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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



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For the Quarterly Period Ended March 31, 2003



Commission File No. 1-13481



METRO-GOLDWYN-MAYER INC.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 95-4605850                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|2500 Broadway Street, Santa Monica, CA                         |  | 90404                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



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



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



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



The number of shares of the Registrants common stock outstanding as of April 23, 2003 was 245,539,757.



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



FORM 10-Q



March 31, 2003



INDEX



|                                 |  |                                                                                                            |  | Page No.
|-------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------
|Part I.    FINANCIAL INFORMATION |  |                                                                                                           
|                                
|Item 1.                          |  | Financial Statements                                                                                       |  |         
|                                
|                                 |  | Condensed Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002               |  | 1       
|                                
|                                 |  | Condensed Consolidated Statements of Operations for the Quarters ended March 31, 2003 and 2002 (unaudited) |  | 2       
|                                
|                                 |  | Condensed Consolidated Statement of Stockholders Equity for the Quarter ended March 31, 2003 (unaudited)  |  | 3       
|                                
|                                 |  | Condensed Consolidated Statements of Cash Flows for the Quarters ended March 31, 2003 and 2002 (unaudited) |  | 4       
|                                
|                                 |  | Notes to Condensed Consolidated Financial Statements                                                       |  | 5       
|                                
|Item 2.                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 16      
|                                
|Item 3.                          |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 25      
|                                
|Item 4.                          |  | Controls and Procedures                                                                                    |  | 25      
|                                
|Part II.    OTHER INFORMATION    |  |                                                                                                           
|                                
|Item 6.                          |  | Exhibits and Reports on Form 8-K                                                                           |  | 26      
|                                
|Signatures                       |  | 27                                                                                                        
|                                
|Certifications                   |  | 28                                                                                                        



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##### Table of Contents

PART I.    FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



METRO-GOLDWYN-MAYER INC.



CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                |  | March 31, 2003 |            |   | December 31, 2002 |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------------- | -
|                                                                                                                |  | (unaudited)    |            |   |                   |  
|ASSETS                                                                                                          |  |                |            |   |                   |  
|Cash and cash equivalents                                                                                       |  | $              | 639,455    |   |                   | $
|Short-term investments                                                                                          |  |                | 36,734     |   |                   |  
|Accounts and contracts receivable (net of allowance for doubtful accounts of $40,508 and
$40,980, respectively) |  |                | 486,193    |   |                   |  
|Film and television costs, net                                                                                  |  |                | 1,840,033  |   |                   |  
|Investments in and advances to affiliates                                                                       |  |                | 614,395    |   |                   |  
|Property and equipment, net                                                                                     |  |                | 40,037     |   |                   |  
|Goodwill                                                                                                        |  |                | 516,706    |   |                   |  
|Other assets                                                                                                    |  |                | 27,497     |   |                   |  
|                                                                                                                |  |                |            |   |                   |  
|                                                                                                                |  | $              | 4,201,050  |   |                   | $
|                                                                                                                |  |                |            |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  |                |            |   |                   |  
|Liabilities:                                                                                                    |  |                |            |   |                   |  
|Bank and other debt                                                                                             |  | $              | 1,156,467  |   |                   | $
|Accounts payable and accrued liabilities                                                                        |  |                | 190,032    |   |                   |  
|Accrued participants share                                                                                     |  |                | 269,443    |   |                   |  
|Income taxes payable                                                                                            |  |                | 32,360     |   |                   |  
|Advances and deferred revenues                                                                                  |  |                | 61,488     |   |                   |  
|Other liabilities                                                                                               |  |                | 61,344     |   |                   |  
|                                                                                                                |  |                |            |   |                   |  
|Total liabilities                                                                                               |  |                | 1,771,134  |   |                   |  
|                                                                                                                |  |                |            |   |                   |  
|                                                                                                               
|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, 251,960,505 shares
issued                          |  |                | 2,520      |   |                   |  
|Additional paid-in capital                                                                                      |  |                | 3,915,007  |   |                   |  
|Deficit                                                                                                         |  |                | (1,401,634 | ) |                   |  
|Accumulated other comprehensive loss                                                                            |  |                | (12,161    | ) |                   |  
|Less: treasury stock, at cost, 6,403,873 and 3,107,609 shares                                                   |  |                | (73,816    | ) |                   |  
|                                                                                                                |  |                |            |   |                   |  
|Total stockholders equity                                                                                      |  |                | 2,429,916  |   |                   |  
|                                                                                                                |  |                |            |   |                   |  
|                                                                                                                |  | $              | 4,201,050  |   |                   | $
|                                                                                                                |  |                |            |   |                   |  



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



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



|                                                       |  | Quarter Ended March 31, |            
|------------------------------------------------------ |  | ----------------------- | -----------
|                                                       |  | 2003                    |            
|Revenues                                               |  | $                       | 395,191    
|Expenses:                                              |  |                         |            
|Operating                                              |  |                         | 223,930    
|Selling, general and administrative                    |  |                         | 205,077    
|Depreciation                                           |  |                         | 5,239      
|                                                       |  |                         |            
|Total expenses                                         |  |                         | 434,246    
|                                                       |  |                         |            
|Operating loss                                         |  |                         | (39,055    
|Other income (expense):                                |  |                         |            
|Equity in net earnings (losses) of affiliates          |  |                         | 2,490      
|Interest expense, net of amounts capitalized           |  |                         | (17,949    
|Interest and other income, net                         |  |                         | 3,308      
|                                                       |  |                         |            
|Total other expenses                                   |  |                         | (12,151    
|                                                       |  |                         |            
|Loss from operations before provision for income taxes |  |                         | (51,206    
|Income tax provision                                   |  |                         | (4,616     
|                                                       |  |                         |            
|Net loss                                               |  | $                       | (55,822    
|                                                       |  |                         |            
|Loss per share:                                        |  |                         |            
|Basic and diluted                                      |  | $                       | (0.22      
|                                                       |  |                         |            
|Weighted average number of common shares outstanding:  |  |                         |            
|Basic and diluted                                      |  |                         | 248,469,650
|                                                       |  |                         |            



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



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METRO-GOLDWYN-MAYER INC.



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(in thousands, except share data)



|                                                              |  | Preferred Stock |  | Common Stock |   | Addl Paid-in Capital |             | Deficit   |   |       | Comprehensive Income (Loss) |   |           | Accumulated Other Comprehensive Income (Loss) |   |            | Less: Treasury Stock |  |   | Total Stockholders Equity |  
|------------------------------------------------------------- |  | --------------- |  | ------------ | - | --------------------- | ----------- | --------- | - | ----- | --------------------------- | - | --------- | --------------------------------------------- | - | ---------- | -------------------- |  | - | -------------------------- | -
|                                                              |  | No. of Shares   |  | Par Value    |   | No. of Shares         |             | Par Value |   |       |                             |   |           |                                              
|Balance December 31, 2002                                     |  |                |  | $            |  |                       | 251,960,505 |           | $ | 2,520 |                             | $ | 3,914,923 |                                               | $ | (1,345,812 | )                    |  | $ |                           |  
|Common stock issued to directors, officers and employees, net |  |                |  |              |  |                       |            |           |   |      |                             |   | 84        |                                               |   |           |                      |  |   |                           |  
|Acquisition of treasury stock, at cost                        |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   |           |                      |  |   |                           |  
|Comprehensive income (loss):                                  |  |                 |  |              |   |                       |             |           |   |       |                             |   |           |                                               |   |            |                      |  |   |                            |  
|Net loss                                                      |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   | (55,822    | )                    |  |   | (55,822                    | )
|Unrealized gain on derivative instruments                     |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   |           |                      |  |   | 6,094                      |  
|Unrealized loss on securities                                 |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   |           |                      |  |   | (196                       | )
|Foreign currency translation adjustments                      |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   |           |                      |  |   | 302                        |  
|                                                              |  |                 |  |              |   |                       |             |           |   |       |                             |   |           |                                               |   |            |                      |  |   |                            |  
|Comprehensive loss                                            |  |                |  |              |  |                       |            |           |   |      |                             |   |          |                                               |   |           |                      |  |   | (49,622                    | )
|                                                              |  |                 |  |              |   |                       |             |           |   |       |                             |   |           |                                               |   |            |                      |  |   |                            |  
|Balance March 31, 2003 (unaudited)                            |  |                |  | $            |  |                       | 251,960,505 |           | $ | 2,520 |                             | $ | 3,915,007 |                                               | $ | (1,401,634 | )                    |  | $ |                           |  
|                                                              |  |                 |  |              |   |                       |             |           |   |       |                             |   |           |                                               |   |            |                      |  |   |                            |  







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



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METRO-GOLDWYN-MAYER INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                           |  | Quarter Ended March 31, |        
|------------------------------------------------------------------------------------------ |  | ----------------------- | -------
|                                                                                           |  | 2003                    |        
|Net cash provided by (used in) operating activities                                        |  | $                       | 108,310
|                                                                                           |  |                         |        
|Investing activities:                                                                      |  |                         |        
|Dividend received from cable channel                                                       |  |                         | 10,000 
|Purchase of short-term investments                                                         |  |                         | (30,246
|Investments in and advances to affiliates                                                  |  |                         | (1,773 
|Additions to property and equipment                                                        |  |                         | (3,879 
|                                                                                           |  |                         |        
|Net cash used in investing activities                                                      |  |                         | (25,898
|                                                                                           |  |                         |        
|Financing activities:                                                                      |  |                         |        
|Net proceeds from issuance of equity securities to outside parties                         |  |                         |       
|Net proceeds from issuance of equity securities to related parties                         |  |                         |       
|Acquisition of treasury stock                                                              |  |                         | (36,099
|Additions to borrowed funds                                                                |  |                         |       
|Repayments of borrowed funds                                                               |  |                         | (286   
|                                                                                           |  |                         |        
|Net cash (used in) provided by financing activities                                        |  |                         | (36,385
|                                                                                           |  |                         |        
|Net change in cash and cash equivalents from operating, investing and financing
activities |  |                         | 46,027 
|Net increase (decrease) in cash due to foreign currency fluctuations                       |  |                         | 297    
|                                                                                           |  |                         |        
|Net change in cash and cash equivalents                                                    |  |                         | 46,324 
|Cash and cash equivalents at beginning of the year                                         |  |                         | 593,131
|                                                                                           |  |                         |        
|Cash and cash equivalents at end of the quarter                                            |  | $                       | 639,455
|                                                                                           |  |                         |        







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



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



March 31, 2003



Note
1Basis of Presentation



Basis of
Presentation.    The accompanying consolidated financial statements include the accounts of Metro-Goldwyn-Mayer Inc. (MGM), Metro-Goldwyn-Mayer Studios Inc. and its majority owned subsidiaries (collectively,
MGM Studios) and Orion Pictures Corporation and its majority owned subsidiaries (collectively, Orion) (collectively, the Company). MGM is a Delaware corporation formed on July 10, 1996 specifically to acquire MGM
Studios, and is majority owned by an investor group comprised of Tracinda Corporation and a corporation that is principally owned by Tracinda (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 (collectively, PolyGram) on January 7, 1999.



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements and the instructions to Form 10-Q related to interim period financial statements. Accordingly, these financial statements do not include certain information and footnotes
required by accounting principles generally accepted in the United States for complete financial statements. However, these financial statements contain all adjustments consisting only of normal recurring accruals which, in the opinion of
management, are necessary in order to make the financial statements not misleading. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete financial statements. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the Companys audited financial statements and notes thereto included in the Companys Form 10-K for the year ended December 31, 2002. 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.



Goodwill.    Beginning January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. Upon adoption and subsequently on an annual basis, the Company completes an impairment review and has not recognized 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 over an indefinite period of time. Accordingly, beginning January 1, 2002, the Company has
foregone all related amortization expense. Since the Company is recording its equity in net earnings of the Cable Channels (see Note 4) on a one-quarter lag, amortization of goodwill of the Cable Channels ($9,528,000 for the quarter ended March 31,
2002) is not included in the calculation of the Companys equity in the net earnings in this investment commencing on April 1, 2002.



For the quarters ended March 31, 2003 and 2002, the reconciliation of reported net loss and net loss per share to adjusted net loss and
adjusted net loss per share reflecting the elimination of goodwill amortization is as follows (in thousands, except per share data, unaudited):



|                                                                 |  | Quarter Ended March 31, |        
|---------------------------------------------------------------- |  | ----------------------- | -------
|                                                                 |  | Net Loss                |        
|                                                                 |  | 2003                    |        
|Net loss, as reported                                            |  | $                       | (55,822
|Elimination of goodwill amortization related to equity investees |  |                         |       
|                                                                 |  |                         |        
|Net loss, as adjusted                                            |  | $                       | (55,822
|                                                                 |  |                         |        



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Comprehensive Loss.    Components of other comprehensive loss are shown below (in thousands, unaudited):



|                                                    |  | Quarter Ended March 31, |        
|--------------------------------------------------- |  | ----------------------- | -------
|                                                    |  | 2003                    |        
|Net loss                                            |  | $                       | (55,822
|Other comprehensive income (loss):                  |  |                         |        
|Unrealized gain on derivative instruments           |  |                         | 6,094  
|Unrealized loss on securities                       |  |                         | (196   
|Cumulative foreign currency translation adjustments |  |                         | 302    
|                                                    |  |                         |        
|Total comprehensive loss                            |  | $                       | (49,622
|                                                    |  |                         |        



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



|                             |  | Unrealized Gain (Loss) on Derivative Instruments |         |   | Unrealized Loss on Securities |   |      | Unfunded Pension Plan Obligation |  |   | Cumulative Translation Adjustments |   | Accumulated Other Comprehensive Income (Loss) |  
|---------------------------- |  | ------------------------------------------------ | ------- | - | ----------------------------- | - | ---- | -------------------------------- |  | - | ---------------------------------- | - | --------------------------------------------- | -
|Balance at December 31, 2002 |  | $                                                | (13,859 | ) |                               | $ | (782 | )                                |  | $ | (3,994                             | ) |                                               | $
|Current year change          |  |                                                  | 6,094   |   |                               |   | (196 | )                                |  |   |                                   |   |                                               |  
|                             |  |                                                  |         |   |                               |   |      |                                  |  |   |                                    |   |                                               |  
|Balance at March 31, 2003    |  | $                                                | (7,765  | ) |                               | $ | (978 | )                                |  | $ | (3,994                             | ) |                                               | $
|                             |  |                                                  |         |   |                               |   |      |                                  |  |   |                                    |   |                                               |  



New
Accounting Pronouncements.    In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is to develop consistent accounting of asset retirement obligations and related costs in the financial statements and provide more
information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. This statement is effective for financial statements issued for fiscal years beginning after June 15,
2002. The Company implemented SFAS No. 143 on January 1, 2003. The impact of such adoption did not have a material effect on the Companys financial statements.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement is effective prospectively with regards to exit or disposal
activities initiated after December 31, 2002. The Company implemented SFAS No. 146 on January 1, 2003. The impact of such adoption did not have a material effect on the Companys financial statements.



In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosurean amendment of SFAS No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effect of the method



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



used on reported results. The Company implemented SFAS No. 148 effective January 1, 2003 regarding disclosure requirements for condensed
financial statements for interim periods. The Company has not yet determined whether they will voluntarily change to the fair value based method of accounting for stock-based employee compensation.



Note 2Severance and Other Related Costs



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



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



As of March 31, 2003, the Company has paid $54,844,000 of the
severance and other related costs. In January and February 2002, in accordance with certain agreements with the Companys former Chairman and Vice Chairman, $16,964,000 of the severance and related costs were converted into 863,499 shares of
common stock of the Company. The remaining unpaid severance at March 31, 2003 consists of unexercised stock options held by the Companys former Chairman, which are marked to market under variable option accounting.



Note 3Film and Television Costs



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



|                                 |  | March 31, 2003 |            |   | December 31, 2002 |  
|-------------------------------- |  | -------------- | ---------- | - | ----------------- | -
|                                 |  | (unaudited)    |            |   |                   |  
|Theatrical productions:          |  |                |            |   |                   |  
|Released                         |  | $              | 4,071,322  |   |                   | $
|Less: accumulated amortization   |  |                | (2,702,108 | ) |                   |  
|                                 |  |                |            |   |                   |  
|Released, net                    |  |                | 1,369,214  |   |                   |  
|Completed not released           |  |                | 59,117     |   |                   |  
|In production                    |  |                | 145,069    |   |                   |  
|In development                   |  |                | 30,468     |   |                   |  
|                                 |  |                |            |   |                   |  
|Subtotal: theatrical productions |  |                | 1,603,868  |   |                   |  
|                                 |  |                |            |   |                   |  
|Television programming:          |  |                |            |   |                   |  
|Released                         |  |                | 964,163    |   |                   |  
|Less: accumulated amortization   |  |                | (755,752   | ) |                   |  
|                                 |  |                |            |   |                   |  
|Released, net                    |  |                | 208,411    |   |                   |  
|In production                    |  |                | 26,625     |   |                   |  
|In development                   |  |                | 1,129      |   |                   |  
|                                 |  |                |            |   |                   |  
|Subtotal: television programming |  |                | 236,165    |   |                   |  
|                                 |  |                |            |   |                   |  
|                                 |  | $              | 1,840,033  |   |                   | $
|                                 |  |                |            |   |                   |  



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Interest
costs capitalized to theatrical productions were $2,970,000 and $1,865,000 during the quarters ended March 31, 2003 and 2002, respectively.



Note 4Investments In and Advances to Affiliates



Investments are summarized as follows (in thousands):



|                        |  | March 31, 2003 |         | December 31, 2002
|----------------------- |  | -------------- | ------- | -----------------
|                        |  | (unaudited)    |         |                  
|Domestic cable channels |  | $              | 590,309 |                  
|Foreign cable channels  |  |                | 14,791  |                  
|Joint ventures          |  |                | 9,145   |                  
|Others                  |  |                | 150     |                  
|                        |  |                |         |                  
|                        |  | $              | 614,395 |                  
|                        |  |                |         |                  



Domestic 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 Classics, the
Independent Film Channel and WE: Womens Entertainment (formerly Romance Classics) and, until recently, Bravo, cable channels, collectively referred to as the Cable Channels. These partnerships were wholly-owned by Rainbow Media
Holdings, Inc. (Rainbow Media), a 74 percent subsidiary of Cablevision Systems Corporation (Cablevision). 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, which provided aggregate net proceeds of approximately $635,600,000, and borrowings under the Companys credit facilities. Based upon certain assumptions that management of the Company believes are reasonable, the Companys
determination of the difference between the Companys original cost basis in their investment in the Cable Channels and the Companys share of the underlying equity in net assets (referred to as intangible assets) was
approximately $762,000,000 (after amortization of goodwill and the sale of the Bravo cable channel discussed below, the difference between our cost basis and our share of the underlying equity in net assets is approximately $530,000,000).



On December 5, 2002, the Company and
Cablevision, together with an affiliate of Cablevision, sold their ownership interests in the Bravo cable channel (Bravo) to an affiliate of the National Broadcasting Company (NBC) for $1.25 billion. The proceeds were divided
between Cablevision and the Company in accordance with their 80 percent and 20 percent ownership interests in Bravo. The Company received $250,000,000 in cash from an affiliate of NBC for its interest in Bravo, and recorded a gain of $32,514,000 on
the sale.



The Company is accounting for its
investments in the Cable Channels in accordance with APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. In accordance with APB Opinion No. 18, management continually reviews its equity investments
to determine if any permanent impairment has occurred. If, in managements judgment, an investment has sustained an other-than-temporary decline in its value, the investment is written down to its fair value by a charge to earnings. Such
determination is dependent on the specific facts and circumstances, including the financial condition of the investee, subscriber demand and growth, demand for advertising time and space, the intent and ability to retain the investment, and general
economic conditions in the areas in which the investee operates. As of March 31, 2003, management has determined that there have been no impairments.



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In
accordance with 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. Due to a lag in the receipt of the financial
statements from the Cable Channels, the Company is reporting its interest in the Cable Channels on a one-quarter lag. Summarized financial information for the Cable Channels (including Bravo through December 5, 2002) as of December 31, 2002, and for
the quarter ended December 31, 2002, were as follows (in thousands):



|As of December 31, 2002:                 |  |   |        
|---------------------------------------- |  | - | -------
|Current assets                           |  | $ | 262,854
|Non-current assets                       |  | $ | 382,127
|Current liabilities                      |  | $ | 118,236
|Non-current liabilities                  |  | $ | 168,981
|For the quarter ended December 31, 2002: |  |   |        
|Revenues, net                            |  | $ | 128,561
|Operating income                         |  | $ | 36,414 
|Net income                               |  | $ | 33,751 



In the
quarter ended March 31, 2003, the Companys share of the Cable Channels net operating results was a profit of $4,781,000. In the quarter ended March 31, 2002, the Companys share of the Cable Channels net operating results was
a loss of $4,391,000 (of which a profit of $13,000 pertained to Bravo), which included goodwill amortization of $9,528,000 (see Note 1).



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.



Foreign Cable Channels.    The Company holds minority equity interests in various television channels located
in certain international territories for which the Company realized its share of the channels net operating results, which aggregated a net loss of $834,000 and $1,727,000 in the quarters ended March 31, 2003 and 2002, respectively. The
Company is accounting for these investments in accordance with APB Opinion No. 18.



Joint Ventures.    On August 13, 2001, the Company, through its wholly-owned subsidiary, MGM On Demand Inc., acquired a 20 percent interest in a joint venture established to
create an on-demand movie service to offer a broad selection of theatrically-released motion pictures via digital delivery for broadband internet users



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



in the United States. Other partners in the joint venture include Sony Pictures Entertainment, Universal Studios, Warner Bros. and Paramount
Pictures. The Company has funded $12,609,000 for its equity interest and its share of operating expenses of the joint venture as of March 31, 2003. The Company financed its investment through borrowings under its credit facilities. The Company is
committed to fund its share of the operating expenses of the joint venture, as required. The Company is accounting for its interest in the joint venture under the equity method. In the quarters ended March 31, 2003 and 2002, the Company recognized a
net loss of $1,602,000 and $291,000, respectively, for its share of the operating results of the joint venture.



In February 2002, the Company, through its wholly-owned subsidiary, MGM Domestic Television Distribution Inc., and NBC Enterprises, Inc.
(each a Member and, collectively the Members) formed a new media sales company, MGM-NBC Media Sales, LLC (MGM-NBC Media Sales), to act as an agent to sell advertising time received by the Members as barter ad
spots received as full or partial consideration from the sale of feature film and television programming product in the syndication market. The joint venture recognizes income from distribution fees of ten percent earned on sales of each
Members barter advertising, and incurs overhead costs to operate the joint venture, which are shared between the Members. Each Member is entitled to its share of the net profits or losses of MGM-NBC Media Sales based on a contractual formula
as specified in the agreement. In the quarters ended March 31, 2003 and 2002, the Company recognized a profit of $145,000 and a loss of $65,000, respectively, for its share of the operating results of the joint venture.



On March 27, 2002, the Company, through its wholly-owned
subsidiary, MGM Digital Development Inc. (MGM Digital), acquired a one-seventh interest in NDC, LLC (NDC), a partnership created with the six other major studios to (i) develop and/or ratify standards for digital motion
picture equipment and for digital cinema technology to be used in the delivery of high quality in-theatre digital cinema, and (ii) update and deploy a limited amount of new digital motion picture equipment in theatres. MGM Digital contributed
$979,000 for its initial interest in NDC. The agreement has an initial term expiring on March 27, 2004. During the quarter ended March 31, 2002, the Company expensed its aggregate investment of $1,020,000 in the joint venture.



Note 5Bank and Other Debt



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

|                                                   |  | March 31, 2003 |           | December 31, 2002
|-------------------------------------------------- |  | -------------- | --------- | -----------------
|                                                   |  | (unaudited)    |           |                  
|Revolving Facility                                 |  | $              |          |                  
|Term Loans                                         |  |                | 1,150,000 |                  
|Capitalized lease obligations and other borrowings |  |                | 6,467     |                  
|                                                   |  |                |           |                  
|                                                   |  | $              | 1,156,467 |                  
|                                                   |  |                |           |                  



On June
11, 2002, the Company, through its MGM Studios and Orion subsidiaries, entered into a third amended and restated credit facility with a syndicate of banks, which amended a pre-existing credit facility, aggregating $1.75 billion (the Amended
Credit Facility) consisting of a five-year $600,000,000 revolving credit facility (the Revolving Facility), a five-year $300,000,000 term loan (Tranche A Loan) and a six-year $850,000,000 term loan (Tranche B
Loan) (collectively, the Term Loans). The Revolving Facility and the Tranche A Loan bear interest at 2.75 percent over the Adjusted LIBOR rate, as defined (4.05 percent at March 31, 2003). The Tranche B Loan bears
interest at 3.00 percent over the Adjusted LIBOR rate, as defined (4.28 percent at March 31, 2003). Scheduled amortization of the Term Loans under the Amended Credit Facility is $16,411,000 in 2003, $65,643,000 in each of 2004, 2005 and 2006,
$122,785,000 in 2007 and $813,875,000 in 2008. The Revolving Facility matures on June 30, 2007.



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The
Companys borrowings under the Amended Credit Facility are secured by substantially all the assets of the Company, with the exception of the copyrights in the James Bond series of motion pictures. The Amended Credit Facility contains various
covenants including limitations on dividends, capital expenditures and indebtedness, and the maintenance of certain financial ratios. The Amended Credit Facility limits the amount of the investment in MGM which may be made by MGM Studios and Orion
in the form of loans or advances, or purchases of capital stock of MGM, up to a maximum aggregate amount of $500,000,000 (or a maximum aggregate amount of $300,000,000 in the event that MGM Studios elects to release its entire investment in the
Cable Channels from the loan collateral, as permitted under the Amended Credit Facility). As of March 31, 2003, $73,816,000 was loaned to MGM by MGM Studios to fund the purchase of treasury stock by MGM (see Note 7). Restricted net assets
of MGM Studios and Orion at March 31, 2003 are approximately $1.9 billion. As of March 31, 2003, the Company was in compliance with all applicable covenants.



Capitalized lease obligations and other borrowings relate principally to contractual liabilities for the
purchase of computers and other equipment.



Note
6Financial Instruments



The Company is
exposed to the impact of interest rate changes as a result of its variable rate long-term debt. In order to reduce its exposure, the Company had previously entered into three-year fixed interest rate swap agreements whereby 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. The swap agreements aggregate a notional value of $550,000,000 at an
average rate of approximately 5.96 percent and expire in July 2003. Because these swap agreements carry interest rates that currently exceed the Companys borrowing rates under the Amended Credit Facility (see Note 5), the Company will
recognize additional interest costs, which will be charged against future earnings. As of March 31, 2003, the Company would be required to pay approximately $7,834,000 if all such swap agreements were terminated, and this amount has been included in
other liabilities and accumulated other comprehensive loss.



The Company is subject to market risks resulting from fluctuations in foreign currency exchange rates because approximately 25 percent of the Companys revenues are denominated, and the Company incurs certain operating and
production costs, in foreign currencies. In certain instances, the Company enters into foreign currency exchange forward contracts in order to reduce exposure to changes in foreign currency exchange rates that affect the value of the Companys
firm commitments and certain anticipated foreign currency cash flows. The Company currently intends to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks. As of March 31, 2003, the Company has
outstanding foreign currency forward contracts aggregating Canadian $21,400,000. As of March 31, 2003, the Company would be entitled to receive approximately $69,000 if all such foreign currency forward contracts were terminated, and this amount has
been included in other assets and accumulated other comprehensive loss.



Note 7Stockholders Equity



Earnings Per Share.    The Company computes earnings per share in accordance with SFAS No. 128, Earnings Per Share (EPS). The weighted average number of shares used in computing
basic earnings or loss per share was 248,469,650 and 242,526,586 in the quarters ended March 31, 2003 and 2002, respectively. Dilutive securities of 1,434 and 3,211,705 are not included in the calculation of diluted EPS in the quarters ending March
31, 2003 and 2002, respectively, because they are antidilutive. Additionally, potentially dilutive securities of 30,326,072 and 11,231,892 have not been included in the calculation of diluted EPS in the quarters ended March 31, 2003 and 2002,
respectively, because their exercise prices are greater than the average market price of the Companys common stock during the periods.



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Treasury Stock.    On July 26, 2002, the Company announced a share repurchase program authorizing the Company to purchase up to 10,000,000 shares of its common stock. The Company intends to fund the
repurchase program from available cash on hand. As of March 31, 2003, the Company had repurchased 6,271,300 shares of common stock at an aggregate cost of $68,809,000. During the quarter ended March 31, 2003, the Company contributed
108,236 shares of common stock from treasury valued at $1,171,000 for directors, officers and employees.



Stock Options.    The Company has an Amended and Restated 1996 Stock Incentive Plan (the 1996 Incentive
Plan), which allows for the granting of stock awards aggregating not more than 36,000,000 shares. Awards under the 1996 Incentive Plan are generally not restricted to any specific form or structure and may include, without limitation,
qualified or non-qualified stock options, incentive stock options, restricted stock awards and stock appreciation rights (collectively, Awards). Awards may be conditioned on continued employment, have various vesting schedules and
accelerated vesting and exercisability provisions in the event of, among other things, a change in control of the Company.



The Company applies APB Opinion No. 25, Accounting For Stock Issued to Employees, and related interpretations in accounting
for its plan. Had compensation cost for the plan been determined consistent with FASB Statement No. 148, the Companys net loss would have been the following pro forma amounts (in thousands, except per share data, unaudited):



|                                                                                                              |  | Quarter Ended March 31, |        
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                                              |  | 2003                    |        
|Net loss:                                                                                                     |  |                         |        
|As reported                                                                                                   |  | $                       | (55,822
|Less: total stock-based employee compensation expense determined under fair value based
method for all awards |  |                         | (8,316 
|                                                                                                              |  |                         |        
|Pro forma                                                                                                     |  | $                       | (64,138
|                                                                                                              |  |                         |        
|Basic and diluted loss per share:                                                                             |  |                         |        
|As reported                                                                                                   |  | $                       | (0.22  
|Pro forma                                                                                                     |  | $                       | (0.26  



The fair
value of each option grant was estimated using the Black-Scholes model based on the following assumptions: the weighted average fair value of stock options granted in the quarters ended March 31, 2003 and 2002 was $4.05 and $7.31, respectively. The
dividend yield was 0 percent in each period, and expected volatility was 53.2 percent and 51.0 percent for the quarters ended March 31, 2003 and 2002, respectively. Also, the calculation uses a weighted average expected life of 5.0 years in each
period, and a weighted average assumed risk-free interest rate of 3.0 percent and 4.4 percent for the quarters ended March 31, 2003 and 2002, respectively.



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##### Table of Contents

METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Note 8Segment
Information



The Company applies the
disclosure provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. The Companys business units have been aggregated into four reportable operating segments: feature films, television
programming, cable channels and other. The factors for determining the reportable segments were based on the distinct nature of their operations. They are managed as separate business units because each requires and is responsible for executing a
unique business strategy. Income or losses of industry segments and geographic areas, other than those accounted for under the equity method, exclude interest income, interest expense, goodwill amortization, income taxes and other unallocated
corporate expenses. Identifiable assets are those assets used in the operations of the segments. Other corporate assets consist of cash and certain corporate receivables. Summarized financial information concerning the Companys reportable
segments is shown in the following tables (in thousands, unaudited):



|                               |  | Quarter Ended March 31, |        
|------------------------------ |  | ----------------------- | -------
|                               |  | 2003                    |        
|Revenues:                      |  |                         |        
|Feature films                  |  | $                       | 356,069
|Television programming         |  |                         | 31,528 
|Cable channels                 |  |                         | 28,503 
|Other                          |  |                         | 7,017  
|                               |  |                         |        
|Subtotal                       |  |                         | 423,117
|Less: unconsolidated companies |  |                         | (27,926
|                               |  |                         |        
|Consolidated revenues          |  | $                       | 395,191
|                               |  |                         |        
|Segment income (loss):         |  |                         |        
|Feature films                  |  | $                       | (8,579 
|Television programming         |  |                         | (2,442 
|Cable channels                 |  |                         | 2,451  
|Other                          |  |                         | 3,476  
|                               |  |                         |        
|Subtotal                       |  |                         | (5,094 
|Less: unconsolidated companies |  |                         | (2,490 
|                               |  |                         |        
|Consolidated segment loss      |  | $                       | (7,584 
|                               |  |                         |        



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



|                            |  | Quarter Ended March 31, |      
|--------------------------- |  | ----------------------- | -----
|                            |  | 2003                    |      
|Licensing and merchandising |  | $                       | 566  
|Interactive media           |  |                         | 1,331
|Music                       |  |                         | 1,225
|Other                       |  |                         | 354  
|                            |  |                         |      
|                            |  | $                       | 3,476
|                            |  |                         |      



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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



|                                                       |  | Quarter Ended March 31, |        
|------------------------------------------------------ |  | ----------------------- | -------
|                                                       |  | 2003                    |        
|Segment loss                                           |  | $                       | (7,584 
|General and administrative expenses                    |  |                         | (26,232
|Depreciation                                           |  |                         | (5,239 
|                                                       |  |                         |        
|Operating loss                                         |  |                         | (39,055
|Equity in net earnings (losses) of affiliates          |  |                         | 2,490  
|Interest expense, net of amounts capitalized           |  |                         | (17,949
|Interest and other income, net                         |  |                         | 3,308  
|                                                       |  |                         |        
|Loss from operations before provision for income taxes |  | $                       | (51,206
|                                                       |  |                         |        



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



|                                |  | December 31, 2002 |           | Increase (Decrease) |   |          | March 31, 2003
|------------------------------- |  | ----------------- | --------- | ------------------- | - | -------- | --------------
|Feature films                   |  | $                 | 2,640,294 |                     | $ | (137,375 | )             
|Television programs             |  |                   | 369,723   |                     |   | 5,612    |               
|Cable channels                  |  |                   | 620,644   |                     |   | (5,706   | )             
|Other                           |  |                   | 12,349    |                     |   | (10,184  | )             
|                                |  |                   |           |                     |   |          |               
|Total reportable segment assets |  | $                 | 3,643,010 |                     | $ | (147,653 | )             
|                                |  |                   |           |                     |   |          |               



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



|                                                                        |  | March 31, 2003 |           | December 31, 2002
|----------------------------------------------------------------------- |  | -------------- | --------- | -----------------
|Total assets for reportable segments                                    |  | $              | 3,495,357 |                  
|Other unallocated amounts (principally cash and short-term investments) |  |                | 705,693   |                  
|                                                                        |  |                |           |                  
|Consolidated total assets                                               |  | $              | 4,201,050 |                  
|                                                                        |  |                |           |                  



Note
9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.



The Company has provided an accrual for pending litigation as of March 31, 2003 in accordance with SFAS No.
5, Accounting for Contingencies. In the opinion of Company management, any liability under pending litigation is not expected to be material in relation to the Companys financial condition or results of operations.



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METRO-GOLDWYN-MAYER INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Note
10Supplementary Cash Flow Information



The Company paid interest, net of capitalized interest, of $13,865,000 and $14,056,000 during the quarters ended March 31, 2003 and 2002, respectively. The Company paid income taxes of $4,085,000 and $5,238,000 during the quarters
ended March 31, 2003 and 2002, respectively.



During the quarter ended March 31, 2002, the Company contributed 1,406,753 shares of common stock with an aggregate fair market value of $27,616,000 to participants of the Senior Management Bonus Plan.



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##### Table of Contents

|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------



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



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



General



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



Recent Developments



Sale of Common Stock by Tracinda.    In January 2003, we filed a registration statement pursuant to
registration rights held by Tracinda in connection with the underwritten public offering by it of 25,000,000 shares of common stock. Tracinda also granted the underwriters an over-allotment option for 3,750,000 shares which was exercised
in February 2003. We did not receive any of the proceeds of this offering. Pursuant to our contractual obligations, we paid for the costs of the offering.



Collective Bargaining Agreements.    The motion picture and television programs produced by MGM Studios,
and the other major studios in the United States, generally employ actors, writers and directors who are members of the Screen Actors Guild, Writers Guild of America and Directors Guild of America, 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 the agreement was ratified effective as of July 1, 2001 for a term of three years. The Directors Guild of America collective bargaining agreement was successfully renegotiated
and has been ratified with a term of three years from July 1, 2002. Many productions also employ members of a number of other unions, including, without limitation, the International Alliance of Theatrical and Stage Employees and the Teamsters.
Negotiations with the International Alliance of Theatrical and Stage Employees were successfully completed on November 16, 2002 and a successor collective bargaining agreement has been ratified with an effective date of August 1, 2003 for a term of
three years. 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.



Industry Accounting Practices



Accounting for Motion Picture and Television
Costs.    In accordance with accounting principles generally accepted in the United States and industry practice, we amortize the costs of production, including capitalized interest and overhead, as well as participations and
talent residuals, for feature films and television programming using the individual-film-forecast method under which such costs are amortized for each film or television



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##### Table of Contents

program in the ratio that revenue earned in the current period for such title bears to managements estimate of the total revenues to be
realized from all media and markets for such title. All exploitation costs, including advertising and marketing costs, are expensed as incurred. Theatrical print costs are amortized over the periods of theatrical release of the respective
territories.



Management regularly reviews, and
revises when necessary, its total revenue estimates on a title-by-title basis, which may result in a change in the rate of amortization and/or a write-down of the film or television asset to estimated fair value. These revisions can result in
significant quarter-to-quarter and year-to-year fluctuations in film write-downs and amortization. A typical film or television program recognizes a substantial portion of its ultimate revenues within the first two years of release. By then, a film
has been exploited in the domestic and international theatrical markets and the domestic and international home video markets, as well as the domestic and international pay television and pay-per-view markets, and a television program has been
exploited on network television or in first-run syndication. A similar portion of the films or television programs capitalized costs should be expected to be amortized accordingly, assuming the film or television program is profitable.



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



Equity Investments.    We are accounting for our remaining investment in the cable channels in accordance with
Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. In accordance with APB Opinion No. 18, management continually reviews its equity investments to determine if any impairment has
occurred. If, in managements judgment, an investment has sustained an other-than-temporary decline in its value, the investment is written down to its fair value by a charge to earnings. Such determination is dependent on the specific facts
and circumstances, including the financial condition of the investee, subscriber demand and growth, demand for advertising time and space, the intent and ability to retain the investment, and general economic conditions in the areas in which the
investee operates. As of March 31, 2003, management has determined that there have been no impairments.



New Accounting Pronouncements.    In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The purpose of this statement is to develop consistent accounting of asset retirement obligations and related costs in the financial statements and provide more information about future cash outflows, leverage and
liquidity regarding retirement obligations and the gross investment in long-lived assets. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We implemented this statement on January 1, 2003.
The impact of such adoption did not have a material effect on our financial statements.



In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This
statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement of Financial Accounting Standards No. 146 nullifies



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Emerging Issues Task Force Issue No 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). This statement is effective prospectively with regards to exit or disposal activities initiated after December 31, 2002. We implemented Statement of Financial Accounting Standards
No. 146 on January 1, 2003. The impact of such adoption did not have a material effect on our financial statements.



In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of Statement of Financial Accounting Standard No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. This statement also amends the disclosure requirements of Statement of Financial Accounting Standard No. 123 and Accounting Principles Board Opinion No. 28, Interim Financial Reporting,
to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We implemented Statement of Financial
Accounting Standard No. 148 effective January 1, 2003 regarding disclosure requirements for condensed financial statements for interim periods. We have not yet determined whether we will voluntarily change to the fair value based method of
accounting for stock-based employee compensation.



Results of
Operations



The following table sets forth
our reported operating results for the quarters ended March 31, 2003 and 2002.



|                                              |  | Quarter ended March 31, |        
|--------------------------------------------- |  | ----------------------- | -------
|                                              |  | 2003                    |        
|Revenues:                                     |  |                         |        
|Feature films                                 |  | $                       | 356,069
|Television programs                           |  |                         | 31,528 
|Other                                         |  |                         | 7,594  
|                                              |  |                         |        
|Total revenues                                |  |                         | 395,191
|                                              |  |                         |        
|Operating income (loss):                      |  |                         |        
|Feature films                                 |  |                         | (8,579 
|Television programs                           |  |                         | (2,442 
|Other                                         |  |                         | 3,437  
|General and administration expenses           |  |                         | (26,232
|Depreciation                                  |  |                         | (5,239 
|                                              |  |                         |        
|Operating loss                                |  |                         | (39,055
|Equity in net earnings (losses) of affiliates |  |                         | 2,490  
|Interest expense, net of amounts capitalized  |  |                         | (17,949
|Interest and other income, net                |  |                         | 3,308  
|                                              |  |                         |        
|Loss before provision for income taxes        |  |                         | (51,206
|Income tax provision                          |  |                         | (4,616 
|                                              |  |                         |        
|Net loss                                      |  | $                       | (55,822
|                                              |  |                         |        



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##### Table of Contents



Unconsolidated
companies include our investment in the Rainbow Media cable channels and our investments in joint ventures, as well as various interests in international cable channels, the majority of which are accounted for under the equity method. Consolidated
and unconsolidated companies revenues, operating income (loss) and EBITDA (defined as operating income (loss) before depreciation and non-film amortization) are as follows:



|                         |  | Quarter ended March 31, |        
|------------------------ |  | ----------------------- | -------
|                         |  | 2003                    |        
|Revenues:                |  |                         |        
|Consolidated companies   |  | $                       | 395,191
|Unconsolidated companies |  |                         | 28,503 
|                         |  |                         |        
|Total                    |  | $                       | 432,694
|                         |  |                         |        
|Operating income (loss): |  |                         |        
|Consolidated companies   |  | $                       | (39,055
|Unconsolidated companies |  |                         | 3,090  
|                         |  |                         |        
|Total                    |  | $                       | (35,965
|                         |  |                         |        
|EBITDA:                  |  |                         |        
|Consolidated companies   |  | $                       | (33,816
|Unconsolidated companies |  |                         | 4,653  
|                         |  |                         |        
|Total                    |  | $                       | (29,163
|                         |  |                         |        



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 (loss), net earnings (loss), cash flow and other
measures of financial performance prepared in accordance with accounting principles generally accepted in the United States. EBITDA does not reflect cash available to fund cash requirements, and the items excluded from EBITDA, such as depreciation
and non-film amortization, are significant components in assessing our financial performance. Other significant uses of cash flows are required before cash will be available to us, including debt service, taxes and cash expenditures for various
long-term assets. We use EBITDA to evaluate the operating performance of our business segments and as a measure of performance for compensation purposes. We believe that EBITDA is also used by some investors, equity analysts and others as a measure
of performance to make informed investment decisions. Our calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For purposes of our calculation, unconsolidated EBITDA
includes unconsolidated operating income (loss) and the add-back of depreciation expense and amortization of intangible assets of $1.6 million and $10.1 million for the quarters ended March 31, 2003 and 2002, respectively.



See further details of operating changes under segments
discussion below.



Feature Films



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



|                          |  | Quarter ended March 31, |        
|------------------------- |  | ----------------------- | -------
|                          |  | 2003                    |        
|Revenues                  |  | $                       | 356,069
|Operating loss and EBITDA |  | $                       | (8,579 



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##### Table of Contents



Quarter
Ended March 31, 2003 Compared to Quarter Ended March 31, 2002



Revenues.    Feature film revenues increased by $75.4 million, or 27 percent, to $356.1 million in the quarter ended March 31, 2003 (the 2003 Quarter) as compared to the quarter ended
March 31, 2002 (the 2002 Quarter).



Worldwide theatrical revenues increased by $44.6 million, or 181 percent, to $69.3 million in the 2003 Quarter. In the 2003 Quarter, we benefited from the successful domestic theatrical release of Agent Cody Banks as well as
the continued release in worldwide markets of Die Another Day.Additionally, in 2003 we releasedA Guy ThingandDark Blue, as well as the release on a limited basis of Assassination Tango. In the 2002 Quarter, our
releases included Rollerball and Harts War, which were less successful than the 2003 releases. Overall, in the 2003 Quarter, we released four new feature films domestically and one film internationally, as compared to the release
of three new feature films domestically and no new films internationally in the 2002 Quarter.



Worldwide home video revenues increased by $27.8 million, or 16 percent, to $202.6 million in the 2003 Quarter. In the 2003 Quarter, we released Barbershop,Igby GoesDownandKilling Me Softlyin the home video marketplace, as well as benefiting from the continuing growth in library DVD sales. In the 2002 Quarter, our home video releases included Jeepers Creepers, Whats The Worst That Could
Happen, Original Sin and Ghost World.In the 2003 Quarter, worldwide DVD sales increased to $172.5 million, or 44 percent, from $119.7 million in the 2002 Quarter.



Worldwide pay television revenues from feature films increased by $1.6 million, or five percent, to
$34.0 million in the 2003 Quarter. In 2003, we delivered four new films to domestic pay television, Rollerball, Harts War, Deuces Wild and Killing Me Softly, as compared to the delivery of one new film,
Hannibal, in the 2002 Quarter. Additionally, sales in international pay television markets increased due to the release of Legally Blonde in the 2003 Quarter. Network television revenues decreased by $2.5 million, or 32 percent, to
$5.4 million in the 2003 Quarter, principally due to the delivery of Return To Me in 2003 which carried a lower license fee than The Thomas Crown Affair which was delivered in 2002. Worldwide syndicated television revenues from
feature films increased by $4.5 million, or 12 percent, to $43.0 million in the 2003 Quarter, principally due to increased library product sales in international markets, as compared to the 2002 Quarter.



Other revenues decreased by $0.5 million, or 22 percent, to
$1.8 million in the 2003 Quarter, principally due to the timing of audit recoveries.



Operating Results.    Operating loss and EBITDA from feature films improved by $36.2 million, or 81 percent, to a loss of $8.6 million in the 2003 Quarter as compared to
a loss of $44.8 million in the 2002 Quarter. In the 2003 Quarter, we benefited from the successful theatrical performances of Agent Cody Banks and Die Another Dayas well as the home video release ofBarbershop, among others.
The operating results in the 2002 Quarter principally reflected the disappointing theatrical performances of Rollerball, Harts War and Deuces Wild. During the 2003 Quarter, we revised our film ultimates to reflect
current information, which resulted in a benefit of approximately $5.7 million. Additionally, in the 2003 Quarter we incurred feature film write-downs of only $4.3 million as compared to write-downs of $32.3 million in the 2002 Quarter. Also, in the
2002 Quarter we incurred higher bad debt expenses associated with customer bankruptcies or liquidity issues, resulting in additional charges of $8.3 million as compared to the 2003 Quarter. The improved results in the 2003 Quarter were partially
offset by increased distribution costs compared to the 2002 Quarter.



Television Programming



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



|                          |  | Quarter ended March 31, |       
|------------------------- |  | ----------------------- | ------
|                          |  | 2003                    |       
|Revenues                  |  | $                       | 31,528
|Operating loss and EBITDA |  | $                       | (2,442



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Quarter
Ended March 31, 2003 Compared to Quarter Ended March 31, 2002



Revenues.    Television programming revenues increased by $6.4 million, or 26 percent, to $31.5 million in the 2003 Quarter as compared to the 2002 Quarter.



Worldwide pay television revenues increased by $0.9 million,
or 16 percent, to $6.5 million in the 2003 Quarter, principally due to the airing of the second year of the series Jeremiah on domestic pay television as well as the delivery in international markets of two made-for-television movies.
Worldwide syndicated television programming revenues increased by $5.3 million, or 40 percent, to $18.7 million in the 2003 Quarter, primarily due to the syndication of the new series She Spiesas well as new sales of Stargate SG-1and Jeremiah. Worldwide home video revenues with respect to television programming increased by $1.1 million, or 22 percent, to $6.1 million in the 2003 Quarter, primarily due to sales of Stargate SG-1.



Other revenues decreased by $0.9 million, or 82 percent, to
$0.2 million in the 2003 Quarter due to lower third party royalties collected in the period.



Operating Results.    Operating loss and EBITDA from television programming improved by $1.9 million, or 44 percent, to a loss of $2.4 million in the 2003 Quarter as
compared to the 2002 Quarter, principally due to the increase in revenues discussed above as well as reduced write-downs on new series and lower bad debt expense.



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:



|                            |  | Quarter ended March 31,
|--------------------------- |  | -----------------------
|                            |  | 2002                   
|Revenues                    |  | $                      
|Operating income and EBITDA |  | $                      



Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002



Revenues.    Revenues from other businesses decreased by $1.8 million, or 19 percent, to $7.6 million in the 2003 Quarter as compared to the 2002 Quarter. Operating results
in 2003 included consumer products revenue of $2.0 million and music soundtrack and royalty revenue of $1.5 million, as compared to consumer products revenue of $2.2 million and music soundtrack and royalty revenue of $1.3 million in 2002.
Interactive media revenues were $3.3 million in 2003, which included royalties from the interactive game release of 007-Nightfire, as compared to interactive revenues of $5.1 million in 2002, which included royalties from the interactive game
release of 007-Agent Under Fire. Branded programming services revenues aggregated $0.6 million in 2003 as compared to $0.1 million in 2002. Revenues from other businesses in 2003 also included the receipt of $0.2 million in third
party audit recoveries and other miscellaneous income as compared to $0.7 million in 2002.



Operating Results.    Operating income and EBITDA from other businesses decreased by $0.2 million, or five percent, to $3.4 million in the 2003 Quarter, principally due to
the reduced interactive game revenues. Expenses for other businesses include interactive product costs of $1.9 million in 2003 as compared to $2.7 million in 2002. Consumer product costs were $0.7 million in 2003 and 2002. Overhead costs
related to other businesses aggregated $1.6 million in 2003 and 2002. Other expenses, including distribution costs associated with music and branded programming services, aggregated $0.6 million in 2003 and $0.5 million in 2002. We recognized
foreign currency transaction gains of $0.6 million in 2003 as compared to foreign currency transaction losses of $0.3 million in 2002.



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Corporate and Other



Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002



General and Administrative Expenses.    In the 2003 Quarter, general and administrative expenses increased by $10.0 million, or 61 percent, to $26.2 million, as compared
to the 2002 Quarter. In the 2002 Quarter, we recognized significantly lower incentive plan costs, reflecting a benefit realized from the change in the price of our common stock, associated with both our current employees and related to certain of
our former senior executives. Additionally, in the 2003 Quarter we incurred increased facilities and insurance charges.



Depreciation.    Depreciation expense in the 2003 Quarter increased by $0.6 million, or 13 percent, to
$5.2 million, as compared to the 2002 Quarter, due to fixed asset purchases placed in service during the period.



Equity in Net Earnings (Losses) of Affiliates.    In the 2003 Quarter, EBITDA from unconsolidated companies was
$4.7 million, operating income was $3.1 million and net income was $2.5 million. In the 2003 Quarter, our 20 percent share of the operating results of the Rainbow Media cable channels, which were acquired on April 2, 2001 (our interest in the Bravo
cable channel was later sold on December 5, 2002), contributed EBITDA and operating income of $6.0 million and net income of $4.8 million. In the 2002 Quarter, EBITDA from unconsolidated companies was $2.8 million, operating losses were $7.3
million and net losses were $6.8 million (including amortization of goodwill of $9.5 million).



Interest Expense, Net of Amounts Capitalized.    Net interest expense in the 2003 Quarter increased by
$1.9 million, or 12 percent, to $17.9 million, as compared to the 2002 Quarter, primarily due to additional borrowings associated with the refinancing of our credit arrangements in June 2002.



Interest and Other Income,
Net.    Interest and other income in the 2003 Quarter increased by $2.6 million, or 376 percent, to $3.3 million, as compared to the 2002 Quarter due to increased interest income earned on our short-term
investments. We had significantly higher average invested cash balances in the 2003 Quarter than in the 2002 Quarter, principally due to the refinancing of our credit facilities in June 2002 and the proceeds received from the sale of Bravo on
December 5, 2002 for $250 million as well as the receipt of $40 million in dividends from the Rainbow Media cable channels.



Income Tax Provision.    The provision for income taxes in the 2003 Quarter increased by $2.5 million, or
114 percent, to $4.6 million, as compared to the 2002 Quarter, principally due to foreign remittance taxes attributable to increased international distribution revenues.



Liquidity and Capital Resources



General.    Our operations are capital intensive. In recent years we have funded
our operations primarily from (a) the sale of equity securities, (b) bank borrowings and (c) internally generated funds. During the 2003 Quarter, the net cash provided by operating activities was $108.3 million, which included spending associated
with film and television production and distribution costs of $201.9 million; net cash used by investing activities was $25.9 million, which included the purchase of $30.2 million of short-term investments, $3.9 million in property and
equipment purchases and $1.8 million in affiliate advances, partially offset by the receipt of $10.0 million in dividends from affiliates; and net cash used by financing activities was $36.4 million, including the acquisition of treasury shares
under our repurchase program of $36.1 million and net repayments of bank borrowings of $0.3 million.



Sale of Equity Interest in Bravo.    On December 5, 2002, we sold our 20 percent ownership interest in Bravo to
an affiliate of the National Broadcasting Company for $250.0 million cash.



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Treasury
Stock.    On July 26, 2002, we announced a share repurchase program authorizing the purchase of up to 10,000,000 shares of our common stock. We intend to fund the repurchase program from available cash on hand. As of March
31, 2003, we had repurchased 6,271,300 shares of common stock at an aggregate cost of $68.8 million.



Bank Borrowings.    On June 11, 2002, we successfully renegotiated our pre-existing credit facility with a
syndicate of banks resulting in a $1.75 billion third amended and restated syndicated credit facility consisting of (a) a five-year $600.0 million revolving credit facility, (b) a five-year $300.0 million term loan and (c) a six-year $850.0 million
term loan. As of April 23, 2003, $579.9 million, including commercial letters of credit, was available under our credit facility. Additionally, as of April 23, 2003, we have cash on hand of approximately $653 million.



Currently, the revolving facility and the $300.0 million
five-year term loan bear interest at 2.75 percent over the Adjusted LIBOR rate, as defined therein (4.07 percent at April 23, 2003), and the $850.0 million six-year term loan bears interest at 3.00 percent over the Adjusted LIBOR rate (4.32 percent
at April 23, 2003). 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 $550.0 million at an average rate of approximately 5.96 percent, which expire in July
2003. Because these swap agreements carry interest rates that currently exceed our borrowing rates under our credit facilities, we will recognize additional interest costs, which will be charged against future earnings.



As of April 23, 2003, the term loans had an outstanding
balance of $1.15 billion. Scheduled amortization of the term loans under our credit facility is as follows: $16.4 million in 2003, $65.6 million in each of 2004, 2005 and 2006, $122.8 million in 2007, and $813.9 million in 2008. The revolving
facility matures on June 30, 2007.



Our credit
facility contains various covenants, including limitations on indebtedness, dividends and capital expenditures, and maintenance of certain financial ratios. 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 (or a maximum
aggregate amount of $300.0 million in the event that Metro-Goldwyn-Mayer Studios Inc. elects to release its entire investment in the cable channels from the loan collateral, as permitted under the credit facility). As of March 31, 2003, $73.8
million was loaned to MGM by MGM Studios to fund the purchase of treasury stock by MGM. Restricted net assets of Metro-Goldwyn-Mayer Studios Inc. and Orion Pictures Corporation at March 31, 2003 are approximately $1.9 billion. Although we are in
compliance with all terms of our credit facility, 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 in Operating
Activities.    In the 2003 Quarter, cash provided by operating activities was $108.3 million compared to cash used in operating activities of $45.1 million in the 2002 Quarter. The improvement in operating cash flows in
2003 reflected increased theatrical and home entertainment distribution receipts, which were partially offset by film and television production and distribution costs, which aggregated $201.9 million in 2003 as compared to $165.4 million in 2002.



Cash Used in Investing
Activities.    In the 2003 Quarter, cash used in investing activities was $25.6 million, which included the purchase of short-term investments of $30.2 million, advances to affiliates of $1.8 million and property
and equipment purchases of $3.9 million, which were partially offset by cash dividends of $10.0 million received from Rainbow Media. In the 2002 Quarter, cash used in investing activities was $5.4 million, which included advances to
affiliates of $3.0 million and property and equipment purchases of $2.4 million.



Cash Provided by Financing Activities.    In the 2003 Quarter, cash used in financing activities was $36.4 million, which included the cost of acquisition of treasury
stock of $36.1 million and net repayments of



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##### Table of Contents

bank borrowings of $0.3 million. In the 2002 Quarter, cash provided by financing activities was $51.9 million, consisting of $165.3
million in net proceeds from the sale of equity securities as well as $75.0 million of bank borrowings, partially offset by $188.5 million in repayments of borrowed funds.



Commitments.    Future minimum annual commitments under bank and other debt
agreements, non-cancelable operating leases, employment agreements, creative talent agreements and commercial letters of credit as of March 31, 2003 are as follows (in thousands, unaudited):



|                           |  | 2003 |         | 2004 |   | 2005    |  | 2006 |        | 2007 |   | Thereafter |  | Total
|-------------------------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------ | ---- | - | ---------- |  | -----
|Bank and other debt        |  | $    | 22,213  |      | $ | 66,308  |  | $    | 65,643 |      | $ | 65,643     |  | $    
|Operating leases           |  |      | 15,887  |      |   | 24,611  |  |      | 24,988 |      |   | 25,493     |  |      
|Employment agreements      |  |      | 31,221  |      |   | 24,229  |  |      | 7,390  |      |   |           |  |      
|Creative talent agreements |  |      | 44,135  |      |   | 5,653   |  |      | 733    |      |   | 32         |  |      
|Letters of credit          |  |      | 20,038  |      |   | 90      |  |      |       |      |   |           |  |      
|                           |  |      |         |      |   |         |  |      |        |      |   |            |  |      
|Total                      |  | $    | 133,494 |      | $ | 120,891 |  | $    | 98,754 |      | $ | 91,168     |  | $    
|                           |  |      |         |      |   |         |  |      |        |      |   |            |  |      



We do
not expect our obligations for property and equipment expenditures, including the purchase of computer systems and equipment and leasehold 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 $25.25 million. We have funded approximately $24.8 million under such obligation as of March 31, 2003.



We are committed to fund our share of the operating expenses of certain joint ventures, as required.



Anticipated Needs.    Our current
strategy and business plan call for substantial ongoing 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. Currently, we would require additional sources of financing if we decided to
make any additional significant investments in new distribution channels.



We believe that the amounts available under the revolving facility, from cash on hand and from operating cash flow will be adequate for us to conduct our operations in accordance with our business plan for at least the next
12 months. This belief is based in part on the assumption that our future releases will perform as planned. Any significant decline in the performance of our films could adversely impact our cash flows and require us to obtain additional sources of
funds. 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 consider either growing
into or becoming part of a larger, vertically integrated organization. In connection with our pursuit of these options, 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.





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##### Table of Contents

|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. Accordingly, we have entered into several interest 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 currently outstanding expire in July 2003. We will continue to evaluate strategies to manage the impact of
interest rate changes on earnings and cash flows.



As of April 23, 2003, $600.0 million of our term debt was exposed to interest rate risk.



The following table provides information about our interest rate swaps outstanding at March 31, 2003:



|                                           |  | Amounts Scheduled for Maturity forthe Year Ending
December 31, 2003 |         |   | Estimated Fair Value at March 31, 2003 |  
|------------------------------------------ |  | ------------------------------------------------------------------- | ------- | - | -------------------------------------- | -
|Interest Rate Swaps:                       |  |                                                                     |         |   |                                        |  
|Variable to fixed (expiring in July 2003): |  |                                                                     |         |   |                                        |  
|Notional value (in thousands)              |  | $                                                                   | 550,000 |   |                                        | $
|Average pay rate                           |  |                                                                     | 5.959   | % |                                        |  
|Spot rate                                  |  |                                                                     | 1.340   | % |                                        |  



We are
subject to market risks resulting from fluctuations in foreign currency exchange rates because approximately 25 percent of our revenues are denominated, and we incur certain operating and production costs, in foreign currencies. 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. The following table provides information about our foreign currency forward contracts outstanding at March 31, 2003:



|                                                      |  | Amounts Scheduled for Maturity for the Year
Ending December 31, 2003 |        | Estimated Fair Value at March 31, 2003
|----------------------------------------------------- |  | -------------------------------------------------------------------- | ------ | --------------------------------------
|Foreign Currency Forward Contracts:                   |  |                                                                      |        |                                       
|Contract amount (in thousands) (receive CAD, pay $US) |  | $                                                                    | 14,424 |                                       
|Spot rate                                             |  |                                                                      | 1.4837 |                                       
|Forward rate                                          |  |                                                                      | 1.4681 |                                       



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------

Based on their evaluation, as of a date within 90 days of the filing date of this
Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. There
have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.



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PART II.    OTHER INFORMATION



Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits



|Exhibit No. |  | Document Description                                                                                                         
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------
|10.1        |  | Employment Agreement of Daniel J. Taylor dated as of March 15,
2003                                                          
|           
|10.2        |  | Employment Agreement of Jay Rakow dated as of March 15, 2003                                                                 
|           
|99.1        |  | Certification of CEO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|           
|99.2        |  | Certification of CFO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



(b)Reports on Form 8-K



|Date             |  | Relating to              
|---------------- |  | -------------------------
|January 21, 2003 |  | Item 5. Other Information



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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.



|April 25, 2003 |  | METRO-GOLDWYN-MAYER
INC.
|-------------- |  | ------------------------
|              
|               |  | By:                     
|               |  |                         
|              
|               |  | By:                     
|               |  |                         





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CERTIFICATIONS



I, Alex Yemenidjian, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Metro-Goldwyn-Mayer Inc.;
| | -- |  | -------------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date:    April | 25, 2003
|-------------- | --------



/s/    ALEX
YEMENIDJIANAlex Yemenidjian Chief Executive Officer




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I, Daniel J. Taylor, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Metro-Goldwyn-Mayer Inc.;
| | -- |  | -------------------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
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| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
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| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
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| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
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| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
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| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
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| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
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| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
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| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
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| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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|Date:    April | 25, 2003
|-------------- | --------



/s/    DANIEL J.
TAYLORDaniel J. Taylor Chief Financial Officer




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