LOSS)
 
                (in thousands, except share and per share data)
                                  (unaudited)
 
<TABLE>
<CAPTION>
                                                        Quarter Ended March
                                                                31,
                                                       -----------------------
                                                          1999         1998
                                                       -----------  ----------
<S>                                                    <C>          <C>
Revenues.............................................  $   258,643  $  316,460
Expenses:
  Film and television production and distribution....      294,067     286,670
  General and administrative expenses................       22,055      24,622
  Contract termination fee...........................      225,000         --
  Goodwill amortization..............................        3,684       3,239
                                                       -----------  ----------
    Total expenses...................................      544,806     314,531
                                                       -----------  ----------
Operating income (loss)..............................     (286,163)      1,929
Other income (expense):
  Interest expense, net of amounts capitalized.......      (19,020)    (18,254)
  Interest and other income, net.....................          834         675
                                                       -----------  ----------
    Total other expense..............................      (18,186)    (17,579)
                                                       -----------  ----------
Loss from operations before provision for income
 taxes...............................................     (304,349)    (15,650)
Income tax provision.................................       (2,273)     (2,993)
                                                       -----------  ----------
Net loss.............................................     (306,622)    (18,643)
Foreign currency translation adjustment..............            2         (48)
                                                       -----------  ----------
Comprehensive loss...................................  $  (306,620) $  (18,691)
                                                       ===========  ==========
Earnings (loss) per share:
  Basic..............................................  $     (2.03) $    (0.28)
                                                       ===========  ==========
  Diluted............................................  $     (2.03) $    (0.28)
                                                       ===========  ==========
Weighted average number of common shares outstanding:
  Basic..............................................  150,869,478  65,771,938
                                                       ===========  ==========
  Diluted............................................  150,869,478  65,771,938
                                                       ===========  ==========
</TABLE>
 
 
     The accompanying Notes to Condensed Consolidated Financial Statements
                   are an integral part of these statements.
 
                                       2
<PAGE>
 
                            METRO-GOLDWYN-MAYER INC.
 
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                       (in thousands, except share data)
                                  (unaudited)
 
<TABLE>
<CAPTION>
                             Common Stock
                          ------------------                          Accum. Other      Total
                            No. of     Par   Add'l Paid-in            Comprehensive Stockholders'
                            Shares    Value     Capital     Deficit      Income        Equity
                          ----------- ------ ------------- ---------  ------------- -------------
<S>                       <C>         <C>    <C>           <C>        <C>           <C>
Balance December 31,
 1998...................  150,856,424 $1,509  $2,203,490   $(285,596)     $254       $1,919,657
Issuance of common
 stock..................       30,522    --          369         --        --               369
Amortization of deferred
 stock compensation.....          --     --          323         --        --               323
Foreign currency
 translation
 adjustment.............          --     --          --          --          2                2
Net loss................          --     --          --     (306,622)      --          (306,622)
                          ----------- ------  ----------   ---------      ----       ----------
Balance March 31, 1999..  150,886,946 $1,509  $2,204,182   $(592,218)     $256       $1,613,729
                          =========== ======  ==========   =========      ====       ==========
</TABLE>
 
 
 
 
     The accompanying Notes to Condensed Consolidated Financial Statements
                   are an integral part of these statements.
 
                                       3
<PAGE>
 
                            METRO-GOLDWYN-MAYER INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (in thousands)
                                  (unaudited)
 
<TABLE>
<CAPTION>
                                                            Quarter Ended
                                                              March 31,
                                                         --------------------
                                                           1999       1998
                                                         ---------  ---------
<S>                                                      <C>        <C>
Net cash provided (used) by operating activities........ $  (3,117) $ 152,528
                                                         ---------  ---------
Investing activities:
  Acquisition of PFE Libraries..........................  (236,201)       --
  Additions to film costs, net..........................  (194,424)  (241,299)
  Additions to property and equipment...................    (1,654)    (2,384)
  Other investing activities............................    (1,531)    (3,808)
                                                         ---------  ---------
  Net cash used in investing activities.................  (433,810)  (247,491)
                                                         ---------  ---------
Financing activities:
  Additions to borrowed funds...........................   398,493    137,580
  Repayments of borrowed funds..........................    (9,333)   (34,463)
                                                         ---------  ---------
  Net cash provided by financing activities.............   389,160    103,117
                                                         ---------  ---------
Net change in cash and cash equivalents from operating,
 investing and financing activities.....................   (47,767)     8,154
Net increase (decrease) in cash due to foreign currency
 fluctuations...........................................       213       (182)
                                                         ---------  ---------
Net change in cash and cash equivalents.................   (47,554)     7,972
Cash and cash equivalents at beginning of the period....    54,839      3,978
                                                         ---------  ---------
Cash and cash equivalents at end of the period.......... $   7,285  $  11,950
                                                         =========  =========
</TABLE>
 
 
     The accompanying Notes to Condensed Consolidated Financial Statements
                   are an integral part of these statements.
 
                                       4
<PAGE>
 
                           METRO-GOLDWYN-MAYER INC.
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                March 31, 1999
 
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 (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. on January 7, 1999
(see Note 3).
 
  The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-Q related to
interim period financial statements. Accordingly, these condensed consolidated
financial statements do not include certain information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, the accompanying unaudited condensed consolidated 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. The Company's condensed consolidated 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,
1998. As permitted by Statement of Financial Accounting Standards ("SFAS") No.
53, "Financial Reporting by Producers and Distributors of Motion Pictures,"
the Company has presented unclassified condensed consolidated balance sheets.
 
Note 2--WHV Contract Settlement
 
  On March 12, 1999, the Company agreed to accelerate the expiration of the
right of Warner Home Video ("WHV") to distribute the Company's product in the
home video marketplace under the agreement executed in 1990 (the "WHV
Agreement"). In consideration for the early expiration of the WHV Agreement,
the Company has agreed to pay WHV $225 million, of which $112.5 million was
paid on March 12, 1999 and the remaining $112.5 million of which is payable in
September 1999. The parties restructured the terms of the WHV Agreement, which
will function as an interim distribution agreement (the "Transitional Video
Agreement"), under which WHV will distribute certain of the Company's product
in the home video marketplace while the Company establishes its own domestic
home video distribution network. The Transitional Video Agreement expires on
January 31, 2000. Additionally, the Company reconveyed to Turner Entertainment
Co., Inc. ("Turner"), an affiliate of WHV, the right that the Company had to
distribute in the home video markets worldwide until June 2001, 2,950 Turner
titles that had been serviced under the WHV Agreement. The Company has
recorded a one-time pre-tax contract termination charge in the first quarter
of 1999 for $225 million for costs in connection with the early expiration of
WHV's rights under the WHV Agreement. The Company's obligation to pay the
remaining $112.5 million installment (plus interest at the rate of eight
percent per year from March 1999) in September 1999 is secured by a standby
letter of credit issued by one of the Company's principal lenders.
 
                                       5
<PAGE>
 
                           METRO-GOLDWYN-MAYER INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Note 3--Film and Television Costs
 
  Film and television costs, net of amortization, are summarized as follows
(in thousands):
 
<TABLE>
<CAPTION>
                                                        March 31,   December 31,
                                                           1999         1998
                                                        ----------  ------------
   <S>                                                  <C>         <C>
   Theatrical productions:
     Released.......................................... $2,501,676   $2,116,007
     Less: accumulated amortization....................   (913,369)    (750,008)
                                                        ----------   ----------
     Released, net.....................................  1,588,307    1,365,999
     Completed not released............................     30,939       98,654
     In process and development........................    342,577      283,242
                                                        ----------   ----------
       Subtotal: theatrical productions................  1,961,823    1,747,895
                                                        ----------   ----------
   Television programming..............................    609,987      567,138
     Less: accumulated amortization....................   (274,418)    (238,370)
                                                        ----------   ----------
       Subtotal: television programming................    335,569      328,768
                                                        ----------   ----------
                                                        $2,297,392   $2,076,663
                                                        ==========   ==========
</TABLE>
 
  On January 7, 1999, the Company acquired certain film libraries and film
related rights (the "PFE Libraries") containing over 1,300 feature films that
were previously owned by PolyGram N.V. and its subsidiaries ("PolyGram") for
$235 million (the "PFE Library Acquisition"), plus acquisition related costs
of approximately $1,200,000. The Company funded the PFE Library Acquisition
through an advance on the Revolving Facility (as defined in Note 4) and
utilization of cash on hand.
 
  Interest costs capitalized to theatrical productions were $4,507,000 and
$3,165,000 during the quarters ended March 31, 1999 and 1998, respectively.
 
Note 4--Bank and Other Debt
 
  Bank and other debt is summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                            March 31,  December 31,
                               1999        1998
                            ---------- ------------
   <S>                      <C>        <C>
   Revolving Facility...... $  392,000   $    --
   Term Loans..............    700,000    700,000
   Capitalized lease
    obligations and other
    borrowings.............     13,492     15,574
                            ----------   --------
                            $1,105,492   $715,574
                            ==========   ========
</TABLE>
 
 
  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 million revolving credit
facility (the "Revolving Facility"), a $400 million seven and one-half year
term loan ("Tranche A Loan") and a $300 million eight and one-half year term
loan ("Tranche B Loan") (collectively, the "Term Loans"). The Amended Credit
Facility contains provisions allowing, with the consent of the requisite
lenders and subject to syndication thereof, for an additional $200 million
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 (7.50 percent at March 31,
1999). The Tranche B Loan bears interest at 2.75 percent over the Adjusted
LIBOR rate (7.75 percent at March 31, 1999). Scheduled amortization of the
 
                                       6
<PAGE>
 
                           METRO-GOLDWYN-MAYER INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
Term Loans under the Amended Credit Facility commences with $33 million in
2001, $73 million in 2002, $103 million in 2003, $103 million in 2004 and $103
million 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 $800 million at an average rate of approximately 7.50 percent, which expire
in various terms no later than December 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. As of March 31, 1999, the Company was in compliance with all such
covenants. In connection with the $225 million one-time charge resulting from
the early termination of the WHV Agreement, the Company and its lenders
amended the Amended Credit Facility, effective April 30, 1999.
 
Note 5--Stockholders' Equity
 
  Dilutive securities of 163,194 and 217,492 shares are not included in the
calculation of diluted earnings per share in the quarters ended March 31, 1999
and 1998, respectively, because they are antidilutive.
 
Note 6--Segment 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. Earnings 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):
 
<TABLE>
<CAPTION>
                                        Feature   Television
                                         Films     Programs   Other    Total
                                        --------  ---------- -------  --------
   <S>                                  <C>       <C>        <C>      <C>
   Quarter Ended March 31, 1999:
   Revenues............................ $195,967   $52,145   $10,531  $258,643
   Segment income (loss)............... $(43,759)  $ 5,569   $ 2,766  $(35,424)
   Quarter Ended March 31, 1998:
   Revenues............................ $254,137   $58,746   $ 3,577  $316,460
   Segment income (loss)............... $ 33,056   $ 4,845   $(8,111) $ 29,790
</TABLE>
 
 
  The following is a reconciliation of the change in total assets by segment:
 
<TABLE>
<CAPTION>
                                              December 31,  Increase  March 31,
                                                  1998     (Decrease)    1999
                                              ------------ ---------  ----------
   <S>                                        <C>          <C>        <C>
   Feature films.............................  $2,096,092  $241,811   $2,337,903
   Television programs.......................     400,646    13,468      414,114
   Other.....................................      19,718    (5,316)      14,402
                                               ----------  --------   ----------
     Total assets............................  $2,516,456  $249,963   $2,766,419
                                               ==========  ========   ==========
</TABLE>
 
                                       7
<PAGE>
 
                           METRO-GOLDWYN-MAYER INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
  The following table presents the details of other operating segment income
(loss):
 
<TABLE>
<CAPTION>
                                                               Quarter Ended
                                                                 March 31,
                                                              ----------------
                                                               1999     1998
                                                              -------  -------
  <S>                                                         <C>      <C>
  Licensing and merchandising................................ $   791  $  (247)
  Interactive media..........................................  (1,836)  (4,760)
  Music......................................................     714      200
  Losses on equity investments...............................  (3,280)  (3,056)
  Other......................................................   6,377     (248)
                                                              -------  -------
                                                              $ 2,766  $(8,111)
                                                              =======  =======
</TABLE>
 
  The following is a reconciliation of reportable segment income to income
(loss) before provision for income taxes:
 
<TABLE>
<CAPTION>
                                                             Quarter Ended
                                                               March 31,
                                                           -------------------
                                                             1999       1998
                                                           ---------  --------
   <S>                                                     <C>        <C>
   Segment income (loss).................................. $ (35,424) $ 29,790
   General and administrative expenses....................   (22,055)  (24,622)
   Contract termination fee...............................  (225,000)      --
   Goodwill amortization..................................    (3,684)   (3,239)
                                                           ---------  --------
   Operating income (loss)................................  (286,163)    1,929
   Interest expense, net of amounts capitalized...........   (19,020)  (18,254)
   Interest and other income, net.........................       834       675
                                                           ---------  --------
   Income (loss) before provision for income taxes........ $(304,349) $(15,650)
                                                           =========  ========
</TABLE>
 
  The following is a reconciliation of reportable segment assets to
consolidated total assets:
 
<TABLE>
<CAPTION>
                                                         March 31,  December 31,
                                                            1999        1998
                                                         ---------- ------------
   <S>                                                   <C>        <C>
   Total assets for reportable segments................. $2,766,419  $2,516,456
   Goodwill not allocated to segments...................    557,342     561,026
   Other unallocated amounts............................     36,329      81,496
                                                         ----------  ----------
   Consolidated total assets............................ $3,360,090  $3,158,978
                                                         ==========  ==========
</TABLE>
 
Note 7--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 likely to be not material in relation to the Company's financial condition
or results of operations.
 
                                       8
<PAGE>
 
                           METRO-GOLDWYN-MAYER INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
Note 8--Supplementary Cash Flow Information
 
  The Company paid interest, net of capitalized interest, of $10,723,000 and
$11,510,000 during the quarters ended March 31, 1999 and 1998, respectively.
The Company paid income taxes of $3,138,000 and $1,283,000 during the quarters
ended March 31, 1999 and 1998, respectively.
 
  Included in cash used by operating activities for the quarter ended March
31, 1999 is a $112.5 million payment to WHV representing the initial payment
in consideration for the early expiration of the WHV Agreement (see Note 2).
The remaining $112.5 million payment due to WHV (plus interest at the rate of
eight percent per year) is payable in September 1999.
 
  During the quarters ended March 31, 1999 and 1998, the Company contributed
29,366 and 14,197 shares of common stock valued at $354,000 and $274,000,
respectively, to the Company's 401(K) Savings Plan. In the quarter ended March
31, 1999, the Company also contributed 1,156 shares of common stock valued at
$16,000 to non-employee directors of the Company.
 
Note 9--Subsequent Events
 
  On April 26, 1999, Frank G. Mancuso resigned from his position as Chairman
of the Board Directors and Chief Executive Officer of the Company and A.
Robert Pisano resigned from his position as Vice Chairman of the Board of
Directors and as a director of the Company. Mr. Mancuso will remain a director
of the Company. In connection with the resignations of Messrs. Mancuso and
Pisano, the Company will incur severance charges in the second quarter of
1999.
 
  Also on April 26, 1999, Alex Yemenidjian was elected Chairman of the Board
of Directors and Chief Executive Officer of the Company. Mr. Yemenidjian has
been a director and the Chairman of the Executive Committee of the Board of
Directors since 1997. Mr. Yemenidjian, age 43, has served as a director and
senior executive at MGM Grand, Inc., an affiliate of Tracinda, since 1990,
most recently as President and Chief Operating Officer. After his appointment
as Chairman and Chief Executive Officer of the Company, Mr. Yemenidjian
resigned his position as Chief Operating Officer of MGM Grand, Inc. Mr.
Yemenidjian will remain the President and on the Board of Directors of MGM
Grand, Inc.
 
  On April 28, 1999, Christopher McGurk, age 42, was named Vice Chairman of
the Board of Directors and Chief Operating Officer of the Company. Mr. McGurk
has been with Universal Pictures, a division of Universal City Studios, Inc.,
since 1996, where he had most recently served as President and Chief Operating
Officer. Prior to joining Universal Pictures, Mr. McGurk worked for eight
years beginning in 1988 at The Walt Disney Company, most recently as
President, Motion Pictures Group, Walt Disney Studios.
 
  On April 27, 1999, the Company announced its intention to seek approximately
$500 million in additional equity financing, which is likely to be in the form
of a rights offering. In the proposed rights offering (as with the rights
offering completed by the Company in 1998), the Company would distribute to
its stockholders transferable subscription rights, allowing holders to
purchase new shares of the Company's common stock at a customary discount to
the market price. Tracinda Corporation, together with one of its affiliates,
MGM's principal stockholders, confirmed to management of the Company that they
would exercise all of the rights distributed to them and subscribe for their
pro rata share of the new shares to be issued in the rights offering. In
addition, they also confirmed that they would acquire any shares not
subscribed for by the other stockholders of the Company. The proposed rights
offering has not yet been approved by the Board of Directors, nor have any of
the terms (such as the timing, subscription price, the number of rights to be
distributed and the total number of shares to be offered) been determined at
this time.
 
                                       9
<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 the Company
files 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. The Company undertakes no
obligation to update these forward-looking statements.
 
  The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and the related Notes
thereto and other financial information contained elsewhere in this Form 10-Q.
 
General
 
  The Company is engaged primarily in the development, production and
worldwide distribution of theatrical motion pictures and television
programming.
 
  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 the Company's income or loss. However, the likelihood of
the Company reporting losses, particularly in the year of a motion picture's
release, is increased by the industry's method of accounting which requires
the immediate recognition of the entire loss (through increased amortization)
in instances where it is estimated the ultimate revenues of a motion picture
or television program will not recover the Company's 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 the Company's release schedule and the
relative performance of individual motion pictures or television programs. For
films released by the Company since January 1994 which resulted in feature
film write-downs in the period of initial release, subsequent performance as
it relates to this group of films has not resulted in additional material
write-downs. As a result of the lack of movie production and distribution
during the period from January 1996 (when a wholly-owned subsidiary of Credit
Lyonnais, S. A. announced its intention to sell MGM Studios) through the sale
of MGM Studios on October 10, 1996, the Company expects to experience lower
revenues at least through the end of 1999, and thus the fluctuations caused by
this accounting method may have a greater impact, than otherwise might be the
case.
 
  In October 1998, the Financial Accounting Standards Board issued an Exposure
Draft on a proposed Statement of Position (the "Proposed SOP") for "Accounting
By Producers and Distributors of Films". If adopted, the Proposed SOP would
establish new accounting and reporting standards for all producers and
distributors that own or hold the rights to distribute or exploit films. The
Proposed SOP provides that the cumulative effect of changes in accounting
principles caused by adoption of the provisions of the SOP should be included
in the determination of net income in conformity with Accounting Principles
Board Opinion No. 20, "Accounting Changes". The Company is not able to
quantify the effect, or the materiality, to the Company of adoption of the
Proposed SOP at this time. If adopted, the Proposed SOP, as currently drafted,
would be effective for financial statements for fiscal years beginning after
December 15, 1999, with earlier adoption encouraged.
 
                                      10
<PAGE>
 
Results of Operations
 
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
 
  The following table sets forth the Company's operating results for the
quarters ended March 31, 1999 and 1998. As stated in the financial statements
and related notes thereto, in March 1999 the Company accelerated the
expiration of an agreement with WHV (see discussion below). This acceleration
resulted in a $225 million non-recurring charge included in the 1999 operating
results, therefore affecting the comparability of such operating results to
1998.
 
<TABLE>
<CAPTION>
                                                     Quarter Ended March 31,
                                                     -------------------------
                                                         1999         1998
                                                     ------------  -----------
                                                           In thousands
                                                           (unaudited)
<S>                                                  <C>           <C>
Revenues:
  Feature films..................................... $    195,967  $   254,137
  Television programs...............................       52,145       58,746
  Other.............................................       10,531        3,577
                                                     ------------  -----------
    Total revenues.................................. $    258,643  $   316,460
                                                     ============  ===========
Operating income (loss):
  Feature films..................................... $    (43,759) $    33,056
  Television programs...............................        5,569        4,845
  Other.............................................        2,766       (8,111)
  General and administration expenses...............      (22,055)     (24,622)
  Contract termination fee..........................     (225,000)         --
  Goodwill amortization.............................       (3,684)      (3,239)
                                                     ------------  -----------
Operating income (loss).............................     (286,163)       1,929
Interest expense, net of amounts capitalized........      (19,020)     (18,254)
Interest and other income (expense), net............          834          675
                                                     ------------  -----------
Loss before provision for income taxes..............     (304,349)     (15,650)
Income tax provision................................       (2,273)      (2,993)
                                                     ------------  -----------
    Net loss........................................ $   (306,622) $   (18,643)
                                                     ============  ===========
</TABLE>
 
  Feature Films. Feature film revenues decreased by $58.2 million, or 23
percent, to $196.0 million in the quarter ended March 31, 1999 (the "1999
Quarter") compared to the quarter ended March 31, 1998 (the "1998 Quarter").
Explanations for the changes in revenues are discussed in the following
paragraphs.
 
  Worldwide theatrical revenues decreased by $79.5 million, or 70 percent, to
$33.3 million in the 1999 Quarter as compared to the 1998 Quarter. The films
released by the Company in the domestic marketplace in the 1999 Quarter,
including At First Sight, The Rage: Carrie 2 and The Mod Squad, did not
perform as well as the films in domestic release in the 1998 Quarter, which
included The Man In The Iron Mask and Tomorrow Never Dies. Additionally, the
1998 Quarter benefited from significant international theatrical revenues
generated by Tomorrow Never Dies, with no comparably performing releases in
international markets in the 1999 Quarter. Overall, in each of the 1999
Quarter and the 1998 Quarter the Company released four new feature films
domestically and one new film internationally.
 
  Worldwide home video revenues increased by $11.8 million, or 14 percent, to
$98.5 million in the 1999 Quarter, which included the release in the domestic
rental market of Ronin and Disturbing Behavior, as compared to the releases of
Hoodlum, Gang Related, Ulee's Gold and Eight Heads In A Duffel Bag in the
domestic rental market in the 1998 Quarter. The 1999 Quarter principally
benefited from significant home video revenues generated by the release in
international markets of The Man In The Iron Mask, Species 2 and Red Corner.
There were no comparably performing new releases in international markets in
the 1998 Quarter. Additionally, digital
 
                                      11
<PAGE>
 
video disc sales increased to $13.7 million in the 1999 Quarter as compared to
$3.7 million in the 1998 Quarter. These home video revenue increases were
partially offset by the early expiration of the WHV Agreement, as the Company,
effective January 1, 1999, no longer receives revenues from the distribution
of film product owned by Turner. In the 1998 Quarter, the Company generated
$15.0 million in gross revenues from its distribution of the Turner product.
 
  Worldwide pay television revenues from feature films increased by $3.0
million, or 13 percent, to $25.8 million in the 1999 Quarter as compared to
the 1998 Quarter. In the 1999 Quarter, the Company benefited from the release
in the domestic pay television marketplace of The Man In The Iron Mask. There
were no significant new releases on domestic pay television in the 1998
Quarter. In the international marketplace, however, pay television revenues
decreased due to a lack of new films in release in this market in the 1999
Quarter, as compared to the release in international markets of GoldenEye, Get
Shorty and The Birdcage in the 1998 Quarter. Network television revenues from
feature films decreased by $0.8 million, or 21 percent, to $2.8 million in the
1999 Quarter, principally due to a lower license fee earned from the delivery
to network television of Mulholland Falls in 1999 than the license fee for
Species, which was delivered in the 1998 Quarter. Worldwide syndicated
television revenues from feature films increased by $8.8 million, or 34
percent, to $34.2 million in the 1999 Quarter, principally due to the release
in international markets of GoldenEye, Get Shorty and The Birdcage. There were
no comparably performing releases in international syndication markets in the
1998 Quarter.
 
  Other feature film revenues decreased $1.5 million in the 1999 Quarter due
to lower miscellaneous rebates and other income collected than in the 1998
Quarter.
 
  Operating income from feature films decreased by $76.8 million, or 232
percent, to a loss of $43.8 million in the 1999 Quarter as compared to the
1998 Quarter. The decrease in operating results in the 1999 Quarter reflected
less successful releases in the period resulting in increased amortization
expense, as well as feature film write-downs of $54.3 million on certain
releases as compared to write-downs of only $2.8 million in the 1998 Quarter.
The 1998 Quarter also benefited from profits realized from the successful
performance of Tomorrow Never Dies and The Man In The Iron Mask. There were no
comparably performing films in the 1999 Quarter.
 
  Television Programming. Television programming revenues decreased by $6.6
million, or 11 percent, to $52.1 million in the 1999 Quarter as compared to
the 1998 Quarter. Network television revenues decreased by $8.1 million, or 57
percent, to $6.1 million, principally due to the delivery of fewer episodes in
the 1999 Quarter of The Magnificent Seven than in the 1998 Quarter. The
Company ceased deliveries of The Magnificent Seven to network television in
March 1999. Additionally, there were no television movies on network
television in the 1999 Quarter, as compared to one network television movie
delivered in the 1998 Quarter. Worldwide pay television revenues decreased by
$6.1 million, or 64 percent, to $3.5 million in the 1999 Quarter, due to one
fewer series airing on Showtime than in the 1998 Quarter, in addition to the
timing of deliveries of new episodes of The Outer Limits and Stargate SG-1.
The Company may generate lower pay television revenues in future periods due
to an anticipated reduction in the number of production commitments for such
television series.
 
  Worldwide syndicated television programming revenues increased by $15.8
million, or 73 percent, to $37.5 million in the 1999 Quarter, primarily due to
the addition of Stargate SG-1 in worldwide syndication, as well as additional
years of the The Outer Limits and Poltergeist, the delivery of the new series
Flipper in domestic syndication, and the licensing in the domestic basic cable
market of the In The Heat Of The Night series. Worldwide home video revenues
with respect to television programming decreased by $1.2 million, or
21 percent, to $4.5 million in the 1999 Quarter due to the lack of any new
domestic home video releases in the period, as compared to the home video
release of the television movie Twelve Angry Men in the 1998 Quarter. The 1998
Quarter also benefited from a third party payment of $7.0 million for the
rights to create new episodes of Hollywood Squares. There was no comparable
rights payment in the 1999 Quarter.
 
  Operating income from television programming increased by $0.7 million, or
15 percent, to $5.6 million in the 1999 Quarter as compared to the 1998
Quarter. The increase in operating results was principally a result of profits
recognized on increased syndication and basic cable sales in the 1999 Quarter,
in addition to lower
 
                                      12
<PAGE>
 
programming write-downs in the 1999 Quarter of $2.4 million as compared to
write-downs of $4.5 million in the 1998 Quarter. These increases were
partially offset by the reductions in network and pay television revenues. In
addition, the Company benefited by the receipt in the 1998 Quarter of the
rights payment for Hollywood Squares.
 
  Other. Other revenues include distribution of consumer products, interactive
media and branded programming services, all of which constitute emerging
businesses for MGM Studios with relatively limited current operations, as well
as music soundtrack and royalty income and audit recoveries by the Company
from third parties. The Company recognized an operating profit from other
businesses of $2.8 million in the 1999 Quarter as compared to an operating
loss of $8.1 million in the 1998 Quarter. Operating results in the 1999
Quarter include consumer products revenue of $2.1 million and music soundtrack
and royalty revenue of $1.2 million, as compared to consumer products revenue
of $2.3 million and music soundtrack and royalty revenue of $0.6 million in
the 1998 Quarter. There were no significant new interactive games released in
either period. Additionally, operating results in the 1999 Quarter include the
receipt of $6.2 million in third party audit recoveries. There were no
significant audit recoveries in the 1998 Quarter. Expenses for other
businesses in the 1999 Quarter include interactive product and development
costs of $1.7 million, as compared to similar costs of $4.4 million in the
1998 Quarter. In addition, operating results for other businesses in the 1999
Quarter include aggregate losses of $3.3 million on the Company's equity
investments, including its interest in the Company's newly launched cable
programming joint venture, MGM Networks Latin America, as compared to $3.1
million for such start-up losses in the 1998 Quarter.
 
  General and Administration Expenses. General and administration expenses
decreased by $2.6 million, or 10 percent, to $22.1 million in the 1999 Quarter
as compared to the 1998 Quarter, primarily due to certain cost savings in 1999
associated with a restructuring program initiated in the third quarter of
1998.
 
  Contract Termination Fee. On March 12, 1999, the Company agreed to
accelerate the expiration of the right of WHV to distribute the Company's
product in the home video marketplace under the WHV Agreement. In
consideration for the early expiration of the WHV Agreement, the Company
agreed to pay WHV $225 million, of which $112.5 million was paid on March 12,
1999 and the remaining $112.5 million of which, plus interest, is payable in
September 1999. The parties restructured the terms of the WHV Agreement, which
will function as the Transitional Video Agreement, under which WHV will
distribute certain of the Company's product in the home video marketplace
while the Company establishes its own domestic home video distribution
network. The Transitional Video Agreement expires on January 31, 2000.
Additionally, the Company reconveyed as of January 1, 1999 to Turner the right
that the Company had to distribute in the home video markets worldwide until
June 2001, 2,950 titles that had been serviced under the WHV Agreement.
Operating results in the 1999 Quarter include a one-time pre-tax contract
termination charge of $225 million for costs in connection with the early
expiration of WHV's rights under the WHV Agreement.
 
  Interest Expense, Net of Amounts Capitalized. Net interest expense was $19.0
million in the 1999 Quarter as compared to $18.3 million in the 1998 Quarter.
Interest expense increased due to additional borrowings for operating and
production activities, as well as the financing of the PolyGram film library
purchase in January 1999 and the WHV contract termination settlement (see
above) in March 1999, partially offset by debt repayment associated with
proceeds received from the Company's rights offering completed in November
1998.
 
  Income Tax Provision. The income tax provision of $2.3 million in the 1999
Quarter and $3.0 million in the 1998 Quarter primarily reflect foreign
remittance taxes attributable to international distribution revenues.
 
                                      13
<PAGE>
 
EBITDA
 
  While many in the financial community consider earnings before interest,
taxes, depreciation and non-film amortization ("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 generally accepted accounting principles. 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 the Company's financial performance. Other significant
uses of cash flows are required before cash will be available to the Company,
including debt service, taxes and cash expenditures for various long-term
assets. The Company's calculation of EBITDA may be different from the
calculation used by other companies and, therefore, comparability may be
limited.
 
  The following table sets forth EBITDA for the 1999 Quarter and the 1998
Quarter:
 
<TABLE>
<CAPTION>
                                                             Quarter Ended
                                                               March 31,
                                                           -------------------
                                                             1999       1998
                                                           ---------  --------
                                                              In thousands
                                                              (unaudited)
<S>                                                        <C>        <C>
Revenues:
  Feature films........................................... $ 195,967  $254,137
  Television programs.....................................    52,145    58,746
  Other...................................................    10,531     3,577
                                                           ---------  --------
    Total revenues........................................ $ 258,643  $316,460
                                                           =========  ========
EBITDA:
  Feature films........................................... $ (43,759) $ 33,056
  Television programs.....................................     5,569     4,845
  Other...................................................     2,766    (8,111)
  General and administration expenses.....................   (19,864)  (22,648)
  Contract termination fee................................  (225,000)      --
                                                           ---------  --------
    EBITDA................................................  (280,288)    7,142
Depreciation and non-film amortization....................    (5,875)   (5,213)
                                                           ---------  --------
Operating income (loss)...................................  (286,163)    1,929
Interest expense, net of amounts capitalized..............   (19,020)  (18,254)
Interest and other income (expense), net..................       834       675
                                                           ---------  --------
Loss before provision for income taxes....................  (304,349)  (15,650)
Income tax provision......................................    (2,273)   (2,993)
                                                           ---------  --------
    Net loss.............................................. $(306,622) $(18,643)
                                                           =========  ========
</TABLE>
 
Liquidity and Capital Resources
 
  General. The Company's operations are capital intensive. In recent years the
Company has funded its operations primarily from proceeds from (i) the sale of
equity securities, (ii) bank borrowings and (iii) internally generated funds.
Sales of equity securities include proceeds from the Company's initial public
offering and Tracinda's concurrent purchase of the Company's common stock,
which were completed in November 1997, and the 1998 rights offering, which was
completed in November 1998. During the 1999 Quarter, the net cash used by
operating activities was $3.1 million (reflecting the initial payment of
$112.5 million to WHV and film performance; see --"Capital Requirements"), the
net cash used in investing activities (primarily the purchase of the PFE
Libraries and additions to film and television costs) was $433.8 million, and
the net cash provided by financing activities (primarily bank borrowings) was
$389.2 million.
 
                                      14
<PAGE>
 
  Amended Credit Facility. The Company anticipates substantial continued
borrowing under its principal credit facility (the "Amended Credit Facility").
This $1.3 billion syndicated facility consists of (i) a six year $600 million
revolving credit facility (the "Revolving Facility"), (ii) a $400 million
seven and one-half year term loan ("Tranche A Loan") and (iii) a $300 million
eight and one-half year term loan ("Tranche B Loan" and, collectively with the
Tranche A Loan, the "Term Loans"). As of May 6, 1999, $164 million was
available under the Amended Credit Facility. The Amended Credit Facility also
contains provisions allowing, under certain circumstances, for an additional
$200 million tranche ("Tranche C Loan").
 
  Currently, the Revolving Facility and Tranche A Loan bear interest at 2.50
percent over the Adjusted LIBOR rate, as defined therein, and the Tranche B
Loan bears interest at 2.75 percent over the Adjusted LIBOR rate. As of March
31, 1999, Adjusted LIBOR was approximately 5.0 percent. 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 $800 million at
an average rate of approximately 7.50 percent, which expire at various times
no later than December 2001. Scheduled amortization of the Term Loans under
the Amended Credit Facility commences with $33 million in 2001, $73 million in
2002, $103 million in 2003, $103 million in 2004, and $103 million in 2005,
with the remaining balance due at maturity. The Revolving Facility was entered
into in October 1997 and matures in October 2003, subject to extension under
certain conditions.
 
  The Amended Credit Facility contains various covenants, including
limitations on indebtedness, dividends and capital expenditures, and
maintenance of certain financial ratios. As of March 31, 1999, the Company was
in compliance with all such covenants. In connection with the $225 million
one-time charge resulting from the early termination of the WHV Agreement, the
Company and its lenders amended the Amended Credit Facility, effective April
30, 1999. There can be no assurances that the Company will remain in
compliance with such covenants or other conditions under the Amended Credit
Facility in the future.
 
  Capital Requirements. The Company's current strategy and business plan call
for substantial on-going investments, at levels comparable to 1998, in the
production of new feature films and television programs. Furthermore, the
Company may wish to continue to make investments in new distribution channels
to further exploit the Company's motion picture and television library. The
Company plans to continue to evaluate the level of such investments in the
context of the capital available to the Company and changing market
conditions.
 
  In January 1999, the Company acquired the PFE Libraries, containing over
1,300 feature films that were previously owned by PolyGram, for $235 million.
The purchase was funded by borrowings under the Revolving Facility and
utilization of cash on hand.
 
  In March 1999, in consideration for the early expiration of the WHV
Agreement, the Company agreed to pay WHV $225 million, of which $112.5 million
was paid in March 1999 and the remaining $112.5 million installment is payable
in September 1999. Additionally, the Company reconveyed to Turner
Entertainment Co., Inc. ("Turner"), an affiliate of WHV, the right that the
Company had to distribute in the home video markets worldwide until June 1,
2001, approximately 2,950 titles in the Turner library that had been serviced
under the WHV Agreement. This reconveyance to Turner was made effective as of
January 1, 1999. The Company has recorded a one-time pre-tax contract
termination charge in the 1999 Quarter of $225 million for costs in connection
with terminating the WHV Agreement. The Company anticipates that the
reconveyance of the Turner rights will result in decreased cash flow to the
Company of approximately $10 million per year through June 2001.
 
  The remaining $112.5 million installment (plus interest at the rate of eight
percent per year from March 1999) due to WHV in September 1999 is secured by a
standby letter of credit (the "Letter of Credit") issued by one of the
Company's principal lenders under the Bridge Loan Facility described below. If
the Letter of Credit is drawn upon, the Company will be deemed to have
accessed a loan under the Bridge Loan Facility with a principal amount equal
to the amount drawn.
 
  In April 1999, the Company entered into an agreement with Universal Studios,
Inc. ("Universal") that increased the Company's commitment under an existing
co-production arrangement with Universal by
 
                                      15
<PAGE>
 
$100 million in production expenses. The motion pictures to be co-produced
under the arrangement will be selected over the next three years, but the
Company may incur the related production expenditures over a longer period of
time.
 
  The Company is obligated to fund 50 percent of the expenses of MGM Networks
Latin America up to a maximum of approximately $24 million. The Company has
funded approximately $20 million under such obligation as of March 31, 1999.
 
  In connection with the resignations of Messrs. Mancuso and Pisano, the
Company will incur severance charges in the second quarter of 1999.
 
  The Company expects to incur approximately $11 million of additional costs
in 1999 in connection with the integration of the PFE Libraries and the
Company's transition to home video self-distribution in the U.S. and Canadian
markets. The Company's obligation to pay other capital requirements, including
the purchase of certain computer systems and equipment and other improvements,
are currently not expected to exceed $15 million per year.
 
  In addition, the slate of films released by the Company in 1999 to date has
performed below expectations. As a result of these various factors (including,
in particular, the short-term costs associated with the termination of the WHV
Agreement), the Company determined that cash flow from operations and the
amounts available under the existing tranches of the Amended Credit Facility
may not be adequate to meet the Company's obligations and commitments and to
enable the Company to continue to conduct is operations in accordance with its
current business plan through the end of 1999. Therefore, the Company intends
to seek approximately $500 million in additional equity financing, which is
likely to be in the form of a rights offering. See Note 9 to the Condensed
Consolidated Financial Statements.
 
  In addition, the Company recently executed an agreement with one of its
principal lenders that provides the Company with a $250 million bridge loan
facility (the "Bridge Loan Facility"). If the Letter of Credit is drawn upon,
the Company will be deemed to have accessed a loan under the Bridge Loan
Facility with a principal amount equal to the amount drawn. Additionally, the
Company may borrow remaining availabilies under the Bridge Loan Facility to
fund operations. Loans under the Bridge Loan Facility initially would bear
interest at 1.75 percent over the Adjusted LIBOR rate. Interest would be
payable quarterly in arrears and the principal of such loans would be due on
the earlier of maturity or any debt or equity issuance of the Company. The
Company expects to use substantially all of the net proceeds of the proposed
rights offering to repay any amounts that may be outstanding under the Bridge
Loan Facility and to reduce the amounts outstanding under the Revolving
Facility.
 
  The Company believes that cash flow from operations, together with amounts
available under the Revolving Facility and the Bridge Loan Facility, and the
proceeds of the proposed rights offering will be adequate for the Company to
conduct its operations in accordance with its business plan through the end of
2001. This belief is based in part on the assumption that the Company's future
releases will perform as planned. In addition to the foregoing sources of
liquidity, the Company is currently considering various film financing
alternatives.
 
  While management of the Company believes that it will be able to obtain the
requisite funds, no assurance can be given that the Company will complete the
proposed rights offering or otherwise be able to obtain the requisite funds,
or that it will be able to do so on a timely basis and on terms acceptable to
the Company.
 
  If necessary in order to manage its cash needs, the Company may also seek to
reduce or delay its production or release schedules and to further increase
its use of co-production, split-rights or other partnering arrangements. There
can be no assurance that any such steps by the Company to reduce its cash
needs would be adequate or timely, or that acceptable arrangements could be
reached with third parties if necessary. In addition, although changes in the
Company's production or release schedule or the increased use of partnering
would diminish the Company's short-term cash needs and (in the case of
partnering) reduce the Company's risk relating to the performance of the
relevant films, such steps could adversely affect long term cash flow and
results of operations in subsequent periods.
 
                                      16
<PAGE>
 
  The Company intends to continue to pursue its goal of becoming an integrated
global entertainment company. In connection with its pursuit of this goal, the
Company may consider various strategic alternatives, such as business
combinations with companies with strengths complementary to those of the
Company, other acquisitions and joint ventures, as opportunities arise. The
nature, size and structure of any such transaction could require the Company
to seek additional financing.
 
Year 2000 Data Conversion
 
  Impact of the Year 2000 Issue Introduction. The term "Year 2000 issue" is a
general term used to describe the various problems that may result from the
improper processing of dates and date-sensitive calculations by computers and
other machinery as the Year 2000 is approached and reached. These problems
generally arise from the fact that most of the world's computer hardware and
software have historically used only two digits to identify the year in a
date, often meaning that the computer will fail to distinguish dates in the
"2000's" from dates in the "1900's." These problems may also arise from other
sources as well, such as the use of special codes and conventions in software
that make use of the date field.
 
  State of Readiness. The Company's primary focus has been on its own internal
systems. To date, the Company has completed the Year 2000 conversion with
respect to all of its most critical computer systems and applications, which
constitute approximately 70 percent of the Company's Year 2000 sensitive
systems (together with those systems containing embedded microprocessors or
other technology, "Systems"). The Company is in the testing or remediation
phase with respect to the remainder of its Systems, which include most of the
Company's computer hardware and other equipment containing embedded
microprocessors or other technology. The Company expects to complete its Year
2000 conversion by June 30, 1999.
 
  Because of the substantial progress made by the Company towards its Year
2000 conversion, the Company does not anticipate that any additional
significant changes will be required or that the Year 2000 issue will pose
significant operational problems for the Company. However, if any necessary
changes are not made or completed in a timely fashion or unanticipated
problems arise, the Year 2000 issue may take longer for the Company to address
and may have a material impact on the Company's financial condition and
results of operations.
 
  In addition, the Company has had communications with certain of its
significant suppliers, distributors, financial institutions, lessors and
others with which it does business to evaluate their Year 2000 compliance
plans and state of readiness and to determine the extent to which the
Company's Systems may be affected by the failure of others to remediate their
own Year 2000 issues. The Company is also distributing a Year 2000 assessment
form to other parties, in order to provide the Company with further
information as to their Year 2000 conversion progress. To date, the Company
has received feedback from certain but not all such parties, and has not
independently confirmed any information received with respect to the Year 2000
issues. As such, there can be no assurance that such other parties will
complete their Year 2000 conversion in a timely fashion or will not suffer a
Year 2000 business disruption that may adversely affect the Company's
financial condition and results of operations.
 
  Costs to Address the Year 2000 Issue. To date, the Company estimates that it
has spent approximately $0.4 million to address the Year 2000 issue, with the
majority of the work being performed by Company employees. The aggregate cost
to achieve Year 2000 conversion is estimated to be approximately $1.3 million.
The Company intends to fund such costs from its operations and funds borrowed
under the Amended Credit Facility. The Company believes such costs will not
have a material adverse effect on its liquidity or financial condition.
However, as the Company progresses with its Year 2000 conversion and
implements any necessary changes to its Systems, certain additional costs may
be identified. There can be no assurance that such additional costs will not
have a material adverse effect on the Company's financial condition and
results of operations.
 
  Risks of Year 2000 Issues. To date, the Company has not identified any
System which presents a material risk of not being Year 2000 ready in a timely
fashion or for which a suitable alternative cannot be implemented. However, as
the Company progresses with its Year 2000 conversion, the Company may identify
Systems which
 
                                      17
<PAGE>
 
do present a material risk of Year 2000 disruption. Such disruption may
include, among other things, the inability to process transactions or
information, record and access data relating to the availability of titles in
the Company's library for licensing and distribution, send invoices or engage
in similar normal business activities. The failure of the Company to identify
Systems which require Year 2000 conversion that are critical to the Company's
operations or the failure of the Company or others with which the Company does
business to become Year 2000 ready in a timely manner could have a material
adverse effect on the Company's financial condition and results of operations.
 
  Contingency Plans. While the Company's Year 2000 conversion is expected to
be completed prior to any potential disruption to the Company's business, the
Company acknowledges the uncertainties involved in preparing its systems for
the Year 2000. As such, the Company is developing a comprehensive Year 2000
specific contingency plan that, when used in combination with the Company's
general disaster recovery plan, should provide for continued business
operations to the greatest extent possible in the unlikely event of the Year
2000 failure of a critical system. As part of its Year 2000 contingency
effort, information received from external sources is examined for date
integrity before being brought into the Company's internal systems. If the
Company determines that its business or a segment thereof is at material risk
of disruption due to the Year 2000 issue or anticipates that its Year 2000
conversion will not be completed in a timely fashion, the Company will prepare
to implement all or part of its contingency plan.
 
  The discussion above contains certain forward-looking statements. The costs
of the Year 2000 conversion, the date which the Company has set to complete
such conversion and possible risks associated with the Year 2000 issue are
based on the Company's current estimates and are subject to various
uncertainties that could cause the actual results to differ materially from
the Company's expectations. Such uncertainties include, among others, the
success of the Company in identifying Systems that are not Year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected Systems, the availability of qualified personnel,
consultants and other resources, and the success of the Year 2000 conversion
efforts of others.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
  The Company has only limited involvement in derivative financial instruments
and does not use them for trading purposes. Certain amounts borrowed under the
Amended Credit Facility are at variable interest rates and the Company is thus
subject to market risk resulting from interest rate fluctuations. The Company
enters into interest rate swaps in part to alter interest rate exposures.
Interest rate swaps allow the Company to raise long-term borrowings at
floating rates and effectively swap them into fixed rates that are lower than
those available to the Company if fixed-rate borrowings were made directly.
Under interest rate swaps, the Company agrees 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. Please
refer to the Company's Form 10-K for the year ended December 31, 1998 for a
listing of the Company's interest rate swaps. There have been no significant
changes to the Company's interest rate swaps in the quarter ended March 31,
1999.
 
  Because approximately 25 percent of the Company's revenues are denominated,
and the Company incurs certain operating and production costs, in foreign
currencies, the Company is subject to market risks resulting from fluctuations
in foreign currency exchange rates. In certain instances, the Company enters
into foreign currency exchange contracts in order to reduce exposure to
changes in foreign currency exchange rates that affect the value of its firm
commitments and certain anticipated foreign currency cash flows.
 
                                      18
<PAGE>
 
  The following table provides information about the Company's sensitivity to
foreign currency exchange contracts into which the Company enters. The
contracts generally mature within one year. The Company currently intends to
continue to enter into such contracts to hedge against future material foreign
currency exchange rate risks.
 
<TABLE>
<CAPTION>
                                             Amounts scheduled
                                               for maturity       Estimated
                                            for the year ending fair value at
                                             December 31, 1999  March 31, 1999
                                            ------------------- --------------
                                                      (in thousands)
<S>                                         <C>                 <C>
$US Functional Currency
Forward exchange agreements (receive
 $US/pay British pounds)
  Contract amount..........................       $19,364           $(157)
  Average contractual exchange rate........        1.6272
</TABLE>
 
                                      19
<PAGE>
 
                          PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
  In the matter entitled Estate of Jim Garrison, et al. v. Warner Bros., Inc.,
et al., which was filed as a putative class action in Los Angeles County
Superior Court in November 1995 against, among others, Metro-Goldwyn-Mayer
Pictures Inc. ("MGM Pictures") and United Artists Pictures Inc. ("UA
Pictures") and the other major studios, the court denied class certification
in August 1996 with respect to the plaintiffs' claims for breach of contract,
breach of implied covenant, unjust enrichment, imposition of constructive
trust and declaratory relief and, initially, granted class certification with
respect to plaintiffs' claims for price fixing under the Sherman Antitrust
Act, price fixing under state law, boycott/concerted refusal to deal under the
Sherman Antitrust Act and boycott/concerted refusal to deal under state law.
The court subsequently announced that its grant of the plaintiffs' class
certification motion might have been "inadvertent" and issued an order on its
own motion requesting briefing on the issue whether the class should be
decertified. After such briefing and by Order dated May 26, 1998, the court
decertified the plaintiff class with respect to plaintiffs' remaining claims
for price fixing under the Sherman Antitrust Act, price fixing under state
law, boycott/concerted refusal to deal under the Sherman Antitrust Act and
boycott/concerted refusal to deal under state law. The plaintiffs announced
their intention to proceed against all defendants, including MGM Pictures and
UA Pictures, on their legal theories but solely as to the Warner Bros. motion
picture "JFK." Trial was set for October 18, 1999. The defendants filed
motions for summary judgment. By Order entered January 28, 1999, the court
denied defendants' motions in part and continued defendants' motions in part,
reopening discovery limited to certain issues related to one motion and
ordering supplemental briefing regarding those issues. Effective March 5,
1999, the case was settled by agreement among the parties. On March 31, 1999,
the court ordered the case dismissed with prejudice, pursuant to stipulation
of the parties.
 
  Reference is made to the Company's 1998 Form 10-K for a description of other
pending legal proceedings involving the Company.
 
Item 5. Other Information
 
  Changes in Management:
  
        See Note 9 to the Condensed Consolidated Financial Statements.
 
  Early Termination of the WHV Agreement:
 
        See Note 2 to the Condensed Consolidated Financial Statements.
 
  Annual Meeting of Stockholders:
 
        As previously announced, the Company has postponed its Annual Meeting of
  Stockholders (the "Annual Meeting") from May 11, 1999 to July 13, 1999.
  Stockholders of record at the close of business on June 15, 1999 are
  entitled to notice of and to vote at the Annual Meeting.
 
Item 6. Exhibits and Reports on Form 8-K
 
    (a) Exhibits
 
<TABLE>
<CAPTION>
   Exhibit
   Number
   -------
   <S>    <C> 
    27.    Financial Data Schedule
</TABLE>
 
    (b) Reports on Form 8-K
 
     A Current Report on Form 8-K was filed during the quarter ended March 31,
1999:
 
<TABLE>
<CAPTION>
      Date:             Relating to:
      -----             ------------
      <S>               <C>   
      March 16, 1999    Press release re: Early termination of existing video
                        distribution agreement with Warner Home Video
</TABLE>
 
                                      20
<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.
 
                                          METRO-GOLDWYN-MAYER INC.
 
May 17, 1999                                      /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
 
                                       21