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MGM HOLDINGS INC.

For the quarter ended September 30, 2015

Delaware(State or other jurisdiction of incorporation or organization)

245 North Beverly DriveBeverly Hills, California 90210

(Address of corporate headquarters)

Telephone number, including area code: (310) 449-3000

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Table of Contents

Company Background and Business Overview 3

Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) andDecember 31, 2014 9

Condensed Consolidated Income Statements for the three and nine months endedSeptember 30, 2015 (unaudited) and 2014 (unaudited) 10

Condensed Consolidated Statements of Comprehensive Income for the three and nine months endedSeptember 30, 2015 (unaudited) and 2014 (unaudited) 11

Condensed Consolidated Statement of Stockholders’ Equity for the nine months endedSeptember 30, 2015 (unaudited) 12

Condensed Consolidated Statements of Cash Flows for the nine months endedSeptember 30, 2015 (unaudited) and 2014 (unaudited) 13

Notes to Unaudited Condensed Consolidated Financial Statements 14

Management’s Discussion & Analysis of Financial Condition and Results of Operations 27

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Forward-Looking Statements

This report contains forward-looking statements. In some cases you can identify these statements byforward-looking words such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,”“goal,” “intends,” “may,” “objective,” “plans,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” andvariations of these words and similar expressions. These forward-looking statements include, but are not limited to,statements concerning the following:

our ability to predict the popularity of our films or television content, or predict consumer tastes;

our ability to exploit emerging and evolving technologies, including alternative forms of delivery andstorage of content;

our ability to finance and co-produce films and television content;

increased costs for producing and marketing feature films and television content;

our ability to acquire film and television content on favorable terms;

our ability to exploit our library of film and television content;

our financial position and sources of revenue;

our liquidity and capital expenditures;

inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, or other rates orprices; and

trends in the entertainment industry.

You should not rely upon forward-looking statements as predictions of future events. Although we believethat the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that the futureresults, levels of activity, performance or events and circumstances reflected in the forward-looking statements willbe achieved or occur.

You should read this report with the understanding that our actual future results, levels of activity,performance and events and circumstances may be materially different from what we expect. We do not intend, andundertake no obligation, to update any forward-looking information to reflect actual results or future events orcircumstances, except as required by law. Moreover, we operate in a very competitive and changing environment.New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess theimpact of all factors on our business or the extent to which any factor, or combination of factors, may cause actualfuture results, levels of activity, performance and events and circumstances to differ materially and adversely fromthose anticipated or implied in the forward-looking statements.

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Company Background and Business Overview

Overview

MGM Holdings Inc. (“MGM Holdings,” the “Company,” “we,” “us,” or “our”) is a leading entertainmentcompany focused on the global production and distribution of film and television content. We have one of the mostwell-known brands in the industry with globally recognized film franchises and television content, a broadcollection of valuable intellectual property and commercially successful and critically acclaimed content.

We have historically generated revenue from the exploitation of our content through traditional distributionplatforms, including theatrical, home entertainment and television, with an increasing contribution from digitaldistribution platforms in existing and emerging markets. We also generate revenue from the licensing of our contentand intellectual property rights for use in consumer products and interactive games, as well as various otherlicensing activities. Our operations include the development, production and financing of feature films andtelevision content and the worldwide distribution of entertainment content primarily through television and digitaldistribution. In addition, we currently own or hold interests in MGM-branded channels in the United States (“U.S.”)and Germany, as well as interests in pay television networks in the U.S. and Brazil.

We control one of the deepest libraries of premium film and television content. Our film library includesthe James Bond, Hobbit, Rocky, RoboCop, Pink Panther and 21 Jump Street franchises, as well as Silence of theLambs, Magnificent Seven, Westside Story, and Four Weddings and a Funeral. Our television library includesStargate SG-1, which was one of the longest running science fiction series in U.S. television history, StargateAtlantis, Stargate Universe, Vikings, Fargo, Fame, American Gladiators, Teen Wolf and In the Heat of the Night.

In September 2014, we acquired a 55% interest in UAMG, LLC (“United Artists Media Group” or“UAMG”), a joint venture with Mark Burnett, Roma Downey and Hearst Productions that develops, produces andfinances premium television and feature film content for distribution across all platforms. United Artists MediaGroup is a proven leader in the production of high quality television content and faith-based programming. Thisincludes a number of successful, unscripted television shows such as The Voice, Survivor, Apprentice, Shark Tank,and Are You Smarter than a Fifth Grader?, as well as two scripted television series, The Bible and A.D.: The BibleContinues, and a theatrical feature film, Son of God. UAMG has several projects in various stages of development,production and release. We also have a distribution agreement whereby we acquired distribution rights to currentand future UAMG content.

Business

Production of film and television content

We are involved in the development, production and co-production of film and television content, andtypically participate with third parties in various co-production arrangements to produce, co-finance and distributeour content. We have several internally-developed feature films in various stages of production and post-production, including, but not limited to, a new chapter of the Rocky franchise entitled Creed, Ben Hur, Barbershop:The Next Cut, Me Before You and The Magnificent Seven. In addition, Spectre, the 24th installment of the JamesBond franchise, commenced its theatrical distribution on October 26, 2015 in the United Kingdom and November 6,2015 in the United States.

We have an agreement with New Line Cinema, a subsidiary of Warner Bros. Entertainment Inc. (“WarnerBros.”), whereby we co-produced 50% of each of three films based on J.R.R. Tolkien’s novel, The Hobbit, a bookwhich has sold more than 100 million copies worldwide. The films in this trilogy, The Hobbit: An UnexpectedJourney, The Hobbit: The Desolation of Smaug and The Hobbit: The Battle of the Five Armies, were releasedtheatrically in December 2012, December 2013 and December 2014, respectively. In addition, we have co-production agreements with Paramount Pictures Corporation (including affiliates thereof, “Paramount”), SonyPictures Entertainment, Inc. (“Sony”), 20th Century Fox Film Corporation (“20th Century Fox”) and Warner Bros.

We have several television series that we are co-producing or distributing. Teen Wolf, which we are co-producing with an affiliate of MTV Networks, began airing its fifth season in June 2015 and was renewed by MTV

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Networks for a sixth season that is anticipated to air in 2016. Additionally, we control distribution rights on aworldwide basis (excluding Canada) to the television series Vikings. The third season of Vikings began its initialU.S. broadcast on A&E Television Networks’ History channel in February 2015 and based on its strong ratings wasrenewed for a fourth season that is anticipated to air in 2016. The first season of Fargo completed its initial U.S.broadcast on FX in June 2014 and won three Emmy awards including Outstanding Miniseries and two GoldenGlobe awards including Best Mini-Series. FX renewed Fargo for a second season that began airing in October 2015.Lauren Lake’s Paternity Court, our nationally syndicated courtroom show, began airing its third season inSeptember 2015.

We continue to seek and evaluate additional co-production, production and distribution opportunities withour existing partners and potential new partners globally.

Distribution of film and television content

Theatrical Distribution

We participate with third parties in various arrangements to distribute feature films theatrically. Thesearrangements allow us to distribute new releases by utilizing third parties, generally major studios, to book theatersand execute marketing campaigns and promotions in return for distribution fees. While third parties providetheatrical distribution services on a film-by-film basis, we often have significant involvement in the decision processregarding key elements of distribution, such as the creation of marketing campaigns and the timing of the filmrelease schedule, allowing our experienced management team to provide key input in the critical marketing anddistribution strategies while avoiding the high fixed-cost infrastructure required for physical distribution. Generally,our co-production partner provides theatrical distribution services and for certain films in certain territories weutilize the services of other distributors. To date, we have released 5 of the 6 feature films we plan to theatricallyrelease in 2015, which are summarized in the following table.

Home Entertainment Distribution

Home entertainment distribution includes the sales, marketing and promotion of content for physicaldistribution (DVD and Blu-ray discs) and electronic sell-through (“EST”). Fox Home Entertainment (“Fox”)provides our physical home entertainment distribution under a distribution services agreement. This distributionservices agreement covers the worldwide distribution (excluding certain territories) of a substantial number of ourfeature films and television content, including Spectre, Skyfall, Carrie, RoboCop, If I Stay, Vikings, Teen Wolf andA.D.: The Bible Continues, as well as certain of our EST distribution rights for our feature film and televisioncontent. In consideration for its distribution services, Fox receives a variable distribution fee based on receipts. Thedistribution agreement expires on June 30, 2016. In addition, for certain of our co-produced feature films, we usethe physical home entertainment distribution services of our co-production partners. For example, Sony is the homeentertainment distributor for 22 Jump Street and 21 Jump Street, Warner Bros. is the home entertainment distributorfor The Hobbit trilogy, Hot Pursuit and Max, Fox is the home entertainment distributor for Poltergeist andParamount is the home entertainment distributor for Hot Tub Time Machine 2.

As with theatrical distribution, while we use the physical distribution services of third parties, we oftenhave significant involvement in the decision-making process regarding key elements of distribution. Under the Fox

Title

Co-production

Partner

Actual or Estimated

U.S. Release Date

Hot Tub Time Machine 2 Paramount February 20, 2015

Hot Pursuit Warner Bros. May 8, 2015

Poltergeist 20th Century Fox May 22, 2015

Max Warner Bros. June 26, 2015

Spectre (Bond 24) Sony October 26, 2015 (U.K.)

November 6, 2015 (U.S.)

Creed (Rocky franchise) Warner Bros. November 25, 2015

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distribution services agreement we maintain control over the creation of marketing campaigns, pricing levels and thetiming of releases, allowing our experienced management team to provide key input in the critical marketing anddistribution strategies while avoiding the high fixed-cost infrastructure required for physical home entertainmentdistribution.

Industry revenue from the physical home entertainment market continues to decline due to changes inconsumer preferences and behavior, increased competition and pricing pressure. However, consumers areincreasingly viewing content on an on-demand or time-delayed basis on televisions (via set-top boxes, Blu-rayplayers, gaming consoles and other media devices), personal computers, and handheld and mobile devices. As aresult, we continue to see growth in subscription video-on-demand (“SVOD”), EST and other forms of electronicdelivery and streaming services (see Television Distribution below) across a broad range of platforms. These digitalformats typically have a higher margin than physical formats, largely due to the expense associated with theproduction, packaging and delivery of physical media relative to digital distribution.

Television Distribution

We have an in-house television licensing and distribution organization. We license our content for VOD,pay-per-view (“PPV”), and pay and free television exploitation under various types of licensing agreements withcustomers worldwide. In the VOD and PPV markets, we license content to providers that allow subscribers to rentindividual programs, including recent theatrically released films, on a per exhibition basis. In the pay televisionmarket, we license content to channels globally that generally require subscribers to pay a premium fee to view thechannel. In the pay and free television markets, we license theatrically released films and television content,including recently released and library content, on an individual basis and through output agreements. Outputagreements typically require the channel to license a set number of recently released films over a multi-year periodwith payments based on U.S. or international theatrical box office performance metrics. We are continuallyestablishing output agreements with digital platforms throughout the world.

In addition, we license film and television content across a broad range of digital platforms that use variousmeans of delivering content to consumers electronically, including SVOD streaming services, such as Netflix,Amazon and Hulu, transactional VOD distribution via cable, satellite, IP television systems and online services, ad-supported VOD services and gaming consoles. We believe future increases in broadband penetration to consumerhouseholds, shifting consumer preferences for on-demand content across multiple platforms and devices, as well asthe continued expansion of SVOD platforms internationally will provide growth in this revenue.

MGM Channels

We distribute feature films and television content to audiences in the U.S. and certain internationalterritories through our wholly-owned and joint venture television channels. Currently, we own MGM-brandedchannels in the U.S. and Germany, as well as ThisTV, a digital broadcast network, Impact, a VOD service availableto Comcast subscribers, and The Works, a domestic digital terrestrial broadcast channel. On October 31, 2015,together with Sinclair Broadcasting, we launched Comet TV, a new sci-fi domestic digital broadcast networkfeaturing MGM content.

Ancillary Businesses

We license film and television content and other intellectual property rights for use in interactive gamesand consumer products. Prominent properties that we license in this regard include James Bond, Pink Panther,Stargate, Rocky, and RoboCop.

We also control music publishing rights to various compositions featured in our film and television content,as well as the soundtrack, master use and synchronization licensing rights to many properties. We exploit theserights through third-party licensing of publishing, soundtrack, master use and synchronization rights, and have anagreement with Sony/ATV under which Sony/ATV administers such licensing.

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We license film clips, still images, and other elements from our film and television content for use inadvertisements, feature films and other forms of media. We also license rights to certain properties for use in on-stage productions.

Joint Ventures

United Artists Media Group. In September 2014, we acquired a 55% interest in United Artists MediaGroup, a joint venture with Mark Burnett, Roma Downey and Hearst Productions that develops, produces andfinances premium television and feature film content across all platforms. United Artists Media Group is a provenleader in the production of high quality television content and faith-based programming. This includes a number ofsuccessful, unscripted television shows such as The Voice, Survivor, Apprentice, Shark Tank, and Are You Smarterthan a Fifth Grader?, as well as two scripted television series, The Bible and A.D.: The Bible Continues, and atheatrical feature film, Son of God. UAMG has several projects in various stages of development, production andrelease. We also have a distribution agreement whereby we acquired distribution rights to current and futureUAMG content.

For financial reporting purposes, we do not consolidate United Artists Media Group, but rather account forour investment using the equity method of accounting. Our share of the net income of UAMG is recorded as part ofequity in net earnings of affiliates in our consolidated income statement, and is reduced by amortization expensesince the equity method of accounting requires us to amortize a portion of our investment over time. Refer to thediscussion in Critical Accounting Policies and Estimates below for additional information regarding theamortization of the UAMG Basis Increase. The following table summarizes (i) UAMG’s net income, (ii) MGM’sshare of UAMG’s net income, (iii) the amortization expense required by the equity method of accounting, and(iv) cash dividends received from UAMG, for the nine months ended September 30, 2015 and the period fromSeptember 22, 2014 (the acquisition date) through December 31, 2014 (in thousands).

Studio 3 Partners, LLC (Epix). We have a 19.09% equity investment in Studio 3 Partners, LLC, a jointventure with Viacom Inc. (“Viacom”), Paramount and Lions Gate Entertainment Corp (“Lions Gate”) that operatesEpix, a premium television channel and SVOD service. Epix licenses first-run films, select library features andtelevision content from these studio partners as well as other content providers, and in May 2015, Epix announcedthat it will produce and air original scripted series. Epix is not consolidated in our financial statements. Our shareof the net income of Epix is recorded using the equity method of accounting, and dividends received from Epix arerecorded against investments in affiliates in the consolidated balance sheet and included in undistributed earnings ofaffiliates in cash flow from operating activities in the consolidated statement of cash flow. The following tablesummarizes (i) MGM’s share of the net income of Epix, (ii) the adjustment related to MGM profits recorded oncontent licenses to Epix, and (iii) cash dividends received from Epix for the nine months ended September 30, 2015and the year ended December 31, 2014 (in thousands).

Nine Months

Ended

September 30,

September 22

through

December 31,

2015 2014

UAMG net income................................................................... 35,276$ 24,855$

MGM share of UAMGnet income........................................ 19,047$ 14,000$

Less: Amortization of UAMGBasis Increase...................... (12,426) (4,720)

MGM net equity income......................................................... 6,621$ 9,280$

Cash dividends received from UAMG.................................. 21,822$ -$

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Telecine Programacao de Filmes Ltda. We have an equity investment in Telecine Programacao de FilmesLtda. (“Telecine”), a joint venture with Globo Comunicacao e Participacoes S.A. (“Globo”), Paramount, 20th

Century Fox and NBC Universal, Inc. that operates a pay television network in Brazil. Telecine is not consolidatedin our financial statements and we do not record our share of the net income of Telecine in our financial statementssince we use the cost method of accounting for our investment. As such, we recognize income from our investmentin Telecine when we receive dividends.

Cost Method Investments. Equity in net earnings of affiliates in our unaudited condensed consolidatedincome statement for the nine months ended September 30, 2015 and 2014 included $2.8 million and $4.2 million,respectively, of dividend income from cost method investments. For the year ended December 31, 2014, equity innet earnings of affiliates included $8.6 million of dividend income from cost method investments.

Corporate Information

MGM Holdings is a Delaware corporation and is the ultimate parent company of the MGM family ofcompanies, including its subsidiary Metro-Goldwyn-Mayer Inc. (“MGM”).

Our corporate headquarters is located at 245 North Beverly Drive, Beverly Hills, California 90210 and ourtelephone number at that address is (310) 449-3000. Our website address is www.mgm.com.

At September 30, 2015, 51,237,232 of aggregate shares of Class A and Class B common stock, par value$0.01 per share, were reported in our condensed consolidated balance sheet. This reflected 52,137,106 of aggregateoutstanding shares net of commitments to repurchase 899,874 shares of Class A common stock that were, or will be,paid in the fourth quarter of 2015. The transfer agent and registrar for our common stock is Computershare. Contactand additional information regarding Computershare can be found at www.computershare.com/Investor.

Facilities

We lease approximately 151,000 square feet of office space, as well as related parking and storagefacilities, for our corporate headquarters in Beverly Hills, California under a lease that expires in 2026. We alsohave television distribution offices in Toronto, London, Sydney and Munich. On occasion, we may lease studiofacilities and stages from unaffiliated parties. Such leases are generally on an as-needed basis in connection with theproduction of specific feature film and television projects.

Chief Executive Officer and the Board of Directors

Gary Barber is the Chairman and Chief Executive Officer of MGM and a member of the Board of Directorsof MGM Holdings. The other members of the seven-member Board of Directors of MGM Holdings are Ann Mather(Lead Director), James Dondero, Jason Hirschhorn, Fredric Reynolds, Nancy Tellem and Kevin Ulrich. As ofSeptember 30, 2015, Anchorage Capital Partners, Highland Capital Partners and Solus Alternative AssetManagement each individually, or together with their affiliated entities, owned more than 10% of the issued andoutstanding shares of common stock of MGM Holdings. Anchorage Capital Partners and Highland Capital Partnerseach have a designee on our Board of Directors, Kevin Ulrich and James Dondero, respectively.

Nine Months

Ended

September 30,

Year Ended

December 31,

2015 2014

MGM share of Epixnet income.............................................. 27,387$ 22,678$

Adjustment for profits on content licenses to Epix............ 451 (494)

MGM equity income................................................................ 27,838$ 22,184$

Cash dividends received from Epix........................................ -$ 8,591$

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Affiliation with a Broker-Dealer

MGM Holdings is not affiliated, directly or indirectly, with any broker-dealer or any associated person of abroker-dealer.

September 30, December 31,2015 2014

AssetsCash and cash equivalents 286,369$ 257,476$Accounts and contracts receivable (net of allowance for

doubtful accounts of $13,802 and $15,687, respectively) 402,326 384,990Film and television costs, net 1,666,718 1,485,181Investments in affiliates 453,059 436,446Property and equipment, net 15,856 15,511Other intangible assets, net 183,459 191,672Other assets 16,908 16,412Total assets 3,024,695$ 2,787,688$

Liabilities and stockholders’ equityLiabilities:

Corporate debt 300,000$ 300,000$Accounts payable and accrued liabilities 248,245 51,764Accrued participants’ share 253,983 219,040Current and deferred income taxes payable 398,307 446,576Advances and deferred revenue 94,525 56,155Other liabilities 17,473 20,154

Total liabilities 1,312,533 1,093,689

Commitments and contingencies

Stockholders’ equity:Class A common stock, $0.01 par value, 110,000,000 shares authorized, 760 757

75,976,457 and 75,705,899 shares issued, respectivelyand 51,209,579 and 53,700,025 shares outstanding, respectively,

Class B common stock, $0.01 par value, 110,000,000 shares authorized, – 127,653 and 82,566 shares issued, respectivelyand 27,653 and 82,566 shares outstanding, respectively

Additional paid-in capital 2,009,004 1,996,912Retained earnings 666,351 448,475Accumulated other comprehensive loss (1,163) (4,660)Treasury stock, at cost, 24,766,878 and 22,005,874 shares, respectively (962,790) (747,486)

Total stockholders’ equity 1,712,162 1,693,999Total liabilities and stockholders’ equity 3,024,695$ 2,787,688$

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Consolidated Balance Sheets(Unaudited, in thousands, except share data)

MGM Holdings Inc.

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2015 2014 2015 2014

Revenue 212,131$ 233,472$ 850,842$ 885,587$

Expenses:Operating 118,372 132,923 483,099 522,804Distribution and marketing 24,930 25,898 105,983 105,747General and administrative 27,253 25,019 79,546 74,232Depreciation and non-film amortization 4,530 3,912 12,929 11,549

Total expenses 175,085 187,752 681,557 714,332

Operating income 37,046 45,720 169,285 171,255

Other income (expense):Equity in net earnings of affiliates 5,964 5,049 37,285 20,727Interest expense:

Contractual interest expense (5,144) (5,177) (15,490) (8,227)Amortization of deferred financing costs

and other interest costs (827) (817) (2,493) (2,062)Interest income 3,042 829 4,708 2,305Other income, net 824 1,480 1,002 1,675

Total other income 3,859 1,364 25,012 14,418

Income before income taxes 40,905 47,084 194,297 185,673

Income tax benefit (provision) 83,102 (18,497) 23,579 (71,727)Net income 124,007$ 28,587$ 217,876$ 113,946$


MGM Holdings Inc.

Nine Months Ended September 30,

(Unaudited,in thousands)Consolidated Income Statements

Three Months Ended September 30,

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2015 2014 2015 2014

Net income 124,007$ 28,587$ 217,876$ 113,946$

Other comprehensive income (loss), net of tax:Unrealized loss on securities (32) (31) (31) (27)Unrealized gain (loss) on derivative instruments 808 (223) 4,320 (555)Retirement plan adjustments 11 (71) 51 (212)Foreign currency translation adjustments (2,088) (905) (843) 1,169

Other comprehensive income (loss) (1,301) (1,230) 3,497 375

Comprehensive income 122,706$ 27,357$ 221,373$ 114,321$


Nine Months Ended September 30,

MGM Holdings Inc.

Consolidated Statements of Comprehensive Income(Unaudited, in thousands)

Three Months Ended September 30,

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AccumulatedAdditional Other Total

Number Par Number Par Paid-in Retained Comprehensive Treasury Stockholders’of Shares Value of Shares Value Capital Earnings Income (Loss) Stock Equity

Balance, January 1, 2015 53,700,025 757$ 82,566 1$ 1,996,912$ 448,475$ (4,660)$ (747,486)$ 1,693,999$Issuance of common stock 215,645 2 – – (2) – – – –Purchase of treasury stock (2,761,004) – – – – – – (215,304) (215,304)Conversion of Class B to Class A stock 54,913 1 (54,913) (1) – – – – –Stock-based compensation expense – – – – 7,020 – – – 7,020Excess tax benefits from stock-based compensation – – – – 5,074 – – – 5,074Net income – – – – – 217,876 – – 217,876Other comprehensive loss – – – – – – 3,497 – 3,497

Balance, September 30, 2015 51,209,579 760$ 27,653 –$ 2,009,004$ 666,351$ (1,163)$ (962,790)$ 1,712,162$


MGM Holdings Inc.

Consolidated Statement of Stockholders’ Equity(Unaudited, in thousands, except share data)

Common Stock Class A Common Stock Class B

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2015 2014

Operating activitiesNet income 217,876$ 113,946$

Adjustments to reconcile net income to net cash provided by

operating activities:

Additions to film and television costs, net (417,882) (170,121)

Amortization of film and television costs 236,345 252,896

Depreciation and non-film amortization 12,929 11,549

Amortization of deferred financing costs 2,488 2,057

Stock-based compensation expense 7,020 8,826

Provision for doubtful accounts (1,762) (978)

Change in fair value of financial instruments (991) (1,735)Undistributed earnings of affiliates (12,632) (7,549)

Other non-cash expenses 48 (360)

Changes in operating assets and liabilities:

Accounts and contracts receivable (15,574) 8,533

Other assets 1,065 19,534

Accounts payable, accrued and other liabilities 127,935 14,230

Accrued participants’ share 34,943 34,435

Current and deferred income taxes payable (48,918) 58,886

Advances and deferred revenue 38,370 (8,116)

Net cash provided by operating activities 181,260 336,033

Investing activitiesInvestment in UAMG, including $2.4 million of transaction costs – (346,228)Investments in affiliates (4,000) (4,000)Sale of investments 19 5,892

Additions to property and equipment (5,061) (1,892)

Net cash used in investing activities (9,042) (346,228)

Financing activitiesAdditions to borrowed funds – 328,000

Repayments of borrowed funds – (133,000)

Issuance of common stock – 2,487

Excess tax benefits from stock-based compensation 5,074 –Purchase of treasury stock (145,764) (5,114)

Financing costs and other – (4,875)Net cash (used in) provided by financing activities (140,690) 187,498

Net change in cash and cash equivalents from operating, investing

and financing activities 31,528 177,303

Net decrease in cash due to foreign currency fluctuations (2,635) (842)

Net change in cash and cash equivalents 28,893 176,461

Cash and cash equivalents at beginning of period 257,476 41,959

Cash and cash equivalents at end of period 286,369$ 218,420$


NineMonths Ended September 30,

MGM Holdings Inc.

Consolidated Statements of Cash Flows(Unaudited, in thousands)

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MGM Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2015 and 2014

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Note 1—Organization, Business and Summary of Significant Accounting Policies

Organization. The accompanying unaudited condensed consolidated financial statements include the accounts of MGMHoldings Inc. (“MGM Holdings”), a Delaware corporation, and its direct, indirect and controlled majority-ownedsubsidiaries, including Metro-Goldwyn-Mayer Inc. (“MGM”), (collectively, the “Company”).

Business. The Company is a leading entertainment company. The Company’s operations include the development,production and financing of feature films and television content and the worldwide distribution of entertainment contentprimarily through television and digital distribution. The Company also distributes film and television content producedor financed, in whole or in part, by third parties. In addition, the Company currently owns or holds interests in MGM-branded channels in the United States and Germany, as well as interests in pay television channels in the United Statesand Brazil. The Company also generates revenue from the licensing of content and intellectual property rights for use inconsumer products and interactive games, as well as various other licensing activities.

Basis of Presentation and Principles of Consolidation. The accompanying unaudited condensed consolidated financialstatements have been prepared in accordance with accounting principles generally accepted in the United States forinterim financial statements. Accordingly, these financial statements do not include certain information and footnotesrequired by accounting principles generally accepted in the United States for complete financial statements. In theopinion of management, these financial statements contain all adjustments necessary for a fair presentation of thesefinancial statements. The balance sheet at December 31, 2014 has been derived from the audited financial statements atthat date but does not include all of the information and footnotes required by accounting principles generally acceptedin the United States for complete financial statements. The results of operations for interim periods are not necessarilyindicative of the results to be expected for the full year. These financial statements should be read in conjunction withthe Company’s audited financial statements and notes thereto for the year ended December 31, 2014.

As permitted under accounting guidance for producers and distributors of filmed entertainment, unclassified balancesheets have been presented. The Company’s investments in affiliates, over which the Company has significant influencebut not control, are accounted for using the equity method (see Note 5). All material intercompany balances andtransactions have been eliminated. Certain reclassifications have been made to amounts reported in the unauditedcondensed consolidated statement of cash flows for the nine months ended September 30, 2014 to conform to thecurrent presentation. This included a $15.3 million reclassification to net certain accounts receivable and accruedparticipants’ share.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity withaccounting principles generally accepted in the United States requires management to make estimates and assumptionsthat affect the amounts reported in the unaudited condensed consolidated financial statements and the related notesthereto. Management estimates certain revenue and expenses for film and television content, reserves for future productreturns from physical home entertainment distribution, allowances for doubtful accounts receivable and other itemsrequiring judgment. Management bases its estimates and assumptions on historical experience, current trends and otherfactors believed to be relevant at the time the unaudited condensed consolidated financial statements are prepared.Actual results may differ materially from those estimates and assumptions.

Subsequent Events. The Company evaluated, for potential recognition and disclosure, all activity and events thatoccurred through the date of issuance, November 11, 2015. Such review did not result in the identification of anysubsequent events that would require recognition in the unaudited condensed consolidated financial statements ordisclosure in the notes to these unaudited condensed consolidated financial statements.

MGM Holdings Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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Note 1—Organization, Business and Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) and International AccountingStandards Board issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers(“ASU 2014-09”), which supersedes the provisions of Accounting Standards Codification (“ASC”) Topic 650, RevenueRecognition, and most industry specific guidance throughout the Industry Topics of the Codification. The underlyingprincipal of ASU 2014-09 is that companies will recognize revenue to depict the transfer of goods or services tocustomers at an amount that the company expects to be entitled to in exchange for those goods or services. Companiescan choose to apply the provisions of ASU 2014-09 using the full retrospective approach or a modified approach, wherefinancial statements will be prepared for the year of adoption using the new standard but prior periods will not beadjusted. Under the modified approach, companies will recognize the cumulative effect of applying the new standard atthe date of initial application. ASU 2014-09 will be effective for the Company on January 1, 2018 and for annual andinterim periods thereafter, with early adoption permitted no earlier than January 1, 2017. The Company is in the processof determining the method of adoption, as well as evaluating the impact that the new standard will have on itsconsolidated financial statements.

Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-22, Simplifying the Presentation of Debt IssuanceCosts, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as adirect deduction from the liability rather than as an asset. The application of ASU 2015-22 affects only the presentationof debt issuance costs, and therefore does not change how amounts are recognized and measured in the consolidatedfinancial statements. ASU 2015-22 will be effective for the Company on January 1, 2016 and for annual and interimperiods thereafter, with early adoption permitted. The Company plans to adopt this new presentation on January 1, 2016on a retrospective basis for all periods presented in the consolidated financial statements. The adoption of thispresentation will result in a reclassification of certain amounts included in other assets to corporate debt in theconsolidated balance sheets.

Note 2—Other Intangible Assets

The Company has other non-film intangible assets totaling $183.5 million, net of accumulated amortization, of whichnone are expected to be deductible for tax purposes. These other intangible assets include $141.5 million of identifiableintangible assets subject to amortization, consisting primarily of certain operating agreements with remaining usefullives ranging from less than 1 to 26 years. Additionally, trade name-related assets, valued at $42.0 million, wereidentified and determined to have indefinite lives. During each of the three months ended September 30, 2015 and 2014,the Company recorded amortization of identifiable intangible assets of $2.7 million, and during each of the nine monthsended September 30, 2015 and 2014, the Company recorded amortization of identifiable intangible assets of $8.2million. Amortization of other intangible assets is included in depreciation and non-film amortization in the unauditedcondensed consolidated income statements.

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Note 3—Film and Television Costs

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


Theatrical productions:Released $ 1,019,261 $ 1,177,565Completed not released – 1,040In production 432,374 135,894In development 6,229 3,650

Total theatrical productions 1,457,864 1,318,149

Television programs:Released 151,109 145,430Completed not released – –In production 57,005 21,380In development 740 222

Total television programs 208,854 167,032

$ 1,666,718 $ 1,485,181

Based on the Company’s estimates of projected gross revenue as of September 30, 2015, approximately 22% ofcompleted film and television costs are expected to be amortized over the next 12 months. Approximately 85% ofunamortized film and television costs for released titles, excluding costs accounted for as acquired film and televisionlibraries, are expected to be amortized over the next three fiscal years.

As of September 30, 2015 and December 31, 2014, unamortized film and television costs accounted for as acquired filmand television libraries were $0.9 billion and $1.0 billion, respectively. The Company’s film and television costsaccounted for as acquired film and television libraries are being amortized under the individual film forecast method inorder to properly match the expected future revenue streams and have an average remaining life of approximately 10years as of September30, 2015.

During the nine months ended September 30, 2015 and 2014, the Company recorded $6.9 million and $12.7 million,respectively, of fair value adjustments to certain titles included in film and television costs. These fair value adjustmentswere included in operating expenses in the unaudited condensed consolidated income statements. The estimated fairvalues were calculated using Level 3 inputs, as defined in the fair value hierarchy, including long-range projections ofrevenue, operating and distribution expenses, and a discounted cash flow methodology using discount rates based on aweighted-average cost of capital.

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Note 4—Fair Value Measurements

A fair value measurement is determined based on the assumptions that a market participant would use in pricing anasset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on(i) observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1), (ii) inputs otherthan quoted prices for similar assets or liabilities in active markets that are observable either directly or indirectly(Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques inthe determination of fair value (Level 3). The following table presents information about the Company’s financial assetsand liabilities carried at fair value on a recurring basis at September 30, 2015 (in thousands):

Fair Value Measurements at September 30, 2015 using

Description Balance Level 1 Level 2 Level 3Assets:

Cash equivalents $ 191,920 $ 191,920 $ – $ –Investments 739 739 – –Financial instruments 3,106 – 3,106 –

Liabilities:Deferred compensation plan (739) (739) – –

Total $ 195,026 $ 191,920 $ 3,106 $ –

The following table presents information about the Company’s financial assets and liabilities carried at fair value on arecurring basis at December 31, 2014 (in thousands):

Fair Value Measurements at December 31, 2014 using

Description Balance Level 1 Level 2 Level 3Assets:

Cash equivalents $ 167,246 $ 167,246 $ – $ –Investments 770 770 – –

Liabilities:Financial instruments (3,643) – (3,643) –Deferred compensation plan (770) (770) – –

Total $ 163,603 $ 167,246 $ (3,643) $ –

Cash equivalents consist primarily of money market funds with original maturity dates of three months or less, forwhich fair value was determined based on quoted prices of identical assets that are trading in active markets.

MGM Holdings Inc.


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Note 4—Fair Value Measurements (Continued)

Investments are included in other assets in the unaudited condensed consolidated balance sheets and are comprised ofmoney market funds, mutual funds and other marketable securities that are held in a deferred compensation plan. Thedeferred compensation plan liability is included in accounts payable and accrued liabilities in the unaudited condensedconsolidated balance sheets. The fair value of these assets and the deferred compensation plan liability were determinedbased on quoted prices of identical assets that are trading in active markets.

Financial instruments at September 30, 2015 and December 31, 2014 reflect the fair value of outstanding foreigncurrency exchange forward contracts and were included in other assets and other liabilities, respectively, in theunaudited condensed consolidated balance sheets. The fair value of these instruments was determined using a market-based approach.

Note 5—Investments in Affiliates

Investments in unconsolidated affiliates are summarized as follows (in thousands):


Equity method investments:United Artists Media Group $ 340,244 $ 355,444Studio 3 Partners, LLC (“Epix”) 88,570 60,732Other equity method investments – 25

Cost method investments 24,245 20,245

$ 453,059 $ 436,446

The Company has ownership interests in certain television joint ventures which are accounted for under the equity orcost method of accounting, depending on certain facts, including the Company’s ownership percentage and votingrights.

United Artists Media Group. In September 2014, the Company acquired a 55% interest in UAMG, LLC (“UnitedArtists Media Group” or “UAMG”), a joint venture with Mark Burnett, Roma Downey and Hearst Productions thatdevelops, produces and finances premium television and feature film content across all platforms. United Artists MediaGroup is a proven leader in the production of high quality television content and faith-based programming. Metro-Goldwyn-Mayer Studios Inc. (“MGM Studios”) also has an agreement whereby it provides distribution services forUAMG productions.

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Note 5—Investments in Affiliates (Continued)

The Company does not consolidate United Artists Media Group, but rather accounts for its investment under the equitymethod of accounting since control over the activities of UAMG is shared amongst the members. Under the equitymethod of accounting, the amount by which the Company’s investment in UAMG exceeds its proportionate interest inthe book value of UAMG’s net assets is considered a basis difference for financial reporting purposes (the “UAMGBasis Increase”). At September 30, 2015, the UAMG Basis Increase totaled $319.7 million and was comprisedprimarily of assets deemed to have indefinite lives. For definite-lived assets, the equity method of accounting requiresthe Company to amortize the corresponding portion of the UAMG Basis Increase over the useful life of each underlyingasset. Amortization expense attributable to the UAMG Basis Increase reduces the amount the Company records inequity in net earnings of affiliates in its consolidated income statement, but does not impact the Company’s share ofUAMG’s net cash flow.

During the three months ended September 30, 2015, equity in net earnings of affiliates in the unaudited condensedconsolidated income statement included $4.3 million of earnings from the Company’s 55% interest in UAMG, minus$4.1 million in amortization expense attributable to the UAMG Basis Increase. During the nine months endedSeptember 30, 2015, equity in net earnings of affiliates in the unaudited condensed consolidated income statementincluded $19.0 million of earnings from the Company’s 55% interest in UAMG, minus $12.4 million in amortizationexpense attributable to the UAMG Basis Increase. In addition, during the three and nine months ended September 30,2015, the Company received $7.0 million and $21.8 million in dividends from its investment in UAMG, respectively.

During the three and nine months ended September 30, 2014, the Company’s equity in the net earnings of UAMG wasimmaterial due to the timing of the Company’s investment, which occurred late in September 2014.

Studio 3 Partners, LLC. MGM Studios has a 19.09% interest in Studio 3 Partners, LLC, a joint venture with ViacomInc., Paramount Pictures Corporation (“Paramount”) and Lions Gate Entertainment Corp. that operates Epix, a premiumtelevision channel and subscription video-on-demand service. Epix licenses first-run films, select library films andtelevision content from these studio partners as well as other content providers. The Company made no capitalcontributions to Epix during the three or nine months ended September 30, 2015 and 2014.

The Company does not consolidate Epix, but rather accounts for its investment in Epix under the equity method ofaccounting due to the significance of its voting rights. During the three months ended September 30, 2015, equity in netearnings of affiliates in the unaudited condensed consolidated income statement included $5.3 million of earnings fromthe Company’s 19.09% interest in Epix, plus $0.5 million of prior eliminations related to the Company’s share of profitson content licenses to Epix that reversed during the period. During the three months ended September 30, 2014, equityin net earnings of affiliates in the unaudited condensed consolidated income statement included $5.3 million of earningsfrom the Company’s 19.09% interest in Epix minus $0.6 million of eliminations related to the Company’s share ofprofits on content licenses to Epix.

The Company did not receive any dividends from its investment in Epix during the three months ended September 30,2015. During the three months ended September 30, 2014, the Company received $1.0 million in dividends from itsinvestment in Epix.

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Note 5—Investments in Affiliates (Continued)

During the nine months ended September 30, 2015, equity in net earnings of affiliates in the unaudited condensedconsolidated income statement included $27.4 million of earnings from the Company’s 19.09% interest in Epix, plus$0.4 million of prior eliminations related to the Company’s share of profits on content licenses to Epix that reversedduring the period. During the nine months ended September 30, 2014, equity in net earnings of affiliates in theunaudited condensed consolidated income statement included $15.9 million of earnings from the Company’s 19.09%interest in Epix minus $0.5 million of eliminations related to the Company’s share of profits on content licenses to Epix.

The Company did not receive any dividends from its investment in Epix during the nine months ended September 30,2015. During the nine months ended September 30, 2014, the Company received dividends of $8.6 million from itsinvestment in Epix.

Telecine Programacao de Filmes Ltda. MGM has an equity investment in Telecine Programacao de Filmes Ltda.(“Telecine”), a joint venture with Globo Comunicacao e Participacoes S.A., Paramount, Twentieth Century Fox andNBC Universal, Inc. that operates a pay television network in Brazil. The Company does not consolidate Telecine, butrather accounts for its investment in Telecine under the cost method of accounting. As such, the Company’s share of thenet income of Telecine is not included in the Company’s unaudited condensed consolidated income statements.However, the Company recognizes income from its investment in Telecine when it receives dividends.

Cost Method Investments. No dividend income was received from the Company’s cost method investments during thethree months ended September 30, 2015 and 2014. During the nine months ended September 30, 2015 and 2014, theCompany recorded $2.8 million and $4.2 million, respectively, of dividend income from certain cost methodinvestments. Such amounts were included in equity in net earnings of affiliates in the unaudited condensed consolidatedincome statements.

Note 6—Property and Equipment

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


Furniture, fixtures and equipment $ 20,255 $ 16,115Leasehold improvements 13,774 12,956

34,029 29,071Less accumulated depreciation and amortization (18,173) (13,560)

$ 15,856 $ 15,511

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Note 7—Corporate Debt

Corporate debt is summarized as follows (in thousands):September 30, December 31,

2015 2014

Term loan $ 300,000 $ 300,000$ 300,000 $ 300,000

Term Loan. In June 2014, the Company entered into a six-year $300.0 million second lien term loan with a syndicate oflenders (the “Term Loan”). The Term Loan bears interest at a fixed rate of 5.125% until its maturity date, June 25, 2020.During the three and nine months ended September 30, 2015, the Company recorded interest expense of $3.8 million and$11.5 million, respectively. During the three and nine months ended September 30, 2014, the Company recorded interestexpense of $3.8 million and $4.1 million, respectively. Interest expense is included in contractual interest expense in theunaudited condensed consolidated income statements.

The face value of the Term Loan approximated fair value at September 30, 2015. Borrowings under the Term Loan havea second lien secured interest in substantially all the assets of MGM, with certain exceptions. At September 30, 2015,the Company was in compliance with all applicable covenants under the Term Loan, and there were no events of default.

The Company incurred $4.5 million in fees and other costs associated with the Term Loan, which were deferred andincluded in other assets in the unaudited condensed consolidated balance sheets. The deferred financing costs are beingamortized over the term of the Term Loan using the effective-interest method. During the three and nine months endedSeptember 30, 2015, the Company recorded $0.2 million and $0.6 million, respectively, of interest expense for theamortization of deferred financing costs. During the three and nine months ended September 30, 2014, the Companyrecorded $0.2 million of interest expense for the amortization of deferred financing costs.

Revolving Credit Facility. The Company has a $665.0 million senior secured revolving credit facility (the “RevolvingCredit Facility”) that bears interest at 2.75% over LIBOR (all-in rate was 2.94% at September 30, 2015). The availabilityof funds under the Revolving Credit Facility is limited by a borrowing base calculation. At September 30, 2015, therewere no borrowings nor any outstanding letters of credit under the Revolving Credit Facility and all remaining fundswere available to the Company. Borrowings under the Revolving Credit Facility have a senior secured interest insubstantially all the assets of MGM, with certain exceptions. At September 30, 2015, the Company was in compliancewith all applicable covenants under the Revolving Credit Facility, and there were no events of default.

The Company incurred $4.9 million in fees and other costs associated with the Revolving Credit Facility, which weredeferred and included in other assets in the unaudited condensed consolidated balance sheets. The deferred financingcosts are being amortized over the term of the Revolving Credit Facility using the straight-line method. During each ofthe three months ended September 30, 2015 and 2014, the Company recorded interest expense of $0.6 million, and duringeach of the nine months ended September 30, 2015 and 2014, the Company recorded interest expense of $1.9 million forthe amortization of deferred financing costs.

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Note 7—Corporate Debt (Continued)

The Company incurs an annual commitment fee of 0.75% and payments are made quarterly based on the average dailyamount undrawn during the period. During each of the three months ended September 30, 2015 and 2014, the Companyincurred commitment fees of $1.3 million, and during the nine months ended September 30, 2015 and 2014, theCompany incurred commitment fees of $3.8 million and $3.7 million, respectively. Separately, during the three monthsended September 30, 2015 and 2014, no interest expense was recorded under the Revolving Credit Facility. During thenine months ended September 30, 2015 and 2014, the Company recorded interest expense of zero and $0.4 million,respectively. Commitment fees and interest expense are included in contractual interest expense in the unauditedcondensed consolidated income statements. The maturity date of the Revolving Credit Facility is December 20, 2017.

Note 8—Financial Instruments

The Company transacts business globally and is subject to market risks resulting from fluctuations in foreign currencyexchange rates. In certain instances, the Company enters into foreign currency exchange forward contracts in order toreduce exposure to fluctuations in foreign currency exchange rates that affect certain anticipated foreign currency cashflows. Such contracts generally have maturities between one and 16 months. As of September 30, 2015, the Companyhad several outstanding foreign currency exchange forward contracts primarily relating to anticipated production anddistribution-related cash flows that qualified for hedge accounting. Such contracts were carried at fair value andincluded in other assets in the unaudited condensed consolidated balance sheet. All foreign currency exchange forwardcontracts designated for hedge accounting were deemed effective at September 30, 2015. As such, changes in the fairvalue of such contracts were included in accumulated other comprehensive income (loss) in the unaudited condensedconsolidated balance sheet. During the three and nine months ended September 30, 2015, the Company recorded $0.8million and $4.3 million, respectively, of net unrealized gains (net of tax) relating to the change in fair value of suchcontracts. At September 30, 2015, $1.1 million of net unrealized gains included in accumulated other comprehensiveloss are expected to be recognized into earnings within the next 12 months. During the three and nine months endedSeptember 30, 2015, the Company reclassified $0.1 million and $1.4 million, respectively, of net realized gains out ofaccumulated other comprehensive income and into earnings for foreign currency exchange forward contracts. Suchamounts were included in distribution and marketing expenses in the unaudited condensed consolidated incomestatement.

As of September 30, 2014, the Company had several outstanding foreign currency exchange forward contracts whichwere carried at fair value and included in other liabilities in the unaudited condensed consolidated balance sheet. Suchforeign currency exchange forward contracts designated for hedge accounting were deemed effective at September 30,2014 and, as such, changes in the fair value of such contract was included in accumulated other comprehensive loss inthe unaudited condensed consolidated balance sheet. During the three and nine months ended September 30, 2014, theCompany recorded $0.2 million and $0.6 million of net unrealized losses (net of tax) relating to the change in fair valueof such contracts, respectively.

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Note 9—Stockholders’ Equity

Common Stock. The Company is authorized to issue 110,000,000 shares of Class A common stock, $0.01 par value, and110,000,000 shares of Class B common stock, $0.01 par value. As of September 30, 2015, 75,976,457 shares of Class Acommon stock and 27,653 shares of Class B common stock were issued and 51,209,579 shares of Class A commonstock and 27,653 shares of Class B common stock were reported in the condensed consolidated balance sheet. Thisreflected 52,137,106 of aggregate outstanding shares net of commitments to repurchase 899,874 shares of Class Acommon stock that were, or will be, paid in the fourth quarter of 2015.

As of December 31, 2014, 75,705,899 shares of Class A common stock and 82,566 shares of Class B common stockwere issued and 53,700,025 shares of Class A common stock and 82,566 shares of Class B common stock wereoutstanding.

Preferred Stock. The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $0.01 par value. As ofSeptember 30, 2015, no shares of Preferred Stock were issued or outstanding.

Treasury Stock. During the nine months ended September 30, 2015, the Company repurchased, or had agreed torepurchase, 2,761,004 shares of its Class A common stock at a weighted average price of $77.98 per share for a total of$215.3 million. During the nine months ended September 30, 2014, the Company repurchased 69,741 shares of its ClassA common stock at a weighted average price of $73.33 per share for a total of $5.1 million. The reacquired shares wereclassified as treasury stock in the unaudited condensed consolidated balance sheets and the unaudited condensedconsolidated statement of stockholders’ equity.

Stock Incentive Plan. The Company’s stock incentive plan (the “Stock Incentive Plan”) allows for the granting of stockawards aggregating not more than 12,988,234 shares outstanding at any time. Awards under the Stock Incentive Planare generally not restricted to any specific form or structure and may include, without limitation, non-qualified stockoptions, restricted stock awards and stock appreciation rights (collectively, “Awards”). Awards may be conditioned oncontinued employment, have various vesting schedules and have accelerated vesting and exercisability provisions in theevent of, among other things, a change in control of the Company. All outstanding stock options under the StockIncentive Plan have been issued at or above market value and generally vest over a period of five years.

Stock option activity under the Stock Incentive Plan was as follows:

Three Months EndedSeptember 30, 2015

Nine Months EndedSeptember 30, 2015

Three Months EndedSeptember 30, 2014

Nine Months EndedSeptember 30, 2014

Shares

Weighted-AverageExercise

Price Shares


Price Shares


Price Shares

Weighted-Average

Exercise Price

Options outstanding at beginning of period 6,443,647 $ 44.35 6,401,529 $ 42.04 6,381,529 $ 41.94 7,088,588 $ 42.25

Granted 400,000 90.00 650,000 90.65 – – 15,000 75.50Exercised (86,520) 43.66 (215,645) 35.66 – – (120,547) 41.73

Canceled or expired (211,025) 46.63 (289,782) 44.20 – – (601,512) 37.11

Options outstanding at end of period 6,546,102 $ 46.77 6,546,102 $ 46.77 6,381,529 $ 41.94 6,381,529 $ 41.94

Options exercisable at end of period 4,462,310 $ 39.90 4,462,310 $ 39.90 3,569,270 $ 39.11 3,569,270 $ 39.11

MGM Holdings Inc.


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Note 9—Stockholders’ Equity (Continued)

The fair value of option grants was estimated using the Black-Scholes option pricing model. Total stock-basedcompensation expense recorded under the Stock Incentive Plan was $2.3 million and $3.0 million during the threemonths ended September 30, 2015 and 2014, respectively, and $7.0 million and $8.8 million during the nine monthsended September 30, 2015 and 2014, respectively. As of September 30, 2015, total stock-based compensation expenserelated to non-vested awards not yet recognized under the Stock Incentive Plan was $20.8 million, which is expected tobe recognized over a weighted-average period of 1.4 years.

Note 10—Income Taxes

During the three and nine months ended September 30, 2015, the Company recorded an income tax benefit of $83.1million and $23.6 million, respectively. Such income tax benefits included one-time adjustments associated with theCompany’s Federal income tax filing for 2014, and primarily reflected additional benefits for extra-territorial income(“ETI”) exclusions for years dating back to 2001 and the impact of a tax accounting method change for film andtelevision cost amortization. During the three and nine months ended September 30, 2014, the Company recorded anincome tax provision of $18.5 million and $71.7 million, respectively. At the end of each interim period, the Companycomputes the year-to-date tax provision by applying the estimated annual effective tax rate to year-to-date pretax bookincome.

The income tax provision recorded during the nine months ended September 30, 2015 and 2014 included a provision forfederal and state income taxes that reflected standard United States statutory income tax rates, as well as foreignremittance taxes attributable to international distribution revenues.

At September 30, 2015, the Company and its subsidiaries had net operating loss carryforwards for United States federaltax purposes of $0.9 billion, which will be available to reduce future taxable income. The net operating losscarryforwards expire between the years ending December 31, 2027 and December 31, 2030, and are subject tolimitation on use under Section 382 of the Internal Revenue Code. In addition, the Company has net operating losscarryforwards for California state tax purposes of $0.8 billion, which will expire between the years ending December31, 2015 and December 31, 2030.

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Note 10—Income Taxes (Continued)

The following is a summary reconciliation of the federal tax rate to the effective tax rate:

Other permanent differences in the federal tax rate reconciliation table above primarily included one-time adjustmentsassociated with the Company’s federal tax filing for 2014. These adjustments primarily reflected additional benefits forETI exclusions for years dating back to 2001 and the impact of a tax accounting method change for film and televisioncost amortization.

Note 11—Retirement Plans

Components of net periodic pension cost were as follows (in thousands):

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2015 2014 2015 2014

Interest cost on projected benefit obligation $ 196 $ 290 $ 606 $ 871Expected return on plan assets (199) (401) (607) (1,203)Net actuarial loss 20 – 81 –Net periodic pension expense (income) $ 17 $ (111) $ 80 $ (331)

No contributions were made to the Plan during the three or nine months ended September 30, 2015 and 2014. TheCompany does not expect to make any required or discretionary contributions to the Plan during the year endingDecember 31, 2015.

Three Months EndedSeptember 30,

2015 2014

Nine Months EndedSeptember 30,

2015 2014

Federal tax rate on pre-tax book income 35% 35% 35% 35%State taxes, net of federal income tax benefit 1 1 1 1Changes in uncertain tax positions (2) 1 (1) –Foreign taxes, net of federal income tax

benefit 8 4 5 3Loss carryforwards and other tax attributes

not benefited (2) – (1) –Other permanent differences (243) (2) (51) –Effective tax rate (203)% 39% (12)% 39%

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Note 12—Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss) were as follows (in thousands):

UnrealizedGain (Loss)

onSecurities

UnrealizedGain (Loss)

on DerivativeInstruments

RetirementPlan

Adjustments

ForeignCurrency

TranslationAdjustments

AccumulatedOther

ComprehensiveIncome (Loss)

Balance, January 1, 2015 $ (9) $ (2,331) $ (1,991) $ (329) $ (4,660)Current period

comprehensiveincome (loss) (48) 6,750 80 (2,635) 4,147

Income tax effect 17 (2,430) (29) 1,792 (650)Balance, September 30, 2015 $ (40) $ 1,989 $ (1,940) $ (1,172) $ (1,163)

During the three and nine months ended September 30, 2015, the Company reclassified $0.1 million and $1.4 million,respectively, of net realized gains out of accumulated other comprehensive income and into earnings for foreigncurrency exchange forward contracts. Such amounts were included in distribution and marketing expenses in theunaudited condensed consolidated income statement.

Note 13—Commitments and Contingencies

Litigation. Various legal proceedings involving alleged breaches of contract, patent violations, copyright infringementand other claims are now pending, which the Company considers routine to its business activities. The Company hasprovided an accrual for pending litigation as of September 30, 2015, for which an outcome is probable and reasonablyestimable. Management believes that the outcome of any pending claim or legal proceeding in which the Company iscurrently involved will not materially affect the Company’s unaudited condensed consolidated financial statements.

Other Commitments. The Company has various other commitments entered into in the ordinary course of businessrelating to bank debt agreements, creative talent and employment agreements, non-cancelable operating leases and othercontractual obligations under co-production arrangements. Where necessary, the Company has provided an accrual forsuch amounts as of September 30, 2015.

Note 14—Supplementary Cash Flow Information

The Company paid interest of $5.1 million during each of the three months ended September 30, 2015 and 2014, and$15.3 million and $8.1 million during the nine months ended September 30, 2015 and 2014, respectively.

The Company paid taxes, primarily foreign remittance taxes, of $4.9 million and $2.7 million during the three monthsended September 30, 2015 and 2014, respectively, and $20.7 million and $10.5 million during the nine months endedSeptember 30, 2015 and 2014, respectively.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensedconsolidated financial statements and the related notes thereto and other information contained elsewhere in thisreport. This discussion and analysis also contains forward-looking statements regarding the industry outlook andour expectations regarding the performance of our business. These forward-looking statements are subject tonumerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the sectionentitled “Forward-Looking Statements.” Our actual results may differ materially from those contained in orimplied by any forward-looking statements.

Sources of Revenue

Our principal source of revenue is from the exploitation of our content through traditional distributionplatforms, including theatrical, home entertainment and television, with an increasing contribution from digitaldistribution platforms in existing and emerging markets.

Our film content is exploited through a series of domestic and international distribution platforms forperiods of time, or windows, during which such exploitation is frequently exclusive against other distributionplatforms for negotiated time periods. Typically, a film’s release begins with its theatrical exhibition window,which may run for a period of one to three months. Theatrical marketing costs are incurred prior to and during thetheatrical window in an effort to create public awareness of a film and to help generate consumer interest in thefilm’s subsequent home entertainment and television windows. Following the theatrical window, a film is generallyfirst made available (i) for physical (DVD and Blu-ray discs) home entertainment and EST, and in some casestransactional VOD, approximately three to six months after initial theatrical release; (ii) for the first pay televisionwindow, including SVOD platforms, approximately nine to twelve months after initial theatrical release; and (iii) forbasic cable and syndication, approximately 24 to 36 months after initial theatrical release, depending on the territory.We generally recognize an increase in revenue with respect to a film when it initially enters each of these windows.The foregoing release pattern may not be applicable to every film, and continues to change based on consumerpreferences and the emergence of digital distribution platforms.

Our television content is primarily produced for initial broadcast on cable television in the U.S., followedby international territories and, in some cases, worldwide home entertainment. Successful television series, whichtypically include individual series with four or more seasons, are sold into worldwide syndication markets.Additionally, we distribute our television content on digital platforms, including SVOD. We generally recognize anincrease in revenue with respect to television content when (and if) it is initially distributed in each of thesewindows.

We generally recognize a substantial portion of the revenue generated by film and television content as aresult of its initial passage through the abovementioned windows. We continue to recognize revenue for our contentafter initial passage through the various windows. During this subsequent time period, we may earn revenuesimultaneously from multiple distribution methods including new and emerging digital distribution platforms.

Our film and television content is distributed worldwide. Although we receive a significant amount of ourrevenue through our co-production agreements, we do not view our co-production partners as customers, andtherefore we do not have significant customer concentration. For the year ended December 31, 2014, we derivedapproximately 69% of our revenue from international sources. Revenue from international sources fluctuates year-to-year and is dependent upon several variables including our release schedule, the timing of international theatricaland home entertainment release dates, the timing of television availabilities, the relative performance of individualfeature films and television content and foreign exchange rates.

Other sources of revenue include cable subscriber fees and advertising sales associated with our broadcastand cable networks, as well as various ancillary revenue, primarily from licensing intellectual property rights for usein interactive games and consumer products.

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Cost Structure

Within our results of operations our expenses primarily include operating, distribution and marketing, andgeneral and administrative (“G&A”) expenses.

Operating Expenses

Operating expenses consist primarily of film and television cost amortization expenses and accruals oftalent participations, residuals and co-production share obligations (collectively, “P&R”). Film and television costamortization expense includes the amortization of content costs and certain fair value adjustments, including step-upamortization expense (which is defined and discussed below). Talent participation costs represent contingentcompensation that may be payable to producers, directors, writers and principal cast based on the performance offeature film and television content. Residual costs represent compensation that may be payable to various unions orguilds, such as the Directors Guild of America, Screen Actors Guild-American Federation of Television and RadioArtists, and Writers Guild of America, and are typically based on the performance of feature film and televisioncontent in certain markets. Co-production share expenses represent profit sharing costs that may be payable to ourco-production partners and other intellectual property rights holders based on the performance of feature film andtelevision content. In addition, we include the cost of duplicating prints, which may be a physical or digital product,and replicating DVDs and Blu-ray discs in operating expenses.

Film and Television Costs. Film and television costs include the costs of acquiring rights to content, thecosts associated with producers, directors, writers and actors, and the costs involved in producing the content, suchas studio rental, principal photography, sound and editing. Like film studios, we generally fund our film andtelevision costs with cash flow from operating activities, and/or bank borrowings and other financing methods.From time to time, production overhead and related financing costs may be capitalized as part of film and televisionproduction costs.

We amortize film and television costs, including production costs, capitalized interest and overhead, andany related fair value adjustments, and we accrue P&R, using the individual-film-forecast method (“IFF method”).Under the IFF method such costs are charged against earnings, and included in operating expenses, in the ratio thatthe current period’s gross revenue bears to management’s estimate of total remaining “ultimate” gross revenue as ofthe beginning of the current period. “Ultimates” represent estimates of revenue and expenses expected to berecognized over a period not to exceed ten years from the initial release or broadcast date, or for a period not toexceed 20 years for acquired film and television libraries.

Step-up Amortization Expense. A significant portion of the carrying value of our film and televisioninventory consists of non-cash fair value adjustments. These fair value adjustments do not reflect a cash investmentto produce or acquire content, but rather, fair value accounting adjustments recorded at the time of various companytransactions and events. As such, our film and television inventory carrying value contains (a) unamortized cashinvestments to produce or acquire content and (b) unamortized non-cash fair value adjustments. We amortize ouraggregate film and television inventory costs in accordance with the applicable accounting standards, and ouraggregate amortization expense is higher than it otherwise would be had we not recorded non-cash fair valueadjustments to “step-up” the carrying value of our film and television inventory costs. Unamortized fair valueadjustments were approximately $740 million at September 30, 2015 and are expected to be amortized using the IFFmethod over the next 11 years. We refer to the amortization of these fair value adjustments as “Step-upAmortization Expense” and disclose it separately to help the users of our financial statements better understand thecomponents of our operating expenses.

Distribution and Marketing Expenses

Distribution and marketing expenses generally consist of theatrical advertising costs, marketing costs forother distribution windows, third party distribution services fees for various distribution activities (whereapplicable), distribution expenses such as delivery costs, and other exploitation costs. Advertising costs associatedwith a theatrical feature film release are significant and typically involve large scale media campaigns, the cost ofdeveloping and producing marketing materials, as well as various publicity activities to promote the film. Thesecosts are largely incurred and expensed prior to and during the initial theatrical release of a feature film. As a result,we will often recognize a significant amount of expenses with respect to a particular film before we recognize most

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of the revenue to be produced by that film. In addition, we typically incur fees for distribution services provided byour co-production and distribution partners, which are expensed as incurred and included in distribution andmarketing expenses. These fees are generally variable costs that fluctuate depending on the amount of revenuegenerated by our film and television content and are primarily incurred during the exploitation of our content in thetheatrical and home entertainment windows.

Distribution and marketing expenses also include marketing and other promotional costs associated withhome entertainment and television distribution, allowances for doubtful accounts receivable and realized foreignexchange gains and losses. In addition, we consider delivery costs such as shipping prints and physical homeentertainment units to be distribution expenses and categorize such costs within distribution and marketing expenses.

General and Administrative Expenses

G&A expenses primarily include salaries and other employee-related expenses (including non-cash stock-based compensation expense), facility costs including rent and utilities, professional fees, consulting and temporaryhelp, insurance premiums and travel expenses.

Foreign Currency Transactions

We earn certain revenue and incur certain operating, distribution and marketing, and G&A expenses incurrencies other than the U.S. dollar, principally the Euro and the British Pound. As a result, fluctuations in foreigncurrency exchange rates can adversely affect our business, results of operations and cash flows. In certain instances,we enter into foreign currency exchange forward contracts in order to reduce exposure to fluctuations in foreigncurrency exchange rates that affect certain anticipated foreign currency cash flows. While we intend to continue toenter into such contracts in order to mitigate our exposure to certain foreign currency exchange rate risks, it isdifficult to predict the impact that these hedging activities will have on our results of operations.

Library

We classify film and television content as library content at the beginning of the quarter of a title’s secondanniversary following its initial theatrical release or broadcast date. Library content is primarily exploited throughtelevision licensing, including pay and free television, SVOD, transactional VOD and PPV, and ad-supported VODwindows, and home entertainment, including both physical distribution and EST. In line with the library disclosuresof certain of our industry peers, our definition of library excludes our ancillary businesses, such as our televisionchannels, interactive gaming, consumer products, music performance and other revenue, even though the majority ofour ancillary business revenue is generated from the licensing or other exploitation of library content and theunderlying intellectual property rights.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in theU.S. (“GAAP”) requires us to make estimates, judgments and assumptions that affect the reported amounts andclassifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities inour financial statements and accompanying notes. We have identified the following critical accounting policies andestimates as the ones that are most important to the portrayal of our financial condition and results of operations andwhich require us to make our most subjective judgments, often as a result of the need to make estimates of mattersthat are inherently uncertain. To the extent there are material differences between our estimates and actual results,our financial condition or results of operations will be affected. We base our estimates on past experience and otherassumptions and judgments that we believe are reasonable under the circumstances, and we evaluate these estimateson an ongoing basis. Actual results may differ significantly from these estimates under different assumptions,judgments or conditions.

Revenue Recognition. We recognize revenue in all markets once all applicable recognition requirementsare met. Revenue from theatrical distribution of feature films is recognized on the dates of exhibition. Revenuefrom direct home entertainment distribution is recognized, net of a reserve for estimated returns, and together withrelated costs, in the period in which the product is shipped and is available for sale to the public. Revenue fromtelevision licensing, together with related costs, is recognized when the feature film or television content is initially

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available to the licensee for telecast. Payments received in advance of initial availability are classified as deferredrevenue until all revenue recognition requirements have been met. For all of our distribution activities, we estimatean allowance for doubtful accounts receivable. The estimates and assumptions used in our determination of reservesfor future product returns from physical home entertainment distribution and allowances for doubtful accountsreceivable require us to exercise levels of judgment that have a material impact on our financial condition andresults of operations. These are further discussed below.

Accounting for revenue and expenses from co-produced feature films and television content in accordancewith GAAP and the applicable accounting guidance is complex and requires significant judgment based on anevaluation of the specific terms and conditions of each agreement. Co-production agreements usually stipulatewhich of the partners will be responsible for exploiting the content in specified distribution windows and/orterritories. For example, one partner might distribute a feature film in the theatrical and home entertainmentwindows, while the other partner might be responsible for distribution in television windows and over various digitalplatforms. Generally, for each distribution window, the partner controlling the distribution rights will recordrevenue and distribution expenses on a gross basis, while the other party will record its share of that window on anet basis. In such instances, the company recording revenue on a net basis will typically recognize net revenue inthe first period in which an individual film’s cumulative aggregate revenues exceed its cumulative aggregatedistribution fees and expenses across all markets and territories controlled by its co-production partner, which maybe several quarters after the film’s initial release.

The accounting for our profit share from the distribution rights controlled by our co-production partner andour co-production partner’s profit share from our distribution rights may differ from title to title, and also dependson whether the arrangement with each of our partners qualifies as a collaborative arrangement under the applicableaccounting guidance (usually, a 50% partnership with equally shared distribution rights qualifies).

For a collaborative arrangement, we net (a) our projected ultimate profit share from the distribution rightscontrolled by our co-production partner with (b) our projected co-production partner’s ultimate profit share from ourdistribution rights. To the extent that ultimate net profit sharing between us and our co-production partner isexpected to result in net profit sharing amounts due from the co-production partner to us, we classify this amount asrevenue (net) and record the revenue over the life of the film or television content. To the extent that ultimate netprofit sharing between us and our co-production partner is expected to result in net profit sharing amounts due fromus to our co-production partner, we classify this amount as P&R expense included within operating expenses andrecord it over the life of the film or television content using the IFF method, as described above under Cost Structure– Operating Expenses.

When we have a majority or minority share of distribution rights and ownership in co-produced film ortelevision content, the related co-production arrangement is generally not considered a collaborative arrangement foraccounting purposes. In these instances, we classify our projected co-production partner’s ultimate profit share fromour distribution rights as P&R expense included within operating expenses and record it over the life of the film ortelevision content using the IFF method. We account for our profit share from the distribution rights controlled byour co-production partner on a net basis in one of two ways: (i) if our projected ultimate profit share is expected toresult in amounts due to us from our co-production partner, we classify this amount as revenue (net) and record it assuch amounts become due and are reported to us by our co-production partner; or (ii) if our projected ultimate profitshare is expected to result in amounts due from us to our co-production partner, we classify this amount as adistribution expense included within distribution and marketing expenses and recognize it as incurred and reportedto us by our co-production partner.

Our determination of the accounting for our co-production and distribution arrangements has a significantimpact on the reported amount of our assets and liabilities, revenue and expenses, and the related disclosures.

Film and Television Costs. We amortize film and television inventory costs, including production costs,capitalized interest and overhead, and any related fair value adjustments, and we accrue P&R, using the IFF method,as described above under Cost Structure – Operating Expenses. However, the carrying cost of any individualfeature film or television content, or film or television content library, for which an ultimate loss is projected isimmediately written down (through increased amortization expense) to its estimated fair value.

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We regularly review, and revise when necessary, our ultimates for our film and television content, whichmay result in a prospective increase or decrease in the rate of amortization and/or a write-down to the carrying costof the feature film or television content to its estimated fair value. As noted above, ultimates represent estimates ofrevenue and expenses expected to be recognized over a period not to exceed ten years from the initial release orbroadcast date, or for a period not to exceed 20 years for acquired film and television libraries. We determine theestimated fair value of our film and television content based on estimated future cash flows using the discountedcash flow method of the income approach. Any revisions to ultimates can result in significant quarter-to-quarter andyear-to-year fluctuations in film and television cost amortization expense. Ultimates by their nature contain inherentuncertainties since they are comprised of estimates over long periods of time, and, to a certain extent, will likelydiffer from actual results.

The commercial potential of feature film or television content varies dramatically, and is not directlycorrelated with the cost to produce or acquire the content. Therefore, it can be difficult to predict or project a trendof our income or loss. However, the likelihood that we will report losses for the quarter or year in which we releasea feature film is increased by the industry’s accounting standards that require theatrical advertising and otherreleasing costs to be expensed in the period in which they are incurred while revenue for the feature film isrecognized over a much longer period of time. We may report such losses even for periods in which we releasefilms that will ultimately be profitable for us.

Distribution and Marketing Costs. Exploitation costs, including advertising and marketing costs, thirdparty distribution services fees for various distribution activities (where applicable), distribution expenses and otherreleasing costs, are expensed as incurred. As such, our results of operations, particularly for the quarter or year inwhich we release a feature film, may be negatively impacted by the incurrence of theatrical advertising costs, whichare typically significant amounts. As discussed above under Revenue Recognition, in some instances, we accountfor theatrical advertising and other distribution costs on a net basis and may not expense any portion of such costs.In addition, from time to time, our co-production partners and distributors may advance our share of theatricaladvertising and other distribution costs on our behalf and require that distribution proceeds first go to the co-production partner or distributor until such advanced amounts have been recouped, and we repay advanced amountsat a later date to the extent not recouped. In the event that such advanced amounts are not recouped fromdistribution proceeds, we typically remain contractually liable to our co-production partners and may repay suchamounts using cash on hand, cash flow from the exploitation of our other film and television content, and, ifnecessary, funds available under our revolving credit facility.

As discussed above under Revenue Recognition, when we account for our profit share from the distributionrights controlled by our co-production partner on a net basis: (i) if our projected ultimate profit share is expected toresult in amounts due to us from our co-production partner, we classify this amount as revenue (net) and record it assuch amounts become due and are reported to us by our co-production partner; or (ii) if our projected ultimate profitshare is expected to result in amounts due from us to our co-production partner, we classify this amount as adistribution expense included within distribution and marketing expenses and record the corresponding liability inaccounts payable and accrued liabilities in our consolidated balance sheets when incurred and reported to us by ourco-production partner.

Home Entertainment Sales Returns. In the home entertainment market, we calculate an estimate of futureproduct returns. In determining the estimate of physical home entertainment product sales that will be returned, weperform an analysis that considers historical returns, changes in consumer demand, industry trends and currenteconomic conditions. Based on this information, a percentage of home entertainment revenue is reserved, providedthat the right of return exists. Future changes to our historical estimates, including modifications to the percentageof each sale reserved or the period of time over which returns are generally expected to be received, could have asignificant impact on the reported amount of our assets, liabilities, revenue and expenses, particularly in the periodin which the change occurs.

Allowance for Doubtful Accounts Receivable. For all of our distribution activities, we estimate anallowance for doubtful accounts receivable by monitoring our delinquent accounts and estimating a reserve based oncontractual terms and other customer-specific issues. We exercise judgment in our determination of collectability ofcustomer accounts and the related reserves required. Where we rely on third parties for distribution of our content,our allowances are primarily determined based on data from our distribution partners who maintain the directrelationship with the customer. We specifically review all receivables from customers with past due balances greater

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than 90 days, as well as any other receivables with collectability concerns. Additionally, we record a general reserveagainst all customer receivables not specifically reviewed.

Stock-Based Compensation. We have granted restricted stock to members of our board of directors andstock options to certain employees. Our restricted stock awards to our directors generally vest over a service periodof one to three years from the date of grant and are subject to accelerated vesting provisions in certaincircumstances. Stock options are generally granted in separate tranches, with each tranche containing a differentexercise price. Each option tranche vests over a five-year service period from the date of grant and is subject toaccelerated vesting provisions in certain circumstances.

We calculate compensation expense for awards of restricted stock and stock options using the fair valuerecognition provisions of the applicable accounting standards and recognize this amount on a straight-line basis overthe requisite service period for each separately vesting portion of each award. We estimate the fair value ofrestricted stock based on the market value of the underlying shares on the grant date. We estimate the fair value ofstock options using the Black-Scholes option pricing model, which requires inputs to be estimated as of each stockoption grant date, such as the expected term, expected volatility, risk-free interest rate, and expected dividend yieldand forfeiture rate. These inputs are subjective and are developed using analyses and judgment, which, if modified,could have a significant impact on the amount of compensation expense recorded by us in our results of operations.

Specifically, we estimate the expected term for stock option awards based on the estimated time to reachthe exercise price of each tranche. The expected volatility is determined based on a study of historical and impliedvolatilities of publicly traded peer companies in our industry. The risk-free interest rate is based on the yieldavailable to U.S. Treasury zero-coupon bonds. The expected dividend yield is based on our history of not payingdividends and our expectation about changes in dividends as of the stock option grant date. Estimated forfeiturerates were determined based on historical and expected departures for identified employees and are subject toadjustment based on actual experience.

Refer to Note 9 to the unaudited condensed consolidated financial statements as of September 30, 2015 forfurther discussion.

Equity Method of Accounting for Investment in United Artists Media Group. In September 2014, weacquired a 55% interest in United Artists Media Group, a joint venture with Mark Burnett, Roma Downey andHearst Productions that develops, produces and finances premium television and feature film content for distributionacross all platforms. For financial reporting purposes, we do not consolidate UAMG, but rather account for ourinvestment using the equity method of accounting since control over the activities of UAMG is shared amongst themembers. Under the equity method of accounting, the amount by which our investment in UAMG exceeded ourproportionate interest in the book value of UAMG’s net assets was considered a basis difference for financialreporting purposes (the “UAMG Basis Increase”). The equity method of accounting requires us to amortize thecorresponding portion of the UAMG Basis Increase over the useful life of each underlying asset, except for assetsdeemed to have indefinite lives. Amortization expense attributable to the basis increase will reduce the amount werecord in equity in net earnings of affiliates in our consolidated income statement, but will not impact our share ofUAMG’s net cash flow. Refer to Note 5 to the unaudited condensed consolidated financial statements as ofSeptember 30, 2015 for additional information.

Income Taxes. We are subject to international and U.S. federal, state and local tax laws and regulationsthat affect our business, which are extremely complex and require us to exercise significant judgment in ourinterpretation and application of these laws and regulations. Accordingly, the tax positions we take are subject tochange and may be challenged by tax authorities. Our interpretation and application of applicable tax laws andregulations has a significant impact on the reported amount of our deferred tax assets, including our federal and statenet operating loss carryforwards, and the related valuation allowances, as applicable, as well as the reported amountsof our deferred tax liabilities and provision for income taxes. Our recognition of the tax benefits of taxabletemporary differences and net operating loss carryforwards is subject to many factors, including the existence ofsufficient taxable income in future years, and whether we believe it is more likely than not that the tax positions wehave taken will be upheld if challenged by tax authorities. Changes to our interpretation and application ofapplicable tax laws and regulations could have a significant impact on our financial condition and results ofoperations.

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Results of Operations

The discussion and analysis of our results of operations set forth below are based on our consolidatedfinancial statements. This information should be read in conjunction with our unaudited condensed consolidatedfinancial statements and the related notes thereto contained elsewhere in this report.

Overview of Financial Results

The following table sets forth our unaudited operating results for the three and nine months endedSeptember 30, 2015 and 2014 (in thousands):

Change Change

2015 2014 Amount Percent 2015 2014 Amount Percent

Revenue.................................................. 212,131$ 233,472$ (21,341)$ (9%) 850,842$ 885,587$ (34,745)$ (4%)

Expenses:

Operating............................................ 118,372 132,923 (14,551) (11%) 483,099 522,804 (39,705) (8%)

Distribution and marketing.................... 24,930 25,898 (968) (4%) 105,983 105,747 236 0%

General and administrative.................... 27,253 25,019 2,234 9% 79,546 74,232 5,314 7%

Depreciation and non-film amortization.. 4,530 3,912 618 16% 12,929 11,549 1,380 12%

Total expenses......................................... 175,085 187,752 (12,667) (7%) 681,557 714,332 (32,775) (5%)

Operating income..................................... 37,046 45,720 (8,674) (19%) 169,285 171,255 (1,970) (1%)

Equity in net earnings of affiliates.............. 5,964 5,049 915 18% 37,285 20,727 16,558 80%

Interest expense....................................... (5,971) (5,994) 23 0% (17,983) (10,289) (7,694) (75%)

Interest income......................................... 3,042 829 2,213 267% 4,708 2,305 2,403 104%

Other income, net..................................... 824 1,480 (656) (44%) 1,002 1,675 (673) (40%)

Income before income taxes...................... 40,905 47,084 (6,179) (13%) 194,297 185,673 8,624 5%

Income tax benefit (provision)............... 83,102 (18,497) 101,599 549% 23,579 (71,727) 95,306 133%

Net income.............................................. 124,007$ 28,587$ 95,420$ 334% 217,876$ 113,946$ 103,930$ 91%

Three Months Ended Nine Months Ended

September 30, September 30,

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Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Revenue

For the three months ended September 30, 2015, total revenue of $212.1 million was $21.4 million lowerthan total revenue of $233.5 million for the three months ended September 30, 2014. In the current year’s thirdquarter, we continued to grow television licensing revenue. This included initial television availabilities for recentlyreleased film content, deliveries of season 2 of Fargo to FX for its initial U.S. broadcast, plus higher revenue fromour film and television library content. Revenue growth from our television licensing business was offset by lowerhome entertainment revenue. Although we released Hot Pursuit and Poltergeist in the home entertainment marketduring the current year’s third quarter, we do not control all of the home entertainment distribution rights for thesetitles, and as such, we record a substantial portion of the revenue on a net basis. In comparison, the prior year’s thirdquarter included worldwide home entertainment revenue for RoboCop, for which we control the home entertainmentdistribution rights and record revenue on a gross basis.

Theatrical. Worldwide theatrical revenue was $5.7 million for the three months ended September 30,2015, a decrease of $0.8 million as compared to $6.5 million for the three months ended September 30, 2014.Theatrical revenue for the current and prior years’ third quarters primarily included international revenue for severaltitles in certain territories where we control the distribution rights.

Home Entertainment. Worldwide home entertainment revenue was $31.0 million for the three monthsended September 30, 2015, a decrease of $10.7 million as compared to $41.7 million for the three months endedSeptember 30, 2014. Although we released Hot Pursuit and Poltergeist in the home entertainment market duringthe current year’s third quarter, we do not control all of the home entertainment distribution rights for these titles,and as such, we record a substantial portion of the revenue on a net basis. In comparison, the prior year’s thirdquarter included worldwide home entertainment revenue for RoboCop, for which we control the home entertainmentdistribution rights and record revenue on a gross basis. This was the primary cause of the decrease in homeentertainment revenue in the current year’s third quarter. We also remain focused on targeted library promotionsand launched our worldwide home entertainment promotion for the James Bond franchise at the end of the currentyear’s third quarter. Due to the timing of this promotion, a large portion of the expected revenue will be recognizedin the fourth quarter. In addition, we continue to generate ongoing home entertainment revenue from our steadypipeline of new film and television content, including recently released titles such as The Hobbit trilogyinternationally,(1) Hot Tub Time Machine 2, If I Stay, Vikings, RoboCop, Hercules and Teen Wolf, as well as ourlibrary content. We have also seen growth in SVOD and other digital revenue streams that typically have highermargins than physical formats and are included in television licensing revenue, discussed below. Note that homeentertainment revenue for co-produced films for which we do not control the home entertainment distribution rightsis accounted for on a net basis. Net revenue from co-produced films is classified as other revenue from film andtelevision content (see below).

(1) Based on the applicable accounting guidance and contractual terms of the co-production and distribution arrangement, we recordinternational distribution revenue and expenses for each film in The Hobbit trilogy on a gross basis and primarily recognize our share of domesticdistribution profits as a reduction to operating expenses on a net basis over the life of each film in accordance with the accounting forcollaborative arrangements. Refer to the discussion in Critical Accounting Policies and Estimates above for additional information.

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Television Licensing. Worldwide television licensing revenue was $152.5 million for the three monthsended September 30, 2015, an increase of $1.9 million as compared to $150.6 million for the three months endedSeptember 30, 2014. We continued to generate strong television licensing revenue across a diverse base of recentlyreleased and library content during the current year’s third quarter. This included initial international(2) paytelevision and SVOD availabilities for The Hobbit: The Battle of the Five Armies, initial deliveries of season 2 ofFargo to FX for its initial U.S. broadcast, and higher revenue from our film and television library content. Incomparison, the prior year’s third quarter primarily included the initial international(2) pay television and SVODavailabilities for The Hobbit: The Desolation of Smaug, the domestic pay television premiere of Carrie on Epix,VOD revenue for Carrie and RoboCop, and our successful television series, Teen Wolf and Vikings. Note thattelevision licensing revenue for co-produced films for which we do not control the television distribution rights isaccounted for on a net basis. Net revenue from co-produced films is classified as other revenue from film andtelevision content (see below).

Other Revenue. Other revenue from film and television content was $5.2 million for the three monthsended September 30, 2015, a decrease of $8.4 million as compared to $13.6 million for the three months endedSeptember 30, 2014. Other revenue primarily included net revenue for our share of the distribution proceeds earnedby our co-production partners for co-produced films for which our partners control the distribution rights in variousdistribution windows, including theatrical, home entertainment, television licensing and ancillary businesses. Netrevenue from co-produced films is impacted by the timing of when a film’s cumulative aggregate revenues exceedits cumulative aggregate distribution fees and expenses. For the current year’s third quarter, the reduction in netrevenue from co-produced films was attributable to the strong performance of our franchise film, 22 Jump Street, inthe prior year’s third quarter.

Ancillary Businesses. Total revenue from our ancillary businesses, which include MGM brandedtelevision channel operations, interactive gaming, consumer products, music performance and other revenue, was$17.7 million for the three months ended September 30, 2015, a decrease of $3.4 million as compared to$21.1 million for the three months ended September 30, 2014. This decrease reflects the aggregate impact of severalitems including modestly lower advertising revenue for ThisTV, slightly lower music performance and reducedinteractive licensing revenue.

Operating Expenses

For the three months ended September 30, 2015, total operating expenses were $118.4 million, a decreaseof $14.5 million as compared to $132.9 million for the three months ended September 30, 2014. The decrease inoperating expenses included $14.8 million of lower aggregate film and television cost and P&R amortizationexpenses. Aggregate amortization expenses for the current year’s third quarter primarily included The Hobbit: TheBattle of the Five Armies, season 2 of Fargo, and library content. In comparison, aggregate amortization expensesfor the prior year’s third quarter primarily included The Hobbit: The Desolation of Smaug, RoboCop, 22 JumpStreet, and season 1 of Fargo.


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For the three months ended September 30, 2015, total distribution and marketing expenses were$24.9 million, a decrease of $1.0 million as compared to $25.9 million for the three months ended September 30,2014. Theatrical advertising, marketing and distribution expenses, which are recognized as incurred, increased inthe current year’s third quarter primarily due to the marketing campaign for the worldwide theatrical release of ourfranchise film, Spectre, in the fourth quarter of 2015, which was partially offset by lower home entertainmentexpenses primarily due to the worldwide home entertainment distribution of RoboCop in the prior year’s thirdquarter.

G&A Expenses

For the three months ended September 30, 2015, total G&A expenses were $27.3 million, an increase of$2.3 million as compared to $25.0 million for the three months ended September 30, 2014. The increase in G&Aexpenses was primarily due to our targeted investments in additional personnel with a focus on growing our corebusinesses, including creative development, production and distribution.

Depreciation, Non-Film Amortization and Other Income and Expenses

Depreciation and non-film amortization

For the three months ended September 30, 2015, depreciation and non-film amortization was $4.5 million,an increase of $0.6 million as compared to $3.9 million for the three months ended September 30, 2014.Amortization expense for identifiable non-film intangible assets with definite lives, which is recorded on a straight-line basis over the estimated useful lives, amounted to $2.7 million for both the current and prior year’s thirdquarters. Depreciation expense for fixed assets was $1.8 million and $1.2 million for the current and prior year’sthird quarters, respectively.

Equity in net earnings of affiliates

For the three months ended September 30, 2015, equity in net earnings of affiliates was $6.0 million, anincrease of $1.0 million, or 18%, as compared to $5.0 million for the three months ended September 30, 2014. Thisincrease included $1.1 million of higher equity income from Epix. In addition, for the current year’s third quarter,equity in net earnings of affiliates included our 55% share of UAMG’s net income, which totaled $4.3 million,minus $4.1 million in amortization expense attributable to the UAMG Basis Increase (refer to the discussion inCritical Accounting Policies and Estimates above for additional information).

Interest expense

Interest expense is primarily comprised of contractual interest incurred under our second lien term loancredit facility, our senior secured revolving credit facility and the amortization of related deferred financing costs(refer to Liquidity and Capital Resources –Bank Borrowings for further discussion). For each of the three monthsended September 30, 2015 and 2014, total interest expense was $6.0 million and included $5.2 million of contractualinterest and $0.8 million of other interest costs. Cash paid for interest was $5.1 million for each of the three monthsended September 30, 2015 and 2014, respectively.

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Interest income

Interest income primarily includes the amortization of discounts recorded on long-term accounts andcontracts receivable, as well as interest earned on short-term investments. For the three months endedSeptember 30, 2015 and 2014, interest income totaled $3.0 million and $0.8 million, respectively..

Other income, net

For the three months ended September 30, 2015 and 2014, the amounts recorded as other income wereimmaterial.

Income tax provision

For the three months ended September 30, 2015, we recorded an income tax benefit of $83.1 million. Ourincome tax benefit included one-time adjustments associated with our Federal income tax filing for 2014 andprimarily reflected additional benefits for extra-territorial income (“ETI”) exclusions for years dating back to 2001and the impact of a tax accounting method change for film and television cost amortization. Excluding these non-recurring positive items, our income tax provision was $18.8 million, representing an effective tax rate of 46% forthe current year’s third quarter, which included higher foreign withholding taxes. For the three months endedSeptember 30, 2014, we recorded an income tax provision of $18.5 million, which represented an effective tax rateof 39%. Our income tax provision for these periods primarily included accruals for U.S. federal and state incometaxes using statutory income tax rates, as well as foreign remittance taxes attributable to international distributionrevenue. However, our cash paid for income taxes was significantly less than our income tax provision due to thebenefit we realized from deferred tax assets, primarily net operating loss carryforwards.

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Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Revenue

For the nine months ended September 30, 2015, total revenue of $850.8 million was $34.8 million lowerthan total revenue of $885.6 million for the nine months ended September 30, 2014. During the nine months endedSeptember 30, 2015, we grew television licensing revenue by 25% with our strong performance across a broad baseof recently released and library content. This included significant new television licensing agreements for librarycontent, free television availabilities for Skyfall and The Hobbit: An Unexpected Journey(3), initial deliveries ofseason 3 of Vikings and season 2 of Fargo, and incremental revenue from our steady pipeline of recently releasedfilm content, including The Hobbit: The Battle of the Five Armies Hercules, If I Stay and 22 Jump Street. This wasoffset by several items, including lower home entertainment revenue, the impact of the stronger U.S. Dollar oninternational revenue and reduced interactive gaming revenue due to non-recurring revenue that benefitted the ninemonths ended September 30, 2014.

Theatrical. Worldwide theatrical revenue was $103.0 million for the nine months ended September 30,2015, a decrease of $17.7 million as compared to $120.7 million for the nine months ended September 30, 2014.Theatrical revenue for the nine months ended September 30, 2015 and 2014 primarily included revenue from theinternational(3) theatrical distribution of The Hobbit: The Battle of the Five Armies, released in December 2014, andThe Hobbit: The Desolation of Smaug, released in December 2013, respectively. In comparison, internationaltheatrical revenue from The Hobbit: The Battle of the Five Armies was lower than The Hobbit: The Desolation ofSmaug due to the impact of the stronger U.S. Dollar globally. During the nine months ended September 30, 2015,we did not recognize a substantial portion of the theatrical revenue for Hot Tub Time Machine 2, Hot Pursuit,Poltergeist and Max, which is primarily accounted for on a net basis (4) after deduction of theatrical advertising andother related distribution costs. Net revenue from co-produced films is classified as other revenue from film andtelevision content (see below).

Home Entertainment. Worldwide home entertainment revenue was $162.5 million for the nine monthsended September 30, 2015, a decrease of $63.9 million as compared to $226.4 million for the nine months endedSeptember 30, 2014. Home entertainment revenue was lower due to several items, including the impact of thestronger U.S. Dollar and an expected reduction in physical unit sales consistent with broader market conditions. Inaddition, although we released Hot Pursuit, Poltergeist and Hot Tub Time Machine 2 in the home entertainmentmarket during the nine months ended September 30, 2015, we do not control all of the home entertainmentdistribution rights for these titles, and as such, we record a substantial portion of the revenue on a net basis. Incomparison, the nine months ended September 30, 2014 included worldwide home entertainment revenue forRoboCop and Carrie, for which we control the home entertainment distribution rights and record revenue on a grossbasis. This decline was partially offset by ongoing home entertainment revenue from our steady pipeline of recentlyreleased film and television content, including recently released titles such as The Hobbit trilogy internationally,(3) IfI Stay, Skyfall, Vikings and Teen Wolf, as well as our library content. We have also seen growth in SVOD and otherdigital revenue streams that typically have higher margins than physical formats and are included in televisionlicensing revenue, discussed below. Note that home entertainment revenue for co-produced films for which we donot control the home entertainment distribution rights is accounted for on a net basis. Net revenue from co-producedfilms is classified as other revenue from film and television content (see below).


(4) Based on the applicable accounting guidance and contractual terms of the respective co-production and distribution arrangements, we did notrecognize a substantial portion of the theatrical revenue for Hot Tub Time Machine 2, Hot Pursuit, Poltergeist and Max. For distribution rightswe do not control, we recognize our share of the distribution profit earned by our co-production partner as net revenue in the first period in whichan individual film’s cumulative aggregate revenues exceed its cumulative aggregate distribution fees and expenses across all markets andterritories controlled by our co-production partner, which may be several quarters after a film’s initial release. Refer to the discussion in CriticalAccounting Policies and Estimates above for additional information.

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Television Licensing. Worldwide television licensing revenue was $505.6 million for the nine monthsended September 30, 2015, an increase of $99.6 million, or 25%, as compared to $406.0 million for the nine monthsended September 30, 2014. We generated higher television licensing revenue during the nine months endedSeptember 30, 2015 due to our strong performance across a broad base of recently released and library content.Revenue from library content included significant new television licensing agreements internationally, plus freetelevision availabilities for Skyfall worldwide and The Hobbit: An Unexpected Journey internationally(5). Inaddition, we drove higher revenue from our steady pipeline of recently released film and television content,including our distribution of The Hobbit: The Battle of the Five Armies, Hercules, If I Stay and 22 Jump Street inmultiple television windows, initial deliveries of season 3 of Vikings to History and season 2 of Fargo to FX, as wellas our continued international television licensing of prior seasons of Vikings, Teen Wolf and Fargo. In comparison,the nine months ended September 30, 2014 primarily reflected our distribution of The Hobbit: The Desolation ofSmaug internationally,(5) the domestic pay television premiere of Carrie on Epix, VOD revenue for Carrie andRoboCop, and the strong performance of our television content, including initial deliveries of season 1 of Fargo toFX and season 2 of Vikings to History. Note that television licensing revenue for co-produced films for which wedo not control the television distribution rights is accounted for on a net basis. Net revenue from co-produced filmsis classified as other revenue from film and television content (see below).

Other Revenue. Other revenue from film and television content was $25.2 million for the nine monthsended September 30, 2015, a decrease of $18.2 million as compared to $43.4 million for the nine months endedSeptember 30, 2014. Other revenue primarily included net revenue for our share of the distribution proceeds earnedby our co-production partners for co-produced films for which our partners control the distribution rights in variousdistribution windows, including theatrical, home entertainment, television licensing and ancillary businesses. Netrevenue from co-produced films is impacted by the timing of when a film’s cumulative aggregate revenues exceedits cumulative aggregate distribution fees and expenses. The reduction in net revenue from co-produced films forthe nine months ended September 30, 2015 was primarily due to certain items that benefited the nine months endedSeptember 30, 2014, including the strong performance of our franchise film, 22 Jump Street, and the one-timerecognition of increased distribution proceeds from our co-production partner for a particular film.

Ancillary Businesses. Total revenue from our ancillary businesses, which include MGM brandedtelevision channel operations, interactive gaming, consumer products, music performance and other revenue, was$54.5 million for the nine months ended September 30, 2015, a decrease of $34.6 million as compared to$89.1 million for the nine months ended September 30, 2014. This decrease was largely due to $28.8 million ofnon-recurring interactive gaming revenue during the nine months ended September 30, 2014.

Operating Expenses

For the nine months ended September 30, 2015, total operating expenses were $483.1 million, a decrease of$39.7 million as compared to $522.8 million for the nine months ended September 30, 2014. The decrease inoperating expenses primarily included lower participation expenses related to our ancillary businesses which werehigher in 2014 due to non-recurring interactive gaming revenue recognized during the nine months endedSeptember 30, 2014. In addition, we incurred $13.0 million of lower aggregate film and television cost and P&Ramortization expenses. Aggregate amortization expenses for the nine months ended September 30, 2015 primarilyincluded The Hobbit: The Battle of the Five Armies, Hercules, Skyfall, If I Stay, season 3 of Vikings and season 2 ofFargo. In comparison, aggregate amortization expenses for the nine months ended September 30, 2014 primarilyincluded The Hobbit: The Desolation of Smaug, RoboCop, 22 Jump Street, Hercules and our television series Fargo,Vikings and Teen Wolf. We also incurred $8.1 million of lower physical home entertainment product costs duringthe nine months ended September 30, 2015 primarily due to costs associated with the worldwide homeentertainment distribution of RoboCop and Carrie during the nine months ended September 30, 2014.


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For the nine months ended September 30, 2015, total distribution and marketing expenses were$106.0 million, an increase of $0.3 million as compared to $105.7 million for the nine months ended September 30,2014. Theatrical advertising, marketing and distribution expenses, which are recognized as incurred, increased$20.0 million for the nine months ended September 30, 2015 primarily due to the marketing campaign for theworldwide theatrical release of our franchise film, Spectre, in the fourth quarter of 2015. This was offset by$22.0 million of lower home entertainment expenses primarily due to the worldwide home entertainmentdistribution of RoboCop and Carrie during the nine months ended September 30, 2014 and lower costs for TheHobbit trilogy.

G&A Expenses

For the nine months ended September 30, 2015, total G&A expenses were $79.5 million, an increase of$5.3 million as compared to $74.2 million for the nine months ended September 30, 2014. The increase in G&Aexpenses was primarily due to our targeted investments in additional personnel with a focus on growing our corebusinesses, including creative development, production and distribution, as well as strategic project-specific costswith long-term benefits.

Depreciation, Non-Film Amortization and Other Income and Expenses

Depreciation and non-film amortization

For the nine months ended September 30, 2015, depreciation and non-film amortization was $12.9 million,an increase of $1.4 million as compared to $11.5 million for the nine months ended September 30, 2014.Amortization expense for identifiable non-film intangible assets with definite lives, which is recorded on a straight-line basis over the estimated useful lives, amounted to $8.2 million for both the nine months ended September 30,2015 and 2014, respectively. Depreciation expense for fixed assets was $4.7 million and $3.3 million for the ninemonths ended September 30, 2015 and 2014, respectively.

Equity in net earnings of affiliates

For the nine months ended September 30, 2015, equity in net earnings of affiliates was $37.3 million, anincrease of $16.6 million, or 80%, as compared to $20.7 million for the nine months ended September 30, 2014.This increase included $12.5 million of higher equity income from Epix primarily due to the benefit of a non-recurring revenue item. In addition, for the nine months ended September 30, 2015, equity in net earnings ofaffiliates included our 55% share of UAMG’s net income, which totaled $19.0 million, minus $12.4 million inamortization expense attributable to the UAMG Basis Increase (refer to the discussion in Critical AccountingPolicies and Estimates above for additional information).

Interest expense

Interest expense is primarily comprised of contractual interest incurred under our senior secured revolvingcredit facility, our second lien term loan credit facility and the amortization of related deferred financing costs (referto Liquidity and Capital Resources –Bank Borrowings for further discussion).

For the nine months ended September 30, 2015, total interest expense was $18.0 million, an increase of$7.7 million as compared to $10.3 million for the nine months ended September 30, 2014. For the nine monthsended September 30, 2015, interest expense included $15.5 million of contractual interest and $2.5 million of otherinterest costs. For the nine months ended September 30, 2014, interest expense included $8.2 million of contractualinterest and $2.1 million of other interest costs. Cash paid for interest was $15.3 million and $8.1 million for thenine months ended September 30, 2015 and 2014, respectively. Our higher contractual interest expense and cashpaid for interest primarily reflected interest costs associated with our second lien term loan credit facility thatcommenced on June 26, 2014.

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Interest income

Interest income primarily includes the amortization of discounts recorded on long-term accounts andcontracts receivable, as well as interest earned on short-term investments. For the nine months ended September 30,2015 and 2014, interest income totaled $4.7 million and $2.3 million, respectively.

Other income, net

For the nine months ended September 30, 2015 and 2014, the amounts recorded as other income wereimmaterial.

Income tax provision

For the nine months ended September 30, 2015, we recorded an income tax benefit of $23.6 million. Ourincome tax benefit included one-time adjustments associated with our Federal income tax filing for 2014 andprimarily reflected additional benefits for extra-territorial income (“ETI”) exclusions for years dating back to 2001and the impact of a tax accounting method change for film and television cost amortization. Excluding these non-recurring positive items, our income tax provision was $78.3 million, representing an effective tax rate of 40% forthe nine months ended September 30, 2015. For the nine months ended September 30, 2014, we recorded an incometax provision of $71.7 million, which represented an effective tax rate of 39%. Our income tax provision for theseperiods primarily included accruals for U.S. federal and state income taxes using statutory income tax rates, as wellas foreign remittance taxes attributable to international distribution revenue. However, our cash paid for incometaxes was significantly less than our income tax provision due to the benefit we realized from deferred tax assets,primarily net operating loss carryforwards.

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Use of Non-GAAP Financial Measures

We utilize adjusted earnings before interest, taxes and depreciation and non-film amortization (“AdjustedEBITDA”) to evaluate the operating performance of our business. Adjusted EBITDA reflects net income beforeinterest expense, interest and other income (expense), equity interests, noncontrolling interests, income taxprovision, depreciation of fixed assets, amortization of non-film intangible assets and non-recurring gains and losses,and excludes the impact of the following items: (i) Step-up Amortization Expense (refer to Cost Structure –Operating Expenses above for further discussion), (ii) stock-based compensation expense, (iii) non-recurring,external costs and other expenses related to mergers, acquisitions, capital market transactions and restructurings, tothe extent that such amounts are expensed, and (iv) impairment of goodwill and other non-film intangible assets, ifany. We consider Adjusted EBITDA to be an important measure of comparative operating performance because itexcludes the impact of certain non-cash and non-recurring items that do not reflect the fundamental performance ofour business and allows investors, equity analysts and others to evaluate the impact of these items separately fromthe fundamental operations of the business.

Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, but not as asubstitute for, operating income, net income, and other measures of financial performance prepared in accordancewith GAAP. Among other limitations, Adjusted EBITDA does not reflect certain expenses that affect the operatingresults of our business, as reported in accordance with GAAP, and involve judgment as to whether excluded itemsaffect the fundamental operating performance of our business. In addition, our calculation of Adjusted EBITDAmay be different from the calculations used by other companies and, therefore, comparability may be limited.

The following table reconciles Adjusted EBITDA to net income prepared in accordance with GAAP for thethree and nine months ended September 30, 2015 and 2014 (in thousands):

(1) Step-up Amortization Expense reflects the portion of amortization expense resulting from non-cash fair value adjustments to the carryingvalue of our film and television inventory. These fair value adjustments do not reflect a cash investment to produce or acquire content, but rather,fair value accounting adjustments recorded at the time of various company transactions and events. Our aggregate amortization expense is higherthan it otherwise would be had we not recorded non-cash fair value adjustments to “step-up” the carrying value of our film and televisioninventory costs. Unamortized fair value adjustments were approximately $740 million at September 30, 2015 and are expected to be amortizedusing the IFF Method over the next 11 years. We refer to the amortization of these fair value adjustments as “Step-up Amortization Expense”and disclose it separately to help the users of our financial statements better understand the components of our operating expenses. Refer to CostStructure –Operating Expenses above for further discussion.

(2) Non-recurring costs and expenses consist of non-recurring external costs and other expenses related to mergers, acquisitions, capital markettransactions and restructurings, to the extent that such amounts are expensed.

2015 2014 Amount Percent 2015 2014 Amount Percent

Net income.............................................. 124,007$ 28,587$ 95,420$ 334% 217,876$ 113,946$ 103,930$ 91%

Interest expense................................... 5,971 5,994 (23) (0%) 17,983 10,289 7,694 75%

Interest income.................................... (3,042) (829) (2,213) (267%) (4,708) (2,305) (2,403) (104%)

Other income, net................................. (824) (1,480) 656 44% (1,002) (1,675) 673 40%

Equity in net earnings of affiliates.......... (5,964) (5,049) (915) (18%) (37,285) (20,727) (16,558) (80%)

Income tax provision (benefit)............... (83,102) 18,497 (101,599) (549%) (23,579) 71,727 (95,306) (133%)

Depreciation and non-film amortization.. 4,530 3,912 618 16% 12,929 11,549 1,380 12%

EBITDA.................................................. 41,576 49,632 (8,056) (16%) 182,214 182,804 (590) (0%)

Step-up Amortization Expense (1)......... 19,324 15,453 3,871 25% 62,049 57,069 4,980 9%

Stock-based compensation expense....... 2,319 3,011 (692) (23%) 7,020 8,826 (1,806) (20%)

Non-recurring costs and expenses (2).... - (161) 161 100% - 31 (31) (100%)

Adjusted EBITDA.................................... 63,219$ 67,935$ (4,716)$ (7%) 251,283$ 248,730$ 2,553$ 1%

Three Months Ended

September 30,

Nine Months Ended

September 30,Change Change

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For the three months ended September 30, 2015, Adjusted EBITDA of $63.2 million was $4.7 millionlower than Adjusted EBITDA of $67.9 million for the three months ended September 30, 2014. As expected,Adjusted EBITDA for the current year’s third quarter reflected higher theatrical marketing costs, which increasedprimarily due to the marketing campaign for the worldwide theatrical release of our franchise film, Spectre, in thefourth quarter of 2015. In addition, G&A expenses increased modestly due to strategic investments in growthinitiatives. This was partially offset by higher Adjusted EBITDA from the continued strong performance of ourtelevision licensing business, which included the initial international(3) pay television and SVOD availabilities forThe Hobbit: The Battle of the Five Armies and deliveries of season 2 of Fargo to FX for its initial U.S. broadcast.In comparison, the prior year’s third quarter benefitted from the robust performance of recently released film andtelevision content, including The Hobbit: The Desolation of Smaug, Carrie, RoboCop and our successful televisionseries, Teen Wolf and Vikings.

For the nine months ended September 30, 2015, Adjusted EBITDA of $251.3 million was $2.6 millionhigher than Adjusted EBITDA of $248.7 million for the nine months ended September 30, 2014. Despitesignificantly higher theatrical marketing expenses, we grew Adjusted EBITDA as a result of the strong performanceof our television licensing business across a broad base of content. This included significant new licensingagreements for library content, free television availabilities for Skyfall and The Hobbit: An Unexpected Journey(3),deliveries of season 3 of Vikings and season 2 of Fargo, and our steady pipeline of recently released film content,including Hercules, If I Stay and 22 Jump Street. This was offset by higher theatrical marketing costs primarily forthe marketing campaign for the worldwide theatrical release of our franchise film, Spectre, in the fourth quarter of2015, as well as the impact of the stronger U.S. Dollar on international earnings, lower Adjusted EBITDA from ourinteractive gaming business due to a non-recurring item that benefitted 2014, and modestly higher G&A expensesreflecting strategic investments in growth initiatives.

Liquidity and Capital Resources

General

Our operations are capital intensive. In recent years we have funded our operations primarily with cashflow from operating activities, bank borrowings, and through co-production arrangements. In 2015 and beyond, weexpect to fund our operations with (a) cash flow from the exploitation of our film and television content, (b) cash onhand, (c) co-production arrangements, and, if necessary, (d) funds available under our revolving credit facility.

Bank Borrowings

We have a senior secured revolving credit facility (the “Revolving Credit Facility”) with $665.0 million oftotal commitments, an interest rate of 2.75% over LIBOR and a maturity date of December 20, 2017. Theavailability of funds under the Revolving Credit Facility is limited by a borrowing base calculation. At September 30,2015, there were no borrowings nor any outstanding letters of credit against the Revolving Credit Facility and allremaining funds were entirely available to us.

In June 2014, on behalf of our indirect wholly-owned subsidiaries, MGM Holdings II Inc. and MGM, weentered into a six-year $300.0 million second lien term loan with a syndicate of lenders (the “Term Loan”). The TermLoan bears interest at a fixed rate of 5.125% until its maturity date, June 25, 2020.

The Revolving Credit Facility and Term Loan contain various affirmative and negative covenants andfinancial tests, including limitations on our ability to make certain expenditures, incur indebtedness, grant liens,dispose of property, merge, consolidate or undertake other fundamental changes, pay dividends and makedistributions, make certain investments, enter into certain transactions, and pursue new lines of business outside ofentertainment and/or media-related business activities. We were in compliance with all applicable covenants andthere were no events of default at September 30, 2015.


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Cash Provided By Operating Activities

Cash provided by operating activities was $181.3 million and $336.0 million for the nine months endedSeptember 30, 2015 and 2014, respectively. We generated strong operating cash flow for the nine months endedSeptember 30, 2015 despite significantly higher investments in new film and television content. Our net additions tofilm and television content increased $247.8 million as compared to the nine months ended September 30, 2014 andprimarily included higher investments in key franchise properties, such as Spectre, Creed, Ben Hur and TheMagnificent Seven, plus branded television content, such as season 4 of Vikings and season 2 of Fargo. Incomparison, our net additions to film and television content for the nine months ended September 30, 2014 primarilyincluded Hot Pursuit, Max, season 3 of Vikings and season 1 of Fargo, which were partially offset by the timingimpact of co-financing reimbursements and production tax incentives for several titles. Our higher net additions tofilm and television content was partially offset by an increase of $113.7 million in accounts payable, accrued andother liabilities primarily due to certain accrued production costs that will be paid by us or recouped fromdistribution proceeds by our co-production partners in future quarters.

Cash Used In Investing Activities

Cash used in investing activities was $9.0 million for the nine months ended September 30, 2015, andincluded minimal investments and capital expenditures. For the nine months ended September 30, 2014, cash usedin investing activities was $346.2 million and primarily included our investment in United Artists Media Group.

Cash Provided By (Used In) Financing Activities

Cash used in financing activities was $140.7 million for the nine months ended September 30, 2015. Thisincluded $145.8 million of aggregate repurchases of our Class A common stock, but excluded $69.5 million ofrepurchase commitments as of September 30, 2015 that were paid in the fourth quarter of 2015. Cash provided byfinancing activities was $187.5 million for the nine months ended September 30, 2014 and primarily included$295.5 million of net proceeds from the Term Loan, which was partially offset by $105.0 million of net repaymentsunder our Revolving Credit Facility.

Commitments

Future minimum commitments under corporate debt agreements, creative talent and employmentagreements, non-cancelable operating leases net of subleasing income, and other contractual obligations atSeptember 30, 2015, were as follows (in thousands):

(1) Does not include interest costs.(2) Creative talent and employment agreements include obligations to producers, directors, writers, actors and executives, as well as other creativecosts involved in producing film and television content.(3) Other contractual obligations primarily include contractual commitments related to our acquisition of film and distribution rights. Futurepayments under these commitments are based on anticipated delivery or availability dates of the related film or contractual due dates of thecommitment.

As discussed above under Liquidity and Capital Resources –Bank Borrowings, we have a $665.0 millionRevolving Credit Facility and a $300.0 million Term Loan. At September 30, 2015, there were no borrowings norany outstanding letters of credit against the Revolving Credit Facility and all remaining funds were entirely availableto us. Our future capital expenditure commitments are not significant.

Three Months

Ended

December 31, Year Ended December 31,

2015 2016 2017 2018 2019 Thereafter Total

Corporate debt (1) ................................................. $ - $ - $ - $ - $ - $ 300,000 $ 300,000

Creative talent and employment agreements (2)......... 39,327 26,276 6,710 448 - - 72,761

Operating leases .................................................... 1,855 7,528 9,645 9,582 10,233 27,355 66,198

Other contractual obligations (3).............................. 18,335 6,935 - - - - 25,270

$ 59,517 $ 40,739 $ 16,355 $ 10,030 $ 10,233 $ 327,355 464,229

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