ACTAVA GROUP INC, 10-K/A, 1995-07-13

ACTAVA GROUP INC
10-K/A, 1995-07-13
PHOTOFINISHING LABORATORIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A

AMENDMENT NO. 2

<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD
FROM TO
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</TABLE>

COMMISSION FILE NUMBER 1-5706
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THE ACTAVA GROUP INC.
(Exact name of registrant, as specified in its charter)

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<S> <C>
DELAWARE 58-0971455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

4900 GEORGIA-PACIFIC CENTER, ATLANTA, GEORGIA 30303
(Address and zip code of principal executive offices)

(404) 658-9000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Common Stock, $1 par value New York Stock Exchange
Pacific Stock Exchange
9 1/2% Subordinated Debentures, due August 1, 1998 New York Stock Exchange
9 7/8% Senior Subordinated Debentures, due March 15, 1997 New York Stock Exchange
10% Subordinated Debentures, due October 1, 1999 New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:
None

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. / /

THE AGGREGATE MARKET VALUE OF VOTING STOCK OF THE REGISTRANT HELD BY
NONAFFILIATES OF THE REGISTRANT AT MARCH 15, 1995 COMPUTED BY REFERENCE TO THE
LAST REPORTED SALE PRICE OF THE COMMON STOCK ON THE COMPOSITE TAPE ON SUCH DATE
WAS $116,409,216.

THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 15, 1995 WAS
17,308,258 SHARES.

DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I

ITEM 1. BUSINESS

The Actava Group Inc. ("Actava" or the "Company") was organized in 1929
under Pennsylvania law and was reincorporated in 1968 under Delaware law. On
July 19, 1993, the Company changed its name from Fuqua Industries, Inc. to The
Actava Group Inc. The Company's principal executive offices are located at 4900
Georgia-Pacific Center, Atlanta, Georgia 30303, and its telephone number is
(404) 658-9000.

Since the late 1960's, the Company has owned, operated and sold dozens of
companies in many diverse industries, including photofinishing, recreation,
sporting goods, yacht and sailboat manufacturing, outdoor power equipment,
manufactured housing, petroleum distribution, movie theaters, retailing,
broadcasting, trucking, food and beverages, grain storage bins, taxicabs,
seating and banking. At the beginning of 1994, the Company owned and operated
businesses in three industries: photofinishing, lawn and garden equipment, and
sporting goods. The Company sold its photofinishing subsidiary and its four
sporting goods subsidiaries during 1994. As a result of these transactions, the
Company presently operates only one business, Snapper Power Equipment Company
("Snapper"), which is a division of the Company and is engaged in the
manufacture and sale of lawn and garden equipment. In addition to operating
Snapper, the Company owns 19,169,000 shares of the Common Stock of Roadmaster
Industries, Inc. ("Roadmaster"). These shares were issued to the Company in
connection with the sale of the Company's four sporting goods subsidiaries to
Roadmaster. See "Major Developments During 1994 -- Sale of Sporting Goods
Subsidiaries." The Company is presently evaluating new opportunities and
strategies for enhancing stockholder value, including a proposal that the
Company enter into a business combination with three other companies in order to
create a global media, entertainment and communications company. See "Major
Developments During 1994 -- Proposed Metromedia Transaction."

MAJOR DEVELOPMENTS DURING 1994

A number of major developments affecting the Company occurred during 1994.
These developments are described below.

Election of John D. Phillips as Chief Executive Officer

On April 19, 1994, the Board of Directors of the Company elected John D.
Phillips as President, Chief Executive Officer and a director of the Company.
The Company on the same date sold 700,000 shares of its $1.00 par value Common
Stock ("Actava Common Stock") to Renaissance Partners, a partnership for which
Mr. Phillips serves as a general partner, for a cash price of $4,462,500, and
the Company issued to Mr. Phillips seven-year options for the purchase of
300,000 additional shares of Actava Common Stock at a price of $6.375 per share.
As a result of these transactions, Mr. Phillips, as of March 15, 1995, was the
beneficial owner of 5.8% of the outstanding shares of Actava Common Stock. From
1989 to 1993, Mr. Phillips was President and a director of Resurgens
Communications Group, Inc., which transmitted operator-assisted long distance
telephone calls and provided operator services and billing and collection
services to other long distance telephone companies. Resurgens Communications
Group, Inc. merged with Metromedia Communications Corporation and LDDS
Communications, Inc. in September 1993, and the combined company now operates as
a long distance telecommunications company under the name LDDS Communications,
Inc.

Mr. Phillips was given a mandate by the Company's Board of Directors to
improve the Company's operations and to increase stockholder value. As a result
of this mandate, the Company sold its photofinishing subsidiary and its four
sporting goods subsidiaries during 1994. These transactions have strengthened
the financial condition of the Company and have enabled the Company to pursue
other business opportunities.

Sale of Qualex

The Company was engaged in the photofinishing business from 1967 through
August 12, 1994. In 1988, the Company combined its photofinishing subsidiary,
Colorcraft Corporation, with the United States
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photofinishing operations of Eastman Kodak Company ("Kodak"). The company
resulting from this combination was named Qualex Inc. ("Qualex") and was jointly
owned by the Company and Kodak. Qualex is the largest wholesale photofinishing
company in the United States.

On August 12, 1994, the Company sold its 50% interest in Qualex to Kodak
and, as a result, is no longer engaged in the photofinishing business. In
exchange for the Company's ownership interest in Qualex, as well as a covenant
not to compete and related releases from the Company, Kodak paid the Company $50
million in cash and agreed to pay the Company an additional $100 million without
interest in two equal installments on February 13, 1995 and August 11, 1995. The
cash received and to be received by the Company from the sale of Qualex improved
the Company's liquidity and the Company's ability to take advantage of future
business opportunities. In connection with the sale of Qualex, the Company
reclassified Qualex as a discontinued operation. During 1994, the Company
recorded a loss of $40.7 million from discontinued operations. This loss
included a loss of $37.9 million on the sale of the Company's interest in Qualex
and a loss of $2.8 million relating to the operations of Qualex in 1994.

Prior to June 30, 1994, the Company owned 51% of the voting stock of
Qualex, was entitled to and elected a majority of the members of the Board of
Directors of Qualex, and had the ability through its control of the Board of
Directors to declare dividends, remove the executive officers of Qualex and
otherwise direct the management and policies of Qualex, except for policies
relating to certain designated actions requiring the consent of at least one
member of the Board of Directors of Qualex designated by Kodak. Because of these
rights, the Company believes that, under generally accepted accounting
principles, it had effective unilateral control of Qualex which was not
temporary during the period from 1988 until the second quarter of 1994. As a
result, the Company consolidated the results of operations of Qualex with the
results of operations of the Company for periods ending prior to June 30, 1994.

Upon the formation of Qualex in 1988, the Company and Kodak entered into a
Shareholders Agreement (the "Qualex Shareholders Agreement") that provided,
among other things, for a reduction in the Company's voting control of Qualex
from 51% to 50% and for changes in the composition of the Board of Directors of
Qualex in the event of a "change of control" of the Company. The Qualex
Shareholders Agreement defined the term "change of control" to include a
"transaction or occurrence the effect of which is to give a person or group of
affiliated persons or entities the power to direct the management and policies"
of the Company.

In 1991, Charles R. Scott was elected President and Chief Executive Officer
of the Company. At the time of his election, Mr. Scott was also serving as
Chairman and Chief Executive Officer of a company that owned approximately 25%
of the Company's voting stock and was the Company's single largest stockholder.
Because Mr. Scott was serving at the same time as the Chief Executive Officer of
both the Company and the Company's single largest stockholder, the Company and
Kodak agreed that a "change of control" of the Company had occurred for purposes
of the Qualex Shareholders Agreement. Despite this "change in control" of the
Company, Kodak agreed that the Company would continue to own 51% of the voting
control of Qualex and to elect a majority of the directors of Qualex. The Qualex
Shareholders Agreement, however, was amended to provide that Kodak had the right
to change the Company's control of Qualex on March 1, 1992 or on any subsequent
March 1. During the period from 1991 until the second quarter of 1994, the
Company did not believe that Kodak would exercise the right to change the
Company's control of Qualex, and Kodak, in fact, did not exercise this right on
March 1, 1992, 1993, or 1994.

Mr. Phillips was elected as President and Chief Executive Officer of the
Company on April 19, 1994. In late April 1994, the Company's management became
aware of Kodak's position that the election of Mr. Phillips as President and
Chief Executive Officer of the Company resulted in a "change of control" of the
Company under the Qualex Shareholders Agreement. The Company, however, did not
believe that the election of Mr. Phillips constituted a "change in control" of
the Company as defined in the Qualex Shareholders Agreement. This belief was
based in part on the fact that (i) Mr. Phillips owned less than 4% of the
Company's voting stock at the time of his election, (ii) Delaware corporate law,
under which the Company is governed, provides that the business and affairs of a
corporation shall be managed by and under the direction of the Board of
Directors -- not the president, and (iii) eight of the nine members of the Board
of Directors of the Company after the election of Mr. Phillips were serving as
directors before the election of

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Mr. Phillips. Although Kodak had informed the Company of its position that a
"change in control" of the Company had occurred, the Company believed that the
issue would be resolved without a change in control of Qualex. At a meeting held
on June 8, 1994, Kodak restated its position that the election of Mr. Phillips
constituted a "change in control" of the Company under the Qualex Shareholders
Agreement and requested that changes be made in the Company's voting control of
Qualex and in the composition of the Board of Directors of Qualex. The
disagreement between the Company and Kodak as to whether or not a "change in
control" had occurred was resolved at this meeting when the Company agreed that
it would not contest Kodak's interpretation of the Qualex Shareholders
Agreement. As a result, on June 30, 1994, the Company's ownership of the voting
stock of Qualex was reduced to 50% and the Company and Kodak each became
entitled to elect an equal number of members of the Board of Directors of
Qualex. Because of these changes affecting the Company's control of Qualex, the
Company discontinued its practice of consolidating the accounts of Qualex and
began accounting for its ownership in Qualex under the equity method effective
as of June 30, 1994. As a result, the Company's balance sheet, effective as of
June 30, 1994, no longer included approximately $771 million of Qualex's assets,
including approximately $367 million of intangible assets, and approximately
$399 million of Qualex's liabilities, including approximately $260 million of
long-term debt and approximately $21 million of working capital.

Sale of Sporting Goods Subsidiaries

The Company during 1994 transferred ownership of its four sporting goods
subsidiaries to Roadmaster in exchange for 19,169,000 shares of the $.01 par
value Common Stock of Roadmaster ("Roadmaster Common Stock"). The transaction
with Roadmaster (the "Exchange Transaction") was consummated pursuant to the
terms of an Agreement and Plan of Reorganization dated as of July 20, 1994 (the
"Agreement") by and among the Company, the Company's four sporting goods
subsidiaries, and Roadmaster. The Agreement and the Exchange Transaction were
approved by the Company's stockholders at a Special Meeting of the Stockholders
held on December 6, 1994, and the Exchange Transaction was closed effective as
of the same date (the "Closing Date").

As a result of the Exchange Transaction, the Company now owns approximately
39% of the issued and outstanding shares of Roadmaster Common Stock based on
49,289,529 shares of Roadmaster Common Stock outstanding as of March 15, 1995.
Shares of Roadmaster Common Stock are listed on the New York Stock Exchange. For
a description of the business of Roadmaster, see "Narrative Description of
Business -- Investment in Roadmaster Industries, Inc." below.

The four subsidiaries of the Company transferred to Roadmaster were
Diversified Products Corporation ("Diversified Products"), Hutch Sports USA Inc.
("Hutch"), Nelson/Weather-Rite, Inc. ("Nelson/Weather-Rite"), and Willow
Hosiery Company, Inc. ("Willow") (collectively referred to as the "Sports
Subsidiaries"). On the Closing Date, the aggregate book value of the Sports
Subsidiaries was approximately $68.3 million. The market value of the shares of
Roadmaster Common Stock received by the Company in exchange for the Sports
Subsidiaries was approximately $76.7 million as of the Closing Date and
approximately $55.1 million as of March 15, 1995. Due to the nature of the
Exchange Transaction, the Company recorded its initial investment in Roadmaster
on its books at an amount equal to the aggregate book value of the Sports
Subsidiaries as of the Closing Date rather than recognizing a gain on the
transaction.

In connection with the consummation of the Exchange Transaction, Roadmaster
adopted certain amendments to its Certificate of Incorporation. Among other
things, these amendments (i) increased the number of authorized shares of
Roadmaster Common Stock to 100,000,000 shares, (ii) fixed the number of members
of the Board of Directors of Roadmaster at nine, (iii) required that all action
by the stockholders of Roadmaster be taken at an annual or special meeting, (iv)
provided for advance notice of nominations to the Board of Directors of
Roadmaster, (v) required a two-thirds vote of the members of the Board of
Directors of Roadmaster to terminate Roadmaster's existing Chief Executive
Officer and Chief Operating Officer, except that the Board of Directors of
Roadmaster will have the right to terminate such officers by a majority vote if
Roadmaster has not reported positive net income from continuing operations for
the fiscal year preceding the year in which the Board of Directors elects to
terminate such officers, and (vi) required super-majority voting by the
stockholders to amend certain provisions of Roadmaster's Certificate of
Incorporation and Bylaws.

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On the Closing Date, the Company, Roadmaster, Henry Fong, the Chief
Executive Officer and a director of Roadmaster, and Edward E. Shake, the Chief
Operating Officer and a director of Roadmaster, entered into a Shareholders
Agreement (the "Roadmaster Shareholders Agreement") providing, among other
things, for the composition of the Board of Directors of Roadmaster. The
Roadmaster Shareholders Agreement expires on the fifth anniversary of the
Closing Date unless it is earlier terminated in accordance with its terms. The
parties to the Roadmaster Shareholders Agreement have agreed to take all action
necessary to cause Roadmaster's Board of Directors to be fixed at nine
directors, four of whom will be designated by the Company (the "Actava
Designated Directors") and five of whom will be designated by Roadmaster (the
"Roadmaster Designated Directors"). Two of the four persons initially elected to
serve as Actava Designated Directors were required to be persons who are not
employees, officers or affiliates of Roadmaster or the Company. In addition,
three of the five persons who serve as Roadmaster Designated Directors must be
persons who are not employees, officers or affiliates of Roadmaster or the
Company. The Actava Designated Directors were elected to the Board of Directors
of Roadmaster on December 16, 1994. They are Mr. Phillips, President and Chief
Executive Officer of the Company, Carl E. Sanders, a member of the Board of
Directors of the Company and the Chairman of the Atlanta law firm Troutman
Sanders, Clay C. Long, Chairman of Long, Aldridge & Norman, an Atlanta law firm,
and Michael P. Marshall, a private investor and the former Chairman of the Board
of Directors of Resurgens Communications Group, Inc. Mr. Phillips and Mr.
Marshall are both general partners in Renaissance Partners, a Georgia general
partnership which owns 700,000 shares of Actava Common Stock. Mr. Sanders and
Mr. Long are both partners in law firms that provide legal services to the
Company. The Roadmaster Shareholders Agreement obligates the parties to use
their best efforts to cause at least one of the Actava Designated Directors to
serve on each committee of Roadmaster's Board of Directors and to cause at least
two Actava Designated Directors to serve on any committee consisting of five or
more members.

The Roadmaster Shareholders Agreement provides for a reduction in the
number of Actava Designated Directors in the event that the Company sells,
transfers or assigns a portion of the shares of Roadmaster Common Stock owned by
the Company. If the number of shares of Roadmaster Common Stock owned by the
Company is reduced to a number less than 12,000,000 but equal to or more than
8,000,000, then the Company will become entitled to designate only three members
to Roadmaster's Board of Directors. If the number of shares of Roadmaster Common
Stock owned by the Company is reduced to less than 8,000,000 but equal to or
more than 5,000,000, then the Company will be entitled to designate only two
members to Roadmaster's Board of Directors. If the number of shares of
Roadmaster Common Stock owned by the Company is reduced to less than 5,000,000
but equal to or more than 2,000,000, then the Company will be entitled to
designate only one member to Roadmaster's Board of Directors.

Subject to the limitations described above, the parties to the Roadmaster
Shareholders Agreement have agreed that they will at all times and upon every
opportunity affirmatively vote all of their shares of Roadmaster Common Stock to
cause the Board of Directors to be composed of five Roadmaster Designated
Directors and four Actava Designated Directors. In addition, Mr. Fong is
obligated to use his best efforts to cause Equitex, Inc. to support the
nomination and election of the Actava Designated Directors. Mr. Fong is the
President and Chief Executive Officer and a director of Equitex, Inc., which
currently owns 10.5% of the outstanding shares of Roadmaster Common Stock.

The Company's obligation to support the nomination and election of the
Roadmaster Designated Directors will terminate if (i) Roadmaster has not
reported positive net income from continuing operations for its last fiscal
year, (ii) the Actava Designated Directors have not been nominated and supported
by the other parties to the Roadmaster Shareholders Agreement, or (iii) the
Actava Designated Directors have not been elected to, and are not then serving
on, the Roadmaster Board of Directors. The obligation of Roadmaster, Mr. Fong
and Mr. Shake to support the nomination and election of the Actava Designated
Directors will terminate if the Roadmaster Designated Directors have not been
supported by the Company or if the Roadmaster Designated Directors have not been
elected to, and are not then serving on, the Roadmaster Board of Directors.

In addition to the voting provisions, the Roadmaster Shareholders Agreement
grants to Roadmaster a right of first refusal with respect to any proposed sale
of the shares of Roadmaster Common Stock issued to

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the Company in the Exchange Transaction for as long as the Actava Designated
Directors have been nominated and elected to the Board of Directors of
Roadmaster. Such right of first refusal will not apply to any proposed sale,
transfer or assignment of such shares to any persons who would, after
consummation of such transaction, own less than 10% of the outstanding shares of
Roadmaster Common Stock or to any sale of such shares pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Securities
Act"), if the Company has used its reasonable best efforts not to make any sale
pursuant to such registration statement to any single purchaser or "Acquiring
Person" who would own 10% or more of the outstanding shares of Roadmaster Common
Stock after the consummation of such transaction. "Acquiring Person" generally
is defined to mean any person or group which together with all affiliates is the
beneficial owner of 5% or more of the outstanding shares of Roadmaster Common
Stock. The right of first refusal also would not apply to any proposed sale,
transfer or assignment of the Company's shares of Roadmaster Common Stock to an
affiliate of the Company.

The shares of Roadmaster Common Stock issued to the Company in connection
with the Exchange Transaction have not been registered for resale under the
Securities Act. On the Closing Date, however, the Company and Roadmaster entered
into a Registration Rights Agreement (the "Registration Rights Agreement") under
which Roadmaster agreed to register such shares ("Registrable Stock") at the
request of the Company or its affiliates or any transferee who acquires at least
1,000,000 of the shares of Roadmaster Common Stock issued to the Company. Under
the Registration Rights Agreement, registration may be required at any time
during a ten-year period beginning as of the Closing Date (the "Registration
Period") by the holders of at least 50% of the Registrable Stock if a
"long-form" registration statement (i.e., a registration statement on Form S-1,
S-2 or other similar form) is requested or by the holders of Registrable Stock
with a value of at least $500,000 if a "short-form" registration statement
(i.e., a registration statement on Form S-3 or other similar form) is requested.
Roadmaster is required to pay all expenses incurred (other than the expenses of
counsel, if any, for the holders of Registrable Stock, the expenses of
underwriter's counsel, and underwriting fees) for any two registrations
requested by the holders of Registrable Stock during the Registration Period.
Roadmaster will become obligated to pay the expenses of up to two additional
registrations if Roadmaster is not eligible to use a short-form registration
statement to register the Registrable Stock at any time during the Registration
Period. All other registrations will be at the expense of the holders of the
Registrable Stock.

In addition to the demand registration rights described above, if
Roadmaster at any time proposes to register under the Securities Act any of its
securities for sale for its own account or for the account of any person,
subject to certain exceptions, it is required to provide the holders of
Registrable Stock with the opportunity to sell some or all of their Registrable
Stock pursuant to such registration. Roadmaster, however, is not required to
grant any concession or additional rights to any other person to secure the
right of any holder of Registrable Stock to participate in such registration. In
addition, Roadmaster will have the right at least once during each twelve-month
period to defer the filing of a demand registration statement for a period of up
to 90 days after request for registration by the holders of the requisite number
of shares of Registrable Stock.

Any future registration rights granted by Roadmaster may not impair the
priority of the registration rights granted to the holders of Registrable Stock,
but Roadmaster may grant registration rights that are substantially similar to
or that rank on a parity with the registration rights granted under the
Registration Rights Agreement.

Sale of Real Estate Investment

The Company during 1994 entered into an agreement, subject to certain
conditions, to sell to an investment group a parcel of real property located
near Houston, Texas, and the related industrial revenue bonds owned by the
Company, for $9 million in cash, which approximates the Company's book value in
the property and the bonds. The property, which is known as Sienna Plantation,
was purchased by the Company as an investment in 1973. This transaction will
enable the Company to recover its book value in the property and the bonds and
to be relieved of the recurring costs of owning and maintaining the property.
The Company anticipates that this transaction will be closed on or before June
30, 1995.

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Proposed Metromedia Transaction

The consummation of the Proposed Metromedia Transaction is subject, among
other things, to the successful negotiation and execution of definitive
agreements, approval of the Proposed Metromedia Transaction by the Boards of
Directors and stockholders of the Company, Orion, Sterling, and MITI, the
completion of satisfactory due diligence investigations by each of the parties
to the Proposed Metromedia Transaction, the receipt of all required lender
consents, the successful refinancing of the currently outstanding indebtedness
of Orion, and the receipt of all required regulatory approvals. There can be no
assurance that the parties will negotiate and enter into definitive agreements
or, even if definitive agreements are executed, that the various conditions to
the transaction will be satisfied and that the Proposed Metromedia Transaction
will be consummated. The Board of Directors of the Company has retained CS First
Boston Corporation to serve as its financial adviser in connection with the
Proposed Metromedia Transaction and to render an opinion on the fairness of the
transaction to the Company's stockholders from a financial point of view.
Although the Board of Directors of the Company has met on several occasions to
consider the Proposed Metromedia Transaction, it has not approved the Proposed
Metromedia Transaction. If the Proposed Metromedia Transaction is approved by
the Company's Board of Directors and if definitive agreements are executed by
the parties thereto, then the Company will call a special meeting of
stockholders for the purpose of considering the Proposed Metromedia Transaction.
In this event, detailed information regarding the Proposed Metromedia
Transaction, including pro forma financial information, will be presented to the
Company's stockholders in a proxy statement relating to the Proposed Metromedia
Transaction.

The letters of intent relating to the Proposed Metromedia Transaction
provide that (i) each outstanding share of Orion common stock would be exchanged
for 0.57143 shares of Actava Common Stock or its equivalent in the entity that
survives the combination, (ii) each share of Sterling common stock would be
converted into 1,000,000 shares of Orion common stock which would then be
exchanged for Actava Common Stock or its equivalent in the entity that survives
the combination at the same 0.57143 exchange ratio, and (iii) each share of MITI
common stock would be exchanged for 5.5614 shares of Actava Common Stock or its
equivalent in the entity that survives the combination. The foregoing exchange
ratios will be subject to certain adjustments depending on the trading range of
Actava Common Stock. Approximately 17,308,258 shares of Actava Common Stock were
issued and outstanding as of March 15, 1995. If the Proposed Metromedia
Transaction is consummated, it is currently anticipated that the Company (based
on the market price of Actava Common Stock as of March 15, 1995 and assuming the
Company is the surviving entity of the Proposed Metromedia Transaction) would
issue approximately 23,481,000 additional shares of Actava Common Stock. The
letters of intent provide that all of the shares of common stock of the
surviving entity in the Proposed Metromedia Transaction will be identical to the
shares of Actava Common Stock currently outstanding, except that the shares of
common stock issued to Metromedia and its affiliates (including Mr. Kluge) will
be entitled to three votes per share. If the Proposed Metromedia Transaction is
consummated, it is currently anticipated that Metromedia and its affiliates
would control in excess of 50% of the voting power of the surviving entity in
the transaction.

The letters of intent further provide that Metromedia International Group,
Inc. would be managed by a three-person Office of the Chairman consisting of Mr.
Kluge, the current Chairman of Orion, as Chairman, Stuart Subotnick, Orion's
current Vice Chairman, as Vice Chairman, and Mr. Phillips, the current President
and Chief Executive Officer of the Company, as President. When the letters of
intent were executed and announced, Mr. Phillips did not have a business
relationship with Metromedia or Mr. Kluge. Mr. Phillips, however, has had
previous business relationships with Metromedia and Mr. Kluge. Mr. Kluge or
companies

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controlled by him, including Metromedia, have previously made investments in two
companies for which Mr. Phillips was then serving as chief executive officer or
chief operating officer.

The letters of intent relating to the Proposed Metromedia Transaction
contemplate that the Company will provide up to $55 million of interim financing
on a secured basis to Orion, Sterling and MITI prior to consummation of the
Proposed Metromedia Transaction. Pursuant to the letters of intent, the Company
and Metromedia entered into a Credit Agreement dated as of October 11, 1994 (the
"Credit Agreement") under which the Company agreed to make loans to Metromedia
in an amount not to exceed an aggregate of $55 million. Under the terms of the
Credit Agreement, Metromedia will use the proceeds of the loans to make advances
to or to pay obligations on behalf of Orion, Sterling and MITI. All loans made
by the Company to Metromedia under the Credit Agreement are secured by shares of
stock of Orion and MITI owned by Metromedia and its affiliates. In addition, Mr.
Kluge, a general partner of Metromedia, has personally guaranteed the loans. The
Credit Agreement provides that interest will be due on the principal amount of
all loans at an annual rate equal to the prime rate announced from time to time
by Chemical Bank (9% as of March 15, 1995). Interest will be increased to prime
plus three percent per annum if a party other than the Company terminates
discussions relating to the Proposed Metromedia Transaction. Loans totalling
$44.9 million had been made by the Company to Metromedia under the Credit
Agreement as of March 15, 1995. All loans are due and payable on April 12, 1995,
but Metromedia has requested the Company to extend the loans as long as the
Proposed Metromedia Transaction is still pending. The Board of Directors of the
Company has not acted on this request.

Although the Proposed Metromedia Transaction has not been approved by the
Company's Board of Directors, a stockholder of the Company has filed a class
action lawsuit against the Company and each of its directors seeking to block
the Proposed Metromedia Transaction. See Item 3. "Legal Proceedings --
Litigation Relating to Proposed Metromedia Transaction." In addition, Triton
Group Ltd. ("Triton"), which owns approximately 25% of the issued and
outstanding shares of Actava Common Stock, has publicly announced that it is
opposed to the Proposed Metromedia Transaction and that it "is encouraging
Actava's Board of Directors and management to evaluate other alternative
business strategies and to exercise their obligations diligently under Delaware
law relating to the sale of the Company." In response to Triton's opposition to
the Proposed Metromedia Transaction, TAC, Inc., a newly formed Delaware
corporation ("TAC"), has announced a tender offer to purchase all of the issued
and outstanding shares of common stock of Triton. The purpose of the tender
offer is to acquire control of Triton and thereafter to cause Triton to vote its
shares of Actava Common Stock in favor of the Proposed Metromedia Transaction.
TAC is owned by Mr. Phillips and by Met Tac, Inc., a company owned by Mr. Kluge,
as trustee, and Mr. Subotnick.

NARRATIVE DESCRIPTION OF BUSINESS

The Company currently engages in the lawn and garden equipment industry
through a division of the Company doing business under the name "Snapper Power
Equipment Company". In addition, the Company is indirectly engaged in the
sporting goods business through its ownership interest in Roadmaster.

Snapper Power Equipment Company

Snapper manufactures Snapper(R) brand power lawnmowers, lawn tractors,
garden tillers, snowthrowers, and related parts and accessories and distributes
edgers. The lawnmowers include rear engine riding mowers, front engine riding
mowers or lawn tractors, and self-propelled and push-type walk-behind mowers.
Snapper also manufactures a line of commercial lawn and turf equipment and
markets a fertilizer line under the Snapper(R) brand.

Snapper products are premium priced, generally selling at retail from $250
to $8,600. They are sold exclusively through 52 independent distributors to
approximately 7,300 dealers throughout the United States. In addition, Snapper
products are exported to 26 independent distributors and four company-owned
distributors covering 41 foreign countries. Snapper does no private label
manufacturing of lawn and garden equipment and does not sell directly to
multi-unit retailers or mass merchandisers. Although the ultimate consumers
generally purchase lawnmowers in the spring and early summer, Snapper sells to
its distributors

7
<PAGE> 9

nearly year-round, with the greatest volume of production and shipment preceding
the ultimate consumer purchasing periods. Historically, Snapper has provided its
distributors with accounts receivable redating programs under which the due
dates for distributor accounts receivable were set to coincide with the
anticipated sales to the ultimate consumer. During 1994, Snapper revised its
redating programs for lawn and garden equipment in order to accelerate the
collection of its accounts receivable from distributors and thereby reduce
Snapper's working capital debt and improve its cash flow. As a result of the
revision of these programs, Snapper's distributors and dealers postponed orders
for new products during most of 1994 in order to reduce their inventory levels.
During December of 1994, however, Snapper's distributors accelerated their
purchases of Snapper products in order to build their inventories prior to the
implementation of price increases by Snapper in 1995. Snapper anticipates that
its distributors in the future will continue their previous effort to match
retail inventories to consumer demand. See Item 7. "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."

Snapper makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan which allows consumers to pay for Snapper
products in installments. Consumers also receive Snapper credit cards which can
be used to purchase additional Snapper products. In addition, Snapper has an
agreement with a financial institution which makes floor plan financing for
Snapper products available to dealers. This agreement provides financing for
dealer inventories and accelerates cash flow to Snapper's distributors and to
Snapper. Under the terms of the agreement, a default in payment by one of the
dealers on the program is non-recourse by the financial institution to both the
distributor and Snapper. The distributor, however, is obligated to repurchase
any unused equipment recovered from the dealer and Snapper is obligated to
repurchase the recovered equipment if the distributor defaults.

Snapper manufactures its products in McDonough, Georgia at facilities
totaling approximately 1,000,000 square feet. Snapper also manufactures a
substantial portion of the component parts for its products, excluding engines
and tires. Although most of the parts and materials for Snapper's products are
commercially available from a number of sources, Snapper has substantially
reduced the number of suppliers that it uses for parts and materials. In many
cases, Snapper has agreed to use a single supplier for a specific part or
material in order to obtain more favorable price, delivery and performance
terms. Snapper believes, however, that alternative suppliers are available for
all of the parts and materials that it needs in connection with the manufacture
of its products.

During the three years ended December 31, 1994, Snapper has spent an
average of $5 million per year for research and development. Although it holds
several design and mechanical patents, Snapper is not dependent upon any one or
more patents, nor does it consider that patents play a material role in its
business. Snapper does believe, however, that the registered trademark
Snapper(R) is an important asset in its business. Snapper walk-behind mowers are
subject to Consumer Product Safety Commission safety standards and are designed
and manufactured in accordance therewith.

The lawn and garden business is highly competitive, with the competition
being based upon price, image, quality and service. Although no one company
dominates the market, the Company believes that Snapper is one of the
significant manufacturers of lawn and garden products. There are approximately
50 manufacturers who produce products that compete with Snapper's products.
Snapper's principal brand name competitors in the sale of power lawnmowers
include The Toro Company, Lawn-Boy (a product of The Toro Company), Sears,
Roebuck and Co., Deere & Company, Ariens Company, Honda Corporation, Murray Ohio
Manufacturing Co., American Yard Products, Inc. (a subsidiary of AB Electrolux),
MTD Products, Inc., and Simplicity Manufacturing, Inc. Some of Snapper's
competitors have greater financial resources than Snapper.

At December 31, 1994, Snapper had approximately $94 million in backlog
orders believed to be firm as compared to approximately $122 million in backlog
orders at December 31, 1993.

The Company is actively seeking to identify synergistic business
combinations for Snapper and would ultimately like for Snapper to operate as, or
as part of, a publicly held company in which the Company has an interest.
Although the Company would prefer to own an interest in a publicly held Snapper,
the Company is exploring other alternatives for Snapper, including a possible
sale or joint venture or the continued operation of Snapper as a division or
subsidiary. The Company currently is not a party to any agreements with respect
to

8
<PAGE> 10

any acquisitions or business combinations regarding Snapper nor does it have any
immediate plans or agreements that would cause Snapper to become publicly owned.
No assurances can be given that the Company in the future will engage in such a
transaction or effect such a plan.

Investment in Roadmaster Industries, Inc.

The Company owns approximately 39% of the outstanding shares of Roadmaster
Common Stock as a result of the Exchange Transaction. Roadmaster, through its
operating subsidiaries, is one of the largest manufacturers of bicycles and is a
leading manufacturer of fitness equipment and toy products in the United States.
The following is certain information concerning the business and operations of
Roadmaster which was furnished to the Company by Roadmaster.

Roadmaster's major product lines consist of bicycles for the adult, teen
and juvenile markets, fitness equipment, including stationary aerobic equipment,
multi-station weight systems and benches, and toy products such as tricycles,
wagons, toy horses, bulk plastic toys, sleds and swing sets, and team sports and
camping equipment. Roadmaster markets its products, primarily through mass
merchandisers, under trade names with widespread consumer recognition and long
operating histories, including Roadmaster(R), Vitamaster(R), Flexible Flyer(R),
MacGregor(R), DP(R), Hutch(R), Reach(R), Weather-Rite(R), and American
Camper(R). In 1994, Roadmaster had sales greater than $1 million to each of more
than 20 leading mass merchandisers including Toys "R" Us Inc. ("Toys "R" Us"),
Wal-Mart Stores, Inc. ("Wal-Mart") and Target Stores, Inc. ("Target").
Roadmaster received Vendor of the Year awards from Toys "R" Us in 1992 and 1993,
Wal-Mart in 1991 and Target in 1990.

As a result of the Exchange Transaction, Roadmaster now owns and operates
the four sporting goods companies formerly owned and operated by the Company.
These companies are Diversified Products, Hutch, Nelson/Weather-Rite, and
Willow. These companies manufacture, import and distribute products for a broad
cross-section of the sporting goods, fitness, camping, and leisure markets. The
companies also sell products under licenses from the National Football League,
National Basketball Association, National Hockey League, Major League Baseball,
The Walt Disney Company, Inc., Remington Arms Company, Inc. and numerous
colleges and universities.

Bicycle and fitness products together accounted for 78% of Roadmaster's net
sales in 1994. Roadmaster has experienced sales growth in bicycles and fitness
products of 540% and 144%, respectively, from 1990 through 1994. Roadmaster's
management believes that Roadmaster's share of bicycles sold through mass
merchandisers, who sell approximately 80% of all bicycles in the United States,
has grown from 5% in 1990 to 25% in 1994. Roadmaster's total sales for the year
ended December 31, 1994 increased by 46% to $455.7 million from the year ended
December 31, 1993, primarily due to increased sales in Roadmaster's existing
product lines. Due to the seasonality of its business, Roadmaster's fourth
quarter sales over the past four years have accounted for approximately 35% of
its total annual sales.

Although international sales are not currently a significant part of
Roadmaster's consolidated operations, Roadmaster plans to expand its existing
distribution in Canada and Europe. In addition, Roadmaster intends to continue
to pursue acquisitions of complementary product lines in order to achieve
economies of scale and to leverage its existing relationships with mass
merchandisers.

Prior to consummation of the Exchange Transaction, the manufacturing
facility operated by Diversified Products in Opelika, Alabama was underutilized.
Diversified Products used approximately 60% of its production space during its
peak manufacturing season and approximately 30% of its production space during
non-peak periods. As a result of the Exchange Transaction, Roadmaster has opened
a new bicycle production line at Diversified Products' manufacturing facility,
which has substantially increased the utilization of this facility. Roadmaster
plans to add additional production lines at this facility in the future.

Roadmaster's principal executive offices are located at the International
Sports Plaza, 250 Spring Street, N.W., Suite 3 South, Atlanta, Georgia 30303,
and its telephone number is (404) 586-9000. Roadmaster and each of its domestic
subsidiaries are incorporated under Delaware law.

9
<PAGE> 11

ENVIRONMENTAL PROTECTION

Snapper's manufacturing plant is subject to federal, state and local
pollution laws and regulations. Compliance with such laws and regulations has
not, and is not expected to, materially affect Snapper's competitive position.
Snapper's capital expenditures for environmental control facilities and
incremental operating costs in connection therewith were not material in 1994
and are not expected to be material in future years for compliance relating to
facilities owned by Snapper in 1994.

The Company is involved in various environmental matters involving property
owned or operated by a former subsidiary of the Company, including clean-up
efforts at landfill sites and the remediation of groundwater contamination. The
Company's participation in two existing superfund sites has been quantified and
its remaining exposure is estimated to be less than $400,000 for both sites. In
addition, the Company has been notified that it may be a responsible party with
respect to a potential environmental contamination site that is being
investigated by a state environmental agency. The Company sold the business
operated at the potential contamination site in 1968. The current owner of the
potential contamination site has conducted a preliminary site assessment, but
the Company's liability, if any, has not been determined and cannot be
reasonably estimated. To the best of the Company's knowledge, the investigation
by the state environmental agency has not been active for several years. The
costs incurred by the Company with respect to this matter have been minimal.

The Company, through a wholly-owned subsidiary, owns approximately 17 acres
of real property located in Opelika, Alabama (the "Opelika Property"). The
Opelika Property was formerly owned by Diversified Products and was transferred
to a wholly owned subsidiary of the Company in connection with the Exchange
Transaction. Diversified Products previously used the Opelika Property as a
storage area for stockpiling cement, sand, and mill scale materials needed for
or resulting from the manufacture of exercise weights. In June 1994, Diversified
Products discontinued the manufacture of exercise weights and no longer needed
to use the Opelika Property as a storage area. In connection with the
negotiation of the Exchange Transaction, Roadmaster and the Company agreed that
the Company, through a wholly-owned subsidiary, would acquire the Opelika
Property, together with any related permits, licenses, and other authorizations
under federal, state and local laws governing pollution or protection of the
environment. In connection with the closing of the Exchange Transaction, the
Company and Roadmaster entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Opelika Property. The Indemnity Agreement does not
cover environmental liabilities relating to any property now or previously owned
by Diversified Products except for the Opelika Property. The Company's
obligations under the Indemnity Agreement with respect to the Opelika Property
are not limited. The Company has a reserve of approximately $1.9 million to
cover any environmental liabilities resulting from its ownership of the Opelika
Property or its obligations under the Indemnity Agreement.

EMPLOYEES

At December 31, 1994, the Company, including Snapper, had approximately
1,225 employees. Approximately 900 of Snapper's employees were represented by a
union under a collective bargaining agreement. In general, the Company believes
that its employee relations are good.

INDUSTRY SEGMENT DATA

Industry Segment Data is included in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

10
<PAGE> 12

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

During 1994, Actava's management took several steps to redirect the
Company's focus in order to improve its operating results and financial
condition and to enable it to pursue new business opportunities. These steps
included the sale of the Sports Subsidiaries to Roadmaster for Roadmaster's
publicly traded stock valued at approximately $76.7 million on the date of the
sale and valued at approximately $55.1 million as of March 15, 1995, the sale of
the Company's 50% ownership interest in Qualex to Kodak for cash and short-term
notes totaling $150 million, the negotiation and execution of a contract to sell
a real estate investment for $9 million in cash, and the initiation of
negotiations for a business combination that would create a global media,
entertainment and communications company.

The Company's Snapper Division currently provides lawn and garden products
through distribution channels to domestic and foreign retail markets. In
addition, the Company is indirectly involved in the sporting goods business
through its ownership interest in Roadmaster.

On December 6, 1994, Actava transferred the Sports Subsidiaries to
Roadmaster in exchange for approximately 19.2 million shares of Roadmaster
Common Stock, which represented approximately 39% of the issued and outstanding
shares of Roadmaster Common Stock. Although the value of the shares of
Roadmaster Common Stock received by Actava on the transaction date exceeded
Actava's investment in the Sport Subsidiaries, a gain was not recognized for
financial reporting purposes because the transaction was classified as a
nonmonetary exchange which requires that the shares be recorded at the book
value of the assets exchanged. The results of operations for the Sports
Subsidiaries through December 6, 1994, are reflected in the consolidated results
of operations of Actava for the year ended December 31, 1994. The Sports
Subsidiaries were not classified as a discontinued operation because of the 39%
equity interest retained by Actava in Roadmaster. See "Investment in Roadmaster
Industries, Inc." in Notes to Consolidated Financial Statements.

On August 12, 1994, Actava sold its investment in Qualex to Kodak and
recognized a loss from discontinued operations of $40.7 million for 1994. This
loss included a loss of $37.9 million on the sale of the Company's interest in
Qualex and a loss of $2.8 million relating to the operations of Qualex in 1994.
Actava had consolidated the results of operations of Qualex with the results of
operations of Actava for periods ending prior to June 30, 1994. During the
second quarter of 1994, Actava began accounting for its investment in Qualex
under the equity method and then began accounting for Qualex as a discontinued
operation due to a decision to dispose of its interest in Qualex. Accordingly,
the results of Qualex for all periods presented are reported in the accompanying
consolidated statements of operations as discontinued operations. See
"Photofinishing Transaction and Discontinued Operation" in Notes to Consolidated
Financial Statements.

Actava is presently evaluating new opportunities and strategies for
enhancing stockholder value. On August 31, 1994, Actava entered into letters of
intent relating to the Proposed Metromedia Transaction. It is contemplated that
the surviving entity of the Proposed Metromedia Transaction would be a global
media, entertainment and communications company named Metromedia International
Group, Inc. Consummation of the Proposed Metromedia Transaction is subject to a
number of conditions, including completion of due diligence investigations by
each of the parties, negotiation and execution of definitive agreements, the
successful refinancing of the currently outstanding indebtedness of Orion, and
approval of the transaction by Actava's Board of Directors and stockholders.
There can be no assurance that the parties will negotiate and enter into
definitive agreements or, even if definitive agreements are executed, that the
various conditions to the transaction will be satisfied and that the Proposed
Metromedia Transaction will be consummated. The Company is currently continuing
its due diligence efforts regarding the Proposed Metromedia Transaction.

The following is a discussion of the operating results and financial
condition of the continuing operations of Actava on a consolidated basis, the
operating results and financial condition of the Company's lawn and garden
segment for all of 1994 and a discussion of the operating results and financial
condition of the sporting goods segment for the period ending December 6, 1994.
Financial information summarizing the results of operations for Qualex, which is
classified in discontinued operations, is presented in "Photofinishing

11
<PAGE> 13

Transaction and Discontinued Operation" in Notes to Consolidated Financial
Statements. Summary financial information for the Company's equity investment in
Roadmaster is presented in "Investment in Roadmaster Industries, Inc." in Notes
to Consolidated Financial Statements.

CONSOLIDATED CONTINUING OPERATIONS

<TABLE>
<CAPTION>
INCREASE (DECREASE)
FISCAL YEAR -------------------
-------------------------------- 1994 VS. 1993 VS.
1994 1993 1992 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $551,828 $465,812 $377,890 $ 86,016 $ 87,922
Gross profit...................... 90,653 64,341 94,255 26,312 (29,914)
Gross profit %.................... 16.4% 13.8% 24.9% -- --
S, G & A.......................... $ 90,974 $ 88,975 $ 76,755 1,999 12,220
Operating profit (loss)........... (321) (24,634) 17,500 24,313 (42,134)
Interest expense.................. 28,434 26,811 20,811 1,623 6,000
Income from equity investment..... 365 -- -- 365 --
Other income (expense)............ 4,934 (1,706) 4,651 6,640 (6,357)
Income taxes (benefit)............ -- (1,435) 1,662 1,435 (3,097)
Loss from continuing operations... (23,456) (51,716) (322) 28,260 (51,394)
</TABLE>

The Company's consolidated sales increase of 18.5% for 1994 is primarily
the result of increases of $68.1 million at Diversified Products and $24.5
million at Snapper. The increase at Diversified Products, which was acquired in
June 1993, is the result of the mid-1993 acquisition date and increases in
treadmill sales. The increase at Snapper is due to increased snowthrower sales
and increases in distributor orders for such items as walk-behind mowers and
rear-engine riders and tractors made in anticipation of price increases by
Snapper in 1995. The increase in gross profit dollars in 1994 represents a 40.9%
increase as compared to 1993 and is primarily attributable to gross profit
increases at Snapper resulting from a change in product mix and improved
manufacturing cost experience.

The Company's consolidated sales for 1993 increased $87.9 million, or
23.3%, from 1992 principally because of the acquisition of Diversified Products.
Gross profit as a percentage of sales for 1993 of 13.8% reflects a decrease from
24.9% for 1992 while gross profit dollars decreased by $29.9 million to $64.3
million. This is primarily due to a gross profit decline suffered by Snapper,
which was partially offset by an increase in the gross profits recorded by the
Sports Subsidiaries excluding Diversified Products. The Snapper gross profit
decline was primarily caused by manufacturing problems associated with new
product introductions during 1993.

Selling, general and administrative expenses, which include provisions for
doubtful accounts, plant closure costs and employee termination costs, increased
by 2.2% for 1994 in comparison to 1993. This increase is primarily attributable
to a 1994 first quarter provision of $1.3 million for the settlement of an
employee agreement, additional salaries for newly hired executive officers and
decreases at Snapper which were partially offset by increases by the Sports
Subsidiaries.

Selling, general and administrative expenses increased by $12.2 million, or
15.9%, for 1993 in comparison to 1992. The increase in selling, general and
administrative expenses is primarily attributable to the effect of $8.6 million
of selling, general and administrative expenses incurred by Diversified Products
from the acquisition date to year-end 1993 and a $1.7 million increase in such
expenses for the other Sports Subsidiaries.

For 1994, Actava's operating loss of $321,000 represents a $24.3 million
improvement over the 1993 operating loss. This improvement is primarily
attributable to a $26.7 million reduction in Snapper's operating loss, which
resulted from higher sales volume, a change in product mix and improved
manufacturing costs. The 1994 operating profit for the Sports Subsidiaries
decreased by $383,000 as compared to 1993.

In 1993, Actava recorded an operating loss of $24.6 million compared to an
operating profit from 1992 of $17.5 million. The 1993 operating loss includes
income of $865,000 for plant relocations and consolidations and a $4 million
charge for a change in the estimate of future warranty costs at Snapper due to
increased

12
<PAGE> 14

warranty claims. Other factors negatively impacting operating profits for 1993
in comparison to 1992 were underutilization of plant capacity and manufacturing
inefficiencies at Snapper and Diversified Products, lower gross margins on
initial product introductions by Snapper, and an increase in corporate expenses
of approximately $4 million. The corporate expense increase was primarily
attributable to additional self-insurance reserves, an increase in insurance
administrative expense, and the impact of reduced expenses for 1992 due to the
reversal of certain reserves in 1992 for settlement of employee agreements and
office relocations.

Interest expense for 1994 represents an increase of $1.6 million as
compared to 1993. This increase is primarily attributable to the addition of
interest associated with a revolving credit facility established to provide
working capital for Diversified Products.

Interest expense for 1993 of $26.8 million represents an increase of $6
million from 1992. This increase is primarily attributable to higher average
borrowings at Snapper and the addition of interest associated with the revolving
credit facility established to provide working capital for Diversified Products.
The credit lines for Actava's subsidiaries and divisions substantially reduced
their reliance on Actava for their working capital needs.

Other income (net of other deductions) increased $6.6 million for 1994 when
compared to 1993. This is primarily due to an increase in investment income from
higher levels of investment and recognition of imputed interest income on the
note received from Kodak in connection with the sale of Qualex, partially offset
by increases in early payment interest credit expense at Snapper.

Other income (net of other deductions) decreased $6.4 million for 1993 when
compared to 1992. This is primarily due to a decrease in investment income from
lower levels of investment, increases in early payment interest credit expense
at Snapper, and an increase of $3 million in a valuation allowance for a real
estate investment due to an accelerated plan of disposition.

During the year, the Company provides for income taxes using anticipated
effective annual tax rates based on expected operating results for the year and
estimated permanent differences between book and taxable income. Due to the
recognition of net operating loss benefits to the extent possible through a
reduction in deferred income tax liabilities in a prior year, Actava recognizes
the benefit of current net operating losses only to the extent of potential
refunds from carrybacks. Any income tax effect relating to Qualex is recognized
in the loss from discontinued operations. Income taxes for the Sports
Subsidiaries are included in Actava's operations for the period for which they
were consolidated. See "Income Taxes" in Notes to Consolidated Financial
Statements.

The Company has a net deferred tax balance of zero, which is composed of
deferred tax liabilities of approximately $16.4 million and deferred tax assets
of approximately $59 million subject to a $42.6 million valuation allowance to
reflect limitations on the Company's ability to utilize net operating losses and
other tax benefits. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. See
"Income Taxes" in Notes to Consolidated Financial Statements.

The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market value with current recognition of unrealized gains and losses, and
certain debt and equity securities to be reported at market value with
unrealized gains and losses as a separate component of shareholders' equity. The
Company adopted the provisions of the new standard for investments held as of or
acquired after January 1, 1994. In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in accounting
principle. As of January 1, 1994, the effect of adopting Statement 115 was not
material. See "Summary of Significant Accounting Policies -- Investments" in
Notes to Consolidated Financial Statements.

During 1994, Actava reported a loss from continuing operations of $23.5
million, a loss from discontinued operations of $40.7, and a loss from an
extraordinary item of $1.6 million, resulting in a net loss of

13
<PAGE> 15

$65.8 million. This compares to a net loss of $47.6 million for 1993 composed of
a net loss from continuing operations of $51.7 million, $8.5 million in net
income from discontinued operations, and a loss from the cumulative effect of a
change in accounting principle of $4.4 million. Net income of $11.6 million for
1992 was composed of a net loss from continuing operations of $322,000, $10.9
million in net income from discontinued operations, and income from the
cumulative effect of a change in accounting principle of $1 million.

OPERATING SEGMENTS

SEGMENT PERFORMANCE

THE ACTAVA GROUP INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
NET SALES
Lawn and garden............................... $249.5 $225.0 $248.2 $158.5 $237.7
Sporting goods................................ 302.3 240.8 129.7 116.4 110.7
------ ------ ------ ------ ------
Total................................. $551.8 $465.8 $377.9 $274.9 $348.4
====== ====== ====== ====== ======
PRE-TAX EARNINGS (LOSS)
Lawn and garden............................... $ 9.6 $(17.1)(3) $ 17.8 $(50.6) $ (.3)(4)
Sporting goods(1)............................. 2.6 2.7 5.9 4.3 3.6
------ ------ ------ ------ ------
Operating profit (loss) -- segments(2)........ 12.2 (14.4) 23.7 (46.3) 3.3
Unallocated corporate expenses................ (10.9) (10.2) (6.2) (10.6) (9.6)
Settlement of employee agreements and related
costs...................................... (1.3) -- -- (6.8) --
------ ------ ------ ------ ------
Operating profit (loss)....................... -- (24.6) 17.5 (63.7) (6.3)
Interest expense.............................. (28.4) (26.8) (20.8) (19.7) (21.9)
Other income (expense) -- net................. 4.9 (1.7) 4.6 2.9 11.2
------ ------ ------ ------ ------
Total pre-tax earnings (loss)......... $(23.5) $(53.1) $ 1.3 $(80.5) $(17.0)
====== ====== ====== ====== ======
</TABLE>

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

(1) The Sporting Goods segment includes Actava's four sporting goods companies
through December 6, 1994 and Actava's equity income from Roadmaster of
$365,000 for the period from December 6, 1994 through December 31, 1994.
(2) Operating profit represents total sales less costs of products sold and
selling, general and administrative expenses including goodwill
amortization. There were no significant intersegment sales or transfers.
(3) Includes warranty expense of $4 million before tax due to a change in
accounting estimate.
(4) Includes a provision of $13.7 million before tax for the consolidation of
lawn and garden manufacturing facilities and $4.8 million before tax for
the write-off of excess inventory created as a result of the elimination of
certain models from lawn and garden product lines.

LAWN AND GARDEN

<TABLE>
<CAPTION>
INCREASE (DECREASE)
FISCAL YEAR ---------------------
---------------------------------- 1994 1993
1994 1993 1992 VS. 1993 VS. 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $249,502 $224,960 $248,198 $ 24,542 $(23,238)
Gross profit......................... 54,034 31,187 68,225 22,847 (37,038)
Gross profit %....................... 21.7% 13.9% 27.5% -- --
S, G & A............................. $ 44,473 $ 48,306 $ 50,430 (3,833) (2,124)
Operating profit (loss).............. 9,561 (17,119) 17,795 26,680 (34,914)
</TABLE>

14
<PAGE> 16

Snapper's 10.9% increase in 1994 sales as compared to 1993 is the result of
increases in snowthrower sales and distributor orders made in anticipation of
new price increases. Snapper sold approximately 32,000 more snowthrowers in 1994
than in 1993 due to additional consumer demand resulting from abnormally severe
winter weather. Sales of other products increased primarily because distributors
accelerated their purchases of Snapper products during December of 1994 in order
to build their inventories prior to the implementation by Snapper of price
increases in 1995. The additional units sold in December of 1994 as compared to
December of 1993, excluding snowthrowers, included 13,600 walk-behind mowers,
6,000 rear-engine riders, and 3,000 tractors. Annual unit increases for these
items were 17,000 for walkmowers, 13,800 for rear-engine riders, and 3,000 for
tractors. Historically, Snapper has provided its distributors with accounts
receivable redating programs under which the due dates for distributor accounts
receivable were set to coincide with the anticipated sales to the ultimate
consumer. During 1994, Snapper revised its redating programs for lawn and garden
equipment in order to accelerate the collection of its accounts receivable from
distributors and thereby reduce Snapper's working capital debt and improve its
cash flow. As a result of the revision of these programs, Snapper's distributors
and dealers postponed orders for new products during most of 1994 in order to
reduce their inventory levels. As noted above, however, Snapper's distributors
accelerated their purchases of Snapper products in December of 1994 in
anticipation of 1995 price increases. Sales for the first quarter of 1995 are
expected to be lower than sales for the same 1994 quarter primarily due to the
acceleration of orders by distributors in December of 1994. Snapper anticipates
that its distributors in the future will continue their previous efforts to
match retail inventories to consumer demand.

Gross profit dollars increased by 73.3% in 1994 as compared to 1993 due to
the additional sales and improved manufacturing costs. Snapper reduced labor
manufacturing costs by producing fewer models, which reduced the required
training time, by implementing assembly line changes identified by assembly line
labor studies, and by allowing longer lead time between design and production
for testing and materials planning. Material costs were lower due to less
warranty cost for 1994 than experienced in 1993 and longer lead times for
obtaining competitive bids and testing. The 1994 LIFO charge was $2.9 million
less than in 1993 due to efforts by Snapper to reduce factory inventory levels.

Although 1993 retail sales were strong for lawn and garden equipment,
Snapper's sales to distributors in 1993 decreased by $23.2 million, or 9.4%,
compared to 1992. The primary reason for this decrease was that Snapper
continued to reduce production and shipments to distributors in order to
decrease retail inventories. Gross profit as a percentage of sales decreased to
13.9% for 1993 as compared to 27.5% in 1992 and gross profit in dollars
decreased by $37.0 million. These gross profit decreases resulted from
unfavorable manufacturing variances and cost over-runs for newly introduced
products and from an increase in product related expenses such as warranty. The
start-up costs, overall product mix and delays associated with these new
products negatively impacted Snapper's cost of sales. In addition, because
Snapper's new Blackhawk(TM) line of mowers, which represented sales of
approximately $10.9 million in 1993, was a lower price-point and margin product
than the Snapper(TM) brand line, gross margin per unit was lower in 1993 when
compared to 1992. Sales of the Blackhawk(TM) line of mowers were not significant
in 1994. A $4 million warranty expense was charged to operations in the fourth
quarter of 1993 due to unanticipated increases in warranty claims in 1993. Also,
gross profit was lower because of inventory shortages and shut-down costs for a
company-owned foreign distributor.

Selling, general and administrative expenses for Snapper in 1994 were $3.8
million, or 7.9% lower than in 1993. The dollar decrease is primarily due to
reductions in special accessory programs, changes in promotion prices, and
elimination of some customer incentive programs. Also reflected is the
recognition of $1 million in 1994 of previously recorded unearned discounts
related to the extension of due dates for certain receivables in 1993.

Snapper's operating profit of $9.6 million in 1994 was $26.7 million higher
than the 1993 operating loss of $17.1 million due to the $22.8 million gross
profit increase and the $3.8 million selling, general and administrative
improvement.

Because of reduced sales for 1993, selling, general and administrative
expenses, including sales volume related expenses such as co-operative
advertising, decreased by $2.1 million in comparison to 1992. This decrease
included income of $849,000 recorded in 1993 by eliminating a reserve for plant
relocation and

15
<PAGE> 17

consolidation in recognition of finalizing a plant closing. During 1993,
Snapper's management extended the due dates of certain receivables for terms
beyond one year and as a result recorded unearned discounts in the amount of
approximately $1.8 million as a charge to other expense. The decreased gross
profit, which was partially offset by reduced selling, general and
administrative expenses, resulted in an operating loss of $17.1 million at
Snapper in 1993 as compared to a profit of $17.8 million for 1992.

SPORTING GOODS

<TABLE>
<CAPTION>
FISCAL YEAR INCREASE (DECREASE)
-------------------------------- -----------------------------
1994(A) 1993 1992 1994 VS. 1993 1993 VS. 1992
-------- -------- -------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $302,326 $240,852 $129,692 $61,474 $ 111,160
Gross profit........................... 36,619 33,154 26,030 3,465 7,124
Gross profit %......................... 12.1% 13.8% 20.1% -- --
S, G & A............................... $ 34,266 $ 30,418 $ 20,098 3,848 10,320
Operating profit....................... 2,353 2,736 5,932 (383) (3,196)
</TABLE>

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

(a) For the period January 1, 1994 through December 6, 1994.

On December 6, 1994, the Sports Subsidiaries were combined with Roadmaster
in exchange for approximately 19.2 million shares of Roadmaster Common Stock.
Actava consolidated the results of operations of the Sports Subsidiaries with
the results of operations of Actava for periods ending prior to December 6,
1994. See "Equity Investment in Roadmaster Industries, Inc." in Notes to
Consolidated Financial Statements.

The 25.5% increase in sales for the Sports Subsidiaries in 1994 primarily
represents sales from Diversified Products, which was acquired in June of 1993.
Sales from Diversified Products are included in 1993 sales during the period
from the acquisition date through December 31 and in 1994 sales during the
period from January 1 through December 6. Diversified Products also experienced
an increase in treadmill sales in 1994 due to increased consumer demand. The
1994 change is the result of a $68.1 million increase in sales from Diversified
Products and a $1.4 million increase in sales for Nelson/Weather-Rite as offset
by decreases of $3.7 million and $4.3 million for Hutch and Willow,
respectively. The 10.5% gross profit increase and 12.7% selling, general and
administrative cost increase for 1994 are also attributable to the effect of the
mid-1993 acquisition date for Diversified Products.

The net effect on 1994 operating profit as compared to 1993 is a $383,000
decrease since the $3.5 million gross profit increase was offset by a $3.8
million increase in selling, general and administrative costs.

Sales for the Sports Subsidiaries increased by $111.2 million, or 85.7%,
for 1993 when compared to 1992. This increase is primarily due to the
acquisition of Diversified Products in June of 1993. In addition to the increase
resulting from the acquisition, sales increased for the other Sports
Subsidiaries during 1993.

Gross profit as a percent of sales decreased from 20.1% for 1992 to 13.8%
for 1993 but gross profit in dollars increased by $7.1 million, or 27.4%, from
$26 million to $33.2 million, when compared to 1992.

Selling, general and administrative expenses increased by $10.3 million for
1993 as compared to 1992, from $20.1 million to $30.4 million. This was due to
$8.6 million of selling, general and administrative expense incurred by
Diversified Products from the acquisition date to year-end 1993.

Operating profit decreased from $5.9 million in 1992 to $2.7 million in
1993. The decrease in operating profit is primarily attributable to Diversified
Products, which recorded a loss for the six months ended December 31, 1993 due
to the cautious retail environment, excess manufacturing capacity and production
problems caused by late delivery of electronic components for treadmill
equipment.

16
<PAGE> 18

Investment in Roadmaster Industries, Inc.

Equity income of $365,000 from the Company's investment in Roadmaster is
included in Actava's 1994 net income. This income represents Actava's
approximate 39% share of Roadmaster's net income during the period from December
6, 1994 through December 31, 1994. Roadmaster, through its operating
subsidiaries, is a manufacturer of bicycles, fitness equipment and toy products
in the United States.

Discontinued Operations

In 1988, Actava combined its photofinishing operations with the domestic
photofinishing operations of Kodak in a transaction accounted for as a purchase.
This combination created a new company, Qualex, which was jointly owned by
Actava and Kodak. Actava consolidated the results of operations of Qualex with
the results of operations of Actava for periods ending prior to June 30, 1994.
During the second quarter of 1994, Actava began accounting for its investment in
Qualex under the equity method. Also during the second quarter, Actava made a
decision to dispose of its interest in Qualex and began accounting for Qualex as
a discontinued operation. On August 12, 1994, Actava sold its investment in
Qualex to Kodak. Accordingly, the results of Qualex for all periods presented
are reported in the accompanying consolidated statements of operations as
discontinued operations. A loss of $37.9 million on the disposal of Qualex and a
loss of $2.8 million from the operations of Qualex prior to the decision to
dispose are reflected in Actava's net loss under discontinued operations. See
"Photofinishing Transaction and Discontinued Operation" in Notes to Consolidated
Financial Statements.

Financial Position

Actava's working capital was $155.4 million at December 31, 1994 as
compared to $94.9 million, excluding Qualex, at December 31, 1993. The increase
is primarily due to the receipt of cash and current notes receivable in the
amount of $146.5 million from the sale of Actava's interest in Qualex offset by
the reclassification of redeemable common stock as a current liability, the
reclassification of the 6% Senior Subordinated Swiss Franc Bonds as a current
liability, and the elimination of the positive working capital balance of the
Sports Subsidiaries as a result of the sale to Roadmaster. Cash and short-term
investments at Actava increased by $13.8 million in 1994 to $62.2 million at
December 31, 1994 from $48.4 million at the end of 1993. Actava had
approximately $45.2 million of available liquidity at December 31, 1994,
excluding $5 million of cash pledged to secure a Snapper credit line and $12
million of cash and short-term investments pledged to secure a letter of credit
relating to Actava's redeemable common stock. Current notes receivable increased
from $3.8 million at the end of 1993 to $135 million at the end of 1994,
primarily due to the note received from Kodak in connection with the sale of
Actava's interest in Qualex and the loans made by Actava to Metromedia Company
("Metromedia") as discussed below.

On August 12, 1994, Actava sold its interest in Qualex to Kodak. As a
result of this sale, Actava received, on August 12, 1994, cash of $50 million
and a non-interest bearing note in the principal amount of $100 million. Actava
recorded a current note receivable of $92.8 million due to the non-interest
bearing nature of the note and will record the resulting imputed interest income
over the term of the note. Approximately $3.5 million of imputed interest income
was recorded during 1994. Actava received the first of two note payments of $50
million on February 13, 1995. The final note payment of $50 million is due on
August 11, 1995.

Actava has entered into a contract to sell a real estate investment near
Houston, Texas, which is known as Sienna Plantation. An investment group has
agreed to purchase the property from a partnership in which Actava has an
interest. The purchase is subject to several conditions. Actava is expected to
receive approximately $9 million in cash upon consummation of the transaction,
which is approximately equal to Actava's book value in this investment. The
transaction is expected to close on or before June 30, 1995.

For 1994, continuing operating activities provided $759,000 of cash flows
and discontinued operating activities used $2.8 million of cash. Cash flows of
$20.2 million and $11 million were provided by investing and financing
activities, respectively. For continuing operations, accounts receivable
increased by $8.6 million, inventories decreased by $13.9 million, prepaid
expenses increased by $2.7 million, and accounts payable and

17
<PAGE> 19

other similar items increased by $3.2 million. Depreciation of $12.8 million and
amortization of $504,000 were included in determining cash flow used by
continuing operations.

Investing activities provided $20.2 million of cash during 1994, including
the receipt of a $50 million payment from Kodak in connection with the sale of
Qualex, net sales of investments (maturities over 90 days) of $10.5 million,
collection on an advance to businesses sold of $10.5 million, and collections on
the loan to Triton of $3.8 million. These were offset by payments for property,
plant and equipment (net of disposals) of $20.5 million and by loans to
Metromedia of $32.4 million.

Financing activities provided $11 million during 1994, including net
payments under short-term bank agreements of $13.1 million, net borrowings of
$33.5 million under long-term debt agreements, payments of $3.8 million for
subordinated debt, payments of dividends by Qualex to Kodak of $10.5 million,
and $4.8 million received from the issuance of Actava Common Stock.

Long-term debt, including the current portion, decreased by $220.8 million
from $223.8 million at December 31, 1993 to $3 million at December 31, 1994,
primarily due to a decrease of $217.9 million resulting from the Company's sale
of Qualex.

Actava's subordinated debt, including the current portion, of $191 million
at December 31, 1994 reflects a decrease of $3.3 million from year-end 1993 due
to normal sinking fund payments made in 1994. Subordinated debt represents 98.5%
of Actava's total long-term debt, including the current portion. During December
1994, the Company reached an agreement to retire the entire outstanding balance
of $30.2 million plus accrued interest on its 6% Senior Subordinated Swiss Franc
Bonds in exchange for cash payments of $34.9 million. The Company recorded an
extraordinary loss of $1.6 million in 1994 related to this planned retirement.
These bonds were otherwise due to mature in 1996. In conjunction with the
retirement, the Company also unwound a currency swap agreement with a financial
institution which was initiated to eliminate exposure to changes in foreign
currency exchange rates for these bonds. On February 17, 1995, the Company
retired this debt.

Actava is subject to various contingent liabilities and commitments. These
include a floor plan agreement entered into by Snapper under which approximately
$29.5 million and $23 million was outstanding at December 31, 1994 and 1993,
respectively, various guaranties of debt totaling approximately $6 million,
various real estate leases with estimated future payments of approximately $3.4
million, and various pledges of cash and short-term investments. See "Contingent
Liabilities and Commitments" in Notes to Consolidated Financial Statements.

Actava's manufacturing plants are subject to federal, state and local
pollution laws and regulations. Compliance with such laws and regulations has
not, and is not expected to, materially affect Actava's competitive position.
Actava's capital expenditures for environmental control facilities and
incremental operating costs in connection therewith were not material in 1994
and are not expected to be material in future years. The Company is involved in
various environmental matters including clean-up efforts at landfill or refuse
sites and groundwater contamination. The Company's participation in three
existing superfund sites has been quantified and its remaining exposure is
estimated to be less than $400,000 for all three sites. The Company is
participating with the federal and Ohio Environmental Protection Agencies in
initial investigations of a potential environmental contamination site involving
a divested subsidiary. Actava may also be liable for remediation of
environmental damage relating to businesses previously sold in excess of amounts
accrued. In connection with the sale of the Sports Subsidiaries to Roadmaster,
the Company assumed environmental liabilities of approximately $1.9 million
relating to approximately 17 acres of real property formerly owned by
Diversified Products and located in Opelika, Alabama. See "Environmental
Protection" at Item 1. Business. It is management's opinion that cleanup costs
will not have a material effect on Actava's financial position or results of
operations.

On June 8, 1993, Actava acquired substantially all the assets of
Diversified Products for a net purchase price consisting of $11.6 million in
cash, the issuance of 1,090,909 shares of Actava Common Stock (the "Acquisition
Shares") valued at $12 million, and the assumption or payment of certain
liabilities including trade payables and a revolving credit facility. Actava
recorded redeemable common stock of $12 million for

18
<PAGE> 20

the issuance of the Acquisition Shares. See "Acquisitions" and "Redeemable
Common Stock" in Notes to Consolidated Financial Statements. Actava also entered
into an agreement providing the holder of the Acquisition Shares (the "Holder")
with the right to receive additional payments depending upon the value of the
Acquisition Shares over a period of not longer than one year from the purchase
date. The agreement gave the Holder the right under certain circumstances, which
have already occurred, to require Actava to purchase the Acquisition Shares at a
price equal to $11.00 per share. On February 17, 1995, the Company purchased the
Acquisition Shares pursuant to this agreement for $12 million. The purchase of
the Acquisition Shares did not increase the cost recorded by Actava for
Diversified Products because the cost of Diversified Products was increased by
the amount of the cash payment and simultaneously reduced by the same amount due
to a corresponding adjustment to the redeemable common stock. The right of the
Holder to receive additional payments of cash became exercisable after June 8,
1994 and would have expired if not exercised on or before August 7, 1994. On
August 3, 1994, the Holder agreed to extend the exercise date to February 7,
1995 in exchange for a $435,000 fee and an irrevocable letter of credit in the
amount of $12 million. The amount due under the letter of credit was paid to the
Holder on February 17, 1995 upon tender of the Acquisition Shares.

Actava and Metromedia entered into a Credit Agreement dated as of October
11, 1994 (the "Credit Agreement") under which Actava has made and will make
loans to Metromedia in an amount not to exceed $55 million. Under the terms of
the Credit Agreement, Metromedia used or will use the proceeds of the loans to
make advances to or pay obligations on behalf of Orion, MCEG Sterling, and MITI.
All loans made by Actava to Metromedia under the Credit Agreement are secured by
the shares of stock of Orion and MITI owned by Metromedia and its affiliates. In
addition, John W. Kluge, a general partner of Metromedia, has personally
guaranteed the loans. The Credit Agreement was contemplated by the letters of
intent relating to the Proposed Metromedia Transaction. The Credit Agreement,
however, is a separate transaction from the Proposed Metromedia Transaction,
which remains subject to a number of conditions, including due diligence, the
negotiation and execution of definitive agreements, the successful refinancing
of the currently outstanding Orion debt, approvals by the Boards of Directors
and stockholders of the parties involved in the transaction, and other customary
approvals and conditions. The Credit Agreement provides that interest will be
due on the principal amount of all loans made under the Credit Agreement at an
annual rate equal to the prime rate announced from time to time by Chemical
Bank. Interest will be increased to prime plus three percent per annum if a
party other than Actava terminates discussions relating to the Proposed
Metromedia Transaction. All loans under the Credit Agreement are due and payable
on April 12, 1995, but Metromedia has requested the Company to extend the loans
as long as the Proposed Metromedia Transaction is still pending. The Board of
Directors of the Company has not acted on this request. The outstanding balance
under the Credit Agreement was $32.4 million as of December 31, 1994 and $44.9
million as of March 15, 1995.

In November 1991, Actava entered into a Loan Agreement with Triton, its
then 25% stockholder, under which Triton could borrow up to $32 million from
Actava secured by the stock in Actava owned by Triton (the "Triton Loan"). The
agreement relating to the Triton Loan was modified in June 1994, pursuant to the
Plan of Reorganization filed by Triton in its Chapter 11 bankruptcy proceeding.
The modification reduced the interest rate on the Triton Loan, extended the
maturity date from November 1994 to April 1997 and modified the mandatory
payment (margin call) provisions and the Stockholder Agreement between Actava
and Triton, as described in the Notes to the Consolidated Financial Statements.
As modified, the Triton Loan provided for quarterly payments of interest only
with no scheduled principal payments due until the final maturity of the Triton
Loan in April 1997. In December 1993, Triton and Actava entered into a further
amendment to the agreement relating to the Triton Loan pursuant to which Triton
made a principal payment of $5 million plus accrued interest on the Triton Loan,
reducing the loan balance to approximately $26.7 million. In addition, the
December 1993 amendment provided for quarterly principal payments of $1.25
million commencing March 31, 1994 and modified the mandatory payment (margin
call) provisions of the loan. As of December 31, 1994, the outstanding balance
under the Triton Loan was $23 million.

Actava has not paid a dividend to its stockholders since the dividend
declared for the fourth quarter of 1993.

Actava, excluding Snapper, had $38.5 million of unpledged cash and
short-term investments as of December 31, 1994 and $32.6 million of unpledged
cash and short-term investments as of March 15, 1995.

19
<PAGE> 21

The change in Actava's unpledged cash and short-term investments from December
31, 1994 to March 15, 1995 is primarily due to the net effect of the collection
of $50 million on the Kodak note, collections of principal and interest of $1.9
million on the Triton Loan, payments of $34.9 million for principal and interest
in connection with the retirement of Actava's 6% Senior Subordinated Swiss Franc
Bonds, loans of $12.5 million to Metromedia, and other debt related payments of
$6.8 million. The amount of unpledged cash and short-term investments referred
to above at March 15, 1995 excludes the amounts due to Actava from Kodak in
connection with the sale of Qualex and the amounts due to Actava from Metromedia
under the Credit Agreement.

Actava uses its existing cash and short-term investments, as well as
dividends from its subsidiaries and payments on the Triton Loan, to provide for
items such as operating expense payments and debt service. For 1995, Actava,
excluding Snapper, has debt service payments of approximately $10.3 million
scheduled after March 15, 1995.

During 1994, Actava received cash dividends from its subsidiaries of $13.3
million, including $2.8 million from the Sports Subsidiaries which were
subsequently combined with Roadmaster. Actava's Snapper Division is restricted
by financial covenants in its credit agreement from paying Actava more than 70%
of its net income.

Actava's Snapper Division had approximately $19 million of borrowing
capacity under a credit agreement which is secured by accounts receivable,
inventory and other assets as of December 31, 1994. The assets which serve as
collateral are determined by reference to the outstanding balance under the
credit agreement and the qualification of the assets as collateral is defined in
the credit agreement; the assets potentially available as collateral total, in
the aggregate, $143.3 million. Snapper's credit agreement contains financial
covenants (involving tangible net worth, book net worth and other matters) with
which Actava must comply to prevent a default. A default under Snapper's credit
agreement would have serious adverse consequences, including the elimination of
funding for the operations of Snapper, as well as the prohibition on payments to
Actava by Snapper. As a result of the loss incurred by Actava in connection with
the sale of Qualex, Actava obtained financial covenant amendments from its
lenders so that Actava would remain in compliance with these covenants. Actava
was in compliance with these covenants as of December 31, 1994, and management
believes that Actava will remain in compliance with these covenants during the
term of Snapper's credit agreement.

On September 27, 1994, Actava announced that it had entered into an
agreement with NationsBank of Georgia, N.A. under which NationsBank would
provide up to $200 million in acquisition financing to Actava. If the Proposed
Metromedia Transaction is consummated, the agreement will extend to the
surviving corporation in the transaction. Advances for specific acquisitions
will be conditioned upon NationsBank's satisfaction with the general credit
worthiness of the borrower at that time, the structure and collateral being
proposed, and such other then existing matters as NationsBank deems appropriate.
NationsBank will have the right to include other financial institutions in any
specific financing. The specific terms of each financing will be subject to
future negotiation between Actava and NationsBank.

OTHER ITEMS

On April 19, 1994, John D. Phillips was elected President and Chief
Executive Officer of Actava. He was also elected to the Board of Directors of
Actava. Mr. Phillips succeeded Charles R. Scott, who had served as Actava's
President and Chief Executive Officer since 1991. In connection with the
election of Mr. Phillips, Renaissance Partners, an investment partnership in
which Mr. Phillips serves as a general partner, purchased from Actava 700,000
shares of Actava Common Stock for $4,462,500, representing a price of $6.375 per
share. Mr. Phillips also received an immediately vested option to purchase
300,000 shares of Actava Common Stock at a price of $6.375 per share. Actava has
entered into a Registration Rights Agreement with Renaissance Partners pursuant
to which Actava has agreed to register with the Securities and Exchange
Commission the 700,000 shares of Actava Common Stock purchased by Renaissance
Partners.

20
<PAGE> 22

OTHER SEGMENT DATA

THE ACTAVA GROUP INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Lawn and garden................................................... $196.9 $ 224.2 $ 236.8
Sporting goods(1)................................................. 68.6 165.1 47.2
Corporate(2)...................................................... 228.3 111.4 146.1
------ -------- --------
Continuing businesses(3)........................................ 493.8 500.7 430.1
Discontinued operations........................................... -- 770.9 787.8
------ -------- --------
Total................................................... $493.8 $1,271.6 $1,217.9
====== ======= =======
DEPRECIATION AND AMORTIZATION
Lawn and garden................................................... $ 8.3 $ 8.9 $ 8.1
Sporting goods(1)................................................. 4.9 3.1 .4
Corporate(2)...................................................... .1 .1 .2
------ -------- --------
Continuing businesses(3)........................................ 13.3 12.1 8.7
Discontinued operations........................................... 28.4 58.3 50.3
------ -------- --------
Total................................................... $ 41.7 $ 70.4 $ 59.0
====== ======= =======
CAPITAL EXPENDITURES
Lawn and garden................................................... $ 5.9 $ 6.4 $ 13.0
Sporting goods(1)................................................. 2.7 .3 .2
Corporate(2)...................................................... .1 -- .1
------ -------- --------
Continuing businesses(3)........................................ 8.7 6.7 13.3
Discontinued operations........................................... 16.3 48.9 68.5
------ -------- --------
Total................................................... $ 25.0 $ 55.6 $ 81.8
====== ======= =======
</TABLE>

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

(1) The Sporting Goods segment includes Actava's four sporting goods companies
through December 6, 1994 and Actava's investment in Roadmaster.
(2) Corporate assets consist primarily of short-term investments, land, notes
receivable and certain property and equipment.
(3) Restated to exclude discontinued operations.

Accounting Principle Developments

Actava and its subsidiaries invest in various debt and equity securities.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires certain debt securities to be reported at
amortized cost, certain debt and equity securities to be reported at market
value with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market value with unrealized gains and
losses as a separate component of shareholders' equity. Actava adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting principle.
The effect as of January 1, 1994, of adopting Statement 115 was not material.
See "Summary of Significant Accounting Policies -- Investments" in Notes to
Consolidated Financial Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required under this item is submitted as a separate section
in this report.

21
<PAGE> 23

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

INDEX OF FINANCIAL STATEMENTS

The following consolidated financial statements of The Actava Group Inc.
and subsidiaries are included in Item 8:

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors................................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1993.................. F-4
Consolidated Statements of Operations for the years ended December 31, 1994,
1993
and 1992.................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993
and 1992.................................................................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1994, 1993 and 1992..................................................... F-7
Notes to Consolidated Financial Statements -- December 31, 1994............... F-8
Summary of Quarterly Earnings and Dividends................................... F-34
</TABLE>

22
<PAGE> 24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A (Amendment
No. 2) to be signed on its behalf by the undersigned, thereunto duly authorized.

THE ACTAVA GROUP INC.

By: /s/ FREDERICK B. BEILSTEIN, III
------------------------------------
Frederick B. Beilstein, III
Senior Vice President and Chief
Financial Officer

Dated: July 13, 1995

23
<PAGE> 25

THE ACTAVA GROUP INC.

ANNUAL REPORT ON FORM 10-K

ITEM 14(A)(1)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED DECEMBER 31, 1994

F-1
<PAGE> 26

FORM 10-K -- ITEM 14(A)(1)

THE ACTAVA GROUP INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following consolidated financial statements of The Actava Group Inc.
and subsidiaries are included in Item 8:

Consolidated balance sheets -- December 31, 1994 and 1993

Consolidated statements of operations -- Years ended December 31,
1994, 1993 and 1992

Consolidated statements of cash flows -- Years ended December 31,
1994, 1993 and 1992

Consolidated statements of stockholders' equity -- Years ended
December 31, 1994, 1993 and 1992

Notes to consolidated financial statements -- December 31, 1994

F-2
<PAGE> 27

REPORT OF INDEPENDENT AUDITORS

To The Stockholders
The Actava Group Inc.

We have audited the accompanying consolidated balance sheets of The Actava
Group Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Actava Group Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in the notes to consolidated financial statements, in 1993
Actava changed its method of accounting for postretirement benefits, and in 1992
Actava changed its method of accounting for the cost of its proof advertising
program.

ERNST & YOUNG LLP

Atlanta, Georgia
March 10, 1995

F-3
<PAGE> 28

THE ACTAVA GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......................................... $ 47,916 $ 18,770
Short-term investments............................................ 14,321 29,635
Receivables (less allowance for doubtful accounts of $6,851 in
1994 and $10,227 in 1993)...................................... 132,948 276,018
Note receivable from Eastman Kodak Co. (less allowance for
unearned discount of $3,635 in 1994)........................... 96,365 --
Note receivable from Metromedia Company........................... 32,395 --
Current portion of note receivable from Triton Group Ltd. ........ 6,250 3,750
Inventories....................................................... 13,403 108,439
Prepaid expenses and other assets................................. 7,384 43,809
Income tax benefits............................................... 6,911 28,894
--------- ----------
Total current assets...................................... 357,893 509,315
Investment in Roadmaster Industries, Inc............................ 68,617 --
Property, plant and equipment
Land.............................................................. 1,471 8,303
Buildings and improvements........................................ 11,802 72,289
Machinery and equipment........................................... 61,629 393,643
--------- ----------
74,902 474,235
Less allowances for depreciation.................................. (40,005) (198,881)
--------- ----------
Total property, plant and equipment....................... 34,897 275,354
Note receivable from Triton Group Ltd., less current portion........ 16,726 22,976
Other assets (less allowance for doubtful notes and accounts of
$3,988 in 1993)................................................... 15,013 50,702
Long-term investments............................................... -- 26,611
Intangibles (less accumulated amortization of $88,281 in 1993)...... 633 386,626
--------- ----------
Total assets.............................................. $ 493,779 $1,271,584
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................................. $ 8,397 $ 86,163
Accrued expenses and other current liabilities.................... 83,256 186,515
Notes payable..................................................... 64,573 135,114
Current portion of long-term debt................................. 417 2,915
Current portion of subordinated debt.............................. 33,827 3,750
Redeemable common stock........................................... 12,000 --
--------- ----------
Total current liabilities................................. 202,470 414,457
Deferred income taxes............................................... 6,911 44,380
Long-term debt...................................................... 2,547 220,887
Subordinated debt................................................... 157,193 190,551
Minority interest in photofinishing subsidiary...................... -- 205,395
Redeemable common stock............................................. -- 12,000
Stockholders' equity
Common stock (22,767,485 shares in 1994 and 22,767,744 in 1993)... 22,768 22,768
Additional capital................................................ 35,482 46,362
Retained earnings................................................. 173,639 236,333
Less treasury stock -- at cost (5,490,327 shares in 1994 and
6,223,467 shares in 1993)...................................... (107,231) (121,549)
--------- ----------
Total stockholders' equity................................ 124,658 183,914
--------- ----------
Total liabilities and stockholders' equity................ $ 493,779 $1,271,584
========= =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE> 29

THE ACTAVA GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992
1994 (RESTATED) (RESTATED)
-------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales...................................................... $551,828 $465,812 $377,890
Costs, expenses and other costs of products sold............... 461,175 401,471 283,635
Selling, general and administrative............................ 86,470 85,179 74,946
Interest expense............................................... 28,434 26,811 20,811
Provision for doubtful accounts................................ 3,204 4,661 2,941
Income from equity investment in Roadmaster Industries,
Inc. ........................................................ (365) -- --
Other (income) expense -- net.................................. (4,934) 1,706 (4,651)
Provision for plant closure costs.............................. -- (865) (1,132)
Provision for employee agreements and related costs............ 1,300 -- --
-------- ---------- ----------
Total costs, expenses and other...................... 575,284 518,963 376,550
Income (loss) before income taxes, discontinued operations,
extraordinary loss and cumulative effect of changes in
accounting principles........................................ (23,456) (53,151) 1,340
Income tax expense (benefit)................................... -- (1,435) 1,662
-------- ---------- ----------
Loss from continuing operations................................ (23,456) (51,716) (322)
Income (loss) from discontinued operations..................... (40,693) 8,526 10,887
-------- ---------- ----------
Income (loss) before extraordinary loss and cumulative effect
of changes in accounting principles.......................... (64,149) (43,190) 10,565
Extraordinary loss related to Swiss Franc Bonds................ (1,601) -- --
-------- ---------- ----------
Income (loss) before cumulative effect of changes in accounting
principles................................................... (65,750) (43,190) 10,565
Cumulative effect of changes in accounting principles.......... -- (4,404) 1,034
-------- ---------- ----------
Net income (loss).............................................. $(65,750) $(47,594) $ 11,599
======== ======== ========
Earnings (loss) per share of common stock
Primary
Continuing operations........................................ $ (1.29) $ (3.01) $ (.02)
Discontinued operations...................................... (2.24) .49 .66
Extraordinary loss........................................... (.09) -- --
Cumulative effect of changes in accounting principles........ -- (.25) .06
-------- ---------- ----------
Net income (loss).............................................. $ (3.62) $ (2.77) $ .70
======== ======== ========
Pro forma effect assuming the changes in accounting principles
are applied retroactively:
Net income (loss).............................................. $(65,750) $(43,190) $ 10,565
======== ======== ========
Net income (loss) per share.................................... $ (3.62) $ (2.52) $ .64
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE> 30

THE ACTAVA GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992
1994 (RESTATED) (RESTATED)
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss from continuing operations.......................... $ (23,456) $(56,120) $ (322)
Less: Cumulative effect of change in accounting
principle............................................... -- (4,404) --
--------- ---------- ----------
Loss before cumulative effect of change in accounting
principle and extraordinary item........................ (23,456) (51,716) (322)
Less: Items providing (using) cash from continuing
operating activities.................................... 24,215 (16,082) (44,181)
--------- ---------- ----------
Net cash provided by (used in) continuing operations....... 759 (67,798) (44,503)
--------- ---------- ----------
Income (loss) from discontinued operations................... (40,693) 8,526 11,921
Less: Cumulative effect of change in accounting
principle............................................... -- -- 1,034
--------- ---------- ----------
Income before cumulative effect of change in accounting
principle............................................... (40,693) 8,526 10,887
Less: Items providing cash from discontinued operations.... 37,862 46,325 57,895
--------- ---------- ----------
Net cash provided by (used in) discontinued operations..... (2,831) 54,851 68,782
--------- ---------- ----------
Net cash provided by (used in) all operations.............. (2,072) (12,947) 24,279
Cash Flows from Investing Activities:
Repayment of advance to businesses sold.................... 10,502 -- --
Purchases of investments (maturities over 90 days)......... (52,584) (99,510) (99,198)
Sales of investments (maturities over 90 days)............. 63,036 111,851 107,932
Net sales of other investments............................. 4,862 21,866 6,143
Purchase of long-term investments.......................... -- -- (24,719)
Payments for property, plant and equipment................. (25,022) (55,554) (81,800)
Proceeds from disposals of property, plant and equipment... 4,551 16,024 10,230
Proceeds from the sale of businesses....................... 50,000 -- --
Payments for purchases of businesses net of cash
required................................................ -- (9,415) (30,560)
Loans to Triton Group Ltd. ................................ 3,750 5,000 (1,426)
Loans to Metromedia Company................................ (32,395) -- --
Other investing activities -- net.......................... (6,515) (15,221) (3,604)
--------- ---------- ----------
Net cash provided by (used in) investing activities........ 20,185 (24,959) (117,002)
--------- ---------- ----------
Cash Flows from Financing Activities:
Net borrowings (payments) under short-term bank
agreements.............................................. (13,076) 52,284 51,107
Borrowings under long-term debt agreements................. 228,579 21,503 817,000
Payments on long-term debt agreements...................... (195,046) (21,192) (771,136)
Payments of subordinated debt.............................. (3,750) (1,847) (200)
Proceeds from issuance of Actava common stock.............. 4,776 -- --
Cash dividends paid by Qualex to minority interest......... (10,450) (8,614) (3,886)
Cash dividends paid by Actava.............................. -- (6,250) (5,956)
--------- ---------- ----------
Net cash provided by financing activities.................. 11,033 35,884 86,929
--------- ---------- ----------
Increase (decrease) in cash and cash equivalents........ 29,146 (2,022) (5,794)
Cash and cash equivalents at beginning of year............... 18,770 20,792 26,586
--------- ---------- ----------
Cash and cash equivalents at end of year................ $ 47,916 $ 18,770 $ 20,792
========= ======== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE> 31

THE ACTAVA GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
---------------- ADDITIONAL RETAINED -------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------- ---------- -------- ------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- January 1, 1992............ 22,768 $22,768 $ 46,362 $287,854 6,224 $(121,553) $235,431
Net income for the year............. 11,599 11,599
Cash dividends on Common Stock, $.36
per share......................... (5,956) (5,956)
Common Stock issued under employee
stock options..................... (1) 4 4
Other, principally foreign currency
translation adjustment............ (1,231) (1,231)
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1992.......... 22,768 22,768 46,362 292,266 6,223 (121,549) 239,847
Net loss for the year............... (47,594) (47,594)
Cash dividends on Common Stock, $.36
per share......................... (6,250) (6,250)
Other, principally foreign currency
translation adjustment............ (2,089) (2,089)
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1993.......... 22,768 22,768 46,362 236,333 6,223 (121,549) 183,914
Net loss for the year............... (65,750) (65,750)
Common Stock issued................. (9,542) (733) 14,318 4,776
Net unrealized loss on
available-for-sale securities..... (609) (609)
Other, principally foreign currency
translation adjustment............ (1,338) 3,665 2,327
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1994.......... 22,768 $22,768 $ 35,482 $173,639 5,490 $(107,231) $124,658
====== ======== ======== ========= ===== ========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-7
<PAGE> 32

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Actava and
its majority-owned subsidiaries. The equity method of accounting is used when
the Company has a 20% to 50% interest in other companies. Under the equity
method, original investments are recorded at cost and adjusted by the Company's
share of undistributed earnings or losses of these companies. All significant
intercompany transactions and accounts have been eliminated in consolidation.

Investments

The Company and its subsidiaries invest in various debt and equity
securities. In May, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires certain debt
securities to be reported at amortized cost, certain debt and equity securities
to be reported at market with current recognition of unrealized gains and
losses, and certain debt and equity securities to be reported at market with
unrealized gains and losses as a separate component of stockholders' equity. The
Company adopted the provisions of the new standard for investments held as of or
acquired after January 1, 1994. In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting Statement 115 as of January 1, 1994
was not material.

Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment income.

Inventories

Inventories of finished goods, work in process and raw materials are stated
at the lower of cost or market. The Last-In, First-Out (LIFO) method of
determining cost is used for a substantial portion of these inventories.

Advertising Costs

Effective January 1, 1992, Qualex changed its method of accounting for the
cost of its proof advertising program to recognize these costs at the time the
advertising was placed by the customer. Under the proof advertising program,
Qualex reimbursed certain advertising costs incurred by its customers up to a
percentage of sales to that customer. Qualex previously accrued such costs at
the time of the initial sale. Qualex believed that this new method was
preferable because it recognized advertising expense as it was incurred rather
than at the time of the initial sale to the customer. The 1992 adjustment of
$1,034,000 was included in the cumulative effect of change in accounting
principle for 1992 to apply retroactively the new method. The pro forma amounts
presented in the consolidated statements of operations for 1992 and 1991 reflect
the effect of the retroactive application of applying the new method.

Production advertising costs are expensed in the period incurred. The costs
of communicating advertising are expensed at the time of communication. Amounts
paid in advance for communicating advertising are reported as prepaid expenses.
Total advertising expense was $15,178,000, $12,624,000 and $16,120,000 for

F-8
<PAGE> 33

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994, 1993 and 1992, respectively. Total prepaid advertising was $4,751,000 at
December 31, 1994. There were no prepaid advertising costs at December 31, 1993.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and are depreciated over
their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes and on accelerated methods
for tax purposes. Amortization associated with capitalized leases is included in
depreciation expense.

Intangibles

Intangibles consist of the excess of the purchase price over the net assets
of businesses acquired and also included customer lists and covenants not to
compete in prior years. Amounts relating to the excess of the purchase price
over the net assets of businesses acquired are amortized over a 40-year period
using the straight-line method, unless acquired prior to November 1, 1970.
Amounts relating to customer lists and covenants not to compete were amortized
over two to five years or the life of the agreement, respectively. Management
continuously evaluates intangible assets to determine that no diminishment in
value has occurred. Management evaluates intangible assets on the basis of the
operations of the particular entity to which the intangible relates to determine
whether any changes in the nature and expected benefits to be derived from the
intangible have occurred which would require an adjustment to its recorded
value. In the event management believes that the recorded value of the
intangible is greater than its actual value, the Company will write-down the
value of the intangible. In conjunction with the evaluation of any possible
impairment of its intangibles, the Company also similarly assesses whether a
change in the life of the intangible is required for amortization purposes.

Intangible assets are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
---- --------
<S> <C> <C>
Excess of purchase price over net assets of businesses acquired... $633 $349,546
Customer lists.................................................... -- 29,847
Covenants not to compete.......................................... -- 7,233
---- --------
$633 $386,626
==== ========
</TABLE>

Income Taxes

Income taxes are provided for all taxable items in the statements of
operations regardless of when these items are reported for Federal income tax
purposes. Actava elects to utilize certain provisions of the Federal income tax
laws to reduce current taxes payable. Deferred income taxes are provided for
temporary differences in recognition of income and expenses for tax and
financial reporting purposes.

Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is used
in accounting for income taxes: deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method: deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.

F-9
<PAGE> 34

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As permitted by Statement 109, the Company elected not to restate the
financial statements of any prior years. The cumulative effect of the change in
accounting principle on pre-tax income from continuing operations, net income
and financial position was not material.

Earnings Per Share of Common Stock

Primary earnings per share are computed by dividing net income (loss) by
the average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include shares issuable upon the assumed exercise
of stock options using the treasury stock method when dilutive. Computations of
common equivalent shares are based upon average prices during each period.

Fully diluted earnings per share are computed using such average shares
adjusted for any additional shares which would result from using end-of-year
prices in the above computations, plus the additional shares that would result
from the conversion of the 6 1/2% Convertible Subordinated Debentures. Net
income (loss) is adjusted by interest (net of income taxes) on the 6 1/2%
Convertible Subordinated Debentures. The computation of fully diluted earnings
per share is used only when it results in an earnings per share number which is
lower than primary earnings per share.

Revenue Recognition

Sales are recognized when the products are shipped to customers.

Index Protection Agreements

The Company used index protection agreements to hedge interest rate risk
associated with Qualex's borrowings and to hedge the risk of market price
fluctuations of commodities bought and sold in the normal course of business.
These contracts were accounted for as hedges and any gains or losses were
deferred and included in the basis of the underlying transactions. Cash flows
from the contracts were accounted for in the same categories as the cash flows
from the items being hedged. As of December 31, 1994, the Company did not have
any index protection agreements due to the sale of Qualex. See "Photofinishing
Transaction and Discontinued Operation."

During 1993, Qualex entered into a hedge agreement with a bank which was to
expire in 1996 related to Qualex's $200,000,000 of Senior Notes. The hedge
agreement included a Basic Transaction for a notional amount of $100,000,000
under which Qualex paid an interest rate based on the three-month London
Interbank Offered Rate (LIBOR) and received a fixed interest rate of 4.0587%
quarterly, and an Enhancement Transaction for a notional amount of $163,000,000
under which Qualex paid an interest rate based on the three-month LIBOR and
received a variable interest rate based on the prime rate less 2.49%. A net
settlement was calculated and paid on a quarterly basis. At December 31, 1993,
termination of this rate swap agreement would have required a cash payment by
Qualex of $1,158,000 based on market quotes.

Qualex had also entered into combined put/call agreements which provided
protection for silver recoveries from photofinishing processes. The outstanding
contracts at December 31, 1993 covered the sale of 2,900,000 troy ounces of
silver at index amounts of $3.85 to $4.67 per ounce in 1994 and 1,420,000 troy
ounces per year at index amounts of $4.23 to $5.10 per ounce from 1995 to 2005.
In 1997, Qualex had the sale of 4,300,000 troy ounces covered by such agreements
at an index amount of $5.15 per ounce. During 1993 and 1992, gain amortization
related to these contracts totaled $2,445,000 and $1,232,000, net of tax, and is
included in income from discontinued operations. At December 31, 1993 and 1992,
respectively, $7,442,000 and $11,476,000 of these gains were recorded as
deferred income. At December 31, 1993, termination of the combined put/call
agreements would have required cash payments by Qualex of $18,688,000 based on
market quotes.

F-10
<PAGE> 35

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Hedging Instruments

At December 31, 1994, the Company had entered into several forward exchange
contracts in the aggregate notional amount of $8,000,000 to effectively hedge
amounts due from foreign subsidiaries. The contracts are accounted for as hedges
and any gains or losses are deferred and included in the basis of the underlying
transaction. The contracts matured or will mature in 1995. Termination of these
forward exchange contracts at December 31, 1994 would require the Company to
make cash payments of $39,000, based on quoted market prices of comparable
contracts or current settlement values. The table below summarizes by currency
the contractual amounts of the Company's forward exchange contracts at December
31, 1994:

<TABLE>
<CAPTION>
FORWARD
EXCHANGE UNREALIZED
CONTRACTS GAIN/(LOSS)
---------- -----------
<S> <C> <C>
Belgian Franc........................................... $1,400,000 $ (9,000)
French Franc............................................ 2,600,000 (9,000)
Deutschemark............................................ 2,600,000 (17,000)
Pound Sterling.......................................... 1,400,000 (4,000)
---------- -----------
$8,000,000 $ (39,000)
========= =========
</TABLE>

Research and Development Costs

Research and development expenditures are expensed when incurred. During
1994, 1993 and 1992 the Company expensed $5,972,000, $4,407,000 and $4,262,000,
respectively.

Self-Insurance

The Company is primarily self-insured for workers' compensation, health,
automobile, product and general liability costs. The self-insurance claim
liability is determined based on claims filed and an estimate of claims incurred
but not yet reported.

Accrued Warranty

The Company provides an accrual for estimated future warranty costs related
to various product coverage programs, based on the historical relationship of
actual costs as a percentage of sales. During 1993, Snapper revised its estimate
of accrued product warranty expense to reflect an increase in the amount of
future warranty expense to be incurred due to increased warranty claims. This
change in accounting estimate resulted in an additional $4,000,000 charge to net
income in 1993.

Environmental Costs

Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are recorded as current expenses. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable and when the
cost can be reasonably estimated.

Reclassifications

Certain reclassifications were made in prior years' financial statements to
conform to current presentations.

F-11
<PAGE> 36

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUPPLEMENTAL CASH FLOW INFORMATION

The following tables provide additional information related to the
Consolidated Statements of Cash Flows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992
1994 (RESTATED) (RESTATED)
-------- ---------- ----------
<S> <C> <C> <C>
Items providing (not providing) cash from continuing
operations:
Income from equity investment in Roadmaster
Industries, Inc. ................................. $ (365) $ -- $ --
Depreciation......................................... 12,832 11,472 8,638
Amortization......................................... 504 631 108
Provision for doubtful accounts...................... 3,204 4,661 2,941
Provision for plant closure costs.................... -- (865) (1,132)
Changes in operating assets and liabilities, net of
effects from purchases and dispositions:
Accounts receivable.................................. (8,607) (34,319) (45,283)
Inventories.......................................... 13,908 (17,529) (7,259)
Prepaid expenses and other assets.................... (2,742) 1,591 (1,616)
Accounts payable, accrued expenses and other current
liabilities....................................... 3,230 17,814 (14,350)
Current and deferred taxes........................... 574 88 14,790
Other operating activities -- net.................... 1,677 374 (1,018)
-------- ---------- ----------
Net items providing (using) cash from continuing
operations........................................... $ 24,215 $(16,082) $(44,181)
======== ======== ========
Items providing (not providing) cash from discontinued
operations:
Minority interest.................................... $ (2,835) $ 8,526 $ 11,922
Loss on disposal..................................... 37,858 -- --
Depreciation......................................... 16,780 33,193 26,392
Amortization......................................... 11,633 25,149 23,898
Provision for doubtful accounts...................... 1,263 2,601 478
Provision for plant closure costs.................... 930 4,096 --
Changes in operation of assets and liabilities, net of
effects from purchases and dispositions of
discontinued operations:
Accounts receivable.................................. (14,443) 3,654 19,819
Inventories.......................................... 1,303 (13,906) 2,496
Prepaid expenses and other assets.................... 3,552 (15,503) (22,005)
Accounts payable, accrued expenses and other current
liabilities....................................... (7,723) (17,515) (6,647)
Current and deferred taxes........................... (10,456) 16,030 1,542
-------- ---------- ----------
Net items providing cash from discontinued
operations........................................... $ 37,862 $ 46,325 $ 57,895
======== ======== ========
Net assets of business sold:
Total assets......................................... $770,901 $ -- $ --
Total liabilities.................................... 398,973 -- --
-------- ---------- ----------
Net assets........................................... $371,928 $ -- $ --
======== ======== ========
</TABLE>

F-12
<PAGE> 37

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992
1994 (RESTATED) (RESTATED)
-------- ---------- ----------
<S> <C> <C> <C>
Net assets of businesses purchased:
Total assets......................................... $ -- $ 71,693 $ 58,040
Total liabilities.................................... -- 48,063 27,448
-------- ---------- ----------
Net assets........................................... $ -- $ 23,630 $ 30,592
======== ======== ========
Interest paid........................................ $ 34,729 $ 44,570 $ 27,279
Income taxes paid.................................... $ 393 $ 11,406 $ 3,334
</TABLE>

PHOTOFINISHING TRANSACTION AND DISCONTINUED OPERATION

Qualex, Inc. is a photofinishing business formed in March 1988 by the
combination of Actava's photofinishing operations with the domestic
photofinishing operations of Eastman Kodak Company. Prior to June 30, 1994,
Actava owned 51% of the voting stock of Qualex, was entitled to and elected a
majority of the members of the Board of Directors of Qualex, and had the ability
through its control of the Board of Directors to declare dividends, remove the
executive officers of Qualex and otherwise direct the management and policies of
Qualex, except for policies relating to certain designated actions requiring the
consent of at least one member of the Board of Directors of Qualex designated by
Kodak. Because of these rights, the Company believes that it had effective
unilateral control of Qualex which was not temporary during the period from 1988
until the second quarter of 1994. As a result, the Company consolidated the
results of operations of Qualex with the results of operations of the Company
for periods ending prior to June 30, 1994 and presented Kodak's portion of
ownership and equity in the income of Qualex as a minority interest.

In June 1994, the Company decided to sell its interest in Qualex and
engaged in negotiations with Kodak regarding the sale of such interest.
Accordingly, the results of Qualex for all years presented are reported in the
accompanying reclassified statements of operations under discontinued
operations. In the second quarter of 1994, the Company provided for an
anticipated loss of $37,858,000 on the sale of its interest in Qualex and the
related covenant not to compete and release. No income tax expenses or benefits
were recognized due to the Company's net operating loss carryforwards and
recognition of tax benefits in prior periods.

On August 12, 1994, Kodak purchased all of the Company's interest in Qualex
and obtained a covenant not to compete and related releases from the Company in
exchange for $50,000,000 in cash and a promissory note in the principal amount
of $100,000,000. The promissory note is payable in installments of $50,000,000
each, without interest, on February 13, 1995 and August 11, 1995. Because the
principal amount due under the note does not bear interest, the Company
discounted the value of the note to $92,832,000 and will record imputed interest
income of $7,168,000 over the term of the note. Approximately $3,500,000 of
imputed interest income was recorded during 1994. All amounts received in
exchange for the covenant not to compete and release were included in the
computation of the anticipated loss on the sale of Qualex. The Company received
$50,000,000 under the promissory note on February 13, 1995.

F-13
<PAGE> 38

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following assets and liabilities of Qualex were included in the
Company's balance sheet at December 31, 1993; however, no assets and liabilities
are included in the Company's balance sheet at December 31, 1994 due to the sale
of the Company's interest in Qualex on August 12, 1994 (in thousands).

FINANCIAL POSITION OF QUALEX

<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Cash and short-term investments................................................. $ 4,060
Net accounts receivable......................................................... 69,015
Inventories..................................................................... 29,381
Other assets.................................................................... 38,153
------------
Total current assets.................................................. 140,609
Net property, plant and equipment............................................... 202,150
Other assets.................................................................... 30,413
Long-term investments........................................................... 26,611
Intangibles..................................................................... 371,106
------------
Total assets.......................................................... $770,889
==========
Current liabilities............................................................. $130,845
Deferred income taxes........................................................... 22,446
Long-term debt.................................................................. 217,987
Stockholders' equity............................................................ 399,611
------------
Total liabilities and stockholders' equity............................ $770,889
==========
</TABLE>

The Company's statements of operations for the three years in the period
ended December 31, 1994, have been restated to reflect Qualex as a discontinued
operation. The results of Qualex for these periods through August 12, 1994, the
date of sale of Qualex, are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales.............................................. $333,970 $775,299 $770,853
Operating expenses..................................... 342,134 723,952 716,217
-------- -------- --------
Operating profit (loss)................................ (8,164) 51,347 54,636
-------- -------- --------
Interest expense....................................... (8,582) (16,488) (12,643)
Other income (expense)................................. (439) (1,209) 1,448
-------- -------- --------
Income (loss) before taxes............................. (17,185) 33,650 43,441
Income taxes (benefit)................................. (11,514) 16,598 21,666
-------- -------- --------
Net income (loss) from discontinued operations before
minority interest.................................... (5,671) 17,052 21,775
Minority interest...................................... 2,836 (8,526) (10,888)
-------- -------- --------
Net income (loss) from discontinued operations......... $ (2,835) $ 8,526 $ 10,887
======== ======== ========
</TABLE>

ACQUISITIONS

On June 8, 1993, the Company acquired substantially all the assets of
Diversified Products Corporation (DP) for a net purchase price consisting of
$11,629,500, the issuance of 1,090,909 shares of the Company's Common Stock
valued at $12,000,000, and the assumption or payment of certain liabilities
including trade payables and a revolving credit facility. The Company also
entered into an agreement which

F-14
<PAGE> 39

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

could provide the seller the right to additional payments depending upon the
value of the issued shares over a period of not longer than one year from the
purchase date. The issuance of additional payments of cash or additional shares
would not increase the cost of DP; any subsequent issuance would only affect the
manner in which the total purchase price was recorded for Actava. This
transaction was accounted for using the purchase method of accounting;
accordingly, the purchased assets and liabilities were recorded at their
estimated fair value at the date of the acquisition. The purchase price resulted
in an excess of costs over net assets acquired of approximately $11,417,000. The
results of operations of the acquired business were included in the consolidated
financial statements from the date of acquisition to the date the Company
transferred ownership of DP to Roadmaster Industries, Inc. See "Investment in
Roadmaster Industries, Inc."

The following data represents the combined unaudited operating results of
Actava on a pro forma basis as if the above transaction had taken place at the
beginning of 1992. The pro forma information does not necessarily reflect the
results of operations as they would have been had the transaction actually taken
place at that time. Adjustments include amounts of depreciation to reflect the
fair value and economic lives of property, plant and equipment and amortization
of intangible assets. (in thousands, except per share amounts):

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
-------------------
1993 1992
-------- --------
(UNAUDITED)
<S> <C> <C>
Sales............................................................ $519,477 $534,140
Net income (loss)................................................ (56,988) 1,352
Income (loss) per share -- primary............................... (3.23) .08
</TABLE>

During 1992, Qualex acquired Samiljan Foto, L.P. and certain other
photofinishing operations for $21,228,000 and $22,997,000 respectively,
including expenses. For one of the businesses in which Qualex purchased a
majority interest in 1992, the sellers had the right to require Qualex to
purchase the remaining interest, beginning in 1997, at an amount not to exceed
$18,000,000.

These transactions were accounted for using the purchase method of
accounting, accordingly; the assets and liabilities of the purchased businesses
were recorded at their estimated fair value at the dates of acquisition. The
purchase price resulted in an excess of costs over net assets acquired of
approximately $23,321,000 for 1992, in addition to $19,215,000 attributed to
customer lists. The results of operations of the businesses acquired were
included in the consolidated financial statements since the dates of
acquisition.

ACCOUNTS AND NOTES RECEIVABLE

Receivables from sales of Actava's lawn and garden products amounted to
$137,815,000 and $146,994,000 at December 31, 1994 and 1993, respectively. The
receivables are primarily due from independent distributors located throughout
the United States. Amounts due from distributors are supported by a security
interest in the inventory or accounts receivable of the distributors. The
receivables generally have extended due dates which correspond to the seasonal
nature of the products' retail selling season. Concentrations of credit risk due
to the common business of the customers are limited due to the number of
customers comprising the customer base and their geographic location. Ongoing
credit evaluations of customers' financial condition are performed and reserves
for potential credit losses are maintained. Such losses, in the aggregate, have
not exceeded management's expectations.

During 1994, Actava sold its interest in its photofinishing business and
has reclassified the results of its operations as a discontinued operation.
Photofinishing sales in prior years included sales to national, regional and
local retailers located throughout the United States, including mass merchants,
grocery store chains and

F-15
<PAGE> 40

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

drug store chains. Photofinishing receivables were $70,744,000 at December 31,
1993 and were generally unsecured and due within 20 days following the end of
each month. Accounts receivable from photofinishing sales at December 31, 1993
included $54,711,000 due from national retail chains. At December 31, 1993,
$9,812,000 was receivable from one such customer on net sales of $84,297,000.
The Company provided an allowance for doubtful accounts equal to the estimated
losses expected to be incurred in the collection of accounts receivable. Such
losses were consistently within management's expectations.

During 1994, Actava combined its sporting goods companies with Roadmaster
Industries, Inc. in exchange for common stock of Roadmaster which is accounted
for under the equity method. Receivables in prior years from the sale of
sporting goods were primarily from mass merchants and sporting goods retailers
located throughout the United States. The receivables, which were unsecured,
were $71,836,000 at December 31, 1993, and were generally due within 30 to 60
days. At December 31, 1993, approximately $23,362,000 was due from four
customers. The sporting goods companies maintained allowances for potential
credit losses and such losses, in the aggregate, had not exceeded management's
expectations.

TRITON GROUP LTD. LOAN

At December 31, 1994, the Company had a $22,976,000 note receivable from
Triton Group Ltd. secured by 3,690,998 shares of Actava Common Stock. At
December 31, 1993, $26,726,000 was outstanding under the loan and was secured by
4,413,598 shares of Actava Common Stock.

Effective June 25, 1993, the Company and Triton modified the terms of the
loan as part of a plan of reorganization filed by Triton under Chapter 11 of the
U.S. Bankruptcy Code. The modifications, which became effective June 25, 1993,
included: extending the due date of the loan to April 1, 1997; reducing the
interest rate to prime plus 1 1/2% for the first six months following June 25,
1993, to prime plus 2% for the next six months, and to prime plus 2 1/4% for the
remainder of the term of the note; revising collateral maintenance (margin call)
requirements; and providing for release of collateral under certain
circumstances. Under the modified agreements, Actava's right of first refusal
with respect to any sale by Triton of its Actava Common Stock will continue in
effect until the loan is paid in full. The Stockholder Agreement was amended to
permit Triton to designate two directors (who are not officers or employees of
Triton) on an expanded nine-member Board of Directors so long as Triton
continues to own 20% or more of Actava's outstanding Common Stock.

Triton filed a motion on July 30, 1993, with the United States Bankruptcy
Court for the Southern District of California seeking to modify Triton's
recently approved Plan of Reorganization. The modifications sought by Triton
would have amended or eliminated the collateral maintenance (margin call)
provisions that are an integral part of the Amended and Restated Loan Agreement.
On August 2, 1993, the Bankruptcy Court entered a temporary restraining order
suspending the effectiveness of the margin call provisions until the Court had
an opportunity to hear Triton's motion seeking preliminary injunction. The
motion seeking a preliminary injunction was heard on August 10, 1993, and was
denied. Triton then withdrew its motion to modify its Plan of Reorganization.
Therefore, the provisions of the Amended and Restated Loan Agreement continue to
remain in effect. On August 19, 1993, the Amended and Restated Loan agreement
was amended to allow Triton to satisfy certain margin call requirements by
making deposits to a Collateral Deposit Account in lieu of delivering
certificates of deposit. The margin call provisions for principal repayments and
transfers of shares of Company Common Stock were not amended. On December 7,
1993, the Amended and Restated Loan Agreement was amended, in connection with a
$5,000,000 prepayment of principal received on December 7, 1993, to provide for
quarterly principal payment installments of $1,250,000 due on the last day of
each quarter of each year beginning March 31, 1994, with any unpaid principal
and accrued interest due on April 1, 1997. The Agreement was also amended to
require 75,000 additional shares of Actava Common Stock to be pledged as
collateral and to modify the margin call provisions of the Agreement to provide
a $7.50 minimum per share value of Actava Common Stock for purposes of
determining the amount of any margin call mandatory payments. These
modifications limit the circumstances under which Triton must pledge additional
collateral

F-16
<PAGE> 41

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for the loan; however, 3,690,998 shares of Actava Common Stock owned by Triton
will continue to be pledged to secure the loan until the loan is paid in full.
At March 10, 1995, the pledged shares had a market value of $36,449,000 as
compared to the loan balance of $22,976,000. In the opinion of management, the
shares held as collateral are, and will continue to be, sufficient to provide
for realization of the loan.

METROMEDIA COMPANY LOAN

On August 31, 1994, the Company entered into letters of intent providing
for a proposed combination of the Company with Orion Pictures Corporation
("Orion"), MCEG Sterling Incorporated ("Sterling") and Metromedia International
Telecommunications Inc. ("MITI") (the "Proposed Metromedia Transaction").
Metromedia Company ("Metromedia") and its affiliates control in excess of 50% of
the voting power of both Orion and MITI. Pursuant to the letters of intent, the
Company and Metromedia entered into a Credit Agreement dated as of October 11,
1994 (the "Credit Agreement") under which the Company will make loans to
Metromedia in an amount not to exceed an aggregate of $55,000,000. Under the
terms of the Credit Agreement, Metromedia will use the proceeds of the loans to
make advances to or to pay obligations on behalf of Orion, Sterling and MITI.
All loans made by the Company to Metromedia under the Credit Agreement are
secured by shares of stock of Orion and MITI owned by Metromedia and its
affiliates. In addition, a general partner of Metromedia has personally
guaranteed the loans. The Credit Agreement provides that interest will be due on
the principal amount of all loans at an annual rate equal to the prime rate
announced from time to time by Chemical Bank. Interest will be increased to
prime plus three percent per annum if a party other than the Company terminates
discussions relating to the Proposed Metromedia Transaction. All loans are due
and payable on April 12, 1995. The outstanding balance under the Credit
Agreement as of December 31, 1994 was $32,395,000.

INVENTORIES

Inventory balances are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Finished goods and goods purchased for resale.................. $ 12,618 $ 82,559
Raw materials and supplies..................................... 15,395 46,018
-------- --------
28,013 128,577
Reserve for LIFO cost valuation................................ (14,610) (20,138)
-------- --------
$ 13,403 $108,439
======== ========
</TABLE>

Work in process is not considered significant.

During 1994, certain inventory quantities were reduced resulting in a
liquidation of LIFO inventory quantities which were carried at lower costs
prevailing in prior years as compared with the cost of current year purchases.
The utilization of this lower cost inventory decreased the net loss by
approximately $1,200,000 and decreased loss per share of common stock by $.07.

F-17
<PAGE> 42

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENTS

All of the Company's investments are classified as available-for-sale and
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Short-term:
U.S. securities.............................. $26,460 $147 $ -- $26,607
Other debt securities........................ 3,175 -- -- 3,175
--------- ---------- ---------- ---------
Total short-term debt securities..... $29,635 $147 $ -- $29,782
======= ======== ======== =======
Long-term:
Equity securities............................ $15,850 $275 $ 10 $16,115
U.S. securities.............................. 7,758 -- 39 7,719
Other debt securities........................ 3,003 11 17 2,997
--------- ---------- ---------- ---------
Total long-term debt securities...... $26,611 $286 $ 66 $26,831
======= ======== ======== =======
</TABLE>

The gross realized gains for 1994 on sales of available-for-sale securities
totaled approximately $205,000 and the gross realized losses totaled
approximately $240,000. The net adjustment to unrealized holding losses on
available-for-sale securities included as a separate component of shareholders'
equity totaled $609,000 in 1994.

The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1994 by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
the issuers of the securities may have the right to prepay obligations without
prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due after one year through three years........................ $ 8,174 $ 7,872
Due after three years......................................... 6,756 6,449
--------- ---------
Total............................................... $14,930 $14,321
======= =======
</TABLE>

All available-for-sale securities are classified as current since they are
available for use in the Company's current operations.

F-18
<PAGE> 43

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENT IN ROADMASTER INDUSTRIES, INC.

On December 6, 1994, the Company transferred ownership of its four sporting
goods subsidiaries to Roadmaster Industries, Inc. in exchange for 19,169,000
shares of Roadmaster's Common Stock. As of December 31, 1994, the Company owned
39% of the issued and outstanding shares of Roadmaster's Common Stock based on
approximately 48,600,000 shares of Roadmaster's Common Stock outstanding. The
four Actava subsidiaries transferred to Roadmaster were Diversified Products
Corporation, Hutch Sports USA Inc., Nelson/Weather-Rite, Inc. and Willow Hosiery
Company, Inc. No gain or loss was recognized for this nonmonetary transaction.
The Company's initial investment in Roadmaster was recorded at approximately
$68,300,000 and is accounted for by the equity method.

The excess of the Company's investment in Roadmaster over its share in the
related underlying equity in net assets is being amortized on a straight-line
basis over a period of 40 years. The remaining unamortized balance at December
31, 1994 was $28,855,000.

The quoted market value of the Company's investment in Roadmaster common
stock as of December 31, 1994, was $3.625 per share or a total value of
$69,488,000 and as of March 10, 1995, was $3.00 per share or a total value of
$57,507,000.

Summarized financial information for Roadmaster is shown below (in
thousands):

<TABLE>
<CAPTION>
ROADMASTER INDUSTRIES, INC.
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales.............................................. $455,661 $312,160 $226,201
Gross profit........................................... 66,790 48,129 35,250
Net income............................................. 5,000 7,633 3,697
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Current assets................................................... $358,169 $223,541
Non-current assets............................................... 158,478 58,234
Current liabilities.............................................. 181,778 100,723
Non-current liabilities.......................................... 231,772 162,054
Minority interest................................................ -- 622
Redeemable common stock.......................................... 2,000 2,000
Total stockholders' equity....................................... 101,097 16,376
</TABLE>

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities, including $31,392,000 in
1993 due to Eastman Kodak Company, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- --------
<S> <C> <C>
Accrued salaries and wages........................................ $ 1,370 $ 8,363
Accrued interest.................................................. 8,176 14,471
Accrued advertising and promotion................................. 987 25,238
Deferred income................................................... -- 13,791
Self-insurance claims payable..................................... 30,442 35,070
Reserve for relocation and consolidation of photofinishing
operations...................................................... -- 6,754
Other............................................................. 42,281 82,828
------- --------
$83,256 $186,515
======= ========
</TABLE>

F-19
<PAGE> 44

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

POSTRETIREMENT BENEFITS

Effective January 1, 1993, the Company adopted FASB Statement No. 106,
"Accounting for Postretirement Benefits Other Than Pensions." The Company and
its subsidiaries provide group medical plans and life insurance coverage for
certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such as
deductibles, coinsurance and life-time maximums. The plan accounting anticipates
future cost-sharing changes that are consistent with the Company's expressed
intent to increase the retiree contribution rate annually for the expected
medical trend rate for that year. The Company funds the excess of the cost of
benefits under the plans over the participants' contributions as the costs are
incurred. The coordination of benefits with medicare uses a supplemental, or
exclusion of benefits, approach.

As permitted by Statement 106, the Company elected to immediately recognize
the effect in the statement of operations for the first quarter of 1993 as a
$4,404,000 charge to net income as the cumulative effect of a change in
accounting principle. The annual net periodic postretirement benefit expense for
1993 decreased by $38,000 as a result of adopting the new rules. Postretirement
benefit expense for 1992, recorded on a cash basis, was not restated. The pro
forma amounts presented in the consolidated statements of operations reflect no
effect of the retroactive application of applying the new method as it is not
material. The assumed health care cost trend rate used to measure the expected
cost of benefits covered by the plan for 1994 is 12%. This trend rate is assumed
to decrease in 1% decrements to 6% in 2001 and years thereafter. An 8% discount
rate per year, compounded annually, was assumed to measure the accumulated
postretirement benefit obligation as of December 31, 1994, as compared to 7% as
of December 31, 1993. A 1% increase in the assumed health care cost trend rate
would increase the accumulated postretirement benefit obligations as of December
31, 1994, by 10% and the net periodic postretirement benefit cost by 26%.

The following table presents the plans' funded status reconciled with
amounts recognized in the Company's consolidated balance sheet (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $ (913) $(1,094)
Fully eligible active plan participants........................ (360) (788)
Other active plan participants................................. (609) (1,149)
------- -------
(1,882) (3,031)
Plan assets...................................................... -- --
------- -------
Accumulated postretirement benefit obligation in excess of plan
assets......................................................... (1,882) (3,031)
Unrecognized prior service cost.................................. (1,687) (1,995)
Unrecognized net (gain) or loss.................................. (181) 544
------- -------
Accrued postretirement benefit cost.............................. $(3,750) $(4,482)
======= =======
</TABLE>

Net periodic postretirement benefit cost (benefit) includes the following
components (in thousands):

<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Service cost........................................................ $ 89 $ 96
Interest cost....................................................... 139 296
Amortization of unrecognized prior service cost..................... (308) (154)
Amortization of unrecognized gain................................... (30) --
----- -----
$(110) $ 238
===== =====
</TABLE>

F-20
<PAGE> 45

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTES PAYABLE AND LONG-TERM DEBT

Qualex had three separate line of credit agreements for working capital
needs for which $3,200,000 was outstanding at December 31, 1993. These
agreements were $5,000,000 each, for a total of $15,000,000. The Company paid a
facility fee of 1/4% per annum on the committed line of credit agreements.

Included in Notes Payable at December 31, 1994 and 1993 is $63,302,000 and
$87,359,000, respectively, which was outstanding under a three year Finance and
Security Agreement which provides working capital to the Snapper division. The
Agreement, dated October 23, 1992, is for $75,000,000 (and may be increased
under certain circumstances up to $100,000,000 for a specified period of time).
Interest is payable at the prime rate plus 3/4% to 1 1/4%, depending upon the
prime rate in effect. The Agreement provides for the payment of an annual line
fee of $487,500 which is subject to increases in certain circumstances. The loan
is principally secured by Snapper assets and certain inventory of Snapper and
requires Actava to comply with various restrictive financial covenants. The
assets which serve as collateral are determined by reference to the outstanding
balance under the credit agreement and the qualification of the assets as
collateral as defined in the credit agreement; however, the assets potentially
available as collateral are, in the aggregate, $143,343,000. Also included in
notes payable at December 31, 1994 and 1993 is $1,271,000 and $3,890,000,
respectively, under a short-term credit facility with a bank for the Company's
foreign subsidiaries. See Commitments and Contingencies. The interest rate on
the note varied between 5.9% and 7.0% during 1994.

During 1992, in order to provide additional working capital and for general
corporate purposes, an Actava Sports subsidiary entered into a three year Loan
and Security Agreement with a financial institution to provide up to $35,000,000
of working capital. The Agreement was transferred in the Roadmaster business
transaction. Interest was payable at the prime rate plus 1 1/4%. The Agreement
provided for a facility fee of $350,000. At December 31, 1994, no amount is
reflected in the balance sheet while $1,846,000 was outstanding at December 31,
1993.

During 1992, in order to provide additional working capital and for general
corporate purposes, an Actava Sports subsidiary entered into a one-year
Revolving Loan Agreement with a financial institution to provide up to
$6,500,000 for working capital. The Agreement was transferred in the Roadmaster
business transaction. Interest was payable at the prime rate of the financial
institution. At December 31, 1994, no amount is reflected in the balance sheet
while $2,700,000 was outstanding at December 31, 1993.

In April 1993, a Revolving Loan and Security Agreement with respect to a
revolving credit facility of up to $10,000,000 was entered into by an Actava
Sports subsidiary. The Agreement was transferred in the Roadmaster business
transaction. Interest was payable at the prime rate plus 1%. The Agreement
provided for a facility fee of $25,000. At December 31, 1994 no amount is
reflected in the balance sheet and at December 31, 1993 no amount was
outstanding under the agreement.

In December 1993, an Actava Sports subsidiary, DP, entered into a Finance
and Security Agreement with two financial institutions in order to provide up to
$50,000,000 of working capital under a revolving credit facility. The agreement
was transferred in the Roadmaster business transaction. Interest was payable at
the prime rate plus 1 1/4%. The Agreement provided for an annual facility fee of
$375,000. At December 31, 1994, no amount is reflected in the balance sheet and
at December 31, 1993, $36,178,000 was outstanding under the Agreement.

The weighted average interest rate on short-term borrowings was 8.24% and
7.82% for the years ended December 31, 1994 and 1993, respectively.

F-21
<PAGE> 46

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------ --------
<S> <C> <C>
Senior notes -- Qualex........................................... $ -- $200,000
Revolving credit agreement -- Qualex............................. -- 10,000
Capitalized lease obligations.................................... 452 545
Other long-term debt:
Secured (4-9% notes due at various dates to 2002).............. 1,095 1,900
Unsecured (4-8% notes due at various dates to 2001)............ 1,000 8,442
------ --------
$2,547 $220,887
====== ========
</TABLE>

Qualex issued through a private placement $200,000,000 of Senior Notes in
1992 with interest rates ranging from 7.99% to 8.84%.

During 1992, Qualex entered into an unsecured $115,000,000 Revolving Credit
Agreement with eight financial institutions with an expiration date in May 1995.
Interest was payable under three rate options which were determined by reference
to the prime rate, the London interbank offered rate plus 1/2% to 3/4%, and
competitive bids. The Agreement provided for a participation fee of 1/8% and an
annual facility fee of 1/4%. At December 31, 1994 no amount was reflected in
the balance sheet and at December 31, 1993, $10,000,000 was outstanding under
the agreement.

Collateral for certain of the long-term debt includes real property. Assets
pledged as collateral under the borrowings are not material. Maturities of
long-term and subordinated debt are $4,057,000 in 1996, $15,733,000 in 1997,
$59,472,000 in 1998, $4,478,000 in 1999 and $76,000,000 in 2000 and years
thereafter.

The fair value of Actava's long-term and subordinated debt, including the
current portion, at December 31, 1994 is estimated to be approximately
$163,000,000 and was estimated at $436,000,000 at December 31, 1993. These
estimates are based on a discounted cash flow analysis using Actava's current
incremental borrowing rates for similar types of agreements and on quoted market
prices for issues which are traded.

SUBORDINATED DEBT

Subordinated debt is summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
6% Senior Swiss Franc Bonds due 1996
[redeemed February 17, 1995]................................... $ 30,152 $ 30,152
6 1/2% Convertible Debentures due 2002........................... 75,000 75,000
9 1/2% Debentures due 1998, net of unamortized discount of $1,023
in 1994 and $1,308 in 1993..................................... 58,461 58,176
9 7/8% Senior Debentures due 1997, net of unamortized discount of
$296 in 1994 and $468 in 1993.................................. 20,704 23,532
10% Debentures due 1999.......................................... 6,703 7,441
-------- --------
191,020 194,301
Less current portion............................................. 33,827 3,750
-------- --------
$157,193 $190,551
======== ========
</TABLE>

F-22
<PAGE> 47

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 1986 Actava issued 6% Senior Subordinated Swiss Franc Bonds due 1996 for
100,000,000 Swiss francs. Simultaneously, in order to eliminate exposure to
fluctuations in the currency exchange rate over the life of the bonds, Actava
entered into a currency swap agreement with a financial institution whereby
Actava received approximately $48,000,000 in exchange for the Swiss Franc Bond
proceeds. As a result of the swap agreement, Actava, in effect, made its
interest and principal bond repayments in U.S. dollars without regard to changes
in the currency exchange rate. A default by the counterparty to the swap
agreement would have exposed Actava to potential currency exchange risk on the
remaining bond interest and principal payments in that Actava would have been
required to purchase Swiss francs at current exchange rates rather than at the
swap agreement exchange rate. At December 31, 1994, the swap agreement had an
effective exchange rate over its remaining term of .5255 Swiss francs per U.S.
dollar while the U.S. dollar equivalent market exchange rate was .7644. After
considering the stated interest rate, the cost of the currency swap agreement,
taxes and underwriting commissions, the effective cost of the bonds was
approximately 11.3%. The fair value of the currency swap as of December 31, 1994
and 1993, was $15,820,000 and $10,795,000, respectively; however, domestic
interest rates and foreign currency markets affect this value.

In December, 1994, Actava entered into an agreement to redeem the
outstanding Swiss Franc Bonds at par plus accrued interest and to terminate the
currency swap agreement on February 17, 1995. The Company recorded an
extraordinary loss of $1,601,000 in 1994 related to this early extinguishment of
debt.

In 1987 Actava issued $75,000,000 of 6 1/2% Convertible Subordinated
Debentures due in 2002 in the Euro-dollar market. The Debentures are convertible
into Actava's Common Stock at a conversion price of $41 5/8 per share. At
Actava's option the Debentures may be redeemed at 100% plus accrued interest
until maturity.

The 9 7/8% Senior Subordinated Debentures are redeemable at the option of
Actava at 101.035% of the principal amount plus accrued interest if redeemed
prior to March 15, 1995, and at decreasing prices thereafter. Mandatory sinking
fund payments of $3,000,000 (which Actava may increase to $6,000,000 annually)
began in 1982 and are intended to retire, at par plus accrued interest, 75% of
the issue prior to maturity.

At the option of Actava, the 10% Subordinated Debentures are redeemable, in
whole or in part, at the principal amount plus accrued interest. Sinking fund
payments of 10% of the outstanding principal amount commenced in 1989; however,
Actava receives credit for Debentures redeemed or otherwise acquired in excess
of sinking fund payments.

REDEEMABLE COMMON STOCK

Redeemable Common Stock represents 1,090,909 shares of common stock which
were issued in the acquisition of substantially all the assets and liabilities
of Diversified Products Corporation. See "Acquisitions." These shares were
redeemed for $12,000,000 on February 17, 1995.

CAPITAL STOCK

Preferred and Preference Stock

There are 5,000,000 authorized shares of Preferred Stock and 1,000,000
authorized shares of Preference Stock, none of which were outstanding or
designated as to a particular series at December 31, 1994.

Common Stock

There are 100,000,000 authorized shares of Common Stock, $1 par value. At
December 31, 1994, 1993 and 1992 there were 18,368,067, 17,635,186 and
16,544,277 shares issued and outstanding, respectively, after

F-23
<PAGE> 48

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deducting 5,490,327, 6,223,467 and 6,223,467 treasury shares, respectively, and
after the issuance of 1,090,909 shares of Redeemable Common Stock during the
year ended December 31, 1993.

Actava has reserved the shares of Common Stock listed below for possible
future issuance:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
Stock options................................................... 1,049,750 761,000
6 1/2% Convertible Subordinated Debentures...................... 1,801,802 1,801,802
Restricted stock plan........................................... 102,800 102,800
---------- ----------
2,954,352 2,665,602
========== ==========
</TABLE>

Stock Options

Actava's stock option plans provide for the issuance of qualified incentive
stock options and nonqualified stock options. Incentive stock options may be
issued at a per share price not less than the market value of Actava's Common
Stock at the date of grant. Nonqualified options may be issued generally at
prices and on terms determined by the stock option committee. The following
table reflects changes in the incentive stock options issued under these plans:

<TABLE>
<CAPTION>
APPROXIMATE
PRICE RANGE
SHARES PER SHARE
------- -----------
<S> <C> <C>
Options outstanding at January 1, 1992.......................... 55,250 $12 - 28
Exercised..................................................... (250) 12
Canceled...................................................... (17,125) 12 - 28
------- -----------
Options outstanding at December 31, 1992........................ 37,875 12 - 28
Granted....................................................... 20,000 9 - 12
Canceled...................................................... (1,125) 12 - 28
------- -----------
Options outstanding at December 31, 1993........................ 56,750 9 - 28
Granted....................................................... 228,223 8 - 9
Canceled...................................................... (13,750) 12 - 28
------- -----------
Options outstanding at December 31, 1994........................ 271,223 $8 - 28
======= =========
</TABLE>

During 1994 nonqualified options for 486,777 shares at price ranges of
approximately $6.37 to $9.00 per share were granted.

At December 31, 1994, incentive stock options totaling 124,538 shares were
exercisable at prices ranging from $8.31 to $12.19 and nonqualified options
totaling 569,712 shares were exercisable at prices ranging from $6.37 to $14.50.
There were 209,050 and 591,550 shares under Actava's stock option plans at
December 31, 1994 and 1993, respectively, which were available for the granting
of additional stock options.

PROVISIONS FOR PLANT CLOSURE COSTS

In 1994 loss from discontinued operations includes a provision of $311,600
($930,000 before income taxes and minority interest for discontinued operations)
or $.02 per share for plant closure costs. The 1993 income from discontinued
operations includes $1,038,000, ($4,096,000 before income taxes and minority
interest for discontinued operations) or $.06 per share for the costs of closing
three of Qualex's photofinishing plants. The provision for plant closure costs
for Qualex included in income from discontinued operations includes lease
termination costs and fixed asset and facility closure costs which may be
incurred over several years based on the remaining terms of the leases and
employee severance and termination costs.

F-24
<PAGE> 49

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reserve for closing certain lawn and garden facilities was established
in 1990 by a provision for plant closure of approximately $13,700,000. Lawn and
garden production at these facilities ceased in early 1991; however, inventory
previously produced at these sites continued to be distributed from these sites
until 1992. Costs associated with this warehouse and distribution function
included in costs of sales in 1992 were immaterial. Due to market conditions and
the size of these lawn and garden facilities, the Company estimated in 1990 that
it would require approximately three years to dispose of these facilities and in
1993 this was accomplished. No plant closure costs were provided for in 1994.
During 1993 and 1992, costs of approximately $3,400,000 and $2,100,000,
respectively, were incurred related to employee severance, plant maintenance,
interest on capitalized lease obligations and the loss on disposal of equipment
and buildings. In 1993, the provision for plant closure costs included
reductions of $849,000, before and after tax, of $.05 per share, to the reserve
for closing the lawn and garden facilities as this disposal was completed.

The 1991 provision for plant closure costs also included $500,000 before
tax ($315,000 net of tax or $.02 per share) for closing facilities at a sporting
goods subsidiary and $1,432,000 before tax ($945,000 net of tax or $.06 per
share) for reducing the Actava corporate office facilities. The costs related to
the planned reduction of corporate office facilities were estimated in 1991 when
management made the decision to move out of its corporate office. The Company
subleased a portion of its space in 1991 and utilized $300,000 of the original
reserve. However, in 1992, it became apparent that the remaining space could not
be subleased as anticipated in 1991 and the Company decided to reverse its
remaining reserve of approximately $1,100,000 through the provision for plant
closure costs and utilize its remaining space until the lease expires in 1995.

F-25
<PAGE> 50

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in the reserve for plant closure costs are as follows (in
thousands):

<TABLE>
<CAPTION>
RECORDED
THROUGH PURCHASE
CHARGED CHARGED ACCOUNTING IN
TO PROVISION TO INCOME (LOSS) THE
FOR PLANT FROM DISCONTINUED YEAR OF
CLOSURE COSTS OPERATIONS ACQUISITION TOTAL
------------- ----------------- ---------------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1992................. $ 7,946 $ 32,482 $ 15,418 $ 55,846
Additions for:
Fixed asset and facility closure costs... -- -- 1,244 1,244
Reductions in reserves................... (1,132) (374) -- (1,506)
------------- ----------------- ---------------- --------
Total additions (reductions)...... (1,132) (374) 1,244 (262)
------------- ----------------- ---------------- --------
Costs incurred(b).......................... (2,360) (23,713) (11,755) (37,828)
------------- ----------------- ---------------- --------
Balance at December 31, 1992............... 4,454 8,395 4,907 17,756
Additions for:
Lease termination costs(a)............... -- 1,475 -- 1,475
Employee severance & termination of
benefits(a)............................ -- 1,294 -- 1,294
Fixed asset and facility closure costs... -- 1,327 906 2,233
Reduction in reserves.................... (865) -- -- (865)
------------- ----------------- ---------------- --------
Total additions (reductions)
net............................. (865) 4,096 906 4,137
------------- ----------------- ---------------- --------
Costs incurred(b).......................... (3,589) (7,437) (4,432) (15,458)
------------- ----------------- ---------------- --------
Balance at December 31, 1993............... -- 5,054 1,381 6,435
Additions for:
Employee severance & termination of
benefits(a)............................ -- 430 -- 430
Fixed asset and facility closure costs... -- 500 -- 500
------------- ----------------- ---------------- --------
Total additions (reductions)
net............................. -- 930 -- 930
------------- ----------------- ---------------- --------
Costs incurred(b).......................... -- (2,628) (670) (3,298)
Disposal of discontinued operations........ -- (3,356) (711) (4,067)
------------- ----------------- ---------------- --------
Balance at December 31, 1994............... $ -- $ -- $ -- $ --
=========== =============== ============== =========
</TABLE>

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

(a) Substantially all amounts accrued require future cash expenditures.
(b) Costs were generally incurred in accordance with line item categories as
presented above.

OTHER INCOME -- NET

Other income net of other (expenses) from continuing operations is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest and investment income............................ $ 8,415 $ 6,167 $ 5,831
Miscellaneous income (expense)............................ (3,481) (7,873) (1,180)
------- ------- -------
$ 4,934 $(1,706) $ 4,651
======= ======= =======
</TABLE>

Early payment interest credit expense which is the result of cash payments
received by Snapper from distributors prior to receivable due dates is included
in net miscellaneous income (expense). The early payment interest credit expense
was $4,729,000 for 1994, $4,322,000 for 1993 and $2,522,000 for 1992.

F-26
<PAGE> 51

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Income tax expense (benefit) is composed of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
LIABILITY DEFERRED
METHOD METHOD
----------------- --------
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Continuing operations:
Current Federal......................................... $ -- $(1,674) $ (1,316)
Current state........................................... -- 239 156
Deferred federal and state.............................. -- -- 2,822
------- ------- --------
$ -- $(1,435) $ 1,662
======= ======= =======
Discontinued operations................................... $ -- $16,598 $ 21,666
======= ======= =======
</TABLE>

Income tax expense (benefit) computed by applying Federal statutory rates
to income (loss) before income taxes is reconciled to the actual income tax
expense (benefit) as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
LIABILITY DEFERRED
METHOD METHOD
------------------- --------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Continuing operations:
Computed tax at statutory rates....................... $ (8,210) $(18,603) $ 457
State tax, net of Federal benefit..................... -- 155 103
Effect of tax rate changes on realization of timing
differences........................................ -- 414 153
Amortization of goodwill.............................. -- 52 51
Undistributed earnings of majority-owned subsidiary... -- 603 812
Deferred tax valuation allowance...................... 7,398 16,227 --
Other................................................. 812 (283) 86
-------- -------- --------
$ -- $ (1,435) $ 1,662
======== ======== =======
Discontinued operations:
Computed tax at statutory rates....................... $(14,243) $ 11,778 $ 14,769
State tax, net of Federal benefit..................... -- 2,088 3,000
Amortization of goodwill.............................. -- 3,071 3,184
Effect of non-tax basis adjustments in connection with
acquisitions....................................... -- -- 914
Tax-exempt interest................................... -- (26) (80)
Dividends received deduction.......................... -- (290) --
Deferred tax valuation allowance...................... 4,124 -- --
Change due to Qualex sale............................. 10,119 -- --
Other................................................. -- (23) (121)
-------- -------- --------
$ -- $ 16,598 $ 21,666
======== ======== =======
</TABLE>

F-27
<PAGE> 52

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of deferred tax assets and liabilities at December
31, 1994 and 1993, are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1993
--------------------------- ---------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net operating loss carryforward........ $ 10,873 $ 30,383
Reserves for losses and write-down of
certain assets....................... 11,306 14,885
Reserves for self-insurance............ 10,059 11,781
Alternative minimum tax credit......... 10,005 8,805
Provisions for loss on loans and
receivables.......................... 2,280 3,509
Tax amortizable intangible............. -- 3,145
State tax accruals..................... 551 2,676
Gain on hedge transaction.............. -- 2,609
Obligation for postretirement
benefits............................. 1,313 1,966
Reserves for plant relocations and
consolidations....................... -- 1,541
Charitable contribution carryforward... -- 1,053
Imputed interest on interest-free
note................................. 1,272
Investment in equity investee.......... 7,805
Other.................................. 3,567 $ 1,553 9,726 $ 6,670
Investment in less than 80% owned
subsidiary........................... -- -- -- 28,832
Basis differences in fixed assets...... -- 5,438 -- 29,387
Purchase of safe harbor lease
investment........................... -- 9,472 -- 9,783
Undistributed earnings of
majority-owned subsidiary............ -- -- -- 1,282
------------ ------------ ------------ ------------
Subtotal............................... 59,031 16,463 92,079 75,954
Valuation allowance.................... 42,568 -- 31,611 --
------------ ------------ ------------ ------------
Total deferred taxes................... $ 16,463 $ 16,463 $ 60,468 $ 75,954
========= ========= ========= =========
Net deferred taxes..................... $ -- $ 15,486
========= =========
</TABLE>

The components of deferred income tax expense (benefit) for the year ended
December 31, 1992 is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992
-----------------------
<S> <C>
Accelerated depreciation........................................ $ 643
Provision for loss on loans and receivables..................... (281)
Reserves for losses and write-down of certain assets............ 1,030
Plant closure costs............................................. 1,077
Undistributed earnings of majority-owned subsidiary............. 547
Other........................................................... (194)
-------
$ 2,822
==================
</TABLE>

Actava has a net operating loss carryforward for Federal income tax
purposes of approximately $31,000,000 at December 31, 1994, which will expire in
the year 2008. Actava has an alternative minimum tax

F-28
<PAGE> 53

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

credit carryforward of approximately $10,000,000, which may be carried forward
indefinitely, available to offset regular tax in certain circumstances.

PENSION PLANS

Actava and its subsidiaries have several noncontributory defined benefit
and other pension plans which are "qualified" under Federal tax law and cover
substantially all employees. In addition, Actava has a "nonqualified"
supplemental retirement plan which provides for the payment of benefits to
certain employees in excess of those payable by the qualified plans. Benefits
under the qualified and nonqualified plans are based upon the employee's years
of service and level of compensation. Actava's funding policy for the qualified
plans is to contribute annually such amounts as are necessary to provide assets
sufficient to meet the benefits to be paid to the plans' members and to keep the
plans actuarially sound. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future.

The components of net periodic pension costs are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ----- ------
<S> <C> <C> <C>
Service cost -- benefits earned during the period............ $ 536 $ 374 $ 705
Interest cost on projected benefit obligation................ 1,074 961 1,015
Actual return on plan assets................................. (209) (996) (992)
Net amortization and deferral................................ (753) 76 (31)
------- ----- ------
$ 648 $ 415 $ 697
======= ===== ======
</TABLE>

Assumptions used in the accounting for the defined benefit plans are as
follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rates..................................... 7.1% 7.2% 8.4%
Rates of increase in compensation levels............................ 5.0% 4.7% 6.1%
Expected long-term rate of return on assets......................... 7.2% 7.6% 8.3%
</TABLE>

The following tables set forth the funded status and amount recognized in
the Consolidated Balance Sheets for Actava's defined benefit pension plans (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
PLANS WHOSE ASSETS EXCEED ACCUMULATED BENEFITS
Actuarial present value of benefit obligations:
Vested benefit obligations..................................... $ (3,972) $ (4,652)
======== ========
Accumulated benefit obligation................................. $ (4,360) $ (5,232)
======== ========
Projected benefit obligations.................................. $ (4,360) $ (5,232)
Plan assets at fair value...................................... 5,958 6,296
-------- --------
Funded status -- plan assets in excess of projected benefit
obligation.................................................. $ 1,598 $ 1,064
======== ========
Comprised of:
Prepaid pension cost........................................... $ 394 $ 415
Unrecognized net gain (loss)................................... 130 (523)
Unrecognized prior service cost................................ 172 187
Unrecognized net assets at January 1, 1987, net of
amortization................................................ 902 985
-------- --------
$ 1,598 $ 1,064
======== ========
</TABLE>

F-29
<PAGE> 54

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
PLANS WHOSE ACCUMULATED BENEFITS EXCEED ASSETS
Actuarial present value of benefit obligations:
Vested benefit obligation...................................... $(10,602) $(21,174)
======== ========
Accumulated benefit obligation................................. $(10,711) $(22,224)
======== ========
Projected benefit obligation................................... $(11,421) $(25,320)
Plan assets at fair value...................................... 6,287 18,615
-------- --------
Funded status -- projected benefit obligation in excess of plan
assets...................................................... $ (5,134) $ (6,705)
======== ========
Comprised of:
Accrued pension cost........................................... $ (3,388) $ (4,637)
Unrecognized net (loss)........................................ (1,824) (2,157)
Unrecognized prior service cost................................ (199) (215)
Unrecognized net obligation at January 1, 1987, net of
amortization................................................ 277 304
-------- --------
$ (5,134) $ (6,705)
======== ========
</TABLE>

Substantially all of the plan assets at December 31, 1994 and 1993 are
invested in governmental bonds, mutual funds and temporary investments.

The 1993 amounts for plans whose accumulated benefits exceed assets
includes a Qualex retirement plan, which is not included in 1994 due to the sale
of Qualex.

Some of the Company's subsidiaries also have defined contribution plans
which provide for discretionary annual contributions covering substantially all
of their employees. Contributions from continuing operations of approximately
$186,000 in 1994, $400,000 in 1993 and $800,000 in 1992 were made to these
plans.

LEASES

Actava and its subsidiaries are lessees of warehouses, manufacturing
facilities and other properties under numerous noncancelable leases.

Capitalized leased property, which is not significant, is included in
property, plant and equipment and other assets.

Future minimum payments for the capital leases and noncancelable operating
leases with initial or remaining terms of one year or more are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
-------------------------------------------------------------------- --------- -------
<S> <C> <C>
1995................................................................ $ 828 $ 151
1996................................................................ 291 151
1997................................................................ 243 151
1998................................................................ 125 151
1999................................................................ -- 100
Thereafter.......................................................... -- --
--------- -------
Total minimum lease payments........................................ $ 1,487 704
=======
Less amounts representing interest.................................. (157)
-------
Present value of net minimum lease payments......................... $ 547
=====
</TABLE>

F-30
<PAGE> 55

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rental expense charged to continuing operations for all operating leases
was $5,849,000, $4,641,000 and $3,454,000 for the years ended December 31, 1994,
1993 and 1992, respectively.

Certain noncancelable leases have renewal options for up to 10 years, and
generally, related real estate taxes, insurance and maintenance expenses are
obligations of Actava. Certain leases have escalation clauses which provide for
increases in annual rentals in certain circumstances.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards Number 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
settlements using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.

The following methods and assumptions were used in estimating the fair
value disclosures for financial instruments:

Cash and Cash Equivalents, Receivables, Notes Receivable and Accounts Payable

The carrying amounts reported in the balance sheet for cash and cash
equivalents, receivables, notes receivable and accounts payable approximate fair
values.

Short-term Investments

For short-term investments, fair values are based on quoted market prices.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities or dealer quotes. See "Investments" for
fair values on investment securities.

Long-term and Subordinated Debt

For long-term and subordinated debt, fair values are based on quoted market
prices, if available. If the debt is not traded, fair value is estimated based
on the present value of expected cash flows. See "Notes Payable and Long-term
Debt" for fair values of long-term and subordinated debt.

LITIGATION

In 1991, three lawsuits were filed against Actava, certain of Actava's
current and former directors and Intermark, Inc., which owned approximately 26%
of Actava's Common Stock. One complaint alleged, among other things, a
long-standing pattern and practice by the defendants of misusing and abusing
their power as directors and insiders of Actava by manipulating the affairs of
Actava to the detriment of Actava's past and present stockholders. The complaint
sought monetary damages from the director defendants, injunctive relief against
Actava, Intermark and its current directors, and costs of suit and attorney's
fees. The other two complaints alleged, among other things that members of the
Actava Board of Directors contemplate either a sale, a merger, or other business
combination involving Intermark, Inc. and Actava or one or more of its
subsidiaries or affiliates. The complaints sought costs of suit and attorney's
fees and preliminary and permanent injunctive relief and other equitable
remedies, ordering the director defendants to carry out their fiduciary duties
and to take all appropriate steps to enhance Actava's value as a merger or
acquisition

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<PAGE> 56

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

candidate. These three suits were consolidated on May 1, 1991 into a lawsuit
captioned In re Fuqua Industries, Inc. Shareholders litigation, Civil Action No.
11974. While these actions are in their discovery stages, management currently
believes the actions will not materially affect the operations or financial
position of Actava.

On November 30, 1993, a lawsuit was filed by the Department of Justice
("DOJ") against American Seating Company ("American Seating"), a former
subsidiary of Actava, in the United States District Court for the Western
District of Michigan. The lawsuit is captioned United States v. American Seating
Co., Civil Action No. 1:93-CV-956. Pursuant to an asset purchase agreement
between Actava and Amseco Acquisition, Inc., dated July 15, 1987, Actava assumed
the obligation for certain liabilities incurred by American Seating arising out
of litigation or other disputes involving events occurring on or before June 22,
1987. The DOJ alleges among other things that American Seating failed to
disclose certain information relating to its price discount practices that it
contends was required in an offer submitted by American Seating to the General
Services Administration for possible contracts for sales of systems furniture
and related services. The complaint seeks recovery of unspecified single and
treble damages, penalties, costs and prejudgment and post-judgment interest. The
parties have engaged in settlement discussions but have not agreed on a
disposition of the case. A trial, if necessary, has been scheduled for June
1995. The DOJ has asserted damages of approximately $3.5 million. If such
damages were awarded and then trebled, the total damages, excluding penalties,
costs and interest, could exceed $10 million. In addition, penalties, if
assessed, could range from several thousand dollars to several million dollars.
As a result, the lawsuit could have a material effect on the results of
operations and financial condition of the Company. Management, however, believes
that American Seating has meritorious defenses to the allegations made by the
DOJ and does not expect the Company to incur any material liability as a result
of this suit.

On September 23, 1994, a stockholder of the Company filed a class action
lawsuit against the Company and each of its directors seeking to block the
Proposed Metromedia Transaction. The lawsuit was filed in the Chancery Court for
New Castle County, Delaware and is styled James F. Sweeney, Trustee of Frank
Sweeney Defined Benefit Pension Plan Trust v. John D. Phillips, et. al., Civil
Action No. 13765. The Company and its directors were served with this lawsuit on
September 28, 1994. The complaint alleges that the terms of the Proposed
Metromedia Transaction constitute an overpayment for the assets being acquired
and as a result would result in a waste of the Company's assets. The complaint
further alleges that the directors of the Company would be breaching their
fiduciary duties to the Company's stockholders by approving the Proposed
Metromedia Transaction and that the transaction would result in a change of
voting control without giving stockholders an opportunity to maximize their
investment and the current stockholders of the Company would suffer a dramatic
dilution of their voting rights. The Company and its directors have filed a
motion to dismiss this lawsuit. The stockholder who filed the lawsuit has not
responded to the motion to dismiss. Management believes that the allegations
contained in the complaint are without merit for a variety of reasons, including
the fact that the Company has not entered into a definitive agreement with
respect to the Proposed Metromedia Transaction and the Proposed Metromedia
Transaction has not been approved by the Board of Directors of the Company.

Actava is a defendant in various other legal proceedings. Except as noted
above, however, Actava is not aware of any action which, in the opinion of
management, would materially affect the financial position or results of
operations of Actava.

CONTINGENT LIABILITIES AND COMMITMENTS

Actava, on behalf of its Snapper division, has an agreement with a
financial institution which makes available to dealers floor plan financing for
Snapper products. This agreement provides financing for dealer inventories and
accelerates cash flow to Snapper's distributors and to Snapper. Under the terms
of the agreement, a default in payment by one of the dealers on the program is
non-recourse to both the distributor

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THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and to Snapper. However, the distributor is obligated to repurchase any
equipment recovered from the dealer and Snapper is obligated to repurchase the
recovered equipment if the distributor defaults. At December 31, 1994 and 1993,
there were approximately $29,449,000 and $23,000,000, respectively, outstanding
under these floor plan financing arrangements.

Actava is contingently liable under various guarantees of debt totaling
approximately $6,000,000. The debt is primarily Industrial Revenue Bonds which
were issued to finance the manufacturing facilities and equipment of
subsidiaries disposed of prior to 1994, and is secured by the facilities and
equipment. In addition, upon the sale of the subsidiaries, Actava received
lending institution guarantees or bank letters of credit to support Actava's
contingent obligations. There are no material defaults on the debt agreements.

Actava is contingently liable under various real estate leases of
subsidiaries sold prior to 1994. The total future payments under these leases,
including real estate taxes, is estimated to be approximately $3,400,000. The
leased properties generally have financially sound subleases.

In January 1992, Qualex entered into an agreement whereby it sold an
undivided interest in a designated pool of trade accounts receivable on an
ongoing basis. The maximum allowable amount of receivables to be sold, initially
set at $50,00,000, was increased to $75,000,000 in August 1992. As collections
reduced the pool of sold accounts receivable, Qualex sold participating
interests in new receivables to bring the amount sold up to the desired level.
At December 31, 1993, the uncollected balance of receivables sold amounted to
$60,000,000. The proceeds were reported as discontinued operations in the
statement of cash flows and a reduction of receivables in Qualex's balance
sheet. Total proceeds received by Qualex during the year were $519,000,000 for
1993. There has been no adjustment to the allowance for doubtful accounts
because Qualex retained substantially the same risk of credit loss as if the
receivables had not been sold. Qualex paid fees based on the purchaser's level
of investment and borrowing costs. During 1993 and 1992, Qualex recorded
$2,200,000 and $1,100,000, respectively, of these fees as other expenses in
discontinued operations.

Through the date of sale, Qualex had a supply contract with Kodak for the
purchase of sensitized photographic paper and purchased substantially all of the
chemicals used in photoprocessing from Kodak. Qualex also purchased various
other production materials and equipment from Kodak.

Former subsidiaries of the Company handled and stored various materials in
the normal course of business that have been classified as hazardous by various
Federal, state and local regulatory agencies and for which the Company may be
liable. As of December 31, 1994, the Company is continuing to participate in
testing or is conducting tests at the sites where these materials were stored
and will perform any necessary cleanup where and to the extent legally required.
At those sites where tests have been completed, cleanup costs have been
immaterial. At the sites currently being tested, it is management's opinion that
cleanup costs will not have a material effect on Actava's financial position or
results of operations, but an estimate of costs exceeding those previously
recognized cannot be made at this time.

The Company, through a wholly owned subsidiary, presently owns real
property in Opelika, Alabama which was previously owned by DP, a former
subsidiary of the Company. DP previously stored cement, sand and mill scale
materials needed for or resulting from the manufacture of exercise weights on
the property. Although these materials have not been determined to be hazardous
by a regulatory agency, the Company is involved in a cleanup of this site. The
Company cannot predict with certainty the total cost of this cleanup; however,
based upon, among other things, past experience and preliminary site studies,
the Company presently believes total costs will be approximately $1.9 million. A
reserve of this amount has been recorded to provide for these cleanup costs. The
Company is not entitled to any recoveries for these costs from any other party.
Although this liability has been recorded currently, cleanup expenditures
generally are incurred over an extended period of time and the Company expects
the cleanup of this site to take several years. Cleanup expenditures related to
this site were approximately $10,000 for the year ended December 31, 1994.

F-33
<PAGE> 58

THE ACTAVA GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994, approximately $5,000,000 of Actava's cash was pledged
to secure a Snapper credit line and approximately $12,000,000 of cash and
short-term investments were pledged to support outstanding letters of credit.

Snapper has entered into various long-term manufacturing and purchase
agreements with certain vendors for the purchase of manufactured products and
raw materials. At December 31, 1994, non-cancelable commitments under these
agreements amounted to approximately $16,800,000.

SEGMENT INFORMATION

A description of Actava's segments is presented in the "Operating Segments"
section of Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Additional segment information as of and for the
three years ended December 31, 1994 is presented in the tables captioned
"Segment Performance" and "Other Segment Data" which are included in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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<PAGE> 59

THE ACTAVA GROUP INC. AND SUBSIDIARIES

SUMMARY OF QUARTERLY EARNINGS AND DIVIDENDS

<TABLE>
<CAPTION>
QUARTERS ENDED IN 1994
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net Sales............................................. $155,271 $123,943 $124,497 $148,117
Gross Profit.......................................... 27,200 18,526 18,786 26,141
Income (loss) from continuing operations.............. (8,090) (10,173) (5,266) 73
Income (loss) from discontinued operations............ (4,583) (36,110) -- --
Extraordinary item.................................... -- -- -- (1,601)
-------- -------- -------- --------
Net (loss)(a)......................................... $(12,673) $(46,283) $ (5,266) $ (1,528)
======== ======== ======== ========
Earnings (loss) per share:
Income (loss) from continuing operations.............. $ (.46) $ (.56) $ (.29) $ --
Income (loss) from discontinued operations............ (.26) (1.98) -- --
Extraordinary item.................................... -- -- -- (.09)
-------- -------- -------- --------
Net (loss)............................................ $ (.72) $ (2.54) $ (.29) $ (.09)
======== ======== ======== ========
Cash Dividends........................................ $ -- $ -- $ -- $ --
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED IN 1993
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(RESTATED)
<S> <C> <C> <C> <C>
Net Sales............................................. $ 99,701 $112,753 $113,746 $139,612
Gross Profit.......................................... 20,770 21,210 12,955 9,406
Income (loss) from continuing operations.............. (1,340) (3,669) (16,283) (30,424)
Income (loss) from discontinued operations............ (1,860) 3,712 7,236 (562)
Cumulative effect of change in accounting principle... (4,404) -- -- --
-------- -------- -------- --------
Net income (loss)(a)(b)(c)............................ $ (7,604) $ 43 $ (9,047) $(30,986)
======== ======== ======== ========
Earnings (loss) per share:
Income (loss) from continuing operations.............. $ (.08) $ (.22) $ (.92) $ (1.73)
Income (loss) from discontinued operations............ (.11) .22 .41 (.03)
Cumulative effect of change in accounting principle... (.27) -- -- --
-------- -------- -------- --------
Net income (loss)..................................... $ (.46) $ -- $ (.51) $ (1.76)
======== ======== ======== ========
Cash dividends........................................ $ .09 $ .09 $ .09 $ .09
</TABLE>

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

(a) Actava's lawn and garden division estimates certain sales related expenses
for the year and charges these expenses to income based upon estimated sales
for the year. Sales and expenses for 1994 were different than estimated in
the first three quarters. If the expenses had been charged to income based
upon actual sales for the year, net loss would have decreased in the first
and third quarters by $2,205,000 and $1,315,000, respectively, and increased
in the second and fourth quarters by $1,025,000 and $2,495,000,
respectively. Sales and expenses for the year were also different in 1993
than estimated in the first three quarters. If the expenses had been charged
to income based upon actual sales for the year, net loss would have
increased in the first and second quarters by $4,500,000 and $7,450,000,
respectively, and decreased in the third and fourth quarters by $1,750,000
and $10,200,000, respectively.
(b) During the fourth quarter of 1993, Actava's lawn and garden division revised
its estimate of accrued product warranty expense to reflect an increase in
the amount of future warranty cost to be incurred due to increased warranty
claims. This change in accounting estimate resulted in an increase in the
net loss for the fourth quarter of approximately $4,000,000.

F-35
<PAGE> 60

(c) During the fourth quarter of 1993, Actava increased its valuation allowance
for an investment in a real estate development from $1,425,000 to
$4,425,000, due to an accelerated plan for disposition. This change in
estimate resulted in an increase in the net loss for the fourth quarter of
approximately $3,000,000.

See Notes to Consolidated Financial Statements.

F-36