METROMEDIA INTERNATIONAL GROUP INC, 10-K, 1999-03-31

METROMEDIA INTERNATIONAL GROUP INC
10-K, 1999-03-31
MOTION PICTURE & VIDEO TAPE PRODUCTION

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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

Commission File Number 1-5706

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METROMEDIA INTERNATIONAL GROUP, INC.

(Exact name of registrant, as specified in its charter)

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

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ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NEW JERSEY 07073-2137

(Address and zip code of principal executive offices)

(201) 531-8000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
Common Stock, $1.00 par value American Stock Exchange
Pacific Stock Exchange
7.25% Cumulative Convertible Preferred Stock American Stock Exchange
Pacific Stock Exchange
</TABLE>

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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 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. X

The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant at March 25, 1999 computed by reference to the
last reported sale price of the Common Stock on the composite tape on such date
was $273,340,000.

The number of shares of Common Stock outstanding as of March 25, 1999 was
69,123,841.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be used in connection with the
Registrant's 1999 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.

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<PAGE>
PART I

ITEM 1. BUSINESS

METROMEDIA INTERNATIONAL GROUP, INC.

Metromedia International Group, Inc. ("MMG" or "the Company") is a global
communications company engaged in the development and operation of a variety of
communications businesses, including cellular telecommunications, fixed
telephony, international and long distance telephony, cable television, paging
and radio broadcasting, in Eastern Europe, the republics of the former Soviet
Union (the "FSU") and the People's Republic of China ("China") and other
selected emerging markets, through its wholly owned subsidiary Metromedia
International Telecommunications, Inc. ("MITI") and its majority owned
subsidiary Metromedia China Corporation ("MCC"), which together with MITI is
defined as the "Communications Group."

The year of 1998 was one of significant change and challenges in the business
environment in which the Company operates. The Company announced numerous
expansions and improvements to its networks, despite the economic downturn in
the FSU and much of Eastern Europe and slower growth in China. The Company
continuously monitors and reviews the performance of its operations to maximize
value to its shareholders. During 1998, the Company continued to focus its
growth on opportunities in communications businesses. The convergence of cable
television and telephony and the relationship of each business to Internet
access has provided the Company a unique opportunity. However, as the Company
has seen in the current year, the quick pace of technological, regulatory and
political change can effectively limit the opportunities for the Company in some
of the businesses in which it operates.

During 1997 and 1998, the Company completed the sales of its entertainment
assets, which has provided significant funds for the Company's expansion in
communications businesses. The Company saw limited growth opportunities in
trunked mobile radio and in July 1998 sold its investment in Protocall Ventures.
The Company still owns an interest in one trunked mobile radio venture and is
currently evaluating how best to maximize its value to the Company. With the
sale of these non-strategic assets the Company can focus on its core business of
providing affordable modern digital voice, data and multimedia communications
capabilities at the lowest possible capital cost in order to generate the
highest feasible return on investment.

The Company's strategy is as follows: Install modern wireless and wireline
technologies in combination to achieve the best mix of economy, performance and
accessibility to consumers. Then, market intensively a steadily expanding array
of value-added services including local telephone and cable service, specialized
cable programming, long-distance telephone service, cellular telephone service,
mobile telephone service and, ultimately, the Internet and high bandwidth
digital information and entertainment services.

The Company feels it can accomplish this goal by actively pursuing investments,
new licenses and agreements for communications services in new markets. The
Company continues to target emerging markets with strong economies which lack
adequate communications services. The Company will continue to pursue growth
opportunities through acquisitions.

The Company's businesses operate in an environment with significant competing
technologies and political and economic challenges. The Communications Group's
paging business is experiencing increasing competition from cellular telephony
in some of the markets in which it operates. There is an expectation of similar
competition in the future in other markets where the Communications Group has
paging operations. Despite a number of operating and marketing initiatives to
diminish the effects of the increased competition, including calling party pays,
the paging operations continued to generate operating losses in 1998. In the
current environment, the potential for growth in most of the markets the
Communications Group's paging operations competes in are limited in the near
term. Consistent

1
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ITEM 1. BUSINESS (CONTINUED)
with the Company's strategy to maximize its greatest value for the capital
employed, the Communications Group has developed a revised operating plan to
stabilize its paging operations. Under the revised plan, the Communications
Group intends to manage its paging business to a level that will not require
significant additional funding for its operations. The Company anticipates that
under the revised plan, the paging business's operating loss will decrease
significantly. As a result of the revised plan, the Company has taken a
non-cash, nonrecurring charge on its paging assets of $49.9 million, which
includes a $35.9 million write off of goodwill and other intangibles. The
non-cash, nonrecurring charge adjusted the carrying value of goodwill and other
intangibles, fixed assets and investments in and advances to Joint Ventures and
wrote down inventory.

The Company believes that there is an inherent value to delivery of data via
wireless transmission and the increased demand for data transmission may create
a valuable business for the use of its paging frequencies. The Company will
continue to explore these areas and other opportunities for the paging business.

During 1998, a number of the countries in which the Communications Group
operates experienced economic and financial difficulties. Adverse economic
conditions in the Russian Federation resulted in a national liquidity crisis,
devaluation of the rouble, higher interest rates and reduced opportunity for
refinancing or refunding of maturing debts. Although the Russian Federation
government announced policies intended to address the structural weakness in the
Russian economy and financial sector, it is unclear if such policies will
improve the economic situation.

The financial crisis and the government's response may result in reduced
economic activity, a reduction in the availability of credit and the ability to
service debt, further increases in interest rates, an increased rate of
inflation or hyperinflation, further devaluation of the rouble, restrictions on
convertibility of the rouble and movements of hard currency and an increase in
the number of bankruptcies of entities, including bank failures, labor unrest
and strikes.

If the economic and financial situation in the Russian Federation and other
emerging markets does not improve, the reduced level of economic activity and
the opportunity to obtain financing in these markets could have a material
adverse effect on the operations of the Communications Group. If such factors
should materialize the Company expects such factors to affect its cable
television, paging and radio broadcasting businesses in Russia, Belarus and
other emerging countries.

Current Chinese law and regulation prohibit foreign companies and joint ventures
in which they participate from providing telephony services to customers in
China and generally limit the role that foreign companies or their joint
ventures may play in the telecommunications industry. As a result, the
Communications Group's investments in Joint Ventures in China have been made
through a structure known as the Sino-Sino-Foreign ("SSF") joint venture, a
widely used method for foreign investment in the Chinese telecommunications
industry, in which the SSF venturer is a provider of telephony equipment,
financing and technical services to telecommunications operators and not a
direct provider of telephone service.

Since mid-1998, there has been uncertainty regarding possible significant
changes in the regulation of and policy concerning foreign participation in and
financing of the telecommunications industry in China, including the continued
viability of the SSF structure and associated service and consulting
arrangements with China United Telecommunications Incorporated ("China Unicom"),
the operator of telephony services with which the Communication's Group Joint
Ventures have contracted. There has been no official policy statement or new
regulations as yet announced, and the Company has not received any official
notice regarding new policy or regulation. The Communications Group is not now
holding discussions regarding new projects in the Chinese telephony sector. The
Company believes that

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ITEM 1. BUSINESS (CONTINUED)
no such discussions can be productive until more definitive information is
available. In light of the current regulatory uncertainty, the Company is unable
to estimate the impact such changes in policy or regulation, if any, would have
on the Communications Group's Chinese Joint Ventures ability to generate
significant revenue, cash flow or net income.

The foregoing factors relating to economic and financial conditions in the
Russian Federation and other emerging markets, and to Chinese law and regulation
relating to foreign investment in the telecommunications industry, have not had
a significant effect on the Company's financial condition or results of
operations as of and for the year ended December 31, 1998. As is noted above,
the Company cannot yet predict the impact that such factors may have on its
future financial condition or results of operations. In addition, the Company
reports the results of the operations of the Communications Group's operations
in Eastern Europe and the republics of the former Soviet Union, and the
distributable cash flow generated by the telephony systems to which the
Company's Joint Ventures provide funding and services, on a three month lag and
therefore the impact of such factors, if any, are not yet fully reflected in the
Company's results of operations.

During 1998, the Company's Communications Group continued to experience
significant subscriber growth. Aggregate subscribers to the Communications
Group's Joint Ventures various services at the 1998 fiscal year-end was 520,182,
representing a growth of approximately 70% over the 1997 fiscal year-end total
of 305,198 subscribers. The Communications Group's financial results for
December 31 include the Communications Group's Joint Ventures for the 12 months
ending September 30th.

The Company also owns Snapper, Inc. ("Snapper"), which is a wholly-owned
subsidiary. The Company owned Snapper prior to the November 1 Merger (as defined
below) and the subsequent shift in the Company's business focus to a global
communications company. Snapper manufactures Snapper-Registered Trademark- brand
premium-priced power lawnmowers, lawn tractors, garden tillers, snowthrowers and
related parts and accessories.

The Company owns approximately 39% of the outstanding common stock of RDM Sports
Group, Inc. ("RDM"). In August 1997, RDM and certain of its affiliates filed a
voluntary bankruptcy petition under chapter 11 of the Bankruptcy Code. The
chapter 11 trustee is in the process of selling all of RDM's assets to satisfy
its obligations to its creditors and the Company believes that its equity
interest will not be entitled to receive any distributions. The Company also
holds certain claims in the RDM proceeding, although there can be no assurance
that the Company will receive any distribution with respect to such claims.

The Company was organized in 1929 under Pennsylvania law and reincorporated in
1968 under Delaware law. On November 1, 1995, as a result of the merger of Orion
Pictures Corporation ("Orion") and MITI with and into wholly-owned subsidiaries
of the Company and the merger of MCEG Sterling Incorporated ("Sterling") with
and into the Company (collectively, the "November 1 Merger"), the Company
changed its name from "The Actava Group Inc." to "Metromedia International
Group, Inc." The Company's principal executive offices are located at One
Meadowlands Plaza, East Rutherford, New Jersey 07073-2137, telephone: (201)
531-8000.

Certain statements set forth below in this Form 10-K constitute "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). See "Special Note Regarding
Forward-Looking Statements" on page 70.

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ITEM 1. BUSINESS (CONTINUED)
DESCRIPTION OF BUSINESS GROUPS

COMMUNICATIONS GROUP

The Communications Group invests in communication businesses in two primary
geographic areas: Eastern Europe and the FSU, and China. In Eastern Europe and
the FSU, the Communications Group generally owns 50% or more of the operating
joint ventures ("Joint Ventures") in which it invests. Currently, legal
restrictions in China prohibit foreign participation in the operation or
ownership in the telecommunications sector. The Communications Group's China
Joint Ventures invest in telephony system construction and development for China
Unicom. The completed telephony systems are operated by China Unicom. The China
Joint Ventures receive payments from China Unicom based upon distributable cash
flow generated by the systems, for a cooperation period of 15-25 years for each
expansion phase financed and developed. These payments are in return for the
Joint Venture providing financing, technical advice, consulting and other
services. Hereinafter, all references to the Communications Group's Joint
Ventures relate to the operating Joint Ventures in Eastern Europe and the FSU
and the Communications Group's Joint Ventures in China. Statistical data
regarding subscribers, population, etc. for the Joint Ventures in China relate
to the telephony systems of China Unicom with respect to which such Joint
Ventures provide funding and services.

At December 31, 1998, the Communications Group owned interests in and
participated with partners in the management of Joint Ventures that had 46
operational systems, consisting of 11 cable television systems, 2 GSM cellular
telephone systems, 1 Joint Venture building out an operational GSM system and
providing financing, technical assistance and consulting services to the local
system operator, 1 international and long distance telephony provider, 1
wireless local loop operator, 13 paging systems, and 17 radio broadcasting
stations. In addition, the Communications Group has interests in and
participates with partners in the management of Joint Ventures that, as of
December 31, 1998, had 5 pre-operational systems, consisting of 1 wireless local
loop service provider, 1 Digital Advanced Mobile Phone System ("DAMPS") cellular
provider and 2 companies participating in the construction and development of
local telephone networks in China for up to 1 million lines and 1 Joint Venture
which will assist in the build out of a GSM system and provide financing,
technical and consulting service to the local operator. The Company believes
that all of the systems will be launched during 1999. The Communications Group
generally owns approximately 50% or more of the Joint Ventures in which it
invests.

The Company's Communications Group's Joint Ventures experienced significant
growth in 1998. Total subscribers at the end of the 1998 fiscal year-end was
520,182 compared with 305,198 at fiscal year-end 1997, an increase of
approximately 70%. The Company's financial results for December 31 include the
Communications Group's Joint Ventures for the 12 months ending September 30th.
Total combined revenues reported by the Communications Group's consolidated and
unconsolidated Joint Ventures for the years ended December 31, 1998, 1997, and
1996 were $130.1 million, $91.2 million, and $57.2 million, respectively. The
Communications Group invested approximately $105.9, $104.7 million, and $52.2
million during the years ended December 31, 1998, 1997, and 1996, respectively,
in the construction and development of its consolidated and unconsolidated Joint
Ventures' communications networks and broadcasting stations.

4
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ITEM 1. BUSINESS (CONTINUED)
The following chart summarizes operating statistics by service type of both the
licensed pre-operational and operational systems constructed by the
Communications Group's Joint Ventures:

<TABLE>
<CAPTION>
MARKETS TARGET/POPULATION
OPERATIONAL HOUSEHOLDS
PRE-OPERATIONAL AT (MILLIONS) (A) AGGREGATE
MARKETS AT DECEMBER AT SUBSCRIBERS AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
31, ----------- -------------- -------------------
COMMUNICATIONS SERVICE 1998 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------ ---------- ---- ---- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Telephony (b):
Cellular Telecommunications............................... 2(c) 3(d) 3 13.5 13.5 94,084 21,842
Fixed Telephony (e)....................................... 3 1 -- 49.4(f) 41.8 n/a n/a
International and Long Distance Telephony (f)............. -- 1 1 5.5 5.5 n/a n/a
Cable Television............................................ -- 11 9 9.6 9.5 315,864 225,525
Paging (g).................................................. -- 13 11 103.0 89.5 110,234 57,831
Radio Broadcasting.......................................... -- 17 15 10.7 10.7 n/a n/a
--- ---- ---- -------- --------
5 46 39 520,182 305,198
--- ---- ---- -------- --------
--- ---- ---- -------- --------
</TABLE>

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(a) Covers both pre-operational markets and operational markets. Target
population is provided for paging and telephony other than fixed telephony
and target households are provided for cable television systems, radio
stations and fixed telephony.

(b) During 1998, the Communications Group sold all of its interests in trunked
mobile radio, with the exception of its trunk mobile radio operation in
Kazakhstan ("Spectrum"). In addition, the Company wrote down the carrying
value of its investment in Spectrum since it is a non-strategic asset,
although the Communications Group will continue to operate the Joint Venture
to maximize its ultimate value to the Company.

(c) The Communications Group owns 46% of a pre-operational DAMPS cellular
telephone Joint Venture in the Tyumen region of the Russian Federation and a
second pre-operational Joint Venture in Ningbo City which is participating
in the build out of a GSM system and providing financing, technical
assistance and consulting services to the system operator.

(d) The Communications Group's operational systems include its Joint Ventures
operating a GSM system in Latvia and Georgia and its Joint Venture in Ningbo
City, China, which is participating in the build-out of an operational GSM
system by providing financing, technical assistance and consulting services
to the systems's operator.

(e) The Communications Group owns 38% of a pre-operational wireless local loop
system licensed to provide services throughout Azerbaijan, and owns 54%
interests in two pre-operational Joint Ventures in the China that are
participating in the construction and development of a local telephone
network for up to one million lines.

(f) Reflects the population of Sichuan Province and Chongqing Municipality in
China where the Communications Group is participating in the construction of
local wireline networks, and Kazakhstan where the Communications Group's
Joint Venture is licensed to operate.

(g) Target population for the Communications Group's paging Joint Ventures
includes the total population in the jurisdictions where such Joint Ventures
are licensed to provide services. In many markets, however, the
Communications Group's paging system currently only covers the capital city.

5
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ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY

The Communications Group's markets generally have large populations, with high
density and strong economic potential, but lack reliable and efficient
communications service. The Communications Group believes that most of these
markets have a growing number of persons who desire and can afford high quality
communications services. The Communications Group has assembled a management
team consisting of executives who have significant experience in the
communications services industry and in operating businesses in developing
markets. This management team believes that the Communications Group's systems
can be constructed with relatively low capital investments and focuses on
markets where the Company can provide multiple communications services. The
Company believes that the establishment of a far-reaching communications
infrastructure is crucial to the development of the economies of these
countries, and such development will, in turn, supplement the growth of the
Communications Group.

The Communications Group believes that the performance of its Joint Ventures has
demonstrated that there is significant demand for its services in its license
areas. While the Communications Group's operating systems have experienced rapid
growth to date, many of the systems are still in early stages of rolling out
their services, and therefore, the Communications Group believes it will
significantly increase its subscriber and customer bases as these systems
mature. In addition, as an early entrant in many markets, the Communications
Group believes that it has developed a reputation for providing quality service
and has formed important relationships with local entities. As a result, the
Company believes it will be able to capitalize on opportunities to provide
additional communications services in its markets as new licenses are awarded.

The Communications Group continually explores new investment opportunities for
communications systems in Eastern Europe, the FSU, China and other emerging
markets. In the FSU, the Communications Group principally utilizes wireless
local loop telephony technology which offers a high quality, cost effective
alternative to operators seeking to replace or compete with antiquated telephone
systems. This technology can provide telephony system operators with competitive
advantages in speed of deployment, low unit cost and ability to deliver high
speed facsimile, data communication and Internet access services. In China, the
Communications Group's experience with developing modern, fiber optic and high
speed digital switching networks is attractive to operators undertaking large
scale wireline communications system projects. Such networks provide operators
with nearly unlimited capacity to provide integrated voice, data and video
services as they compete with the often outdated and overloaded networks of
pre-existing communications systems. This range and depth of the Communications
Group's capabilities in advanced communications technology and business
development makes the Communications Group a uniquely attractive joint venture
partner for parties seeking to exploit the substantial growth opportunities
present in the emerging communications markets. The Communications Group
believes that it is well positioned to convert these capabilities into a
continuing stream of new investment projects.

The Communications Group's objective is to develop its core business of
providing affordable modern digital voice, data and multimedia communications
capabilities to consumers at the lowest possible capital cost in order to
generate the highest feasible return on investment. The Communications Group
intends to achieve its objective and expand its subscriber and customer bases,
as well as its revenues and cash flow, by pursuing the following strategies:

INSTALL MODERN WIRELESS AND WIRELINE TECHNOLOGIES IN COMBINATION TO ACHIEVE THE
BEST MIX OF ECONOMY, PERFORMANCE AND ACCESSIBILITY TO CONSUMERS. The
Communications Group's cable television Joint Ventures utilize three possible
distribution technologies; microwave multipoint distribution system ("MMDS"),
wireline cable or a hybrid combination of MMDS and wireline cable in which MMDS
acts

6
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ITEM 1. BUSINESS (CONTINUED)
as a backbone to deliver programming to wireline cable networks for further
distribution to the customer.

UTILIZE LOW COST WIRELESS TECHNOLOGIES THAT ALLOW FOR RAPID BUILD-OUT. Many
markets where the Communications Group has or is pursuing wireless licenses have
limitations on wireline construction above ground and/or underground. The use of
wireless technologies has allowed and will continue to allow the Communications
Group to build-out its existing and future license areas, where such
technologies are appropriate, quickly and at a low cost.

COMPLETE BUILD-OUT OF EXISTING LICENSE AREAS. Since its formation in 1990, the
Communications Group has been investing in Joint Ventures to obtain
communications licenses in certain emerging markets. During the years ended
December 31, 1998, 1997, and 1996, the Communications Group invested
approximately $105.9 million, $104.7 million, and $52.2 million, respectively,
in the construction and development of its consolidated and unconsolidated Joint
Ventures' communications networks and broadcast stations in existing license
areas.

DEPLOY ADVANCED FIBER OPTIC NETWORKS THAT PROVIDE SIGNIFICANT GROWTH AND SERVICE
CAPACITY. The nearly unlimited capacity and high speed of modern fiber optic
and digital switching technology will allow the Communications Group's large
scale, urban systems in China to sustain very high rates of subscriber and
service expansion. These modern, integrated systems compete effectively with the
capacity and service limitations of pre-existing analog and copper-based urban
telephone systems.

AGGRESSIVELY GROW THE SUBSCRIBER AND ADVERTISER BASE IN EXISTING LICENSE
AREAS. The Communications Group's existing license areas, in the aggregate,
represent a large potential revenue base. The Communications Group is
aggressively marketing its services in these areas and is experiencing
significant increases in its subscriber count and advertising base. The
Communications Group believes it will continue to add subscribers by (i)
targeting each demographic in its markets with customized communications
services, (ii) cross-marketing and bundling communications services to existing
customers, (iii) providing technologically-advanced services and a high level of
customer service, (iv) providing new and targeted programming on its radio
stations to increase advertising revenue, and (v) opportunistically acquiring
additional existing systems in its service areas and in other strategic areas to
increase its subscriber base.

INVEST IN VERTICAL BUSINESSES ALLIED TO CORE TELECOMMUNICATIONS. The
Communications Group is actively pursuing partnerships with data service
providers, information service operators, Internet access providers and firms
developing electronic commerce applications. Such businesses build vertically
upon the core communications infrastructure for which the Communications Group
has already established a position and reputation. These vertical business
opportunities offer prospects of extraordinary growth and substantially lower
restrictions on foreign participation. The Communications Group has identified
several such opportunities in China's rapidly developing information industry.

PURSUE ADDITIONAL OPPORTUNITIES IN EXISTING MARKETS. The Communications Group
is pursuing opportunities to provide additional communications services in
regions in which it currently operates. This strategy enables the Communications
Group to (i) leverage its existing infrastructure and brand loyalty, (ii)
capitalize on marketing opportunities afforded by bundling its services, and
(iii) build brand loyalty and awareness. The Communications Group believes that
it has several competitive advantages that will enable it to obtain additional
licenses and/or agreements in these markets, including (i) established
relationships with local strategic joint venture partners and local government,
(ii) a proven track record of handling and operating quality systems, and (iii)
a fundamental understanding of the regions' political, economic and cultural
climate.

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ITEM 1. BUSINESS (CONTINUED)
INVEST IN NEW MARKETS. The Communications Group is actively pursuing
investments in Joint Ventures to obtain new licenses and/or agreements for
communications services in new markets. The Company is targeting emerging
markets with strong economic potential which lack adequate communications
services. In evaluating whether to enter a new market, the Communications Group
assesses, among other factors, the (i) potential demand for the Communications
Group's services and the availability of competitive services, (ii) strength of
local partners, and (iii) the political, social and economic climate. The
Communications Group has identified several attractive opportunities in Eastern
Europe and the Pacific Rim. In addition, in 1998, the Communications Group
acquired a 38% interest in a Joint Venture licensed to provide wireless local
loop telephone services in the Republic of Azerbaijan and a 46% interest in a
Joint Venture licensed to provide DAMPS cellular service in the Tyumen region of
Russia.

TELEPHONY

The Communication Group's telephony line of business consists of cellular
telecommunications, fixed telephony and international and long distance
telephony calling.

CELLULAR TELECOMMUNICATIONS

OVERVIEW. The Communications Group owns a 22% interest in Baltcom GSM which
operates a nationwide cellular telecommunications system in Latvia. The
Communications Group also owns a 35% interest in Magticom, a Joint Venture that
operates cellular telecommunications systems in major cities in Georgia and is
licensed to provide nationwide services. Western Wireless International Inc.
("Western Wireless"), a leading U.S. cellular provider, is a partner in each of
these Joint Ventures. The Communications Group believes that there is a large
demand for cellular telephone service in each of Latvia and Georgia due to the
limited supply and poor quality of wireline telephone service in these markets
as well as the rapidly growing demand for the mobility offered by cellular
telephony service. Landline telephone penetration is 25% in Latvia and 9% in
Georgia. The demand for reliable and mobile telephone service is increasing
rapidly and the pace is expected to continue as commerce in these regions
continues to experience rapid growth.

In 1998, the Communications Group acquired a 46% interest in a pre-operational
Joint Venture licensed to provide DAMPS service in the Tyumen region of Russia.
The Communications Group expects such Joint Venture to commence operations in
1999.

The Communications Group owns a 70% interest in a Joint Venture that finances
and provides supporting services to the China Unicom GSM system in Ningbo City,
China. This system launched commercial service in 1997.

TECHNOLOGY. The Communications Group's cellular telephone networks in Latvia,
Georgia and the cellular network to which it provides funding and services in
China operate using the GSM standard. GSM is the standard for cellular service
throughout Western Europe and Asia, which allows the Communications Group's
customers to roam throughout the region. GSM's mobility is a significant
competitive advantage compared to competing Advanced Mobile Phone Systems
("AMPS") which cannot readily offer international roaming service.

MARKETING. The Communications Group targets its cellular telephony services
toward the rapidly growing number of individuals, corporations and other
organizations with a need for mobility, ready access to a high quality voice
transmission service and the ability to conduct business outside of the
workplace or home. The Communications Group sells cellular phones at a small
mark-up to cost. This

8
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ITEM 1. BUSINESS (CONTINUED)
pass-through strategy encourages quick market penetration and early acceptance
of cellular telephony as a desirable addition to existing fixed telephony
service.

Management believes that its cellular systems will benefit from several
competitive advantages in each of its markets. The Communications Group intends
to market its cellular telephony service to customers of its existing cable
television and paging services in both Latvia and Georgia. The Communications
Group believes that this database of names will be useful in marketing its
cellular telephony services, as these are customers who have already exhibited
an interest in modern communications services. The Communications Group's
cellular systems in China compete with an entrenched, state-owned operator. The
Communications Group's systems are developed to provide levels of quality and
performance significantly better than those of the competing operator, thereby
positioning these systems to compete effectively for new mobile customers as
well as to seize a portion of the competing operator's customer base.

COMPETITION. Baltcom GSM's primary competitor in Latvia is Latvia Mobile
Telecom ("LMT") which operates two systems. LMT commenced service in 1995. LMT
operates a second system using the older, less efficient NMT technology that the
Communications Group believes will pose less of a competitive threat than LMT's
GSM system. The Communications Group believes that its primary competitors in
Georgia are Geocell, a Georgian-Turkish Joint Venture using a GSM system and an
existing smaller provider of cellular telephony services which uses the AMPS
technology in its network. The Communications Group's primary competition in the
Tyumen region will be from a GSM provider.

The Communications Group's operating partner in China is China Unicom, the first
company franchised to provide public wireless and wireline telephone service in
China that is independent of China Telecom, the historical Chinese monopoly
provider of telephony services. China Unicom competes in both the wireless and
wireline markets with China Telecom, the historical state-owned
telecommunications monopoly. China Unicom's systems, including especially those
supported by the Communication Group, have successfully captured initial
positions in China's rapidly expanding urban telecom markets. Chinese government
policy is aimed at assuring China Unicom's ultimate success as a measure of
creating open competition in the country's telecommunications industry.

The low level of penetration and often poor quality provided by the national
telephone systems in the emerging markets where the Communications Group's
activities are focused create an ideal competitive opportunity for the
Communications Group's operators. The low penetration of existing national
services means a large, unserved market exists for new operators. The poor
quality of existing services creates a precondition for customers switching to
the price competitive, yet higher quality services made possible by the new
operators' more modern networks. For example, in China more than half of urban
households do not yet have telephone service and most commercial customers are
sharply limited in the volume and speed of traffic that their existing public
telecom links will support. The Communications Group believes that such factors
offset most of the competitive advantage that would otherwise be enjoyed by an
entrenched national telecom monopoly.

FIXED TELEPHONY

OVERVIEW. The Communications Group is currently exploring a number of
investment opportunities in wireless local loop telephony systems in certain
countries in Eastern Europe and the FSU and other selected emerging markets and
has installed test systems in certain of these markets. The Communications Group
believes that the proposed wireless local loop telephony technology it is using
is a time and cost effective means of improving the communications
infrastructure in such markets. The current telephone systems in these markets
may be antiquated, overloaded, or both and consumers in these markets often must
wait several years to obtain telephone service.

9
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The Communications Group believes that wireless local loop technology is a rapid
and cost effective method to increase the number of subscribers to local
telephone services. Wireless local loop telephony systems can provide telephone
access to a large number of apartment dwellers through a single microwave
transceiver installed on their building. This microwave transceiver sends
signals to and from a receiver located adjacent to a central office of the
public switched telephone network where the signal is routed from or into such
network. This system eliminates the need to build fixed wireline infrastructure
between the central office and the subscribers' building, thus reducing the time
and expense involved in expanding telephone service to customers.

In 1998, the Communications Group acquired a 38% interest in Caspian American
Telecommunications ("CAT"), a Joint Venture licensed to provide wireless local
loop telephone services in the Republic of Azerbaijan. CAT is currently building
out its systems and negotiating an interconnection agreement with the PSTN. CAT
expects to launch commercial service in 1999. The Communications Group has
formed several other Joint Ventures that are currently exploring opportunities
to provide wireless local loop services.

The Communications Group owns 92% interests in Joint Ventures financing and
supporting China Unicom's development of a wireline Public Switched Telephone
Network ("PSTN") in the Sichuan and Chongqing regions of southern China. China
Unicom commercially launched PSTN services in the capital cities of Sichuan and
Chongqing in January 1999.

TECHNOLOGY. Wireline network investments funded and serviced by the
Communications Group in China employ high speed fiber optic systems capable of
handling integrated voice, data and video traffic. These systems are
competitively superior to the pre-existing metallic networks commonly deployed
in China.

MARKETING. The wireline networks being assisted by the Communications Group's
Joint Ventures in the Sichuan and Chongqing regions of China target large
business and government users needing high reliability, high capacity
communications. These modern, fiber optic based networks compete very
effectively against the antiquated and overloaded systems common to China's
urban areas. The rapidly developing demand for advanced communications services
in China's industrial and commercial sectors creates a significant competitive
advantage for these high capacity, high speed networks. In addition, the spare
capacity of facilities deployed to capture large commercial business can
subsequently be marketed, at very low incremental cost, to serve the surrounding
residential communities. Management believes that this strategy will allow the
Group's Chinese operating partner to economically create city-wide fiber network
coverage for both commercial and residential customers.

COMPETITION. While the existing wireline telephone systems in Eastern Europe
and the FSU are often antiquated and provide inferior quality service, the fact
that the network infrastructure is already in place means that it is a source of
competition for the Communications Group's proposed wireless telephony
operations. The Communications Group does not have or expect to have exclusive
franchises with respect to its wireless telephony operations and may therefore
face more significant competition in the future from highly capitalized entities
seeking to provide services similar to or competitive with the Communications
Group's services in its markets.

In certain markets, cellular telephone operators exist and represent a
competitive alternative to the Communications Group's proposed wireless local
loop telephony systems. A cellular telephone can be operated in the same manner
as a wireless loop telephone in that either type of service can simulate
conventional telephone service by providing local, long distance and
international calling from a fixed position in its service area. However, while
cellular telephony enables a subscriber to move from one place in a city to
another while using the service, wireless local loop telephony is intended to
provide

10
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
fixed telephone services which can be deployed as rapidly as cellular telephony
but at a lower cost per line. This lower cost makes wireless local loop
telephony a more attractive telephony alternative to a large portion of the
populations in the Communications Group's markets that do not require mobile
communications. In addition, because the wireless local loop technology which
the Communications Group is using operates at 64 kilobits per second, it can be
used for high speed facsimile and data transmission, including Internet access.

INTERNATIONAL AND LONG DISTANCE TELEPHONY

OVERVIEW. The Communications Group owns approximately 30% of Telecom Georgia.
Telecom Georgia is the primary international and long distance telephony service
provider in Georgia. Telecom Georgia has interconnect arrangements with several
international long distance carriers such as Sprint and Telespazio. For every
international call made to Georgia through Telecom Georgia, a payment is due to
Telecom Georgia by the interconnect carrier and for every call made from Telecom
Georgia to another country, Telecom Georgia charges its subscribers and pays a
destination fee to the interconnect carrier.

Since Telecom Georgia commenced operations, long distance traffic in and out of
Georgia has increased dramatically as Telecom Georgia has expanded the number of
available international telephone lines.

COMPETITION. Although Telecom Georgia handles the vast majority of all
international toll calls to and from Georgia, in 1998 several new market
entrants started providing international telephone service.

CABLE TELEVISION

OVERVIEW. The Communications Group commenced offering cable television services
in 1992 through its Joint Ventures' Kosmos TV in Moscow, Russia ("Kosmos"), and
Baltcom TV in Riga, Latvia ("Baltcom"). The Communications Group currently has
interests in Joint Ventures which offer cable television services in 11 markets
in Eastern Europe and the FSU that reported 315,864 subscribers at December 31,
1998, an increase of approximately 40% from 225,525 subscribers at December 31,
1997. In 1998, the Communications Group purchased an 81% interest in a wireless
cable television system operating in Archangelsk, Russia. The Communications
Group believes that there is a growing demand for multi-channel television
services in each of the markets where its Joint Ventures are operating, which
demand is being driven by the lack of quality television and alternative
entertainment options in these markets and the growing demand for local language
entertainment programming.

TECHNOLOGY. The Communications Group's cable television Joint Ventures utilize
three possible distribution technologies: MMDS, wireline cable or a hybrid
combination of MMDS and wireline cable in which MMDS acts as a backbone to
deliver programming to wireline cable networks for further

11
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
distribution to the customer. The Communications Group believes that MMDS is an
attractive technology to utilize for the delivery of multi-channel television
services in these markets because (i) the initial construction costs of a MMDS
system generally are significantly lower than wireline cable or direct-to-home
("DTH") satellite transmission, (ii) the time required to construct a wireless
cable network is significantly less than the time required to build a standard
wireline cable television network covering a comparably-sized service area,
(iii) the high communications tower typically utilized by the MMDS network
combined with the high density of multi-family dwelling units in these markets
gives the MMDS networks very high line of sight ("LOS") penetration, (iv) the
wide bandwidth of the spectrum typically licensed to each of the Company's Joint
Ventures gives each system the ability to broadcast a sufficiently wide variety
of attractive international and localized programming, and (v) MMDS is a highly
effective means to distribute programming to wireline cable headends eliminating
the need for much of the satellite receiving equipment at each headend.

In each MMDS system operated by the Communications Group's Joint Ventures,
multichannel signals are broadcast in all directions from a transmission tower
which, in the case of such Joint Ventures' systems, is typically the highest
structure in the city and, as a result, has very high LOS penetration.
Specialized compact receiving antenna systems, installed by the Communications
Group on building rooftops as part of the system or to mini-headends in hybrid
wireline systems, receive the multiple channel signals transmitted by the
transmission tower. The signal is then transmitted to each subscriber through a
coaxial cabling system within the building or wireline system. In each city
where the Communications Group provides or expects to provide service, a
substantial percentage of the population (e.g., approximately 90% in Moscow)
lives in large, multi-dwelling apartment buildings. This infrastructure
significantly reduces installation costs and eases penetration of cable
television services into a city because a single MMDS receiving location can
bring service to numerous apartment buildings or wireline cable networks serving
a large number of people. In order to take advantage of such benefits, in many
areas, the Communications Group is wiring buildings and/or neighborhoods so that
it can serve all of the residents in the area through one microwave receiving
location or directly from the cable headend. Subscribers to the Communications
Group's premium tiered services typically utilize a set-top converter which
descrambles the signal and also serves as a channel selector. The Communications
Group generally utilizes the same equipment across all of its cable television
systems, which enables it to realize purchasing efficiencies in the build-out of
its networks.

While the Communications Group's cable television systems are generally leading
providers of multi-channel television services in each of its markets, in many
markets there are several small undercapitalized wireline competitors. The
Communications Group's Joint Ventures in Bucharest, Romania and Chisinau,
Moldova have each acquired existing wireline systems. The Communications Group
believes that there are additional acquisition/consolidation opportunities in
several of its markets and will pursue the acquisition of select competitors on
an opportunistic basis.

PROGRAMMING. The Communications Group believes that programming is a critical
component in building successful cable television systems. The Communications
Group currently offers a wide variety of programming including English, French,
German, Romanian and Russian programming, some of which is dubbed or subtitled
into the local language. In order to maximize penetration and revenues per
subscriber, the cable television Joint Ventures generally offer multiple tiers
of service including, at a minimum, a "lifeline" service, a "basic" service and
a "premium" service. The lifeline service generally provides programming of
local off-air channels and an additional two to four channels such as
MTV-Europe, Eurosport, Nickelodeon, VH-1, Cartoon Network, CNN International,
and Discovery Channel. The basic and premium services generally include the
channels which constitute the lifeline service, as well as an additional number
of satellite channels and a movie channel that offers recent and classic movies.
The content of each programming tier varies from market to market, but generally

12
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
includes channels such as MTV-Europe, Eurosport, Nickelodeon, National
Geographic, Cartoon Network, ESPN International, CNN, Star TV, and Discovery
Channel. Each tier also generally offers localized programming.

One of the Communications Group's Joint Ventures offers "pay-per-view" movies in
one of its markets and the Communications Group plans to add similar services to
its program lineups in certain of its other markets. The subscriber pre-pays for
"pay-per-view" services and the intelligent decoders that the Joint Venture uses
automatically deduct the purchase of a particular service from the prepayment.

MARKETING. The Communications Group offers several tiers of programming in each
market and strives to price the lowest tier at a level that is affordable to a
large percentage of the population and that generally compares in price to
alternative entertainment products. Each cable television Joint Venture also
targets its cable television services toward foreign national households,
embassies, foreign commercial establishments and international or local hotels.
The Communications Group believes that a growing number of subscribers to local
broadcast services will demand the superior quality programming and increased
viewing choices offered by its cable television service. Upon launching a
particular system, the Communications Group uses a combination of event
sponsorships, billboard, radio and broadcast television advertising to increase
awareness in the marketplace about its services.

COMPETITION. Each of the Communications Group's cable television systems
competes with off-the-air broadcast television stations. In many of its cable
television markets, the Communications Group competes with providers of DTH
programming services, which offer subscribers programming directly from
satellite transponders. The Communications Group believes that it has
significant competitive advantages over DTH providers in its lower cost and its
ability to offer localized programming.

PAGING

OVERVIEW. The Communications Group's paging business provides traditional
paging services. The underlying premise for the paging business has been the
availability of service to mobile subscribers at a price significantly lower
than alternative mobile messaging services. When the Communications Group
entered the paging business, the price for cellular communication was
significantly higher than for its paging services which were a viable, low cost
alternative to GSM cellular telephony. At such time, customers could receive
messages and information via the pager at a fraction of the cost of GSM cellular
service.

The paging business is now operating in an increasingly competitive environment.
The most significant impact has been the accelerated growth of GSM use in those
markets in which the Company has paging operations. In the past two years the
number of GSM subscribers has significantly increased in Europe generally and in
many parts of Central and Eastern Europe in particular. For example, in Austria
GSM subscribers grew from approximately 384,000 or 5% penetration at the end of
1995 to approximately 2,271,000 or 28% penetration at the end of 1998.

The combination of deregulation and availability of attractively priced
financing has changed the GSM mobile telephony business by increasing the number
of competitors. This increased level of competition has resulted in new and
innovative pricing structures. The combination of reduced handset prices,
calling party pays ("CPP") tariffs and the introduction of prepaid calling cards
has significantly reduced the cost of entry for GSM subscribers. The GSM phone
service includes voice mail and in many cases short messaging service ("SMS")
which is very similar to paging messaging. A prepaid GSM subscriber can purchase
a GSM handset for approximately $150, receive incoming calls for free (paid for
by the calling party), use voice mail and SMS and only pay for calls made using
the prepaid card.

13
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The Communications Group recognized this competitive risk during 1997 and 1998
and in response rolled out its own programs to reposition its paging services in
a unique fashion. Such programs as CPP and "web paging" were introduced as new
applications.

The Communications Group now believes that it will not be able to effectively
compete for its traditional paging customers in those markets where GSM is
combined with CPP tariffs and prepaid calling cards. Accordingly, the
Communications Group has evaluated each of it paging properties, revised
operating plans and determined that a write down of the carrying value of its
investment is appropriate.

The Communications Group believes that its paging businesses in Moscow, Ukraine
and Uzbekistan are relatively unaffected by the GSM competition and continue to
be viable business opportunities and have not been written down. Although GSM is
available in those markets, the Company believes that the regulators are
unlikely to allow CPP tariffs for the foreseeable future.

The Communications Group believes that there is an inherent value to delivery of
data via a wireless transmission and that the increased demand for data
transmission may create a valuable business for the use of its paging
frequencies. The Communications Group will continue to explore those areas and
other opportunities for the paging business.

TECHNOLOGY. Paging is a one-way wireless messaging technology that uses an
assigned frequency and a specific pager identifier to contact a paging customer
within a geographic service area. The Communications Group offers several types
of pagers. However, substantially all of the Communications Group's subscribers
choose alphanumeric pagers, which emit a variety of tones and display as many as
240 characters. Depending on the market, the Joint Ventures offer alphanumeric
pagers which have Latin and/or Cyrillic (Russian language) character display.

The effective signal coverage area of a paging transmitter typically encompasses
a radius of between 15 and 20 miles from each transmitter site. Obstructions,
whether natural, such as mountains, or man-made, such as large buildings, can
interfere with the signal. Multiple transmitters are often used to cover large
geographic areas, metropolitan areas containing tall buildings or areas with
mountainous terrain.

MARKETING. The Communications Group intends to manage its paging business to a
level that will not require significant additional funding for its operations.
The Communications Group believes that its paging operations in Moscow, Ukraine
and Uzbekistan are unaffected by the GSM competition and are viable business
opportunities. In these markets, paging services are targeted toward people who
spend a significant amount of time outside of their offices, have a need for
mobility or are business people without ready access to telephones. The
Communications Group targets its paging systems primarily to local businesses,
young consumers, the police, the military and expatriates. Paging provides an
affordable way for local businesses to communicate with employees in the field
and with their customers, and for young adults to communicate with each other
while away from a telephone. Subscribers pay a monthly fee which entitles them
to either a fixed or unlimited number of pages each month.

COMPETITION. The Communications Group believes that its Joint Ventures are
leading providers of paging services in each of their respective markets. In
some of the Communications Group's paging markets, however, the Communications
Group has experienced and expects to continue to experience competition from
existing small, local, paging operators who have limited areas of coverage, and
from, in a few cases, paging operators established by Western European and U.S.
investors with substantial experience in paging. In addition, as noted above
there has been increased competition from GSM

14
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
providers which has adversely impacted the Communications Group's paging
operations. The Communications Group does not have or expect to have exclusive
franchises with respect to its paging operations and may therefore face more
significant competition in its markets in the future from highly capitalized
entities seeking to provide similar services.

RADIO BROADCASTING

OVERVIEW. The Communications Group entered the radio broadcasting business in
Eastern Europe through the acquisition of Radio Juventus in Hungary in 1994.
Today, the Company is a leading operator of radio stations in Eastern Europe and
the FSU and owns and operates, through Joint Ventures, 17 radio stations. During
1998, the Joint Ventures in Estonia and Georgia each opened an additional radio
station.

The Communications Group's radio broadcasting strategy is generally to acquire
underdeveloped properties (i.e., stations with insignificant ratings and little
or no positive cash flow) at attractive valuations. The Communications Group
then installs experienced radio management to improve performance through
increased marketing and focused programming. Management utilizes its programming
expertise to tailor specifically the programming of each station utilizing
sophisticated research techniques to identify opportunities within each market,
and programs its stations to provide complete coverage of a demographic or
format type. This strategy allows each station to deliver highly effective
access to a target demographic and capture a higher percentage of the radio
advertising audience share.

PROGRAMMING. Programming in each of the Communications Group's markets is
designed to appeal to the particular interests of a specific demographic group
in such markets. The Communications Group's radio programming formats generally
consist of popular music from the United States, Western Europe and the local
region. News is delivered by local announcers in the language appropriate to the
region, and announcements and commercials are locally produced. By developing a
strong listener base comprised of a specific demographic group in each of its
markets, the Communications Group believes it will be able to attract
advertisers seeking to reach these listeners. The Communications Group believes
that the technical programming and marketing expertise that it provides to its
Joint Ventures enhances the performance of the Joint Ventures' radio stations.

MARKETING. Radio station programming is generally targeted towards that segment
which the Communications Group believes to be the most affluent within the
25-to-55-year-old demographic in each of its radio markets. Each station's
format is intended to appeal to the particular listening interests of this
consumer group in its market. This focus is intended to enable each Joint
Venture to present to advertisers the most desirable market for the advertiser's
products and services, thereby heightening the value of the station's commercial
advertising time. Advertising on these stations is sold to local and
international advertisers.

COMPETITION. While the Communications Group's radio stations are generally
leaders in each of their respective markets, they compete in each market with
stations currently in operation or anticipated to be in service shortly. Other
media businesses, including broadcast television, cable television, newspapers,
magazines and billboard advertising also compete with the Communications Group's
radio stations for advertising revenues.

OTHER

OVERVIEW. In July 1998, the Communications Group sold its investment in
Protocall Ventures. The Communications Group currently owns an interest in a
Joint Venture operating a trunked mobile radio

15
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
service in Kazakhstan, servicing 1,245 subscribers. The Communications Group is
currently evaluating how to best maximize its value to the Company. Trunked
mobile radio systems are commonly used by construction teams, security services,
taxi companies, service organizations and other groups with a need for
significant internal communications. Trunked mobile radio allows such users to
communicate with members of a closed user group without incurring the expense or
delay of the public switched telephone network, and also provides the ability to
provide dispatch service (i.e., one sender communicating to a large number of
users on the same network). The Communications Group believes that lower costs
and the ability to provide dispatch services affords trunked mobile radio
significant advantages over cellular telephony or the public switched telephone
network in fleet applications.

COMPETITION. The Communications Group is a leading provider of trunked mobile
radio in Kazakhstan although it faces competition from other trunked mobile
radio service providers and from private networks. Trunked mobile radio also
faces competition from cellular providers, especially for users who need access
to the public switched telephone network for most of their needs and from paging
providers for users who need only one-way communication and private branch
exchanges, where users do not need mobile communications.

LICENSES

The Communications Group's operations are subject to governmental regulation in
its markets and its operations require certain governmental approvals. There can
be no assurance that the Communications Group will be able to obtain all
necessary approvals to operate additional cable television, wireless telephony
or paging systems or radio broadcasting stations in any of the markets in which
it is seeking to establish additional businesses.

The licenses pursuant to which the Communications Group's businesses operate are
issued for limited periods, including certain licenses which are renewable
annually. Certain of these licenses expire over the next several years. Two of
the licenses held by the Communications Group have expired, although the
Communications Group has been permitted to continue operations while the
decision on reissuance is pending. One of these licenses is for the Company's
radio Joint Venture in Hungary. The Communications Group has been informed that
its bid in a competitive tender has been accepted and it anticipates receiving a
new license shortly. Certain other licenses held or used by seven Joint Ventures
will expire during 1999. The failure of such licenses to be renewed may have a
material adverse effect on the Company's results of operations. Additionally,
certain of the licenses pursuant to which the Communications Group's businesses
operate contain network build-out milestone clauses. The failure to satisfy such
milestones could result in the loss of such licenses which may have a material
adverse effect on the Communications Group.

The Company's Joint Ventures will apply for renewals of their licenses. While
there can be no assurance that these licenses will be renewed, based on past
experience, the Communications Group expects to obtain such renewals.

Licenses to operate in China are held by the Communications Group's operating
partner, China Unicom. China Unicom obtained licenses in 1997 to provide
wireless services interconnected with China's national public network for the
Ningbo City GSM system supported by the Communications Group's investment. China
Unicom obtained licenses in January 1999 to provide public wireline telephone
service for the Sichuan and Chongqing systems supported by the Communications
Group's investments. These licenses are subject to periodic review and renewal
by China's Ministry of Information Industry. The Communications Group expects
such renewals to occur as a consequence of China's state policy to maintain an
open and competitive telecommunications market.

16
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
JOINT VENTURE OWNERSHIP STRUCTURES/LIQUIDITY ARRANGEMENTS

The following table summarizes the Communications Group's Joint Ventures and
subsidiaries at December 31, 1998, as well as the amounts contributed, amounts
loaned net of repayments and total amounts invested in such Joint Ventures and
subsidiaries at December 31, 1998 (in thousands).

INTERNATIONAL AND LONG DISTANCE TELEPHONY
Telecom Georgia (Tbilisi, Georgia)...................... 30% 2,554 -- 2,554
----------- ----------- -------

CABLE TELEVISION
Romsat Cable TV (Bucharest, Romania) (3)................ 100% 2,405 6,633 9,038
Viginta (Vilnius, Lithuania) (3)........................ 55% 397 3,174 3,571
ATK (Archangelsk, Russia) (4)........................... 81% 1,597 150 1,747
Kosmos TV (Moscow, Russia).............................. 50% 1,093 13,032 14,125
Baltcom TV (Riga, Latvia)............................... 50% 819 12,260 13,079
Ayety TV (Tbilisi, Georgia)............................. 49% 779 8,569 9,348
Kamalak TV (Tashkent, Uzbekistan)....................... 50% 400 2,996 3,396
Sun TV (Chisinau, Moldova).............................. 50% 400 7,122 7,522
Alma TV (Almaty, Kazakhstan)............................ 50% 222 6,372 6,594
Cosmos TV (Minsk, Belarus).............................. 50% 400 4,268 4,668
Teleplus (St. Petersburg, Russia)....................... 45% 990 1,419 2,409
----------- ----------- -------
9,502 65,995 75,497
----------- ----------- -------
</TABLE>

17
<PAGE>
ITEM 1. BUSINESS (CONTINUED)

<TABLE>
<CAPTION>
AMOUNT AMOUNT
CONTRIBUTED LOANED TOTAL
TO JOINT TO JOINT INVESTED IN
COMPANY VENTURE/ VENTURE/ JOINT VENTURE/
JOINT VENTURE (1) OWNERSHIP % SUBSIDIARY SUBSIDIARY SUBSIDIARY (2)
- -------------------------------------------------------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C>
PAGING
Baltcom Paging (Tallinn, Estonia) (3)................... 85% $ 3,715 $ 2,653 $ 6,368
CNM (Romania) (3)....................................... 54% 490 12,877 13,367
Paging One Services (Austria) (3)....................... 100% 1,036 10,833 11,869
Eurodevelopment (Ukraine) (3)........................... 51% 930 1,539 2,469
Baltcom Plus (Riga, Latvia)............................. 50% 250 3,093 3,343
Paging One (Tbilisi, Georgia)........................... 45% 250 1,589 1,839
Raduga Poisk (Nizhny Novgorod, Russia).................. 45% 330 51 381
PT Page (St. Petersburg, Russia)........................ 40% 1,100 49 1,149
Kazpage (Kazakhstan) (10)............................... 26-41% 521 407 928
Kamalak Paging (Tashkent, Samarkand, Bukhara and
Andijan, Uzbekistan).................................. 50% 435 2,131 2,566
Alma Page (Almaty and Ust-Kamenogorsk, Kazakhstan)...... 50% -- 2,314 2,314
Paging Ajara (Batumi, Georgia).......................... 35% 43 283 326
Mobile Telecom (Russia) (11)............................ 50% 7,500 352 7,852
----------- ---------- ---------------
16,600 38,171 54,771
----------- ---------- ---------------
RADIO BROADCASTING
Radio Juventus (Budapest, Hungary) (3).................. 100% 8,107 1,012 9,119
SAC (Moscow, Russia) (3)................................ 83% 631 2,499 3,130
Radio Skonto (Riga, Latvia) (3)......................... 55% 302 83 385
Radio One (Prague, Czech Republic) (3).................. 80% 627 484 1,111
NewsTalk Radio (Berlin, Germany) (3).................... 85% 2,758 5,625 8,383
Radio Vladivostok, (Vladivostok, Russia) (3)............ 51% 267 47 314
Country Radio (Prague, Czech Republic) (3) (12)......... 85% 2,040 -- 2,040
Radio Georgia (Tbilisi, Georgia) (3).................... 51% 560 257 817
Radio Katusha (St. Petersburg, Russia) (3) (12)......... 75% 464 805 1,269
Radio Nika (Socci, Russia).............................. 51% 260 -- 260
AS Trio LSL (Tallinn, Estonia) (12)..................... 49% 1,536 409 1,945
----------- ---------- ---------------
17,552 11,221 28,773
----------- ---------- ---------------
OTHER (9)
Spectrum (Kazakhstan)................................... 33% 200 1,645 1,845
----------- ---------- ---------------
TOTAL................................................... $ 103,052 $ 179,360 $ 282,412
----------- ---------- ---------------
----------- ---------- ---------------
</TABLE>

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

(1) Each parenthetical notes the area of operations for each operational Joint
Venture or the area for which each pre-operational Joint Venture is
licensed.

(2) Total investment does not include any income or losses.

(3) Results of operations are consolidated with the Company's financial
statements.

(4) The investment in this venture was made in the quarter ended December 31,
1998. The Joint Venture's results of operations will be consolidated with
the Company's financial statements in the quarter ended March 31, 1999.

(5) Pre-operational systems as of December 31, 1998.

18
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
(6) Ningbo Ya Mei Telecommunications is supporting the development by China
Unicom (a Chinese telecommunications operator) of a GSM mobile telephone
system in Ningbo City, China. Ningbo Ya Lian Telecommunications is similarly
supporting development by China Unicom of expansion of GSM services
throughout Ningbo Municipality, China. Both Joint Ventures provide
financing, technical assistance and consulting services to the Chinese
operator. In January 1999, the fixed wireline telephony systems in Sichuan
and Chongqing commenced commercial operations.

(7) Sichuan Tai Li Feng Telecommunications and Chongqing Tai Le Feng
Telecommunications are supporting the development by China Unicom of
fixed-line, PSTNs in Sichuan Province and Chongqing Municipality, China,
respectively. Both Joint Ventures provide financing, technical assistance
and consulting services to the Chinese operator.

(8) In August 1998, the Communications Group acquired a 76% interest in
Omni-Metromedia Caspian, Ltd., a company that owns 50% of a joint venture in
Azerbaijan, CAT. CAT has been licensed by the Ministry of Communications of
Azerbaijan to provide high speed wireless local loop services and digital
switching throughout Azerbaijan. Omni-Metromedia has committed to provide up
to $40.5 million in loans to CAT for the funding of equipment acquisition
and operational expenses in accordance with CAT's business plans.

(9) In July 1998 the Communications Group sold its share of Protocall Ventures
Limited. As part of the transaction, Protocall Ventures Limited repaid its
outstanding debt to the Communications Group. The Communications Group
retained Protocall Ventures Limited's interest in Spectrum. The Company
recorded a gain of approximately $7.1 million on the sale. The Company's
interest in Spectrum of $1.6 million was written down and offset against the
gain on the sale of Protocall Ventures.

(10) Kazpage is comprised of a service entity and 10 paging Joint Ventures that
provide services in Kazakhstan. The Company's interest in the Joint Ventures
ranges from 26% to 41% and its interest in the service entity is 51%.
Amounts described as loaned in the above table represent loans to the
service entity which in turn funds the Joint Ventures. The results of
operations of the service entity are consolidated with the Company's
financial statements.

(11) The Company's purchase of Mobile Telecom closed during June 1998. The
Company purchased its 50% interest in Mobile Telecom for $7.0 million plus
two additional earnout payments to be made on February 14, 2000 and February
14, 2001. Each of the two earnout payments is to be equal to $2.5 million,
adjusted up or down based upon performance compared to certain financial
targets. Simultaneously with the purchase of Mobile Telecom, the Company
purchased 50% of a related pager distribution company for $500,000.

(12) Radio Katusha includes two radio stations operating in St. Petersburg,
Russia and AS Trio LSL includes five radio stations operating in various
cities throughout Estonia. Radio Georgia includes two radio stations
operating in Georgia.

19
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The following table summarizes by country the amounts contributed, amounts
loaned net of repayments and total amounts invested in the Communications
Group's Joint Ventures and subsidiaries at December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
AMOUNT AMOUNT TOTAL
CONTRIBUTED LOANED INVESTED
TO JOINT TO JOINT IN JOINT
VENTURE/ VENTURE/ VENTURE/
COUNTRY SUBSIDIARY % SUBSIDIARY % SUBSIDIARY %
- ---------------------------------------- ----------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Austria................................. $ 1,036 1.0 $ 10,833 6.0 $ 11,869 4.2
Azerbaijan.............................. 200 0.2 5,409 3.0 5,609 2.0
Belarus................................. 400 0.4 4,268 2.4 4,668 1.7
Czech Republic.......................... 2,667 2.6 484 0.3 3,151 1.2
Estonia................................. 5,251 5.1 3,062 1.7 8,313 2.9
Georgia................................. 6,636 6.4 27,836 15.5 34,472 12.2
Germany................................. 2,758 2.7 5,625 3.1 8,383 3.0
Hungary................................. 8,107 7.9 1,012 0.6 9,119 3.2
Kazakhstan.............................. 971 0.9 12,369 6.9 13,340 4.7
Latvia.................................. 15,107 14.6 15,436 8.6 30,543 10.8
Lithuania............................... 397 0.4 3,174 1.8 3,571 1.3
Moldova................................. 400 0.4 7,122 4.0 7,522 2.7
People's Republic of China.............. 39,244 38.1 36,763 20.5 76,007 26.9
Romania................................. 2,895 2.8 19,510 10.9 22,405 7.9
Russia.................................. 15,218 14.8 19,791 11.0 35,009 12.2
Ukraine................................. 930 0.9 1,539 0.9 2,469 0.9
Uzbekistan.............................. 835 0.8 5,127 2.8 5,962 2.2
----------- --------- ---------- --------- ----------- ---------
$ 103,052 100.0 $ 179,360 100.0 $ 282,412 100.0
----------- --------- ---------- --------- ----------- ---------
----------- --------- ---------- --------- ----------- ---------
</TABLE>

Generally, the Communications Group owns 50% or more of the equity in a Joint
Venture with the balance of such equity being owned by a local entity, often a
government-owned enterprise. In China, the Communications Group's Joint Ventures
enter into network system cooperation contracts under which the Joint Ventures
are responsible for financing, providing technical advice on the construction,
and management consulting services on the operation of the relevant networks. In
some cases, the Communications Group owns or acquires interests in entities
(including competitors) that are already licensed and are providing service.
Each Joint Venture's day-to-day activities are managed by a local management
team selected by its board of directors or its shareholders. The operating
objectives, business plans and capital expenditures of a Joint Venture are
approved by its board of directors, or in certain cases, by its shareholders. In
most cases, an equal number of directors or managers of the Joint Venture are
selected by the Communications Group and its local partner. In other cases, a
different number of directors or managers of the Joint Venture may be selected
by the Communications Group on the basis of its percentage ownership interest.

In many cases, the credit agreement pursuant to which the Company loans funds to
a Joint Venture provides the Company with the right to appoint the general
manager of the Joint Venture and to approve unilaterally the annual business
plan of the Joint Venture. These rights continue so long as amounts are
outstanding under the credit agreement. In other cases, such rights may also
exist by reason of the Company's percentage ownership interest in the Joint
Venture or under the terms of the Joint Venture's governing instruments.

20
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
The Communications Group's Joint Ventures in Eastern Europe and the FSU are
limited liability entities which are permitted to enter into contracts, acquire
property and assume and undertake obligations in their own names. Because these
Joint Ventures are limited liability companies, the Joint Ventures' equity
holders have liability limited to the extent of their investment. Under the
Joint Venture agreements, each of the Communications Group and the local Joint
Venture partner is obligated to make initial capital contributions to the Joint
Venture. In general, a local Joint Venture partner does not have the resources
to make cash contributions to the Joint Venture. In such cases, the Company has
established or plans to establish an agreement with the Joint Venture whereby,
in addition to cash contributions by the Company, both the Company and the local
partner make in-kind contributions (usually communications equipment in the case
of the Company and frequencies, space on transmitting towers and office space in
the case of the local partner), and the Joint Venture signs a credit agreement
with the Company pursuant to which the Company loans the Joint Venture certain
funds. Typically, such credit agreements provide for interest payments to the
Company at rates ranging generally from prime to prime plus 6% and for payment
of principal and interest from 90% of the Joint Venture's available cash flow.
Prior to repayment of its credit agreement, a Joint Venture is significantly
limited or prohibited from distributing profits to its shareholders. As of
December 31, 1998, the Company had obligations to fund up to an additional $49.4
million with respect to funding the various credit lines the Company has
extended to its Joint Ventures in Eastern Europe and the FSU. The Company's
funding commitments under such credit lines are contingent upon its approval of
the Joint Ventures' business plans. To the extent that the Company does not
approve a Joint Venture's business plan, the Company is not required to provide
funds to such Joint Venture under the credit line. The distributions (including
profits) from the Joint Venture to the Company and the local partner are made on
a pro rata basis in accordance with their respective ownership interests.

The Communications Group's Joint Ventures in China are foreign-invested, limited
liability entities that are legal persons under China's laws and are permitted
to enter into contracts, acquire property and undertake obligations in their own
names. The Joint Ventures' owners have liability only for the amount of their
subscribed for but unpaid registered capital contributions in the ventures. Such
ventures are limited under their current approvals to total paid-in capital plus
debt of approximately $30 million. The Group's Ningbo Joint Ventures are equity
ventures, organized under laws that require contribution of paid-in capital by
the owning partners in proportion to their respective share of ownership and
regulate dividend distribution to the owners in proportion to their respective
equity share. The Communications Group's Sichuan and Chongqing Joint Ventures
are cooperative ventures, organized under laws that permit the owning partners
to determine themselves each party's relative share of direct capital
contribution and dividend distribution. In each case, the venture's owners were
required to invest and register 40% of the venture's total investment within a
predetermined period after the venture was licensed. Additional funds, up to the
total investment limits set for the ventures, can then be contributed as
additional paid-in capital, loaned to the ventures by the owners or borrowed
from other sources. In each of its China Joint Ventures, the Communications
Group has agreed to loan funds that may be required by the venture in excess of
paid-in capital, if alternative debt financing is unavailable or unattractive.
The Communications Group has extended loans to each of the China Joint Ventures
at interest rates ranging from 8%-10% and on terms permitting repayment by the
venture as cash flows permit. Repayments of such loans takes precedence over
distributions to the ventures' owners. The ventures have also secured supplier
credit for certain equipment purchased by China Unicom and backed by the
ventures' letters of credit. Such supplier financing is treated as the ventures'
funding of China Unicom's projects. The Communications Group's ownership
interests in the China Joint Ventures and its loans to the Joint Ventures are
registered with China's State Administration of Foreign Exchange, thereby
assuring the venture's subsequent ability to convert Chinese currency revenues
and to make dividend distributions and loan repayments in U.S. dollars.

21
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Current Chinese law and regulation prohibit foreign companies and joint ventures
in which they participate from providing telephony services to customers in
China and generally limit the role that foreign companies or their joint
ventures may play in the telecommunications industry. As a result, the
Communications Group's investments in Joint Ventures in China have been made
through a structure known as the Sino-Sino-Foreign ("SSF") joint venture, a
widely used method for foreign investment in the Chinese telecommunications
industry, in which the SSF venturer is a provider of telephony equipment,
financing and technical services to telecommunications operators and not a
direct provider of telephone service.

Since mid-1998, there has been uncertainty regarding possible significant
changes in the regulation of and policy concerning foreign participation in and
financing of the telecommunications industry in China, including the continued
viability of the SSF structure and associated service and consulting
arrangements with China Unicom. There has been no official policy statement or
new regulations as yet announced, and the Company has not received any official
notice regarding new policy or regulation. The Communications Group is not now
holding discussions regarding new projects in the Chinese telephony sector. The
Company believes that no such discussions can be productive until more
definitive information is available. In light of the current regulatory
uncertainty, the Company is unable to estimate the impact such changes in policy
or regulation, if any, would have on the Communications Group's Chinese Joint
Ventures ability to generate significant revenue, cash flow or net income.

In addition to loaning funds to the Joint Ventures, the Communications Group
often provides certain services to many of the Joint Ventures for a fee. The
Communications Group often does not require start-up Joint Ventures to reimburse
it for certain services that it provides such as engineering advice, assistance
in locating programming, and assistance in ordering equipment. As each Joint
Venture grows, the Communications Group institutes various payment mechanisms to
have the Joint Venture reimburse it for such services where they are provided.
The failure of the Company to obtain reimbursement of such services will not
have a material impact on the Company's results of operations.

Under existing legislation in certain of the Communications Group's markets,
distributions from a Joint Venture to its partners is subject to taxation. The
laws in the Communications Group's markets vary markedly with respect to the tax
treatment of distributions to Joint Venture partners and such laws have also
recently been revised significantly in many of the Communications Group's
markets. There can be no assurance that such laws will not continue to undergo
major changes in the future which could have a significant negative impact on
the Company and its operations.

SNAPPER

GENERAL. Snapper manufactures Snapper-Registered Trademark- brand power lawn
and garden equipment for sale to both residential and commercial customers. The
residential equipment includes self-propelled and push-type walk behind
lawnmowers, rear engine riding lawnmowers, garden tractors, zero turn radius
lawn equipment, garden tillers, snow throwers, and related parts and
accessories. The commercial mowing equipment includes commercial quality
self-propelled walk-behind lawnmowers, and wide area and front-mount zero turn
radius lawn equipment.

Snapper products are premium-priced, generally selling at retail from $300 to
$10,500. Snapper sells to and supports directly an approximately 5,000-dealer
network for the distribution of its products. Snapper also sells its products
through foreign distributors and offered a limited selection of residential
walk-behind lawnmowers and rear-engine riding lawnmowers through approximately
250 of the Home Depot locations through August 1998, when Snapper terminated its
relationship with the Home Depot.

22
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
A large percentage of the residential and commercial sales of lawn and garden
equipment are made during a 17-week period from early spring to mid-summer.
Although some sales are made to the dealers and distributors prior and
subsequent to this period, the largest volume of sales is made during this time.
The majority of revenues during the late fall and winter periods are related to
snow thrower shipments. 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. Under the terms of this agreement, a default in payment by one of the
dealers on the program is non-recourse to Snapper. If there is a default by a
dealer Snapper is obligated to repurchase any new and unused equipment recovered
from the dealership. At December 31, 1998 there was approximately $96.4 million
outstanding under this floor-plan financing arrangement. The Company has
guaranteed Snapper's payment obligations under this arrangement.

Snapper also makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan. This credit plan allows consumers to pay
for Snapper products over time. Consumers also receive Snapper credit cards
which can be used to purchase additional Snapper products.

Snapper manufactures its products in McDonough, Georgia at facilities totaling
approximately 1.0 million square feet. Excluding engines, transmissions and
tires, Snapper manufactures a substantial portion of the component parts for its
products. Most of the parts and material for Snapper's products are commercially
available from a number of sources.

During the three years ended December 31, 1998, Snapper spent an average of $3.8
million per year for research and development. Although it holds several design
and mechanical patents, Snapper is not dependent upon such patents, nor does it
believe that patents play an important role in its business. Snapper does
believe, however, that the registered trademark "Snapper-Registered Trademark-"
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 industry is highly competitive with the competition being
based on price, image, quality, and service. Although no one company dominates
the market, the Company believes that Snapper is a significant manufacturer of
lawn and garden products. A large number of companies, some of which are better
capitalized than Snapper, manufacture and distribute products that compete with
Snapper's, including The Toro Company, Lawn-Boy (a product of The Toro Company),
Sears Roebuck and Co., Deere and Company, Ariens Company, Honda Corporation,
Murray Ohio Manufacturing, American Yard Products, Inc., MTD Products, Inc. and
Simplicity Manufacturing, Inc.

INVESTMENT IN RDM

In December 1994, the Company acquired 19,169,000 shares of RDM common stock,
representing approximately 39% of the outstanding shares of RDM common stock as
of the date thereof, in exchange for all of the issued and outstanding capital
stock of four of its wholly owned subsidiaries (the "Exchange Transaction"). At
the time of the Exchange Transaction, RDM, a New York Stock Exchange ("NYSE")
listed company, through its operating subsidiaries, was a leading manufacturer
of fitness equipment and toy products in the United States.

In connection with the Exchange Transaction, the Company, RDM and certain
officers of RDM entered into a shareholders agreement, pursuant to which, among
other things, the Company obtained the right to designate four individuals to
serve on RDM's Board of Directors, subject to certain reductions.

In June 1997, RDM entered into a $100.0 million revolving credit facility (the
"RDM Credit Facility") with a syndicate of lenders led by Foothill Capital
Corporation (the "Lender") and used a portion of

23
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
the proceeds of such facility to refinance its existing credit facility. In
order to induce the Lender to extend the entire amount of the RDM Credit
Facility, Metromedia Company ("Metromedia"), an affiliate of the Company,
provided the Lender with a $15.0 million letter of credit (the "Metromedia
Letter of Credit") that could be drawn by the Lender (i) upon five days notice,
if RDM defaulted in any payment of principal or interest or breached any other
convenant or agreement in the RDM Credit Facility and as a result of such other
default the lenders accelerated the amounts outstanding under the RDM Credit
Facility, subject, in each such case, to customary grace periods, or (ii)
immediately, upon the bankruptcy or insolvency of RDM. In consideration for the
Metromedia Letter of Credit, RDM issued to Metromedia 10-year warrants to
acquire 3,000,000 shares of RDM common stock, exercisable after 90 days from the
date of issuance at an exercise price of $.50 per share (the "RDM Warrants"). In
accordance with the terms of the agreement entered into in connection with the
RDM Credit Facility, Metromedia offered the Company the opportunity to
substitute its Letter of Credit for the Metromedia Letter of Credit and to
receive the RDM Warrants. On July 10, 1997, the Company's Board of Directors
elected to substitute its Letter of Credit (the "Letter of Credit") for
Metromedia's Letter of Credit and the RDM Warrants were assigned to the Company.

On August 22, 1997, RDM announced that it had failed to make the August 15, 1997
interest payment due on its subordinated debentures and that it had no present
ability to make such payment. As a result, on August 22, 1997, the Lender
declared an Event of Default (as defined under the RDM Credit Facility) and
accelerated all amounts outstanding under such facility. On August 29, 1997, RDM
and certain of its affiliates each subsequently filed voluntary petitions for
relief under chapter 11 of the Bankruptcy Code. Since the commencement of their
respective chapter 11 cases, RDM and its affiliates have discontinued ongoing
business operations and their assets are being liquidated. As of August 22,
1997, the closing price per share of RDM common stock was $.50 and the quoted
market value of the Company's investment in RDM was approximately $9.6 million.
As a result of RDM's financial difficulties and uncertainties, the NYSE halted
trading in the shares of RDM common stock and the Company believes that it will
not receive any compensation for its equity interest.

After the commencement of the chapter 11 cases, the Lender drew the entire
amount of the Letter of Credit. Consequently, the Company will become subrogated
to the Lender's secured claims against the Company in an amount equal to the
drawing under the Letter of Credit, following payment in full of the Lender. The
Company intends to vigorously pursue its subrogation claims in the chapter 11
cases. However, it is uncertain whether the Company will succeed in any such
subrogation claims or if it is successful in asserting any such subrogation
claims, whether RDM's remaining assets will be sufficient to pay them.

On February 18, 1998, the Office of the United States Trustee filed a motion to
appoint a chapter 11 trustee in the United States Bankruptcy Court for the
Northern Division of Georgia. RDM and its affiliates subsequently filed a motion
to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code.
On February 19, 1998, the bankruptcy court granted the United States Trustee's
motion and ordered that a chapter 11 trustee be appointed. The bankruptcy court
also ordered that the chapter 11 cases not convert to cases under chapter 7 of
the Bankruptcy Code. On February 25, 1998, each of the Company's designees on
RDM's Board of Directors submitted a letter of resignation.

The chapter 11 trustee is in the process of selling all of RDM's assets to
satisfy its obligations to its creditors and the Company believes that its
equity interest will not be entitled to receive any distributions.

24
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
federal securities laws for misrepresenting and failing to disclose information
regarding RDM's alleged financial condition during the period between July 19,
1996 and August 22, 1997, on which date RDM disclosed that its management had
discussed the possibility of filing for bankruptcy. The complaint also alleges
that the plaintiffs, including the Company, are secondarily liable as
controlling persons of RDM. On October 19, 1998, a second purported class action
lawsuit with substantially the same allegations, SCHUETTE V. FONG, ET AL., Civ.
No. 1:98CV3034, was filed in United States District Court for the Northern
District of Georgia. On December 30, 1998, the chapter 11 trustee of RDM brought
an adversary proceeding in the bankruptcy of RDM, HAYS, ET AL. v. FONG, ET AL.,
Adv. Proc. No. 98-1128, in the United States Bankruptcy Court, Northern District
of Georgia, alleging that former officers or directors of the Company, while
serving as directors on the board of RDM, breached fiduciary duties allegedly
owed to RDM's shareholders and creditors in connection with the bankruptcy of
RDM. On January 25, 1999, the plaintiff filed a first amended complaint. The
official committee of unsecured creditors of RDM ("the Creditors' Committee")
has moved to proceed as co-plaintiff or to intervene in this proceeding, and the
official committee of bondholders of RDM ("the Bondholders' Committee") has
moved to intervene in or join the proceeding. On February 16, 1999, the
Creditors' Committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF RDM SPORTS GROUP, INC. AND RELATED DEBTORS V. METROMEDIA
INTERNATIONAL GROUP, INC., Adv. Proc. No. 99-1023, seeking in the alternative to
recharacterize as contributions to equity a secured claim in the amount of $15
million made by the Company arising out of the Company's financing of RDM, or to
equitably subordinate such claim made by Metromedia against RDM and other
debtors in the bankruptcy proceeding. On March 3, 1999, the Bondholders'
Committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF BONDHOLDERS
OF RDM SPORTS GROUP, INC. v. METROMEDIA INTERNATIONAL GROUP, INC., Adv. Proc.
No. 99-1029, with substantially the same allegations as the above proceedings.
The Company believes it has meritorious defenses and plans to vigorously defend
these actions. Due to the early stage of these proceedings, the Company cannot
evaluate the likelihood of an unfavorable outcome or an estimate of the likely
amount or range of possible loss, if any.

LANDMARK SALE

ENVIRONMENTAL PROTECTION

Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not affected materially nor is it expected to affect materially Snapper's
competitive position. Snapper's capital expenditures for environmental control
facilities, its incremental operating costs in connection therewith and
Snapper's environmental compliance costs were not material in 1998 and are not
expected to be material in future years.

25
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
responsible parties at a superfund site in Michigan that the former subsidiary
may also be a potentially responsible party at the superfund site. The former
subsidiary has agreed to participate in remediation in a global settlement that
is subject to court approval, but the amount of the liability has not been
finally determined. The Company believes that such liability will not exceed the
reserve.

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 Corporation ("DP"), a former
subsidiary of the Company that 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, DP discontinued the
manufacture of exercise weights and no longer needed to use the Opelika Property
as a storage area. The Opelika Property was transferred to the Company's wholly
owned subsidiary in connection with the sale of the Company's former sporting
goods subsidiary. In connection with such sale, the Company entered into an
environmental indemnity agreement (the "Environmental Indemnity Agreement")
under which the Company is obligated for costs and liabilities resulting from
the presence on or migration of regulated materials from the Opelika Property.
The Company's obligations under the Environmental Indemnity Agreement with
respect to the Opelika Property are not limited. The Environmental Indemnity
Agreement does not cover environmental liabilities relating to any property now
or previously owned by DP except for the Opelika Property.

On January 22, 1996, the Alabama Department of Environmental Management ("ADEM")
advised the Company that the Opelika Property contains an "unauthorized dump" in
violation of Alabama environmental regulations. The letter from ADEM required
the Company to present for ADEM's approval a written environmental remediation
plan for the Opelika Property. The Company retained an environmental consulting
firm to develop an environmental remediation plan for the Opelika Property. In
1997, the Company received the consulting firm's report. The Company has
conducted a grading and capping in accordance with the remediation plan and has
reported to ADEM that the work was successfully completed. The Company has
proposed to ADEM an accelerated groundwater monitoring schedule. If ADEM
responds favorably, the Company anticipates closure of this site in 1999. The
Company believes that its reserve of approximately $100,000 will be adequate to
cover any further costs.

EMPLOYEES

As of March 9, 1999, the Company had approximately 1,000 regular employees.
Approximately 600 employees were represented by unions under collective
bargaining agreements. In general, the Company believes that its employee
relations are good.

SEGMENT AND GEOGRAPHIC DATA

Business segment data and information regarding the Company's foreign revenues
by country area are included in notes 2, 3 and 13 to the Notes to Consolidated
Financial Statements included in Item 8 hereof.

26
<PAGE>
ITEM 2. PROPERTIES

The following table contains a list of the Company's principal properties.

<TABLE>
<CAPTION>
NUMBER OF
------------------------
<S> <C> <C> <C>
DESCRIPTION OWNED LEASED LOCATION
- ------------------------------------------ ----------- ----------- ------------------------------------------
COMMUNICATIONS GROUP:
Office space.............................. -- 1 Stamford, Connecticut
Office space.............................. -- 1 Moscow, Russia
Office space.............................. -- 1 Vienna, Austria
Office space.............................. -- 1 New York, New York
Office space.............................. -- 1 Beijing, People's Republic of China

GENERAL CORPORATE:
Office space.............................. -- 1 East Rutherford, New Jersey

SNAPPER:
Manufacturing plant....................... 1 -- McDonough, Georgia
Distribution facility..................... -- 2 McDonough, Georgia
Distribution facility..................... -- 1 Dallas, Texas
Distribution facility..................... -- 1 Greenville, Ohio
Distribution facility..................... -- 1 Reno, Nevada
</TABLE>

The Company's management believes that the facilities listed above are generally
adequate and satisfactory for their present usage and are generally well
utilized.

ITEM 3. LEGAL PROCEEDINGS

FUQUA INDUSTRIES, INC. SHAREHOLDER LITIGATION

IN RE FUQUA INDUSTRIES, INC. SHAREHOLDER LITIGATION, Del. Ch., Consolidated C.A.
No. 11974, plaintiff Virginia Abrams filed a purported class and derivative
action in the Delaware Court of Chancery (the "Court") on February 22, 1991
against Fuqua Industries, Inc. ("Fuqua"), Intermark, Inc. ("Intermark"), the
then-current directors of Fuqua and certain past members of the board of
directors. The action challenged certain transactions which were alleged to be
part of a plan to change control of the board of Fuqua from J.B. Fuqua to
Intermark and sought a judgment against defendants in the amount of $15.7
million, other unspecified money damages, an accounting, declaratory relief and
an injunction prohibiting any business combination between Fuqua and Intermark
in the absence of approval by a majority of Fuqua's disinterested shareholders.
Subsequently, two similar actions, styled BEHRENS V. FUQUA INDUSTRIES, INC. ET
AL., Del. Ch., C.A. No. 11988 and FREBERG V. FUQUA INDUSTRIES, INC. ET AL., Del.
Ch., C.A. No. 11989 were filed with the Court. On May 1, 1991, the Court ordered
all of the foregoing actions consolidated. On October 7, 1991, all defendants
moved to dismiss the complaint. Plaintiffs thereafter took three depositions
during the next three years.

On December 28, 1995, plaintiffs filed a consolidated second amended derivative
and class action complaint, purporting to assert additional facts in support of
their claim regarding an alleged plan, but deleting their prior request for
injunctive relief. On January 31, 1996, all defendants moved to dismiss the
second amended complaint. After the motion was briefed, oral argument was held
on November 6, 1996. On May 13, 1997, the Court issued a decision on defendants'
motion to dismiss, the Court dismissed all of plaintiffs' class claims and
dismissed all of plaintiffs' derivative claims except for the claims that Fuqua
board members (i) entered into an agreement pursuant to which Triton Group, Inc.
(which was subsequently merged into Intermark, "Triton") was exempted from 8
Del. C. 203 and

27
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
(ii) undertook a program pursuant to which 4.9 million shares of Fuqua common
stock were repurchased, allegedly both in furtherance of an entrenchment plan.
On January 16, 1998, the Court entered an order implementing the May 13, 1997
decision. The order also dismissed one of the defendants from the case with
prejudice and dismissed three other defendants without waiver of any rights
plaintiffs might have to reassert the claims if the opinion were to be vacated
or reversed on appeal.

On February 5, 1998, plaintiffs filed a consolidated third amended derivative
complaint and named as defendants Messrs. J.B. Fuqua, Klamon, Sanders, Scott,
Warner and Zellars. The complaint alleged that defendants (i) entered into an
agreement pursuant to which Triton was exempted from 8 Del. C. 203 and (ii)
undertook a program pursuant to which 4.9 million shares of Fuqua common stock
were repurchased, both allegedly in furtherance of an entrenchment plan. For
their relief, plaintiffs seek damages and an accounting of profits improperly
obtained by defendants.

In March 1998, defendants J. B. Fuqua, Klamon, Sanders, Zellars, Scott and
Warner filed their answers denying each of the substantive allegations of
wrongdoing contained in the third amended complaint. The Company also filed its
answer, submitting itself to the jurisdiction of the Court for a proper
resolution of the claims purported to be set forth by the plaintiffs.

Discovery is ongoing. The individual defendants have also filed motions to
disqualify Abrams and Freberg as derivative plaintiffs. No decision has been
rendered with respect to either motion.

MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY, ET AL.

On May 20, 1996, a purported class action lawsuit, MICHAEL SHORES V. SAMUEL
GOLDWYN COMPANY, ET AL., Case No. BC 150360, was filed in the Superior Court of
the State of California. Plaintiff Michael Shores alleged that, in connection
with the merger of the Samuel Goldwyn Company ("Goldwyn"), Goldwyn's directors
and majority shareholder breached their fiduciary duties to the public
shareholders of Goldwyn. In amended complaints, plaintiff subsequently added
claims that the Company had aided and abetted other defendants' fiduciary
breaches and had negligently misrepresented and/or omitted material facts in the
Company's prospectus issued in connection with the merger. The Company
successfully demurred to the first and second amended complaints and plaintiff
filed a third amended complaint, which included only the negligent
misrepresentation claim against the Company. The plaintiff agreed to settle the
action in exchange for a payment by defendants in the amount of $490,000, which
payment constitutes a complete and final satisfaction of the claims asserted by
the plaintiff and a plaintiff class certified solely for the purposes of the
settlement. The settlement and the settlement class were approved by the court
on October 8, 1998. Members of the class have been notified of the settlement
and were able to file proofs of claim until February 15, 1999, which claims are
now being processed. The court will hold a hearing on July 7, 1999 regarding the
final distribution of the settlement fund.

SAMUEL GOLDWYN, JR. V. METRO-GOLDWYN-MAYER INC., ET AL.

On October 29, 1997, Samuel Goldwyn, Jr., the former chairman of Goldwyn, filed
SAMUEL GOLDWYN, JR. V. METRO-GOLDWYN-MAYER INC., ET AL., Case No. BC 180290, in
Superior Court of the State of California, alleging that the Company
fraudulently induced him and the Samuel Goldwyn, Jr. Family Trust (the "Trust")
to enter into various agreements in connection with the merger of the Samuel
Goldwyn Company (since renamed Goldwyn Entertainment Company); breached an
agreement to guarantee the performance of Goldwyn Entertainment Company's
obligations to the Trust; and used, without permission, the "Goldwyn" trademark.
The action also alleged that the Company and other defendants breached Mr.
Goldwyn's employment agreement and fiduciary duties owed to him and the Trust,
both

28
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
before and after the sale of Goldwyn Entertainment Company to
Metro-Goldwyn-Mayer Inc. After the Company successfully demurred to the
trademark and the breach of fiduciary duty claims, the plaintiffs amended their
pleading, revising and reasserting the trademark and breach of fiduciary duty
claims. Following a period of discovery, the Company reached a settlement with
the plaintiffs. The court ordered the plaintiffs' claims against the Company
dismissed with prejudice on January 11, 1999.

SYDNEY H. SAPSOWITZ AND SID SAPSOWITZ & ASSOCIATES, INC. V. JOHN W. KLUGE,
STUART SUBOTNICK, METROMEDIA INTERNATIONAL GROUP, INC., ET AL.

On June 30, 1997, the plaintiffs in SYDNEY H. SAPSOWITZ AND SID SAPSOWITZ &
ASSOCIATES, INC. V. JOHN W. KLUGE, STUART SUBOTNICK, METROMEDIA INTERNATIONAL
GROUP, INC., ORION PICTURES CORPORATION, LEONARD WHITE, ET AL. filed a lawsuit
in Superior Court of the State of California alleging $28.7 million in damages
from the breach of an agreement to pay a finder's fee in connection with the
Entertainment Group Sale. The Company believes it has meritorious defenses and
is vigorously defending such action.

ANTHONY NICHOLAS GEORGIOU, ET AL. V. MOBIL EXPLORATION AND PRODUCING SERVICES,
INC., METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., ET AL.

On January 14, 1998, ANTHONY NICHOLAS GEORGIOU, ET AL. V. MOBIL EXPLORATION AND
PRODUCING SERVICES, INC., METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., ET
AL., Civil Action No. H-98-0098, was filed in the United States District Court
for the Southern District of Texas. Plaintiffs claim that MITI conspired against
and tortiously interfered with plaintiffs' potential contracts involving certain
oil exploration and production contracts in Siberia and telecommunications
contracts in the Russian Federation. Plaintiffs are claiming damages, for which
all defendants could be held jointly and severally liable, of an amount in
excess of $395.0 million. On or about February 27, 1998 MITI filed its answer
denying each of the substantive allegations of wrongdoing contained in the
complaint. The contracts between plaintiff Tiller International Limited
("Tiller") and defendant Mobil Exploration and Producing Services, Inc. ("MEPS")
which are at issue in this case contain broad arbitration clauses. In accordance
with these arbitration clauses, MEPS instituted arbitration proceeding before
the London Court of International Arbitration on July 31, 1997. On August 27,
1998, Judge David Hittner entered an order staying and administratively closing
the Houston litigation pending final completion of arbitration proceedings in
Great Britain. As such, this matter is presently inactive. The parties have
engaged in some discovery. The Company believes it has meritorious defenses and
is vigorously defending this action.

FOR A DISCUSSION OF LEGAL PROCEEDINGS IN CONNECTION WITH RDM, SEE "ITEM 1.
BUSINESS--INVESTMENT IN RDM".

INDEMNIFICATION AGREEMENTS

In accordance with Section 145 of the General Corporation Law of the State of
Delaware, pursuant to the Company's Restated Certificate of Incorporation, the
Company has agreed to indemnify its officers and directors against, among other
things, any and all judgments, fines, penalties, amounts paid in settlements and
expenses paid or incurred by virtue of the fact that such officer or director
was acting in such capacity to the extent not prohibited by law.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
ended December 31, 1998.

29
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Since November 2, 1995, the Common Stock has been listed and traded on the
American Stock Exchange and the Pacific Stock Exchange (the "AMEX" and "PSE",
respectively) under the symbol "MMG". Prior to November 2, 1995, the Common
Stock was listed and traded on both the NYSE and the PSE under the symbol "ACT."
The following table sets forth the quarterly high and low closing sales prices
per share for the Company's Common Stock as reported by the AMEX.
<TABLE>
<CAPTION>
MARKET PRICE OF COMMON STOCK
----------------------------------------
<S> <C> <C> <C> <C>
QUARTERS ENDED 1998 1997
- ----------------------------------------------------------------- ------------------ ------------------

<CAPTION>
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
March 31......................................................... $15 3/16 $ 9 5/8 $11 7/8 $ 9 3/16
June 30.......................................................... 17 7/8 11 1/16 13 1/16 7 7/16
September 30..................................................... 13 9/16 3 3/4 12 7/8 10 7/8
December 31...................................................... 6 1/4 2 3/4 14 1/4 8 3/4
</TABLE>

Holders of Common Stock are entitled to such dividends as may be declared by the
Company's Board of Directors and paid out of funds legally available for the
payment of dividends. The Company has not paid a dividend to its stockholders
since the dividend declared in the fourth quarter of 1993, and has no plans to
pay cash dividends on the Common Stock in the foreseeable future. The Company
intends to retain earnings to finance the development and expansion of its
businesses. The decision of the Board of Directors as to whether or not to pay
cash dividends in the future will depend upon a number of factors, including the
Company's future earnings, capital requirements, financial condition, and the
existence or absence of any contractual limitations on the payment of dividends.
The Company's ability to pay dividends is limited because the Company operates
as a holding company, conducting its operations solely through its subsidiaries.
Certain of the Company's subsidiaries' existing credit arrangements contain, and
it is expected that their future arrangements will similarly contain,
substantial restrictions on dividend payments to the Company by such
subsidiaries. See Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

As of March 25, 1999, there were approximately 7,046 record holders of Common
Stock. The last reported sales price for the Common Stock on such date was
$5 5/16 per share as reported by the AMEX.

30
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, YEAR ENDED
------------------------------------------ FEBRUARY 28,
1998 1997 1996 (1) 1995 (2) 1995
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues (3)........................................... $ 240,292 $ 204,328 $ 36,592 $ 5,158 $ 3,545
Equity in losses of unconsolidated investees (4)....... (18,151) (53,150) (7,835) (6,367) (1,785)
Loss from continuing operations (3) (4) (5)............ (135,986) (130,901) (72,146) (36,265) (19,141)
Income (loss) from discontinued operations (3)......... 12,316 234,036 (38,592) (344,329) (50,270)
Loss from extraordinary items (6)...................... -- (14,692) (4,505) (32,382) --
Net income (loss)...................................... $(123,670) $ 88,443 $(115,243) $(412,976) $ (69,411)
Income (loss) per common share--Basic:
Continuing operations................................ $ (2.19) $ (2.02) $ (1.33) $ (1.48) $ (0.95)
Discontinued operations.............................. .18 3.50 (0.71) (14.03) (2.48)
Extraordinary items.................................. -- (0.22) (0.08) (1.32) --
Net income (loss).................................... $ (2.01) $ 1.26 $ (2.12) $ (16.83) $ (3.43)
Ratio of earnings to fixed charges (7)................. n/a n/a n/a n/a n/a
Weighted average common shares outstanding............. 68,955 66,961 54,293 24,541 20,246
Dividends per common share............................. -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets (8)....................................... $ 609,641 $ 789,272 $ 513,118 $ 328,600 $ 40,282
Notes and subordinated debt............................ 51,834 79,416 190,754 171,004 24,948
</TABLE>

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

(1) The consolidated financial statements for the year ended December 31, 1996
include two months (November and December 1996) of the results of operations
of Snapper.

(2) The consolidated financial statements for the year ended December 31, 1995
include operations for Actava and Sterling from November 1, 1995 and two
months for Orion (January and February 1995) that were included in the
February 28, 1995 consolidated financial statements. The net loss for the
two month duplicate period is $11.4 million.

(3) On July 10, 1997 and April 16, 1998, the Company completed the Entertainment
Group Sale and the Landmark Sale, respectively. These transactions have been
treated as discontinuances of business segments and, accordingly, the
Company's consolidated financial statements reflect the results of
operations of the Entertainment Group and Landmark as discontinued segments.

(4) Included in the year ended December 31, 1997 are equity in losses and
writedown of investment in RDM of $45.1 million.

(5) For the year ended December 31, 1998, in connection with the Communications
Group's paging operations, the Company adjusted the carrying value of
goodwill and other intangibles, fixed assets, investments in and advances to
Joint Ventures and wrote down inventory. The total non-cash nonrecurring
charge and write down was $49.9 million.

(6) For each of the years ended December 31, 1997, 1996 and 1995 the
extraordinary items reflect the loss on the repayment of debt in each
period.

(7) For purposes of this computation, earnings are defined as pre-tax earnings
or loss from continuing operations of the Company plus (i) its
majority-owned subsidiaries, whether or not consolidated, (ii) its
proportionate share of any fifty-percent-owned Joint Ventures, and (iii) any
income received from less-than-fifty-percent-owned Joint Ventures. Fixed
charges are the sum of (i) interest costs, (ii) amortization of deferred
financing costs, premium and debt discounts, (iii) the portion of operating
lease rental expense that is representative of the interest factor (deemed
to be one-third) and (iv) dividends on preferred stock. The ratio of
earnings to fixed charges of the Company was less than 1.00 for each of the
years ended December 31, 1998, 1997, 1996 and 1995 and for the year ended
February 28, 1995; thus, earnings available for fixed charges were
inadequate to cover fixed charges for such periods. The deficiency in
earnings to fixed charges for the years ended December 31, 1998, 1997, 1996
and 1995 and for the year ended February 28, 1995 were: $141.1 million,
$95.3 million, $64.3 million, $30.1 million and $17.4 million, respectively.

(8) Total assets include the net assets of the Entertainment Group and Landmark.
The net assets (liabilities) of the Entertainment Group at December 31, 1996
and 1995 and February 28, 1995 were $11.0 million, $12.1 million and ($8.5)
million, respectively. The revenues of the Entertainment Group for the years
ended December 31, 1996 and 1995 and February 28, 1995 were $135.6 million,
$133.8 million and $191.2 million, respectively. At December 31, 1997 and
1996, the net assets of Landmark, which was acquired on July 2, 1996, were
$46.8 million and $46.5 million, respectively. The revenues of Landmark for
the period July 2, 1996 to December 31, 1996 were $29.6 million.

31
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and the "Business"
section included as Item 1 herein.

GENERAL

The business activities of the Company are composed of two operating groups, the
Communications Group and Snapper. The Communications Group consists of two
geographic business segments, Eastern Europe and the FSU, and China. There are
four lines of business in Eastern Europe and the FSU as follows: (i) various
types of telephony services; (ii) cable television; (iii) paging services; and
(iv) radio broadcasting. The Company's investments in various telephony services
in China is a separate segment. The Company's third segment is the manufacture
of lawn and garden products through Snapper.

During 1998, the Company continued to focus its growth on opportunities in
communication businesses. The convergence of cable television and telephony and
the relationship of each business to Internet access has provided the Company a
unique opportunity. However, as the Company has seen in the current year, the
quick pace of technological, regulatory and political change can effectively
limit the opportunities for the Company in some of the businesses in which it
operates. During 1997 and 1998, the Company completed the sale of its
entertainment assets (see Notes 5 and 6 of the Notes to Consolidated Financial
Statements), which has provided significant funds for the Company's expansion in
communications businesses. In addition, the Company saw limited growth
opportunities for it in trunked mobile radio and in July 1998 sold its
investment in Protocall Ventures. The Company still owns an interest in one
trunked mobile radio venture and the Company is currently evaluating how to best
maximize its value to the Company.

The Communications Group's paging business is experiencing increasing
competition from cellular telephony in some of the markets in which it operates.
There is a likelihood of similar competition in the future in other markets
where the Communications Group has paging operations. Despite a number of
operating and marketing initiatives to diminish the effects of the increased
competition, including CPP, the paging operations continued to generate
operating losses in 1998. A revised operating plan has been developed to
stabilize the Communications Group's paging operations. Under the revised plan,
the Communications Group intends to manage its paging business to a level that
will not require significant additional funding for its operations. As a result
of the revised plan, the Company recorded a non-cash, nonrecurring charge on its
paging assets of $49.9 million, which includes a $35.9 million write off of
goodwill and other intangibles. The non-cash, nonrecurring charge adjusted the
carrying value of goodwill and other intangibles, fixed assets and investments
in and advances to Joint Ventures and wrote down inventory. It is anticipated
that under the revised plan the Communications Group's paging business operating
losses will decrease significantly.

On November 1, 1995, Orion, MITI, the Company and Sterling consummated the
November 1 Merger. In connection with the November 1 Merger, the Company changed
its name from "The Actava Group Inc." to "Metromedia International Group, Inc."
As part of the November 1 Merger, the Company adopted a formal plan to dispose
of Snapper and, as a result, Snapper was classified as an asset held for sale
and the results of its operations were not included in the consolidated results
of operations of the Company from November 1, 1995 to October 31, 1996.
Subsequently, the Company announced its intention to actively manage Snapper to
maximize its long term value to the Company. The operations of Snapper are
included in the accompanying consolidated financial statements as of November 1,
1996.

32
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In addition, as of April 1, 1997, for financial statement reporting purposes,
the Company no longer qualified to treat its investment in RDM as a discontinued
operation and the Company included in its results of operations the Company's
share of the earnings and losses of RDM. On August 29, 1997, RDM and certain of
its affiliates filed voluntary bankruptcy petitions under chapter 11. The
Company does not believe it will be entitled to any distributions from its
equity interest in RDM.

COMMUNICATIONS GROUP

The Company, through the Communications Group, is the owner of various interests
in Joint Ventures that are currently in operation or planning to commence
operations in Eastern Europe, the FSU, China and other selected emerging
markets. The Communications Group's Joint Ventures currently offer cellular
telecommunications, fixed telephony, international and long distance telephony
services, cable television, paging, and radio broadcasting. The Communications
Group's Joint Ventures' partners are principally governmental agencies or
ministries.

The Communications Group reports its activity and invests in communications
businesses in two primary geographic areas in Eastern Europe and the FSU, and in
the People's Republic of China. In Eastern Europe and the FSU, the
Communications Group generally owns 50% or more of the operating Joint Ventures
in which it invests. Currently, legal restrictions in China prohibit foreign
ownership and operation in the telecommunications sector. The Communications
Group's China Joint Ventures invest in telephony system construction and
development networks being undertaken by China Unicom. The completed systems are
operated by China Unicom. The Communications Group's China Joint Ventures
receive payments from China Unicom based on revenues and profits generated by
the systems in return for their providing financing, technical advice and
consulting and other services. Hereinafter, all references to the Communications
Group Joint Ventures relate to the operating Joint Ventures in Eastern Europe
and the FSU and the Communications Group's Joint Ventures in China. Statistical
data regarding subscribers, population, etc. for the Joint Ventures in China
relate to the telephony systems of China Unicom to which such Joint Ventures
provide funding and services.

The Company's financial statements consolidate only the accounts and results of
operations of 16 of the Communications Group's 46 operating Joint Ventures at
December 31, 1998. Investments in other companies and Joint Ventures which are
not majority owned, or which the Communications Group does not control, but over
which the Communications Group exercises significant influence, have been
accounted for using the equity method. Investments of the Communications Group
or its consolidated subsidiaries over which significant influence is not
exercised are carried under the cost method. See Notes 2 and 3 to the "Notes to
Consolidated Financial Statements" of the Company for the year ended December
31, 1998, for those Joint Ventures recorded under the equity method and their
summary financial information.

The Communications Group accounts for the majority of its Joint Ventures under
the equity method of accounting since it generally does not exercise control.
Under the equity method of accounting, the Communications Group reflects the
cost of its investments, adjusted for its share of the income or losses of the
Joint Ventures, on its balance sheet. The losses recorded in the years ended
1998 and 1997 represent the Communications Group's equity in the losses of the
Joint Ventures in Eastern Europe, the FSU and China. Equity in the losses of the
Joint Ventures by the Communications Group are generally reflected according to
the level of ownership of the Joint Venture by the Communications Group until
such Joint Venture's contributed capital has been fully depleted. The
Communications Group recognizes the full amount of losses generated by the Joint
Venture when the Communications Group is the sole funding source of the Joint
Ventures.

33
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SNAPPER

Snapper manufactures Snapper-Registered Trademark- brand premium-priced power
lawnmowers, lawn tractors, garden tillers, snowthrowers and related parts and
accessories. 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
under the Snapper brand. Snapper provides lawn and garden products through
distribution channels to domestic and foreign retail markets.

The following tables set forth operating results for the years ended December
31, 1998, 1997 and 1996, for the Company's Communications Group's two segments
and the lawn and garden products segment.

34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

SEGMENT INFORMATION
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
SEE NOTE 1
<TABLE>
<CAPTION>
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION
----------------------------------------------------------------------------
INTERNATIONAL
CELLULAR AND LONG RADIO
TELECOM- FIXED DISTANCE CABLE BROAD-
MUNICATIONS TELEPHONY TELEPHONY TELEVISION PAGING CASTING
----------- ------------- ------------- ----------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
COMBINED
Revenues........................................ 22,091 30 27,187 31,440 20,426 19,215
Depreciation and amortization................... 9,384 13 1,927 13,597 3,161 1,440
Operating income (loss)......................... (5,665) (403) 7,849 (5,212) (19,999) 1,046

CONSOLIDATED
Revenues........................................ -- -- -- 3,444 4,204 17,081
Gross profit....................................
Nonrecurring charge............................. -- -- -- -- 6,280 --
Depreciation and amortization................... -- -- -- 1,541 1,591 1,228
Operating income (loss)......................... -- -- -- (1,475) (20,632) 1,171

UNCONSOLIDATED JOINT VENTURES
Revenues........................................ 22,091 30 27,187 27,996 16,222 2,134
Depreciation and amortization................... 9,384 13 1,927 12,056 1,570 212
Operating income (loss)......................... (5,665) (403) 7,849 (3,737) 633 (125)
Net income (loss)............................... (12,821) (495) 5,333 (8,985) (3,384) (221)
Equity in income (losses) of unconsolidated
investees (Note 2)............................ (5,867) (515) 1,600 (3,877) (7,460) (108)

Gain on sale of Protocall Ventures, net.........
Foreign currency loss...........................
Minority interest...............................

Interest expense................................
Interest income.................................
Income tax benefit..............................
Discontinued operations.........................
Net loss........................................

SEGMENT COMMUNICATIONS
HEAD- GROUP--
OTHER QUARTERS TOTAL CHINA SNAPPER OTHER
--------- ----------- --------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
COMBINED
Revenues........................................ 6,249 2,279 128,917
Depreciation and amortization................... 1,087 5,784 36,393
Operating income (loss)......................... (2,571) (87,519) (112,474)
CONSOLIDATED
Revenues........................................ 3,200 2,279 30,208 -- 210,084 --
Gross profit.................................... 62,690
Nonrecurring charge............................. -- 34,037 40,317 -- -- --
Depreciation and amortization................... 481 5,784 10,625 3,226 6,728 9
Operating income (loss)......................... (186) (87,519) (108,641) (14,504) (7,607) 896
UNCONSOLIDATED JOINT VENTURES
Revenues........................................ 3,049 -- 98,709 3,483
Depreciation and amortization................... 606 -- 25,768 2,662
Operating income (loss)......................... (2,385) -- (3,833) (660)
Net income (loss)............................... (3,220) -- (23,793) (3,567)
Equity in income (losses) of unconsolidated
investees (Note 2)............................ (884) -- (17,111) (1,040) -- --
Gain on sale of Protocall Ventures, net......... 5,527 -- -- --
Foreign currency loss........................... (137) -- -- --
Minority interest............................... 1,527 8,331 -- --
Interest expense................................
Interest income.................................
Income tax benefit..............................
Discontinued operations.........................

Net loss........................................

CONSOLIDATED
------------
<S> <C>
COMBINED
Revenues........................................
Depreciation and amortization...................
Operating income (loss).........................
CONSOLIDATED
Revenues........................................ $ 240,292
Gross profit....................................
Nonrecurring charge............................. 40,317
Depreciation and amortization................... 20,588
Operating income (loss)......................... (129,856)
UNCONSOLIDATED JOINT VENTURES
Revenues........................................
Depreciation and amortization...................
Operating income (loss).........................
Net income (loss)...............................
Equity in income (losses) of unconsolidated
investees (Note 2)............................ (18,151)
Gain on sale of Protocall Ventures, net......... 5,527
Foreign currency loss........................... (137)
Minority interest............................... 9,858
Interest expense................................ (16,331)
Interest income................................. 12,746
Income tax benefit.............................. 358
Discontinued operations......................... 12,316
------------
Net loss........................................ $ (123,670)
------------
------------
</TABLE>

Note 1: The Company evaluates the performance of its operating segments based on
earnings before interest, taxes, depreciation, and amortization ("EBITDA"). The
above segment information and the discussion of the Company's operating segments
is based on operating income (loss) which includes depreciation and
amortization. In addition, the Company evaluates the performance of the
Communications Group's operating segment in Eastern Europe and the republics of
the former Soviet Union on a combined basis. The Company is providing as
supplemental information an analysis of combined revenues and operating income
(loss) for its consolidated and unconsolidated Joint Ventures in Eastern Europe
and the republics of the former Soviet Union. As previously discussed, legal
restrictions in China prohibit foreign participation in the operations or
ownership in the telecommunications sector. The above segment information for
the Communications Group's China Joint Ventures represents the investment in
network construction and development of telephony networks for China Unicom. The
above segment information does not reflect the results of operations of China
Unicom's telephony networks.

Note 2: Equity in income (losses) of unconsolidated investees reflects
elimination of intercompany interest expense.

35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

SEGMENT INFORMATION
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
---------------------------------------------------------------------------------------------
INTERNATIONAL
CELLULAR AND LONG RADIO SEGMENT
TELECOM- DISTANCE CABLE BROAD- HEAD-
MUNICATIONS TELEPHONY TELEVISION PAGING CASTING OTHER QUARTERS
------------- --------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED
Revenues.......................... 2,587 30,866 23,314 12,999 16,015 4,004 1,885
Depreciation and amortization..... 2,380 1,287 9,648 1,630 699 981 4,906
Operating income (loss)........... (6,761) 17,244 (6,831) (3,905) 4,182 (3,325) (39,440)

CONSOLIDATED
Revenues.......................... -- -- 1,902 3,318 13,549 598 1,885
Gross profit......................
Depreciation and amortization..... -- -- 791 790 607 89 4,906
Operating income (loss)........... -- -- (1,953) (4,084) 3,935 145 (39,440)

UNCONSOLIDATED JOINT VENTURES
Revenues.......................... 2,587 30,866 21,412 9,681 2,466 3,406 --
Depreciation and amortization..... 2,380 1,287 8,857 840 92 892 --
Operating income (loss)........... (6,761) 17,244 (4,878) 179 247 (3,470) --
Net income (loss)................. (8,129) 14,030 (9,875) (1,318) 121 (4,053) --
Equity in income (losses) of
unconsolidated investees (Note
2).............................. (2,027) 4,209 (7,212) (761) 159 (1,601) --

Foreign currency gain (loss)......
Minority interest.................

Interest expense..................
Interest income...................
Income tax benefit................
Discontinued operations...........
Extraordinary items...............
Net income........................

COMMUNICATIONS
GROUP--
TOTAL CHINA SNAPPER OTHER CONSOLIDATED
--------- ----------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
COMBINED
Revenues.......................... 91,670
Depreciation and amortization..... 21,531
Operating income (loss)........... (38,836)
CONSOLIDATED
Revenues.......................... 21,252 -- 183,076 -- $ 204,328
Gross profit...................... 59,080
Depreciation and amortization..... 7,183 2,566 6,973 12 16,734
Operating income (loss)........... (41,397) (17,871) (15,246) (5,561) (80,075)
UNCONSOLIDATED JOINT VENTURES
Revenues.......................... 70,418 1,422
Depreciation and amortization..... 14,348 1,179
Operating income (loss)........... 2,561 (187)
Net income (loss)................. (9,224) (1,982)
Equity in income (losses) of
unconsolidated investees (Note
2).............................. (7,233) (861) -- (45,056) (53,150)
Foreign currency gain (loss)...... (770) 56 -- -- (714)
Minority interest................. 561 8,332 -- -- 8,893
Interest expense.................. (20,922)
Interest income................... 9,840
Income tax benefit................ 5,227
Discontinued operations........... 234,036
Extraordinary items............... (14,692)
------------
Net income........................ $ 88,443
------------
------------
</TABLE>

36
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

SEGMENT INFORMATION
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
SEE NOTE 3
<TABLE>
<CAPTION>
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION
-------------------------------------------------------------------------------------
INTERNATIONAL
AND LONG SEGMENT
DISTANCE CABLE BROAD- HEAD-
TELEPHONY TELEVISION PAGING CASTING OTHER QUARTERS TOTAL
------------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED
Revenues.......................... 19,177 15,243 10,864 10,899 1,030 1,634 58,847
Depreciation and amortization..... 617 5,964 1,645 257 493 5,445 14,421
Operating income (loss)........... 3,122 (5,990) (943) 279 (1,409) (29,902) (34,843)

CONSOLIDATED
Revenues.......................... -- 170 2,880 9,363 -- 1,634 14,047
Gross profit......................
Depreciation and amortization..... -- 302 461 174 -- 5,445 6,382
Operating income (loss)........... -- (832) (427) 2,102 -- (29,902) (29,059)

UNCONSOLIDATED JOINT VENTURES
Revenues.......................... 19,177 15,073 7,984 1,536 1,030 -- 44,800
Depreciation and amortization..... 617 5,662 1,184 83 493 -- 8,039
Operating income (loss)........... 3,122 (5,158) (516) (1,823) (1,409) -- (5,784)
Net income (loss)................. 2,997 (7,954) (1,687) (2,149) (1,690) -- (10,483)
Equity in income (losses) of Joint
Ventures (Note 2)............... 899 (5,011) (1,232) (1,896) (595) -- (7,835)

Foreign currency loss............. (255)
Minority interest................. 666

Interest expense..................
Interest income...................
Income tax expense................
Discontinued operations...........
Extraordinary items...............
Net loss..........................

COMMUNICATIONS SNAPPER-
GROUP-- SNAPPER ASSET HELD
CHINA PRO-FORMA FOR SALE OTHER CONSOLIDATED
----------------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
COMBINED
Revenues..........................
Depreciation and amortization.....
Operating income (loss)...........
CONSOLIDATED
Revenues.......................... -- 153,168 (130,623) -- $ 36,592
Gross profit...................... 22,570
Depreciation and amortization..... 21 7,266 (6,010) 18 7,677
Operating income (loss)........... (2,729) (27,298) 17,933 (9,373) (50,526)
UNCONSOLIDATED JOINT VENTURES
Revenues.......................... --
Depreciation and amortization..... --
Operating income (loss)........... --
Net income (loss)................. --
Equity in income (losses) of Joint
Ventures (Note 2)............... -- -- -- (7,835)
Foreign currency loss............. -- -- -- (255)
Minority interest................. -- -- -- 666
Interest expense.................. (19,090)
Interest income................... 5,308
Income tax expense................ (414)
Discontinued operations........... (38,592)
Extraordinary items............... (4,505)
------------
Net loss.......................... $ (115,243)
------------
------------
</TABLE>

Note 3: Snapper Pro-Forma information represents the results of operations of
Snapper as if it had been consolidated as of January 1, 1996. Snapper -
Asset Held for Sale represents the result of operations for January 1,
1996 to October 31, 1996 when Snapper was recorded as an asset held for
sale.

37
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997, AND YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996

LEGEND

C = Consolidated
E = Equity method
P = Pre-operational
N/A = Not applicable
N/M = Not meaningful

COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION

The following sets forth, by line of business, the Communications Group's
consolidated and unconsolidated subsidiaries and Joint Ventures, the
Communications Group's ownership percentage and selected income statement
information for the years ended December 31, 1998, 1997 and 1996 (in thousands):

TELEPHONY

CELLULAR TELECOMMUNICATIONS

UNCONSOLIDATED JOINT VENTURES

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- --------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 22,091 $ 2,587 -- 754% N/A
Operating loss.......................................... $ (5,665) $ (6,761) -- (16)% N/A
Net loss................................................ $ (12,821) $ (8,129) -- 58% N/A
Equity in losses of Joint Ventures...................... $ (5,867) $ (2,027) -- 189% N/A
</TABLE>

REVENUES. Revenues for cellular communications reflects the result of
operations in Latvia and Georgia, both of which commenced operations in 1997,
and were active for six months and one month, respectively, during that year.
Increases in 1998 are a result of having twelve months of operations. Total
subscribers increased to 49,607 in 1998 from 10,429 in 1997.

OPERATING LOSS. Included in operating losses in 1998 and 1997 were depreciation
and amortization charges of $9.4 million and $2.4 million, respectively. The
decreased operating loss in 1998 as compared to 1997 is a result of increasing
revenue while controlling selling, general and administrative costs at the
operation in Latvia, offset by increased selling, general and administrative
expenses incurred at the operations in Georgia.

38
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET LOSS. Included in net losses in 1998 and 1997 was interest expense of $6.8
million and $1.0 million, respectively. The increase in interest expense in 1998
from the prior year represents additional borrowings by the Joint Ventures to
fund and expand their operations.

EQUITY IN LOSSES OF JOINT VENTURES. Equity in losses of Joint Ventures
represents the Communications Group's proportionate share of the net losses of
the Communications Group's Joint Venture in 1998 and 1997. The increase in
equity in losses of Joint Ventures in 1998 is the result of having twelve months
of operations.

FIXED TELEPHONY

UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating loss, net loss and equity
in losses of the Communications Group's investment in unconsolidated Joint
Ventures recorded under the equity method (in thousands):
<TABLE>
<CAPTION>
% CHANGE
1998 1997 1996 1998 TO 1997
--------- ----- ----- ---------------
<S> <C> <C> <C> <C>
Revenues....................................................... $ 30 -- -- N/A
Operating loss................................................. $ (403) -- -- N/A
Net loss....................................................... $ (495) -- -- N/A
Equity in losses of Joint Ventures............................. $ (515) -- -- N/A

<CAPTION>
% CHANGE
1997 TO 1996
---------------
<S> <C>
Revenues....................................................... N/A
Operating loss................................................. N/A
Net loss....................................................... N/A
Equity in losses of Joint Ventures............................. N/A
</TABLE>

EQUITY IN LOSSES OF JOINT VENTURES. Results above are those of the
Communications Group's Joint Venture in Kazakhstan. Operations have been delayed
by the lack of success in securing an interconnection agreement with the local
ministry. Included in the operating loss are depreciation charges of $13,000.
Included in net loss are interest charges of $96,000.

INTERNATIONAL AND LONG DISTANCE TELEPHONY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C> <C>
JOINT VENTURE/SUBSIDIARY OWNERSHIP % 1998 1997
- ------------------------------------------------------------------------------- ----------------- ----- -----
Telecom Georgia (Tbilisi, Georgia)............................................. 30% E E

<S> <C>
JOINT VENTURE/SUBSIDIARY 1996
- ------------------------------------------------------------------------------- -----
Telecom Georgia (Tbilisi, Georgia)............................................. E
</TABLE>

39
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating income, net income and
equity in income of the Communications Group's investment in Telecom Georgia
which is recorded under the equity method (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 27,187 $ 30,866 $ 19,177 (12)% 61%
Operating income..................................... $ 7,849 $ 17,244 $ 3,122 (54)% 452%
Net income........................................... $ 5,333 $ 14,030 $ 2,997 (62)% 368%
Equity in income of Joint Ventures................... $ 1,600 $ 4,209 $ 899 (62)% 368%
</TABLE>

REVENUES. International and long distance calling revenues are generated at
Telecom Georgia which handles international calls inbound to and outbound from
the Republic of Georgia. Revenues for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 decreased due to the change in the
incoming and outgoing mix in telephone traffic and the contractual reductions in
termination accounting rates in Telecom Georgia's international settlement
agreements for traffic with its overseas carriers. The increase in international
toll calling revenue for the year ended December 31, 1997 as compared to the
year ended December 31, 1996 is directly attributable to increases in both the
incoming and outgoing minutes streams.

OPERATING INCOME. Included in operating income in 1998, 1997 and 1996 were
depreciation and amortization charges of $1.9 million, $1.3 million and
$617,000, respectively.

NET INCOME. Included in net income in 1998, 1997 and 1996 were interest charges
of $375,000, $382,000 and $65,000, respectively. The increase in both operating
and net income from 1996 to 1997 and decreases from 1997 to 1998 are partially
due to the impact of favorable settlements with international carriers of
approximately $2.0 million in 1997, for costs related to 1996 call revenues.
Additionally, during 1996 and 1997, Telecom Georgia was the only entity licensed
to handle international call traffic in and out of Georgia. In 1998 several new
market entrants started providing international telephone service.

EQUITY IN INCOME OF JOINT VENTURE. Equity in income of Joint Venture represents
the Communications Group's proportionate share of Telecom Georgia's net income
in 1998, 1997 and 1996.

40
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CABLE TELEVISION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C> <C>
JOINT VENTURE/SUBSIDIARY OWNERSHIP % 1998 1997 1996
- ------------------------------------------------------------------------------ --------------- ----- --------- ---------
Romsat Cable TV (Bucharest, Romania).......................................... 100% C C C
Viginta (Vilnius, Lithuania).................................................. 55% C C C
ATK (Archangelsk, Russia)..................................................... 81% P N/A N/A
Kosmos TV (Moscow, Russia).................................................... 50% E E E
Baltcom TV (Riga, Latvia)..................................................... 50% E E E
Ayety TV (Tbilisi, Georgia)................................................... 49% E E E
Kamalak TV (Tashkent, Uzbekistan)............................................. 50% E E E
Sun TV (Chisinau, Moldova).................................................... 50% E E E
Alma TV (Almaty, Kazakhstan).................................................. 50% E E E
Cosmos TV (Minsk, Belarus).................................................... 50% E E E
Teleplus (St. Petersburg, Russia)............................................. 45% E P N/A
</TABLE>

CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES

The following table sets forth the consolidated revenues and operating loss for
cable television (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 3,444 $ 1,902 $ 170 81% 1,019%
Operating loss.......................................... $ (1,475) $ (1,953) $ (832) (24)% 135%
</TABLE>

REVENUES. The revenue increases from cable television for the year ended
December 31, 1998 as compared to the year ended December 31, 1997, and for the
year ended December 31, 1997 as compared to the year ended December 31,1996 were
the result of the expansion of the Communications Group's strategy to increase
the customer base by wiring buildings in advance and targeting for a lower
priced, broader based program package, coupled with acquisitions in Romania and
Moldova. This strategy was first implemented in 1996 and expanded in 1997 to all
cable Joint Ventures.

OPERATING LOSS. Included in operating losses in 1998, 1997 and 1996 were
depreciation and amortization charges of $1.5 million, $791,000 and $302,000,
respectively. The reduction in operating loss in 1998 compared to 1997 reflects
the strategy to increase the customer base as noted above. In 1997 as compared
to 1996, operating loss was negatively impacted by the programming operation in
Romania, which provided local language subtitling and dubbing services. In 1998,
this function was outsourced. This entity contributed approximately $766,000 of
the operating loss in 1997.

41
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating loss, net loss and equity
in losses of the Company's investment in unconsolidated Joint Ventures recorded
under the equity method (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 27,996 $ 21,412 $ 15,073 31% 42%
Operating loss....................................... $ (3,737) $ (4,878) $ (5,158) (23)% (5)%
Net loss............................................. $ (8,985) $ (9,875) $ (7,954) (9)% 24%
Equity in losses of Joint Ventures................... $ (3,877) $ (7,212) $ (5,011) (46)% 44%
</TABLE>

REVENUES. During 1998, revenues increased at the cable operations in Almaty,
Kazakhstan, Chisnau, Moldova, Minsk, Belarus and Tashkent, Uzbekistan and
accounted for approximately $1.7 million, $1.7 million, $845,000 and $633,000,
respectively, of the increase in revenues of the equity investees. However, the
Communications Group is intentionally slowing the growth of its Joint Venture in
Belarus, as a result of regulations instituted by various governmental
ministries which may adversely affect the operations of the venture. During
1997, the strategy of wiring buildings for a lower cost tier, coupled with the
use of MMDS for localized product and individual installations, was expanded to
all cable Joint Ventures contributing to revenue increases of approximately $1.5
million, $1.2 million and $1.4 million at the operations in Tashkent,
Uzbekistan, Chisnau, Moldova and Almaty, Kazakhstan, respectively.

OPERATING LOSS. Included in operating losses in 1998, 1997 and 1996 were
depreciation and amortization charges of $12.1 million, $8.9 million and $5.7
million, respectively. The improvements in operating results reflect the fact
that certain operating costs are fixed and the number of subscribers increased,
reducing the operating loss per subscriber, combined with cost savings achieved
through economies of scale resulting from contract renegotiation with
programmers and other suppliers. This favorable effect was partially offset
during 1998 by the operating loss incurred at the Joint Venture in St.
Petersburg, Russia, which commenced operations in 1998.

NET LOSS. Included in net losses in 1998, 1997 and 1996 was interest expense of
$4.5 million, $3.6 million and $2.6 million, respectively. The increases in
interest expense in 1998 and 1997 from the prior years represented additional
borrowings by the Joint Ventures to fund and expand their operations.

EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group initially
recognizes its proportionate share of the net income or loss of its Joint
Ventures. However, for 1998, 1997 and 1996, the Communications Group recognized
the full amount of losses generated in certain Joint Ventures since the
contributed capital of the Joint Venture has been depleted and the
Communications Group was generally the sole funding source.

42
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
COMBINED RESULTS OF OPERATIONS

The following table sets forth the revenues, depreciation and amortization and
operating loss on a combined basis of the Communications Group's consolidated
and unconsolidated subsidiaries and Joint Ventures (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 31,440 $ 23,314 $ 15,243 35% 53%
Depreciation and amortization....................... $ (13,597) $ (9,648) $ (5,964) 41% 62%
Operating loss...................................... $ (5,212) $ (6,831) $ (5,990) (24)% 14%
</TABLE>

ANALYSIS OF COMBINED RESULTS OF OPERATIONS. As noted above, subscriber growth
and revenue increases in 1998 and 1997 were the result of implementing a new
strategy by which buildings were wired in advance and targeted for a lower
priced, broader band program package. Total subscribers increased from 69,118 in
1996 to 225,525 in 1997 and 315,864 in 1998. In 1998, the improvement in
operating results reflects the favorable relationship between certain fixed
operating costs and the increase in subscribers as described above, combined
with cost savings achieved through economies of scale resulting in contract
renegotiations with programmers and other suppliers.

PAGING

OVERVIEW. In 1998 and 1997, the Communications Group's paging operations
experienced increasing competition from cellular telephony in some of the
markets in which they operate. There is an expectation of similar competition in
the future in other markets where the Communications Group has paging
operations. Despite a number of operating and marketing initiatives to diminish
the effects of the increased competition, including CPP, the paging operations
continued to generate operating losses in 1998. A revised operating plan has
been developed to stabilize the Communications Group's paging operations. Under
the revised plan, the Communications Group intends to manage its paging business
to a level that will not require significant additional funding for its
operation. It is anticipated that under the revised plan the Communications
Group's paging business operating losses will decrease significantly.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C> <C>
JOINT VENTURE/SUBSIDIARY OWNERSHIP % 1998 1997 1996
- ------------------------------------------------------------------------------ ------------- ----- --------- ---------
Baltcom Paging (Tallinn, Estonia)............................................. 85% C C E
CNM (Romania)................................................................. 54% C C C
Paging One Services (Austria)................................................. 100% C C N/A
Eurodevelopment (Ukraine)..................................................... 51% C N/A N/A
Baltcom Plus (Riga, Latvia)................................................... 50% E E E
Paging One (Tbilisi, Georgia)................................................. 45% E E E
Raduga Poisk (Nizhny Novgorod, Russia)........................................ 45% E E E
PT Page (St. Petersburg, Russia).............................................. 40% E E E
Kazpage (Kazakhstan).......................................................... 26-41% E E N/A
Kamalak Paging (Tashkent, Samarkand, Bukhara and Andijan, Uzbekistan)......... 50% E E E
Alma Page (Almaty and Ust-Kamenogorsk, Kazakhstan)............................ 50% E E E
Paging Ajara (Batumi, Georgia)................................................ 35% E E E
Mobile Telecom (Russia)....................................................... 50% E N/A N/A
</TABLE>

43
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES

The following table sets forth the consolidated revenues and operating loss for
paging (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 4,204 $ 3,318 $ 2,880 27% 15%
Operating loss........................................ $ (20,632) $ (4,084) $ (427) 405% 856%
</TABLE>

REVENUES. The increase in revenues in the year ended December 31, 1998 as
compared to the year ended December 31, 1997 is attributable to an increase of
approximately $623,000 realized at the paging operations in Vienna, Austria
coupled with an acquisition during the fourth quarter of 1998 of a paging
operation in Ukraine. Further, the purchase of an additional interest of the
operation in Tallinn, Estonia during 1997 accounted for an increase of
approximately $467,000 of revenue for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 as the results of operations were
consolidated for a full year in 1998. These gains were offset by reduced 1998
revenues at the venture in Bucharest, Romania of approximately $696,000.

The increase in revenues in the year ended December 31, 1997 as compared to
December 31, 1996 is partially the result of the purchase of an additional
interest in the venture in Tallinn, Estonia as noted above. The results of this
venture were consolidated for part of the year in 1997 and accounted for under
the equity method in 1996 and part of 1997.

OPERATING LOSS. Included in operating loss in 1998, 1997 and 1996 were
depreciation and amortization charges of $1.6 million, $790,000 and $461,000,
respectively. The increase in the operating loss for the year ended December 31,
1998 as compared to the year ended December 31, 1997 was primarily due to
increased losses incurred at the operations in Romania, Estonia and Austria of
approximately $4.2 million, $971,000 and $715,000, respectively. These losses
were partially due to increased marketing, advertising, technical and
distribution expenses incurred to introduce CPP service. CPP subscribers are not
required to pay a monthly fee for service. Instead, the calling party sending
the paging message is required to call a toll line for which the calling party
is billed by the local telephone company. The Joint Venture then receives a fee
from the local telephone company for each call made to the pager. In addition,
the operating loss in 1998 includes a writeoff of inventory of $4.2 million.

The increased operating loss for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 is primarily attributable to the operating
losses of approximately $2.9 million for the start up of the Austrian paging
operations.

UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating income (loss), net loss
and equity in losses of the Communications Group's investment in unconsolidated
Joint Ventures, which are recorded under the equity method (in thousands):

<TABLE>
<CAPTION>
% CHANGE
% CHANGE 1997 TO
1998 1997 1996 1998 TO 1997 1996
--------- --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 16,222 $ 9,681 $ 7,984 68% 21%
Operating income (loss)............................... $ 633 $ 179 $ (516) 254% N/M
Net loss.............................................. $ (3,384) $ (1,318) $ (1,687) 157% (22)%
Equity in losses of Joint Ventures.................... $ (7,460) $ (761) $ (1,232) 880% (38)%
</TABLE>

44
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
REVENUES. Increased revenues for the year ended December 31, 1998 as compared
to the year ended December 31, 1997 are partially attributable to the
acquisition of a paging operation in Moscow, Russia. Additionally, revenue
growth was partially attributable to increases of approximately $555,000 and
$888,000 at paging operations in Nizhny Novgorod, Russia and Kazakhstan. During
1997, increases in revenues of approximately $738,000 and $635,000 achieved at
the paging operations in Nizhny Novgorod, Russia and Tashkent, Uzbekistan,
respectively, were principally responsible for the overall growth.

OPERATING INCOME (LOSS). Included in operating income (loss) in 1998, 1997 and
1996 were depreciation and amortization charges of $1.6 million, $840,000 and
$1.2 million, respectively.

NET LOSS. Included in net loss in 1998, 1997 and 1996 were interest expenses of
$851,000, $800,000 and $769,000, respectively.

EQUITY IN LOSSES OF JOINT VENTURES. As noted above, the Communications Group
recognizes its proportionate share of the net income or loss of its Joint
Ventures, however, for 1998, 1997 and 1996, the Communications Group recognized
the full amount of losses generated by the Joint Ventures since the contributed
capital of the Joint Ventures had been depleted and the Communications Group was
generally the sole funding source. In addition, equity in losses of Joint
Ventures includes a write down of paging investments of $5.5 million.

COMBINED RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 20,426 $ 12,999 $ 10,864 57% 20%
Depreciation and amortization....................... $ 3,161 $ 1,630 $ 1,645 94% (1)%
Operating loss...................................... $ (19,999) $ (3,905) $ (943) 412% 314%
</TABLE>

ANALYSIS OF COMBINED RESULTS OF OPERATIONS. In 1998, subscriber and revenue
growth were partially attributable to the acquisition of a paging operation in
Moscow, Russia and revenue growth at existing Joint Ventures. Total subscribers
increased from 44,836 in 1996 to 57,831 in 1997 and 110,234 in 1998. Increases
in operating loss in 1998 were partially due to the increased marketing,
advertising, technical and distribution expenses incurred to introduce CPP
service and the impact of non-cash nonrecurring charges of $10.5 million in
connection with the Communications Group's revised operating plan. During 1997,
increases in revenue of approximately $738,000 and $635,000 achieved at paging
operations in Nizhny Novgorod, Russia and Tashkent, Uzbekistan, respectively,
were primarily attributable for the overall growth. Increases in the operating
income for certain existing Joint Ventures in 1997 were offset by operating
losses of $2.9 million for the start up of the Austrian paging operations.

45
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RADIO BROADCASTING

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C> <C>
JOINT VENTURE/SUBSIDIARY OWNERSHIP % 1998 1997 1996
- ------------------------------------------------------------------------------ --------------- ----- ----- ---------
Radio Juventus (Budapest, Hungary)............................................ 100% C C C
SAC (Moscow, Russia).......................................................... 83% C C C
Radio Skonto (Riga, Latvia)................................................... 55% C C C
Radio One (Prague, Czech Republic)............................................ 80% C C C
NewsTalk Radio (Berlin, Germany).............................................. 85% C C N/A
Radio Vladivostok, (Vladivostok, Russia)...................................... 51% C P N/A
Country Radio (Prague, Czech Republic)........................................ 85% C P N/A
Radio Georgia (Tbilisi, Georgia).............................................. 51% C P N/A
Radio Katusha (St. Petersburg, Russia)........................................ 75% C E E
Radio Nika (Socci, Russia).................................................... 51% E E E
AS Trio LSL (Tallinn, Estonia)................................................ 49% E E N/A
</TABLE>

CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES

The following table sets forth the consolidated revenues and operating losses
for radio broadcasting (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 17,081 $ 13,549 $ 9,363 26% 45%
Operating income...................................... $ 1,171 $ 3,935 $ 2,102 (70)% 87%
</TABLE>

REVENUES. The revenue growth for the year ended December 31, 1998 as compared
to the year ended December 31, 1997 and for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 was due to increases in the number
of advertising spots sold and increases in the price of the advertising spots
and the acquisition of three radio stations in 1997. The ability to sell
additional spots at a higher rate is dependent on an increase in audience
ratings. The Communications Group has increased its audience share through the
use of market research to determine programming formats and marketing
strategies, including employing U.S. trained sales managers. The increase for
the year ended December 31, 1998 was partially offset by a decrease in revenues
at the radio operation in Hungary. This was the result of increased competition
from television and from a new national radio network.

OPERATING INCOME. Included in operating income in 1998, 1997 and 1996 were
depreciation and amortization charges of $1.2 million, $607,000 and $174,000,
respectively. The decrease in operating income for the year ended December 31,
1998 as compared to the year ended December 31, 1997 is primarily attributable
to an increased loss of approximately $4.3 million incurred at the radio station
in Berlin, Germany, which was acquired during the third quarter of 1997.
Increased programming and other expenses associated with the News Talk format at
this station account for the loss. The News Talk format has higher start up
costs than traditional music radio stations.

The increase in operating income from 1996 to 1997 is a result of the increases
in revenue growth and is reflective of management's philosophy to continually
develop existing audience share and revenue base, offset by the effects of start
up costs of new stations acquired in 1997.

46
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating income (loss), net income
(loss) and equity in income (losses) of the Communications Group's investment in
unconsolidated Joint Ventures, which are recorded under the equity method (in
thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 2,134 $ 2,466 $ 1,536 (13)% 61%
Operating income (loss)................................. $ (125) $ 247 $ (1,823) N/M N/M
Net income (loss)....................................... $ (221) $ 121 $ (2,149) N/M N/M
Equity in income (losses) of Joint Ventures............. $ (108) $ 159 $ (1,896) N/M N/M
</TABLE>

REVENUES. The decrease in revenues in the year ended December 31, 1998 as
compared to the year ended December 31, 1997 is partially the result of the 1998
purchase of an additional interest in the venture in St. Petersburg, Russia
resulting in a change in accounting from the equity method. The results of this
venture were consolidated in 1998 and accounted for under the equity method in
1997. This was offset by an increase in revenues of approximately $1.1 million
at the stations in Tallinn, Estonia for the year ended December 31, 1998 as
compared to the year ended December 31, 1997.

The increase in revenues in 1997 as compared to 1996 is a result of successfully
implementing the strategy described above, which resulted in an increase of
approximately $1.1 million at the station in St. Petersburg, Russia.
Additionally, the acquisition during 1997 of a multi-station radio group in
Estonia contributed approximately $744,000 to the revenue increase.

OPERATING INCOME. Included in operating income in 1998, 1997 and 1996 were
depreciation and amortization charges of $212,000, $92,000 and $83,000,
respectively. The increase in operating income from 1996 to 1997 is a result of
the increases in revenue growth and is reflective of management's philosophy to
continually develop existing audience share and revenue base. During 1998, this
was offset by the effects of start up costs of new stations acquired.

NET LOSS. Included in net loss in 1998, 1997 and 1996 were interest charges of
$15,000, $82,000 and $257,000, respectively.

EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group initially
recognizes its proportionate share of the net income or loss of its Joint
Ventures. However, in 1996, the Communications Group recognized the full amount
of losses generated by the Joint Ventures since the contributed capital of the
Joint Venture had been depleted and the Communications Group was generally the
sole funding source.

COMBINED RESULTS OF OPERATIONS

The following table sets forth the revenues, depreciation and amortization, and
operating income on a combined basis of the Communications Group's consolidated
and unconsolidated subsidiaries and Joint Ventures (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 19,215 $ 16,015 $ 10,899 20% 47%
Depreciation and amortization........................ $ 1,440 $ 699 $ 257 106% 172%
Operating income..................................... $ 1,046 $ 4,182 $ 279 (75)% 1,399%
</TABLE>

47
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF COMBINED RESULTS OF OPERATIONS. As noted above, revenues continued
to grow in 1998 as the Communications Group was able to sell additional spots at
higher rates and from the acquisition of radio stations. The increased revenue
growth in 1998 was offset by the loss incurred by the Company's radio station in
Berlin and the decrease in operating income from the effects of increased
competition on the radio station in Hungary. The increase in revenues in 1997 as
compared to 1996 is a result of successfully implementing the strategy described
above, which resulted in an increase of approximately $1.1 million at the
station in St. Petersburg, Russia. Additionally, the acquisition during 1997 of
a multi-station radio group in Estonia contributed approximately $744,000 to the
revenue increase.

OTHER

CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES

The following table sets forth the consolidated revenues and operating income
(loss) for trunked mobile radio (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues..................................................... $ 3,200 $ 598 -- 435% N/A
Operating income (loss)...................................... $ (186) $ 145 -- N/M N/A
</TABLE>

REVENUES AND OPERATING INCOME (LOSS). Operations of the consolidated trunked
mobile radio ventures for the years ended December 31, 1998 and 1997 reflect the
activities of the Protocall Venture's operations in Portugal, Spain and Belgium
prior to the sale of Protocall Ventures in July 1998. The increased revenue for
the year ended December 31, 1998 as compared to December 31, 1997 is primarily
attributable to the purchase of an additional interest in the Portugal operation
during the fourth quarter of 1997. Thus the 1997 consolidated results include
three months of activity for the Portuguese operation as compared to nine months
in 1998. Prior to the purchase of the additional interest, the operations in
Portugal were accounted for under the equity method of accounting as discussed
below.

UNCONSOLIDATED JOINT VENTURES

The following table sets forth the revenues, operating loss, net loss and equity
in losses of the Communications Group's investment in unconsolidated Joint
Ventures, which are recorded under the equity method (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 3,049 $ 3,406 $ 1,030 (10)% 231%
Operating loss........................................ $ (2,385) $ (3,470) $ (1,409) (31)% 146%
Net loss.............................................. $ (3,220) $ (4,053) $ (1,690) (21)% 140%
Equity in losses of Joint Ventures.................... $ (884) $ (1,601) $ (595) (45)% 169%
</TABLE>

48
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
REVENUES. Revenues for the year ended December 31, 1998 reflect an increase of
approximately $1.3 million of revenues generated at the venture in Kazakhstan as
compared to the year ended December 31, 1997. This gain was offset by the effect
of purchasing an additional interest of the operation in Portugal, which results
of operations were consolidated through the date of sale, as discussed above.

OPERATING LOSS. Included in operating loss in 1998, 1997 and 1996 were
depreciation and amortization charges of $606,000, $892,000 and $493,000,
respectively.

NET LOSS. Included in net loss in 1998, 1997 and 1996 were interest charges of
$815,000, $460,000 and $223,000, respectively.

EQUITY IN LOSSES OF JOINT VENTURES. Equity in losses of Joint Ventures
represent the Communications Group's proportionate share of the net losses of
the Joint Ventures.

COMBINED RESULTS OF OPERATIONS

The following table sets forth the revenues, depreciation and amortization, and
operating loss on a combined basis of the Communications Group's consolidated
and unconsolidated subsidiaries and Joint Ventures (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 6,249 $ 4,004 $ 1,030 56% 289%
Depreciation and amortization......................... $ 1,087 $ 981 $ 493 11% 99%
Operating loss........................................ $ (2,571) $ (3,325) $ (1,409) (23)% 136%
</TABLE>

ANALYSIS OF COMBINED RESULTS OF OPERATIONS. Revenues in 1997 compared to 1996
increased as the Communications Group increased its investment in Protocall
Ventures and expanded its operations in additional markets. In July 1998 the
Communications Group sold its investment in Protocall Ventures. Revenues and
operating loss for the last six months of 1998 reflect the operations of
Spectrum, the Communications Group's trunked mobile radio investment in
Kazakhstan. For 1999, the Company expects to have both lower revenues and
operating loss from its trunked mobile radio operations.

SEGMENT HEADQUARTERS

The following table sets forth the consolidated revenues and operating losses
for the segment headquarters (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ 2,279 $ 1,885 $ 1,634 21% 15%
Nonrecurring charges.............................. $ 34,037 -- -- N/M N/M
Operating loss.................................... $ (87,519) $ (39,440) $ (29,902) 122% 32%
</TABLE>

REVENUES. The increased revenue from 1997 to 1998 and from 1996 to 1997
reflects an increase in programming and management fee revenues from the
Communications Group's unconsolidated subsidiaries.

NONRECURRING CHARGES. In connection with the Communications Group's revised
operating plan for its paging operations, the Communications Group recorded a
non-cash, nonrecurring charge for the write off of $34.0 million of goodwill.
The goodwill was originally recorded in connection with the November 1 Merger.

49
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)

OPERATING LOSS. Included in operating losses in 1998, 1997 and 1996 were
depreciation and amortization charges of $5.8 million, $4.9 million and $5.4
million, respectively. The increase in the net loss from 1997 to 1998 and from
1996 to 1997 is attributable to additional expenses associated with the increase
in the number of Joint Ventures and the need for the Communications Group to
support and assist the operations of the Joint Ventures. In addition, in 1998
the increase in operating loss was attributable to the nonrecurring charge
described above, write down of approximately $4.5 million of telephony
inventory, and a severance accrual of approximately $1.8 million.

The following table sets forth minority interest, foreign currency loss and gain
on the sale of Protocall Ventures for the consolidated operations of the
Communications Group--Eastern Europe and the Republics of the Former Soviet
Union.

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Foreign currency loss...................................... $ (137) $ (770) $ (255) (82)% 202%
Minority interest.......................................... $ 1,527 $ 561 $ 666 172% (16)%
Gain on sale of Protocall Ventures, net.................... $ 5,527 $ -- $ -- N/M N/M
</TABLE>

FOREIGN CURRENCY LOSS, MINORITY INTEREST AND GAIN ON SALE OF PROTOCALL VENTURES,
NET. For the years ended December 31, 1998, 1997 and 1996 foreign currency loss
represents losses from consolidated Joint Ventures and subsidiaries operating in
highly inflationary economies. Foreign currency losses represent the
remeasurement of the ventures' financial statements, in all cases using the U.S.
dollar as the functional currency. U.S. dollar transactions are shown at their
historical value. Monetary assets and liabilities denominated in local
currencies are translated into U.S. dollars at the prevailing period-end
exchange rate. All other assets and liabilities are translated at historical
exchange rates. Results of operations have been translated using the monthly
average exchange rates. The foreign currency loss is the transaction differences
resulting from the use of these different rates. For the years ended December
31, 1998, 1997 and 1996, minority interest represents the allocation of losses
by the Communications Group's majority owned subsidiaries and joint ventures to
its minority ownership interest. The increase in 1998 represents the allocation
of losses from Telcell Wireless, LLC, a subsidiary of MITI that owns the
interest in Magticom Limited. In 1998, the Communications Group sold its share
of Protocall Ventures. As part of the transaction, Protocall Ventures repaid the
outstanding amount of its debt to the Communications Group. The Company recorded
a gain on the sale of Protocall Ventures of approximately $7.1 million. The gain
on the sale hs been offset by the write down in the Communications Group's
investment in Spectrum of $1.6 million.

50
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
COMMUNICATIONS GROUP--CHINA

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C> <C>
JOINT VENTURE/SUBSIDIARY OWNERSHIP % 1998 1997 1996
- --------------------------------------------------------------------------- ----------------- --------- --------- ---------
CELLULAR TELECOMMUNICATIONS
Ningbo Ya Mei Telecommunications Co., Ltd.
(Ningbo City, China)..................................................... 70% E E N/A
Ningbo Ya Lian Telecommunications Co., Ltd.
(Ningbo Municipality, China)............................................. 70% P N/A N/A
FIXED TELEPHONY
Sichuan Tai Li Feng
Telecommunications Co., Ltd.
(Sichuan Province, China)................................................ 92% P P N/A
Chongqing Tai Le Feng
Telecommunications Co., Ltd.
(Chongqing Municipality, China).......................................... 92% P P N/A
Beijing Metromedia-Jinfeng Communications
Technology Development Co., Ltd.......................................... 60% N/A E E
</TABLE>

<TABLE>
<CAPTION>
DISTRIBUTABLE
CASH FLOW %
CHINA UNICOM PROJECT TO JOINT VENTURE
- ------------------------------------ ------------------------------------
<S> <C> <C>
Ningbo Project I.................... 73%
Ningbo Project II................... 73%
Sichuan Province.................... 78%
Chongqing Municipality.............. 78%
</TABLE>

JOINT VENTURE INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINGBO NINGBO SICHUAN CHONGQING
JV JV II JV JV TOTAL
--------- --------- --------- ----------- ---------
Revenues................................................... $ 3,429 $ -- $ -- $ 54 $ 3,483
Depreciation and amortization.............................. $ 2,418 $ -- $ 38 $ 206 $ 2,662
Operating income (loss).................................... $ 707 $ (46) $ (691) $ (630) $ (660)
Net loss................................................... $ (1,877) $ (47) $ (1,054) $ (589) $ (3,567)
Equity in income (losses) of Joint Ventures................ $ 133 $ (27) $ (632) $ (514) $ (1,040)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
<S> <C> <C> <C> <C> <C>
NINGBO SICHUAN CHONGQING
JV JV JV TOTAL
--------- --------- ----------- ---------
Revenues................................................... $ 1,422 $ -- $ -- $ 1,422
Depreciation and amortization.............................. $ 1,154 $ 25 $ -- $ 1,179
Operating income (loss).................................... $ 56 $ (223) $ (20) $ (187)
Net loss................................................... $ (1,814) $ (153) $ (15) $ (1,982)
Equity in losses of Joint Ventures......................... $ (706) $ (141) $ (14) $ (861)
</TABLE>

51
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
The following table sets forth operating loss, equity in losses of Joint
Ventures and minority interests for the Communications Group's various
telephony-related Joint Ventures in China (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- ---------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating loss.................................... $ (14,504) $ (17,871) (2,729) (19)% 555%
Equity in losses of Joint Ventures................ $ (1,040) $ (861) -- 21% N/A
Minority interests................................ $ 8,331 $ 8,332 -- -- N/A
</TABLE>

OPERATING LOSS. The operating loss for the year ended December 31, 1998
decreased $3.4 million to $14.5 million. The decrease in operating loss is
principally attributable to non-cash employee compensation and costs of $6.8
million in 1997. The non-cash expenses were partially offset by personnel costs
of $3.8 million. The Company launched two new Joint Ventures, Chongqing Tai Le
Feng Telecommunications Co., Ltd. and Ningbo Ya Lian Telecommunications Co.,
Ltd., each of which necessitated recruitment of additional support staff. The
wireline telephone network project supported by the Company's Sichuan Tai Li
Feng Joint Venture began actual network construction in early 1998. Joint
planning of expansion to the Ningbo City GSM network was undertaken with the
Company's Chinese partners in the first half of 1998. These latter measures
necessitated recruitment of additional engineering staff to support the
activities. Finally, the Company undertook an aggressive effort in early 1998 to
secure additional projects in China, including due diligence and discussion of
draft documentation of Joint Venture contracts with several potential partners.
This resulted in legal and research expenses of $1.4 million, considerably in
excess of those experienced in 1997. In addition, depreciation and amortization
expenses increased by $660,000 in 1998 from the prior year.

EQUITY IN LOSSES OF JOINT VENTURES. Equity in losses of the Communications
Group's Joint Ventures in China amounted to $1.0 million in 1998 as compared to
$861,000 in 1997. The majority of the 1998 losses arise from the absence of any
Joint Venture revenues during the pre-operational state of the projects each
venture supports. The Joint Ventures in the pre-operational stage contributed
$1.2 million of the 1998 losses. The Company's wireline telephone network Joint
Venture in Sichuan Province and the Chongqing Municipality remained in a
pre-operational state as of December 31, 1998 but network construction activity
preliminary to the commercial service launch in January 1999 was aggressive
throughout the year. The Company's only operational venture in China during
1998, supporting the Ningbo City GSM network, recorded income of $133,000. The
Ningbo City project generated $3.4 million in 1998 revenues to the Joint
Venture.

MINORITY INTERESTS. For the years ended December 31, 1998 and 1997, minority
interests represents the allocation of losses to Metromedia China Corporation's
minority ownership.

INFLATION AND FOREIGN CURRENCY

Certain of the Communications Group's subsidiaries and Joint Ventures operate in
countries where the rate of inflation is extremely high relative to that in the
United States. While the Communications Group's subsidiaries and Joint Ventures
attempt to increase their subscription rates to offset increases in operating
costs, there is no assurance that they will be able to do so. Therefore,
operating costs may rise faster than associated revenue, resulting in a material
negative impact on operating results. The Company itself is generally negatively
impacted by inflationary increases in salaries, wages, benefits and other
administrative costs, the effects of which to date have not been material to the
Company.

In 1998, a number of emerging market economies suffered significant economic and
financial difficulties. Adverse economic conditions in the Russian Federation
resulted in a national liquidity

52
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
crisis, devaluation of the rouble, higher interest rates and reduced opportunity
for refinancing or refunding of maturing debts. Although the Russian Federation
government announced policies intended to address the structural weakness in the
Russian economy and financial sector, it is unclear if such policies will
improve the economic situation.

The financial crisis and the government's planned response may result in reduced
economic activity, a reduction in the availability of credit and the ability to
service debt, further increases in interest rates, an increased rate of
inflation or hyperinflation, further devaluation of the rouble, restrictions on
convertibility of the rouble and movements of hard currency, an increase in the
number of bankruptcies of entities, including bank failures, labor unrest and
strikes.

If the economic and financial situation in the Russian Federation and other
emerging markets does not improve, the reduced level of economic activity and
the opportunity to obtain financing in these markets could have a material
adverse effect on the operations of the Communications Group. If such factors
should materialize the Company expects such factors would affect its cable
television, paging and radio broadcasting businesses in Russia and Belarus and
certain other markets.

In addition, the Georgian Lari experienced significant devaluation from
September 1998 to March 1999. This devaluation could negatively impact the
conversion to U.S. dollars of cash flows generated in certain telephony and
cable television Joint Ventures.

The Communications Group's strategy is to minimize its foreign currency risk. To
the extent possible, the Communications Group bills and collects all revenues in
U.S. dollars or an equivalent local currency amount adjusted on a monthly basis
for exchange rate fluctuations. The Communications Group's subsidiaries and
Joint Ventures are generally permitted to maintain U.S. dollar accounts to
service their U.S. dollar denominated debt and current account obligations,
thereby reducing foreign currency risk. As the Communications Group's
subsidiaries and Joint Ventures expand their operations and become more
dependent on local currency based transactions, the Communications Group expects
that its foreign currency exposure will increase. The Communications Group does
not hedge against foreign exchange rate risks at the current time and therefore
could be subject in the future to any declines in exchange rates between the
time a subsidiary or a Joint Venture receives its funds in local currencies and
the time it distributes such funds in U.S. dollars to the Communications Group.

SNAPPER

The following table sets forth Snapper's results of operations for the years
ended December 31, 1998, 1997 and 1996. In order to enhance comparability, the
following discussion of Snapper's results of operations includes pro forma
information for 1996 and gives effect as if Snapper had been included in the
Company's results of operations on January 1, 1996 (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 210,084 $ 183,076 $ 153,168 15% 20%
Gross profit..................................... $ 62,690 $ 59,080 $ 22,570 6% 162%
Operating loss................................... $ (7,607) $ (15,246) $ (27,298) (50)% (44)%
</TABLE>

REVENUES. In 1998, Snapper's sales were $210.1 million, compared to $183.1
million in 1997. Sales of lawn and garden equipment contributed the majority of
the revenues during both periods. Sales were lower in 1997 due to unseasonably
cool weather during April and May, as well as $25.4 million of sales reductions
in 1997 due to repurchases of certain distributor inventory.

53
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
Snapper's 1997 sales were $183.1 million compared to $153.2 million in 1996. In
1997, Snapper completed the implementation of its program to sell products
directly to its dealers. In implementing this program to restructure its
distribution network, Snapper repurchased certain distributor inventory which
resulted in sales reductions of $25.4 million in 1997 and $24.5 million in 1996.
Sales of lawn and garden power equipment contributed to the majority of the
revenues for the two periods. During 1997, lawn and garden equipment sales were
much lower than anticipated due to unseasonably cool weather in April and May,
and due to the impact of reduced distributor sales due to the repurchase of
distributor inventories. During the last quarter of 1997, Snapper sold older
lawn and garden equipment repurchased from the distributors at reduced prices.
In addition, mild winter weather during the fourth quarter of 1997 negatively
impacted sales of snow throwers. In order to manage the levels of field
inventories in 1996, the factory produced at reduced levels compared to prior
years. This reduction adversely impacted sales, but did result in a decrease of
inventory levels.

GROSS PROFIT. Gross profit was $62.7 million and $59.1 million in 1998 and
1997, respectively. The 1998 gross profit percentage of 29.8%, as compared to
32.3% in 1997, decreased due to sales of older equipment during the period at
special pricing to help eliminate older inventory acquired in the distributor
repurchases during 1997 and a $2.7 million inventory write down for excess parts
in 1998. Although the gross profit margin decreased in 1998 due to special
pricing on old equipment resold in 1998 and an inventory write down, the gross
profit in 1998 as compared to 1997 increased by $3.6 million.

Gross profit was $59.1 million and $22.6 million in 1997 and 1996, respectively.
Snapper obtained higher gross margins of 32.3% in 1997, as compared to 14.7% in
1996, principally from its distribution network restructuring. In 1997, the
lower than expected gross profit arose from lower than anticipated sales as
noted above. The gross profit in 1996 was the result of lower sales volumes
reducing plant efficiency.

OPERATING LOSS. Snapper had an operating loss of $7.6 million in 1998 and $15.2
million in 1997. Selling, general and administrative expenses decreased by $3.1
million in 1998 as compared to 1997, principally due to $1.4 million of
inventory repurchase expenditures related to nine distributor repurchases during
1997 that were not incurred in 1998, and $1.6 million in lower advertising
expenditures in 1998. Depreciation and amortization charges were $6.7 million
and $7.0 million in 1998 and 1997, respectively. Depreciation and amortization
reflected the depreciation of Snapper's property, plant and equipment as well as
the amortization of the goodwill associated with the acquisition of Snapper.

Snapper had operating losses of $15.2 million and $27.3 million in 1997 and
1996, respectively. Selling, general and administrative expenses were $67.4
million in 1997 and $42.6 million in 1996. The increase in selling, general and
administrative expenses in 1997 reflects additional television commercial
expenditures to assist Snapper dealers during the distributor network
restructuring and increased distribution costs due to higher sales in 1997. In
1997 and 1996, Snapper also incurred acquisition expenses related to the
purchase of inventory from nine and eighteen distributorships during the
periods, respectively. Depreciation and amortization charges were $7.0 million
and $7.3 million in 1997 and 1996. Depreciation and amortization reflected the
depreciation of Snapper's property, plant, and equipment as well as the
amortization of the goodwill associated with the acquisition of Snapper.
Although gross profit increased by $36.5 million in 1997 as compared to 1996,
the operating loss in 1997 was the result of lower sales primarily due to
unseasonably cool weather in April and May and milder winter weather during the
fourth quarter, in addition to the repurchase of distributor inventories during
the year. Reduced production levels and the repurchase of distributor
inventories during the year contributed significantly to the operating loss in
1996.

54
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)

CORPORATE HEADQUARTERS

The following table sets forth the operating income (loss) for Corporate
Headquarters (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
----------- ---------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating income (loss)......................... $ 896 $ (5,561) $ (9,373) N/M (41)%
</TABLE>

OPERATING INCOME (LOSS). For the year ended December 31, 1998, Corporate
Headquarters had income of $896,000 which represented the reversal of $6.6
million in self-insurance liabilities offset by corporate general and
administrative expenses including the management fee. For the years ended
December 31, 1998 and 1997, Corporate Headquarters had general and
administrative expenses of approximately $5.7 million and $5.5 million,
respectively. For the year ended December 31, 1996, corporate general and
administrative expenses were $9.4 million. In 1996, Corporate Headquarters
incurred costs associated with the closing of Actava's corporate headquarters in
connection with the November 1, 1995 acquisition of Actava. No such costs were
incurred in 1997.

MMG CONSOLIDATED

The following table sets forth on a consolidated basis the following items for
the years ended December 31, 1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
% CHANGE % CHANGE
1998 1997 1996 1998 TO 1997 1997 TO 1996
----------- ---------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Interest expense.................................. $ (16,331) $ (20,922) $ (19,090) (22)% 10%
Interest income................................... $ 12,746 $ 9,840 $ 5,308 30% 85%
Income tax benefit (expense)...................... $ 358 $ 5,227 $ (414) N/M N/M
Equity in losses of and writedown of RDM.......... $ -- $ (45,056) $ -- N/M N/M
Discontinued operations........................... $ 12,316 $ 234,036 $ (38,592) N/M N/M
Extraordinary items............................... $ -- $ (14,692) $ (4,505) N/M N/M
Net income (loss)................................. $ (123,670) $ 88,443 $ (115,243) N/M N/M
</TABLE>

INTEREST EXPENSE. Interest expense decreased $4.6 million to $16.3 million for
the year ended December 31, 1998. The decrease in interest expense was due to
the repayment of debt at the corporate level in March and August 1997, partially
offset by an increase in borrowings at Snapper. Interest expense increased $1.8
million to $20.9 million in 1997, primarily due to the inclusion of interest
from the Snapper credit facility partially offset by the repayment of the
outstanding debentures in August 1997 at the corporate level.

INTEREST INCOME. Interest income increased $2.9 million to $12.7 million in
1998, principally from investment of funds at the corporate level from the
preferred stock offering in September 1997 and the funds from the Landmark Sale
in April 1998. Interest income increased $4.5 million to $9.8 million in 1997,
principally from investment of funds at the corporate level from the preferred
stock offering in September 1997 and increased interest income resulting from
increased borrowings under the Communications Group's credit facilities and its
Joint Ventures for their operating and investing cash requirements.

INCOME TAX BENEFIT (EXPENSE). For the year ended December 31, 1998, the income
tax benefit that would have resulted from applying the federal statutory rate of
35% was $47.7 million. The income tax

55
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
benefit was reduced principally by losses attributable to foreign operations,
equity losses in Joint Ventures currently not deductible and a 100% valuation
allowance on the current year loss not utilized. The income tax benefit in 1998
for continuing operations in 1998 was principally the result of the utilization
of the current year operating loss to offset the gain of the Landmark sale.

For the years ended December 31, 1997 and 1996, the income tax benefit that
would have resulted from applying the federal statutory rate of 35% was $47.6
million and $25.1 million, respectively. The income tax benefit in 1997 and 1996
was reduced principally by losses attributable to foreign operations, equity
losses in Joint Ventures currently not deductible and a 100% valuation allowance
on the current year loss not utilized, as well as, in 1997, the impact of the
alternative minimum tax in connection with the Entertainment Group Sale. The
income tax benefit for continuing operations in 1997 was principally the result
of the utilization of the current year operating loss to offset the gain of the
Entertainment Group Sale. The income tax expense in 1996 reflects foreign taxes
in excess of the federal credit.

NET INCOME (LOSS), INCLUDING EQUITY IN LOSSES OF AND WRITEDOWN OF INVESTMENT IN
UNCONSOLIDATED INVESTEES, DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS. Net
loss was $123.7 million for the year ended December 31, 1998. The net loss for
1998 includes a gain from discontinued operations from the Landmark Sale of $3.7
million and a refund of tax payments made in prior years by the Company's
Entertainment Group of $8.7 million, and the gain of $7.1 million from the sale
of the Communications Group's trunked mobile radio investment, Protocall
Ventures partially reduced by the write down of its trunked mobile radio venture
in Kazakhstan of $1.6 million. For the year ended December 31, 1997 net income
was $88.4 million. The net income for the year ended December 31, 1997 includes
the gain on the Entertainment Group Sale of $266.3 million and losses from the
discontinued operations of $32.3 million, an extraordinary loss of $14.7 million
relating to the early extinguishment of the Company's debentures and equity loss
and a further write down of the investment in RDM amounting to $45.1 million. In
addition, the net loss in 1998 and net income in 1997 included equity in losses
of the Communications Group's Joint Ventures of $18.2 million and $8.1 million,
respectively.

Operating loss increased to $129.9 million for the year ended December 31, 1998
from $80.1 million for the year ended December 31, 1997. The increase in
operating loss reflects a full year of operations in 1998 as compared to ten
months of operations in 1997 for the Communications Group's Joint Ventures in
China and an increase in selling, general and administrative costs by the
Communications Group in supporting the continued expansion of operations in
Eastern Europe and the FSU and the impact of the non-cash, nonrecurring charge
in connection with the Communications Group's revised operating plan for its
paging operations of $40.3 million.

For the year ended December 31, 1997, net income was $88.4 million as compared
to a net loss of $115.2 million for the prior year. The net income in 1997
includes the gain on the Entertainment Group Sale of $266.3 million and losses
from discontinued operations of $32.3 million, an extraordinary loss of $14.7
million relating to the early extinguishment of debt and a further write down of
the Company's investment in RDM amounting to $45.1 million. The 1996 loss from
discontinued operations and extraordinary loss are attributable to the write
down of the Company's investment in RDM to its net realizable value, the loss
from operations of the Entertainment Group, income from operations of Landmark
and the loss associated with the refinancing of the Entertainment Group debt
facility as part of the acquisition of Goldwyn and Motion Picture Corporation of
America in July 1996. In addition, net income in 1997 and net loss in 1996
included equity in losses of the Communications Group's Joint Ventures of $8.1
million and $7.8 million, respectively.

56
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
Operating loss increased to $80.1 million for the year ended December 31, 1997
from $50.5 million for the year ended December 31, 1996. The increase in
operating loss reflects the $5.9 million increase in Snapper's operating loss in
1997, compared to the period of November 1, 1996 to December 31, 1996 and
increases in selling, general and administrative costs due principally to the
continued growth of the Communications Group.

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY

MMG is a holding company and, accordingly, does not generate cash flows from
operations. The Communications Group is dependent on MMG for significant capital
infusions to fund its operations and make acquisitions, as well as to fulfill
its commitments to make capital contributions and loans to its Joint Ventures.
Such funding requirements are based on the anticipated funding needs of its
Joint Ventures and certain acquisitions committed to by the Company. Future
capital requirements of the Communications Group, including future acquisitions,
will depend on available funding from the Company and on the ability of the
Communications Group's Joint Ventures to generate positive cash flows. Snapper
is restricted under covenants contained in its credit agreement from making
dividend payments or advances, other than certain permitted debt repayments, to
the Company and the Company has periodically funded the short-term working
capital needs of Snapper. The Company, at its discretion, can make dividend
payments on its 7 1/4% Cumulative Convertible Preferred Stock ("Preferred
Stock") in either cash or Common Stock. If the Company were to elect to continue
to pay the dividend in cash, the annual cash requirement would be $15.0 million.
During 1998, the Company paid its four quarterly dividends of the Preferred
Stock in cash.

Since each of the Communications Group's Joint Ventures operates or invests in
businesses, such as cable television, fixed telephony and cellular
telecommunications, that are capital intensive and require significant capital
investment in order to construct and develop operational systems and market its
services, the Company will require in addition to its cash on hand, additional
financing in order to satisfy its long-term business objectives including its
on-going working capital requirements, and acquisition and expansion
requirements. Such additional capital may be provided through the public or
private sale of equity or debt securities of the Company or by separate equity
or debt financings by the Communications Group or certain companies of the
Communications Group. No assurance can be given that such additional financing
will be available to the Company on acceptable terms, if at all. If adequate
additional funds are not available, the Company may be required to curtail
significantly its long-term business objectives and the Company's results of
operations may be materially and adversely affected. The Company believes that
its cash on hand will be sufficient to fund the Company's working capital
requirements for the remainder of 1999.

Management believes that its long-term liquidity needs will be satisfied through
a combination of the Company's successful implementation and execution of its
growth strategy to become a global communications and media company and the
Communications Group's Joint Ventures achieving positive operating results and
cash flows through revenue and subscriber growth and control of operating
expenses.

As the Communications Group is in the early stages of development, the Company
expects to generate significant consolidated net losses for the foreseeable
future as the Communications Group continues to build out and market its
services.

57
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
COMMUNICATIONS GROUP

The Communications Group has invested significantly (in cash or equipment
through capital contributions, loans and management assistance and training) in
its Joint Ventures. The Communications Group has also incurred significant
expenses in identifying, negotiating and pursuing new telecommunications
opportunities in selected emerging markets.

The Communications Group and many of its Joint Ventures are experiencing
continuing losses and negative operating cash flow since many of the businesses
are in the development and start-up phase of operations.

For 1998, the Communications Group's primary source of funds was from the
Company in the form of inter-company loans.

Until the Communications Group's operations generate positive cash flow, the
Communications Group will require significant capital to fund its operations,
and to make capital contributions and loans to its Joint Ventures. The
Communications Group relies on the Company to provide the financing for these
activities. The Company believes that as more of the Communications Group's
Joint Ventures commence operations and reduce their dependence on the
Communications Group for funding, the Communications Group will be able to
finance its own operations and commitments from its operating cash flow and will
be able to attract its own financing from third parties. There can be no
assurance, however, that additional capital in the form of debt or equity will
be available to the Communications Group at all or on terms and conditions that
are acceptable to the Communications Group or the Company, and as a result, the
Communications Group will continue to depend upon the Company for its financing
needs.

Credit agreements between the Joint Ventures and the Communications Group are
intended to provide such ventures with sufficient funds for operations and
equipment purchases. The credit agreements generally provide for interest to
accrue at rates ranging from the prime rate to the prime rate plus 6% and for
payment of principal and interest from 90% of the Joint Venture's available cash
flow, as defined, prior to any distributions of dividends to the Communications
Group or its Joint Venture partners. The credit agreements also often provide
the Communications Group the right to appoint the general director of the Joint
Venture and the right to approve the annual business plan of the Joint Venture.
Advances under the credit agreements are made to the Joint Ventures in the form
of cash for working capital purposes, as direct payment of expenses or
expenditures, or in the form of equipment, at the cost of the equipment plus
cost of shipping. As of December 31, 1998, the Communications Group was
committed to provide funding under the various charter fund agreements and
credit lines in an aggregate amount of approximately $212.1 million, of which
$49.4 million remained unfunded. The Communications Group's funding commitments
under a credit agreement are contingent upon its approval of the Joint Venture's
business plan. To the extent that the Communications Group does not approve a
Joint Venture's business plan, the Communications Group is not required to
provide funds to the Joint Venture under the credit line.

The Communications Group's consolidated and unconsolidated Joint Ventures'
ability to generate positive operating results is dependent upon their ability
to attract subscribers to their systems, the sale of commercial advertising time
and their ability to control operating expenses. Management's current plans with
respect to the Joint Ventures are to increase subscriber and advertiser bases
and thereby operating revenues by developing a broader band of programming
packages for cable television and radio broadcasting and by offering additional
services and options for telephony services. By offering the large local
populations of the countries in which the Joint Ventures operate desired
services at

58
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
attractive prices, management believes that the Joint Ventures can increase
their subscriber and advertiser bases and generate positive operating cash flow,
reducing their dependence on the Communications Group for funding of working
capital. Additionally, advances in the price performance of telephony technology
are expected to reduce capital requirements per subscriber. Further initiatives
to develop and establish profitable operations include reducing operating costs
as a percentage of revenue and assisting Joint Ventures in developing management
information systems and automated customer care and service systems. No
assurances can be given that such initiatives will be successful or if
successful, will result in such reductions. Additionally, if the Joint Ventures
do become profitable and generate sufficient cash flows in the future, there can
be no assurance that the Joint Ventures will pay dividends or will return
capital at any time.

EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION

The fixed telephony, cellular, international and long distance telephony and
cable television businesses in the aggregate are capital intensive. The
Communications Group generally provides the primary source of funding for its
Joint Ventures both for working capital and capital expenditures, with the
exception of its GSM Joint Ventures. The Communications Group's Joint Venture
agreements generally provide for the initial contribution of cash or assets by
the Joint Venture partners, and for the provision of a line of credit from the
Communications Group to the Joint Venture. Under a typical arrangement, the
Communications Group's Joint Venture partner contributes the necessary licenses
or permits under which the Joint Venture will conduct its business, studio or
office space, transmitting tower rights and other equipment. The Communications
Group's contribution is generally cash and equipment, but may consist of other
specific assets as required by the applicable Joint Venture agreement.

In June 1997, the Communications Group's Latvian GSM Joint Venture, Baltcom GSM,
entered into certain agreements with the European Bank for Reconstruction and
Development ("EBRD") pursuant to which the EBRD agreed to lend up to $23.0
million to Baltcom GSM in order to finance its system buildout and operations.
Baltcom GSM's ability to borrow under these agreements is conditioned upon
reaching certain gross revenue targets. The loan has an interest rate equal to
the 3-month LIBOR plus 4% per annum, with interest payable quarterly. The
principal amount must be repaid in installments starting in March 2002 with
final maturity in December 2006. The shareholders of Baltcom GSM were required
to provide $20.0 million to Baltcom GSM as a condition precedent to EBRD funding
the loan. In addition, the Communications Group and Western Wireless agreed to
provide or cause one of the shareholders of Baltcom GSM to provide an additional
$7.0 million in funding to Baltcom GSM if requested by EBRD which amount has
been provided. In August 1998, the EBRD and Baltcom GSM amended their loan
agreement in order to provide Baltcom GSM the right to finance the purchase of
up to $3.5 million in additional equipment from Northern Telecom, B.V. As part
of such amendment, the Communications Group and Western Wireless agreed to
provide Baltcom GSM the funds needed to repay Northern Telecom, B.V., if
necessary, and to provide Baltcom GSM debt service support for the loan
agreement with the EBRD in an amount not to exceed the greater of $3.5 million
or the aggregate of the additional equipment purchased from Northern Telecom,
N.V. plus interest payable on the financing.

As part of the financing, the EBRD was also provided a 5% interest in the joint
venture which it can put back to Baltcom GSM at certain dates in the future at a
multiple of Baltcom GSM's earnings before interest, taxes, depreciation and
amortization ("EBITDA"), not to exceed $6.0 million. The Company and Western
Wireless have guaranteed the obligation of Baltcom GSM to pay such amount. All
of the shareholders of Baltcom GSM, including MITI, pledged their respective
shares to the EBRD

59
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
as security for repayment of the loan. Under the EBRD agreements, amounts
payable to the Communications Group are subordinated to amounts payable to the
EBRD.

In April 1997, the Communications Group's Georgian GSM Joint Venture, Magticom,
entered into a financing agreement with Motorola, Inc. ("Motorola") pursuant to
which Motorola agreed to finance 75% of the equipment, software and service it
provides to Magticom up to an amount equal to $15.0 million. Interest on the
financed amount accrues at 6-month LIBOR plus 5% per annum, with interest
payable semi-annually. Repayment of principal with respect to each drawdown
commences twenty-one months after such drawdown with the final payment being due
60 months after such drawdown. All drawdowns must be made within 3 years of the
initial drawdown date. Magticom is obligated to provide Motorola with a security
interest in the equipment provided by Motorola to the extent permitted by
applicable law. As additional security for the financing, the Company has
guaranteed Magticom's repayment obligation to Motorola. In June 1998, the
financing agreement was amended and Motorola agreed to make available an
additional $10.0 million in financing. Interest on the additional $10.0 million
accrues at 6-month LIBOR plus 3.5%. The Company has guaranteed Magticom's
repayment obligation to Motorola, under such amendment to Motorola.

The Communications Group and Western Wireless have funded the balance of the
financing to Magticom through a combination of debt and equity. Repayment of
indebtedness owed to such partners is subject to certain conditions set forth in
the Motorola financing agreements.

In January 1998, the Communications Group entered into a loan agreement with DSC
Finance Corporation ("DSC") pursuant to which DSC agreed to finance 50% of the
equipment it provides to the Communications Group up to $35.0 million. In June
1998, the Company agreed to guarantee the Communications Group's obligation to
repay DSC under such loan agreement.

As of August 1998, the Communication Group acquired a 76% interest in
Omni-Metromedia Caspian, Ltd., a company that owns 50% of a joint venture in
Azerbaijan, Caspian American Telecommunications, LLC ("CAT"). CAT has been
licensed by the Ministry of Communications of Azerbaijan to provide high speed
wireless local loop services and digital switching throughout Azerbaijan.
Omni-Metromedia has committed to provide up to $40.5 million in loans to CAT for
the funding of equipment acquisition and operational expense in accordance with
CAT's business plans. The Communications Group is obligated to contribute
approximately $5.0 million in equity to Omni-Metromedia and to lend up to $36.5
million in accordance with CAT's business plan.

As part of the transaction, the Communications Group has sold a 17.1%
participation in the $36.5 million loan to AIG Silk Road Fund, Ltd., ("AIG")
which requires AIG to provide the Communications Group 17.1% of the funds to be
provided under the loan agreement and entitles AIG to 17.1% of the repayments to
the Communications Group. The Communications Group has agreed to repurchase such
loan participation from AIG in August 2005 on terms and conditions agreed by the
parties. In addition, the Communications Group has provided AIG the right to put
its 15.70% ownership interest in Omni-Metromedia and to the Communications Group
starting in February 2001 for a price equal to seven times the EBITDA of CAT
minus debt, as defined, multiplied by AIG's percentage ownership interest.

As part of its investment in Tyumenruskom announced in November 1998 the
Communications Group agreed to provide a guarantee of payment of $6.1 million to
Ericsson Radio Systems, A.B. ("Ericsson") for equipment financing provided by
Ericsson to one of the Communication Group's wholly owned subsidiaries and to
its 46% owned Joint Venture, Tyumenruskom. Tyumenruskom is purchasing a DAMPS
cellular system from Ericsson in order to provide fixed and mobile cellular
telephone in the

60
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
regions of Tyumen and Tobolsk, Russian Federation. The Communications Group has
agreed to make a $1.7 million equity contribution to Tyumenruskom and to lend
the joint venture up to $4.0 million for startup costs and other operating
expenses. Tyumenruskom also intends to provide wireless local loop telephone
services.

The license pursuant to which the Communications Group's radio Joint Venture in
Hungary, Radio Juventus, operates expired on December 31, 1998. The
Communications Group participated in a competitive tender for a regional
broadcasting license to cover Budapest and certain other areas in Hungary. The
Communications Group has been informed that its bid in the tender has been
accepted and anticipates receiving a new license shortly. The Communications
Group expects the license fee to be approximately $8.0 million payable over 8
years in Hungarian Forints adjusted for inflation.

CHINA

Sichuan JV is party to a Network System Cooperation Contract dated May 1996 with
China Unicom (the "STLF Contract"). The STLF Contract covers the funding,
construction and development of a fixed line PSTN providing local telephone
service in cities within Sichuan Province (as its borders were defined in May
1996) and long distance telephone service among those cities (the "PSTN
Network"). The initial project ("Phase 1") covered by the STLF Contract includes
development of 50,000 local telephone lines in Chengdu and Chongqing cities, and
construction of a fiber optic long distance facility between these two cities.
Subsequent projects covered by the STLF Contract will expand services to
1,000,000 local telephone lines in cities throughout Sichuan Province (as its
borders were defined in May 1996), and will construct fiber optic long distance
facilities among these cities. The STLF Contract has a cooperation term of
twenty-five years.

Subsequent to the signing of the STLF Contract, Chongqing Municipality was made
a separate region from Sichuan Province administered directly by the Chinese
government. Chongqing JV subsequently assumed certain obligations and rights
associated with the STLF Contract with respect to the Chongqing Municipality
through an agreement between Sichuan JV and Chongqing JV and endorsed by China
Unicom. Under the terms of the amended STLF Contract, Sichuan JV and Chongqing
JV are each responsible for providing China Unicom with the capital to develop
the Phase 1 PSTN Network within Sichuan Province and Chongqing S.A.R.
respectively.

Sichuan JV and Chongqing JV may also provide additional capital for China
Unicom's later expansion of the PSTN Network within and between Sichuan Province
and Chongqing Municipality up to a capacity of 1,000,000 total subscribers.
China Unicom is responsible for construction, operation, management and
maintenance of the PSTN Network. Sichuan JV and Chongqing JV provide financing,
consulting and technical support services to China Unicom in exchange for
receiving 78% of distributable cash flow from China Unicom's PSTN and long
distance operations within and between Sichuan Province and Chongqing
Municipality for a 25-year period, payable semi-annually.

In December 1997, Sichuan JV and Chongqing JV entered into a Phase 1 loan with
Northern Telecom Communications ("Nortel") for the purchase of up to $20.0
million of Nortel equipment during

Phase 1. The Company secured the Phase 1 loan repayment with a $20.0 million
letter of credit. Nortel had the right to draw on the $20.0 million letter of
credit in January and July of 1999 for amounts due Nortel at such times for
Phase 1 equipment purchases. In December 1998, Nortel, Sichuan JV, Chongqing JV,
China Unicom and the Company executed a settlement of various outstanding
matters pertaining to this Phase 1 loan. Under this settlement, except for
amounts owed for equipment and interest of $3.4 million which are payable in
July 1999, all outstanding deferred amounts owed to Nortel were paid. The loan
agreements between Nortel and the Joint Ventures were terminated. The

61
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
$20.0 million letter of credit associated with the Phase 1 loan agreement was
reduced to $3.4 million and Nortel has the right to draw on the $3.4 million in
July 1999. Commercial service was launched on the Phase 1 network in January
1999.

The estimated total investment for Phase 1 is approximately $29.5 million in
Sichuan Province and approximately $29.5 million in Chongqing Municipality. As
of December 31, 1998 AAT has contributed in registered capital and loans $20.4
million and $16.1 million to Sichuan JV and Chongqing JV, respectively.

Ningbo United Telecommunications Investment Co., Ltd. ("NUT") was party to a
Network System Cooperation Contract with China Unicom (the "NUT Contract")
covering China Unicom's development of a GSM telecommunications project in the
City of Ningbo, Zhejiang Province. The project entails construction of a mobile
communications network with a total capacity of 50,000 subscribers (the "Phase 1
GSM Network"). The cooperation period for the NUT Contract is fifteen years. NUT
has assigned its rights and obligations under the NUT Contract to Ningbo JV with
China Unicom's express concurrence. In accordance with the terms of the NUT
Contract, Ningbo JV is responsible for providing China Unicom with the capital
to develop the Phase 1 GSM Network in Ningbo City. China Unicom is responsible
for the construction, operation, management and maintenance of the GSM Network.
Ningbo JV will provide financing, consulting and technical support services to
China Unicom in exchange for 73% of the distributable cash flow from China
Unicom's Phase 1 GSM Network operations for a 15-year period.

The total investment for the Phase 1 GSM Network project was approximately $29.5
million. The Phase 1 GSM Network was completed and put into commercial service
in mid-August 1997.

On March 26, 1998, Ningbo JV and China Unicom signed an amendment to the NUT
Contract covering expansion of China Unicom's GSM service throughout Ningbo
Municipality (the "Ningbo Expansion Agreement"). The expansion work will be
undertaken as a separate project, and will provide capacity for an additional
25,000 GSM subscribers within Ningbo Municipality (the "Phase 2 GSM Network").
The terms of the Ningbo Expansion Agreement match those of the underlying NUT
Contract, however, the Ningbo Expansion Agreement will have its own cooperation
period of fifteen years. In the Ningbo Expansion Agreement, China Unicom and
Ningbo JV explicitly contemplated establishment of a separate joint venture to
provide financing and consulting services to the Phase 2 GSM Network project.
Ningbo JV assigned all of its rights and obligations under the Ningbo Expansion
Agreement regarding the Phase 2 GSM Network to Ningbo JV II. The feasibility
study for the Phase 2 GSM Network project was completed on March 6, 1998 and
forecasts a total investment of approximately $17.0 million. As of December 31,
1998, AAT has made registered capital contributions of $5.0 million and loans of
$2.0 million which bear interest at 10%. Commercial services commenced on the
completed portions of the Phase 2 GSM Network in November 1998. The Phase 2
Network was fully completed and in service in February 1999.

The Communications Group's China Joint Ventures' ability to generate positive
operating results is heavily dependent on the ability of China Unicom to
successfully construct commercially viable networks and attract customers to
these networks. Chinese regulations currently prohibit the Joint Ventures from
taking a direct role in either construction or operation. Management seeks to
minimize the construction and operations risks facing those China Unicom
entities with which the Joint Ventures have contracted through a program of
active technical and management consulting. Experts within the Joint Ventures
and the Company's other China offices work directly with the Chinese operators
to enhance the operators' technical, marketing and operational plans. Training
of the Chinese operators' personnel is also provided in both classroom and
on-the-job formats. Joint Venture personnel also assist

62
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
the Chinese operators with general project management and vendor contract
administration. These measures are all permitted under the Chinese regulations
and are supported by explicit provisions of the Joint Ventures' cooperation
contracts.

At present, management's primary focus is on growing the number of customers in
each market and on solidifying China Unicom's operational readiness to serve
each market. Each Joint Venture works to distinguish China Unicom's network and
operation on the basis of technical and service quality. Management views these
parameters as offering the Chinese operator better opportunity for long term
success in the China market than could be achieved solely through price and cost
competition. As a result, the Joint Ventures encourage moderate additional
investment in quality factors on the part of the Chinese operators. No assurance
can be given that Management's measures or the efforts of the Chinese operators
will be successful. Additionally, if the Joint Ventures do become profitable,
there can be no assurance that the Joint Ventures will pay dividends or return
the capital invested by the Company.

RISKS ASSOCIATED WITH THE COMMUNICATIONS GROUP'S INVESTMENTS

The ability of the Communications Group and its Joint Ventures to establish
profitable operations is subject to significant political, economic and social
risks inherent in doing business in emerging markets such as Eastern Europe, the
FSU and China. These include matters arising out of government policies,
economic conditions, imposition of or changes in government regulations and
policies, imposition of or changes to taxes or other similar charges by
governmental bodies, exchange rate fluctuations and controls, civil
disturbances, deprivation or unenforceablility of contractual rights, and taking
of property without fair compensation.

In 1998, a number of emerging market economies suffered significant economic and
financial difficulties. Adverse economic conditions in the Russian Federation
resulted in a national liquidity crisis, devaluation of the rouble, higher
interest rates and reduced opportunity for refinancing or refunding of maturing
debts. Although the Russian Federation government announced policies intended to
address the structural weakness in the Russian economy and financial sector, it
is unclear if such policies will improve the economic situation.

If the economic and financial situation in Russian Federation and other emerging
markets does not improve, the reduced level of economic activity and the
opportunity to obtain financing in these markets could have a material adverse
effect on the operations of the Communications Group. The Company expects such
factors to affect its cable television, paging and radio broadcasting businesses
in Russia and Belarus and certain other markets.

63
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
dependent on local currency based transactions, the Communications Group expects
that its foreign currency exposure will increase. The Communications Group does
not hedge against foreign exchange rate risks at the current time and,
therefore, could be subject in the future to any declines in exchange rates
between the time a Joint Venture receives its funds in local currencies and the
time it distributes such funds in U.S. dollars to the Communications Group.

The Communications Group may also be materially and adversely affected by laws
restricting foreign investment in the field of communications. Certain
countries, including China, have extensive restrictions on foreign investment in
the communications field and the Communications Group attempts to structure its
prospective projects in order to comply with such laws. However, there can be no
assurance that such legal and regulatory restrictions will not increase in the
future or, as currently promulgated, will not be interpreted in a manner giving
rise to tighter restrictions, and thus may have a material adverse effect on the
Communications Group's existing and prospective projects in the country. The
Russian Federation has periodically proposed legislation that would limit the
ownership percentage that foreign companies can have in radio and television
businesses and more recently has proposed legislation that would limit the
number of radio and television businesses that any company could own in a single
market. While such proposed legislation has not been enacted, it is possible
that such legislation could be enacted in Russia and that other countries in
Eastern Europe and the republics of the former Soviet Union may enact similar
legislation which could have a material adverse effect on the business
operations, financial condition or prospects of the Communications Group. The
proposed foreign investment legislation could be similar to United States
Federal law which limits foreign ownership in entities owning broadcasting
licenses. There is no way of predicting whether additional ownership limitations
will be enacted in any of the Communications Group's markets, or whether any
such law, if enacted, will force the Communications Group to reduce or
restructure its ownership interest in any of the ventures in which the
Communications Group currently has an ownership interest. If additional
ownership limitations are enacted in any of the Communications Group's markets
and the Communications Group is required to reduce or restructure its ownership
interests in any ventures, it is unclear how such reduction or restructuring
would be implemented, or what impact such reduction or restructuring would have
on the Communications Group.

Current Chinese law and regulation prohibit foreign companies and joint ventures
in which they participate from providing telehony services to customers in China
and generally limit the role that foreign companies or their joint ventures may
play in the telecommunications industry. As a result the Communications Group's
investments in Joint Ventures in China have been made through a structure known
as the SSF joint venture, a widely used method for foreign investment in the
Chinese telecommunications industry, in which the SSF venturer is a provider of
telephony equipment, financing and technical services to telecommunications
operators and not a direct provider of telephone service.

Since mid-1998, there has been uncertainty regarding possible significant
changes in the regulation of and policy concerning foreign participation in and
financing of the telecommunications industry in China, including the continued
viability of the SSF structure and associated service and consulting
arrangements with China Unicom. There has been no official policy statement or
new regulations as yet announced, and the Company has not received any official
notice regarding new policy or regulation. The Communications Group is not now
holding discussions regarding new projects in the Chinese telephony sector. The
Company believes that no such discussions can be productive until more
definitive information is available. In light of the current regulatory
uncertainty, the Company is unable to estimate the impact such changes in policy
or regulation, if any, would have on the Communications Group's Chinese Joint
Ventures' abilities to generate significant revenue, cash flow or net income.

64
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
The foregoing factors relating to economic and financial conditions in the
Russian Federation and other emerging markets, and to Chinese law and regulation
relating to foreign investment in the telecommunications industry, have not had
an effect on the Company's financial condition or results of operations as of
and for the year ended December 31, 1998. As is noted above, the Company cannot
yet predict the impact that such factors may have on its financial condition or
results of operations. In addition, the Company reports the results of the
operations of the Communications Group's operations in Eastern Europe and the
republics of the former Soviet Union and the distributable cash flow generated
by the telephony networks of China Unicom on a three month lag and therefore the
impact of such factors, if any, are not yet fully reflected in the Company's
results of operations.

SNAPPER

On November 11, 1998, Snapper entered into a Loan and Security Agreement with
the Lenders named therein and Fleet Capital Corporation, as agent and as the
initial Lender, pursuant to which the Lenders have agreed to provide Snapper
with a $5.0 million term loan facility and a $55.0 million revolving credit
facility (the "Snapper Loan"), the proceeds of which were used to refinance
Snapper's then outstanding obligations under its prior revolving credit
agreement and will also be used for working capital purposes. The Snapper Loan
will mature in November 2003 (subject to automatic one-year renewals), and is
guaranteed by the Company up to $10.0 million (increasing to $15.0 million on
the occurrence of specified events). Interest on the Snapper Loan is payable at
Snapper's option at a rate equal to prime plus up to 0.5% or LIBOR plus between
2.5% and 3.25%, in each case depending on Snapper's leverage ratio under the
Snapper Loan agreement. The agreements governing the Snapper Loan contain
standard representation and warranties, covenants, conditions precedent and
events of default, and provide for the grant of a security interest in
substantially all of Snapper's assets other than real property. At December 31,
1998, Snapper was in compliance with all financial covenants required under the
Loan and Security Agreement.

At June 30, 1998, Snapper was not in compliance with certain financial covenants
under its prior revolving credit agreement. The Company and the lender under
such agreement amended the agreement to provide for a reduction of the line of
credit as of August 11, 1998. As part of the amendment, the lender waived the
covenant defaults as of June 30, 1998. At September 30, 1998, Snapper was not in
compliance with certain financial covenants under such agreement.

Snapper has entered into various long-term manufacturing and purchase agreements
with certain vendors for the purchase of manufactured products and raw
materials. As of December 31, 1998, noncancellable commitments under these
agreements amounted to approximately $14.7 million.

Snapper has an agreement with a financial institution which makes available
floor plan financing to dealers of Snapper products. This agreement provides
financing for dealer inventories and accelerates Snapper's cash flow. Under the
terms of the agreement, a default in payment by a dealer is nonrecourse to
Snapper. However, Snapper is obligated to repurchase any new and unused
equipment recovered from the dealer. At December 31, 1998, there was
approximately $96.4 million outstanding under this floor plan financing
arrangement. The Company has guaranteed Snapper's payment obligations under this
agreement.

The Company believes that Snapper's available cash on hand, the cash flow
generated by operating activities, borrowings from the Snapper Loan and Security
Agreement and, on an as needed basis, short-term working capital funding from
the Company, will provide sufficient funds for Snapper to meet its obligations
and capital requirements.

65
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
MMG CONSOLIDATED

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

CASH FLOWS FROM OPERATING ACTIVITIES

Cash used in operations for the year ended December 31, 1998 was $61.4 million,
a decrease in cash used in operations of $62.4 million from the prior year.

Losses from operating activities include significant non-cash items such as
discontinued operations, depreciation, amortization, equity in losses of
investees, nonrecurring charge of the Communications Group's writeoff of
goodwill and other intangibles and fixed assets, early extinguishment of debt,
gain on sale of assets, and losses allocable to minority interests. Excluding
discontinued operations and extraordinary items, non-cash items decreased $2.1
million from $64.9 million to $62.8 million for the years ended December 31,
1997 and 1998, respectively. The decrease relates principally to equity losses.
Changes in operating assets and liabilities, net of the effect of acquisitions
and dispositions, increased cash flows for the year ended December 31, 1998 by
$11.9 million and decreased cash flows by $57.8 million, for the year ended
December 31, 1997.

The increase in cash flows for the year ended December 31, 1998 resulted from
the Company's decision to significantly decrease its production of inventory at
Snapper in the current year partially offset by increased losses in the
Communications Group's operations due to the start-up nature of these operations
and increases in selling, general and administrative expenses to support the
increase in the number of Joint Ventures.

CASH FLOWS FROM INVESTING ACTIVITIES

Cash provided from investing activities for the years ended December 31, 1998
and 1997 was $106.6 million and $75.4 million, respectively. The principal
sources of funds from investing activities in 1998 were proceeds from maturities
of short-term investments of $103.1 million and the net proceeds of $57.3
million from the sale of Landmark and proceeds of $14.5 million from the sale of
Protocall Ventures. The principal source of funds from investing activities in
1997 was the net proceeds from the Entertainment Group Sale of $276.6 million.
The principal uses of funds for the year ended December 31, 1998 were
investments in and advances to Joint Ventures of $48.2 million, acquisitions by
the Communications Group of $11.0 million and additions to property, plant and
equipment of $11.4 million. The principal uses of funds for the year ended
December 31, 1997 were investments in and advances to Joint Ventures of $64.7
million, acquisitions by the Communications Group of $17.9 million and additions
to property, plant and equipment of $10.5 million.

CASH FLOWS FROM FINANCING ACTIVITIES

Cash used in financing activities was $37.2 million, for the year ended December
31, 1998 as compared to cash provided by financing activities of $88.7 million,
for the year ended December 31, 1997. Funds used in financing activities in 1998
were for the Preferred Stock dividend of $15.0 million and the repayment of debt
of $77.5 million, principally the prior Snapper Revolver, which was partially
offset by proceeds of $49.9 million from the Snapper Loan, and $5.3 million from
the exercise of stock options. Financing activities in 1997 includes the net
proceeds of $199.4 million from the issuance of 4,140,000 shares of 7 1/4%
cumulative convertible preferred stock. Of the $156.7 million of payments of
debt, $155.0 million relates to the payment on the Company's debentures.

66
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

CASH FLOWS FROM OPERATING ACTIVITIES

Cash used in operations for the year ended December 31, 1997 was $123.8 million,
an increase in cash used in operations of $60.6 million from the prior year.

Net income (loss) includes significant non-cash items including the gain on the
Entertainment Group Sale, operating loss of discontinued operations, equity in
losses and writedown of investment in RDM, losses on early extinguishment of
debt, depreciation, amortization, equity in losses of Joint Ventures and losses
allocable to minority interests. Excluding the gain on the Entertainment Group
Sale of $266.3 million in 1997 non-cash items increased to $111.9 million from
$60.8 million in 1996. The increase was principally attributable to the increase
in depreciation and amortization associated with the consolidation of Snapper,
losses from discontinued operations and the equity losses and writedown of the
Company's investment in RDM, partially offset by losses allocable to AAT's
minority owners. Changes in assets and liabilities, net of the effect of
acquisitions, decreased cash flows for 1997 and 1996 by $57.8 million and $8.7
million, respectively.

The decrease in cash flows in 1997 resulted from the increased losses in the
Communications Group's operations due to the start-up nature of these operations
and increases in selling, general and administrative expenses to support the
increase in the number of Joint Ventures and the inclusion of Snapper's
operating losses in 1997. The increase in operating assets principally reflects
increases in inventory of Snapper's products.

CASH FLOWS FROM INVESTING ACTIVITIES

Cash provided by investing activities in 1997 was $75.4 million as compared to
cash used in investing activities of $23.6 million in the prior year. The
principal reason for the increase in cash provided by investing activities was
the net proceeds from the Entertainment Group Sale of $276.6 million. Cash used
in investments in and advances to joint ventures and additions to property,
plant and equipment were $64.7 million and $10.5 million, respectively, in 1997
as compared to $37.8 million and $5.1 million, respectively in 1996. In
addition, the Communications Group utilized $17.9 million of funds net of cash
acquired in acquisitions in 1997.

CASH FLOWS FROM FINANCING ACTIVITIES

Cash provided by financing activities was $88.7 million in 1997, as compared to
$155.5 million in 1996. In 1997, funds from financing activities includes the
net proceeds of $199.4 million from the issuance of 4,140,000 shares of 7 1/4%
Cumulative Convertible Preferred Stock as compared to 1996 which includes the
net proceeds of $190.6 million from the issuance of 18,400,000 shares of common
stock. Of the $156.8 million of payments in 1997 in notes and subordinated debt,
$155.0 million relates to payment of the Company's debentures. Of the $81.6
million of payments in 1996 on notes and subordinated debt, $28.8 million was
the repayment of the revolving credit agreement by the Company.

YEAR 2000 SYSTEM MODIFICATIONS

The Company is currently working to evaluate and resolve the potential impact of
the Year 2000 on the processing of date-sensitive information and network
systems. The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the Year 2000, which could result
in miscalculations or system failures resulting from recognition of a date using
"00" as the

67
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
year 1900 rather than the year 2000. The Company expects to make some of the
necessary modifications through its ongoing investment in system upgrades.

The Company has delegated responsibility to a group of executives to coordinate
the identification, evaluation and implementation of changes to computer systems
and applications necessary to achieve the Company's goal of a Year 2000 date
conversion which would minimize the impact on the Company's subsidiaries, Joint
Ventures and their subscribers and customers, and avoid disruption to business
operations. The Company is also focusing on outside forces that may affect the
Company's operations, including the Company's and its subsidiaries' and Joint
Ventures' vendors, banks and utility companies. The Company's analysis of the
Year 2000 problem is on-going and will be continuously updated through the
remainder of 1999 as necessary.

The Company has developed a Year 2000 project plan for the Company, its
subsidiaries and unconsolidated joint ventures. However, The Company is not
directly responsible for Year 2000 readiness of many of its Joint Ventures and
in some cases has no access to the Joint Venture's management regarding these
matters. Executives of the Company are responsible for monitoring Year 2000
activities across all subsidiaries and Joint Ventures. Individual Joint Ventures
and subsidiaries are responsible for initiating and executing specific Year 2000
action plans.

The Company has completed its inventory of information technology ("IT") and
non-IT systems. Joint Venture IT and non-IT systems have principally been
reviewed on a line of business basis for cable television, telephony, radio and
paging ventures. The mission critical systems identified for the Company's Joint
Ventures are those that relate to revenue generation, customer service and
collection and billing. Non-IT mission critical systems include GSM switches,
ACS/Tocom systems, satellite program delivery systems and paging terminals and
related equipment.

The Company has initiated communications with all of its suppliers and its Joint
Ventures' suppliers of mission critical systems. The Company has accepted the
service providers' statement of Year 2000 compliance as evidence in its
assessment phase. For those mission critical systems determined not to be
compliant, the Company is in the process of replacing or remediating the system
at each significant Joint Venture or subsidiary. In addition, limited testing
has been performed at certain Joint Ventures and at the subsidiaries and Joint
Venturers' technical facilities.

The Company recognizes that to the extent its remediation efforts and those of
its Joint Ventures fail to prevent Year 2000 problems from arising, a temporary
interruption of service and loss of revenue may occur. High level contingency
plans have been developed which include the removal of noncompliant technology
from service on a temporary basis, replacing systems, or reverting to manual
processes to deal with such possible occurrences. The Company expects to
complete this project prior to January 1, 2000.

Based on the preliminary data, the Company's estimate is that the Year 2000
effort will cost approximately $750,000 to $1.0 million, covering the period
from January 1, 1998 through December 31, 1999, out of a total expected cost of
information systems of $10.4 million for this period, although there can be no
assurance as to the ultimate cost of the Year 2000 effort or the total cost of
information systems. Such costs will be expensed as incurred, except to the
extent such costs are incurred for the purchase or lease of capital equipment.

As of December 31, 1998, the Company has incurred $595,000 in respect of its
Year 2000 conversion effort, or 60% to 79% of the total estimated cost. The
Company expects that the source of funds for Year 2000 costs will be cash on
hand. No other information systems projects of the Company and its subsidiaries
and Joint Ventures have been deferred due to the Year 2000 efforts.

68
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS (CONTINUED)
The Company's Communications Group is heavily dependent on third parties, many
of whom are themselves heavily dependent on technology. In some cases, the
Company's third-party dependence is on vendors of technology who are themselves
working toward solutions to Year 2000 problems. Moreover, the Company is
dependent on the continued functioning of basic, heavily computerized services
such as banking and telephony. Further, the Company's Communications Group's
businesses are located in countries where basic services are operated by the
government or other governmental entities and the Company may not be able to
obtain information on Year 2000 problems. In certain Joint Ventures of the
Communications Group, the Company does not have a controlling management
interest and cannot unilaterally cause the Joint Venture to commit the necessary
resources to solve any Year 2000 problems. However, substantially all of the
Company's Joint Ventures operate or are planned to operate in countries where
reliance on automated systems is substantially less significant, and more
recent, than in the United States. Therefore, the Company believes that, in the
event Year 2000 problems arise in such Joint Ventures, the local operators of
such Joint Ventures and customers and vendors should be able to revert to manual
methods. If the Company, its Joint Ventures in which it does not have a
controlling management interest, and their respective customers and vendors are
unable to solve any Year 2000 issues, a material adverse effect on the Company's
results of operations and financial condition could result.

The above information is based on the Company's current estimates using numerous
assumptions of future events. Given the complexity of the Year 2000 issues and
possible unidentified risks, actual results may vary from those anticipated and
discussed above.

NEW ACCOUNTING DISCLOSURES

ACCOUNTING FOR DERIVATIVES

In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities", was issued. SFAS
133 established accounting and reporting standards for derivative instruments
and for hedging activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. The accounting for the gain or loss due to changes in fair value of
the derivative instrument depends on whether the derivative instrument qualifies
as a hedge. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 can not be applied retroactively to
financial statements of prior periods. The Company anticipates that the adoption
of SFAS 133 will not have a material impact on the Company's consolidated
financial position and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks. In addition to the market risk
associated with interest rate movements on outstanding debt and currency rate
movements on non-U.S. dollar denominated assets and liabilities, other examples
of risk include collectibility of accounts receivable and significant political,
economic and social risks inherent in doing business in emerging markets such as
Eastern Europe, the FSU and China.

With the exception of Snapper, the Company did not have any significant long
term obligations at December 31, 1998. Since Snapper's bank debt is a floating
rate instrument, its carrying value approximates its fair value. A 100 basis
point increase in the level of interest rates with all other variables held
constant would result in an increase in interest expense of $477,000. In
addition, a 100

69
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
basis point increase in interest rates on Snapper's floor plan financing to its
distributors and dealers would have resulted in an increase in interest expense
of $826,000.

The Company does not hedge against foreign exchange rate risks at the current
time. In the majority of the countries that the Communications Group's Joint
Ventures operate, there currently do not exist derivative instruments to allow
the Communications Group to hedge foreign currency risk. In addition, at the
current time the majority of the Communications Group's Joint Ventures are in
the early stages of development and the Company does not expect in the near term
to repatriate significant funds from the Communications Group's Joint Ventures.
"Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Inflation and Foreign Currency" contains additional
information on risks associated with the Company's investments in Eastern
Europe, the FSU and China.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K including, without limitation, statements
under "Item 1 Business", "Item 3 Legal Proceedings" and "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology, such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involves risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, which will, among other
things, affect demand for the Company's products and services; industry
capacity, which tends to increase during strong years of the business cycle;
changes in public taste and industry trends; demographic changes; competition
from other communications companies, which may affect the Company's ability to
enter into or acquire new joint ventures or to generate revenues; political,
social and economic conditions and laws, rules and regulations, and changes
therein, particularly in Eastern Europe and the FSU, China and selected other
emerging markets, which may affect the Company's results of operations; timely
completion of construction projects for new systems for the Joint Ventures in
which the Company has invested, which may impact the costs of such projects;
developing legal structures in Eastern Europe and the FSU, China and other
selected emerging markets, which may affect the Company's results of operations;
cooperation of local partners for the Company's communications investments in
Eastern Europe and the FSU, China and other selected emerging markets, which may
affect the Company's results of operations; exchange rate fluctuations; license
renewals for the Company's communications investments in Eastern Europe and the
FSU, China and other selected emerging markets; the loss of any significant
customers; changes in business strategy or development plans; quality of
management; availability of qualified personnel; changes in or the failure to
comply with government regulations; and other factors referenced herein. The
Company does not undertake, and specifically declines, any obligation to release
publicly any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.

70
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required under this item are
included in Item 14 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

The information called for by this PART III (Items 10, 11, 12 and 13) is not set
forth herein because the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 31, 1998, the Proxy Statement for the 1999 Annual Meeting of
Stockholders. Such information to be included in the Proxy Statement is hereby
incorporated into these Items 10, 11, 12 and 13 by this reference.

PART IV

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

(a)(1) and (a)(2) Financial Statements and Schedules

The financial statements and schedules listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form 10-K.

(a)(3) Exhibits

The exhibits listed in the accompanying Exhibit Index are filed as part of this
Annual Report on Form 10-K.

(b) Current Reports on Form 8-K

None.

71
<PAGE>
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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.

METROMEDIA INTERNATIONAL GROUP, INC.

BY: /S/ SILVIA KESSEL
-----------------------------------------
Silvia Kessel
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND DIRECTOR

Dated: March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ JOHN W. KLUGE Chairman of the Board
- ------------------------------ March 31, 1999
John W. Kluge

Vice Chairman of the Board,
/s/ STUART SUBOTNICK President and Chief
- ------------------------------ Executive Officer March 31, 1999
Stuart Subotnick (Principal Executive
Officer)

Executive Vice President,
/s/ SILVIA KESSEL Chief Financial Officer,
- ------------------------------ Treasurer and Director March 31, 1999
Silvia Kessel (Principal Financial
Officer)

/s/ ARNOLD L. WADLER Executive Vice President,
- ------------------------------ General Counsel, March 31, 1999
Arnold L. Wadler Secretary and Director

/s/ ROBERT A. MARESCA Senior Vice President
- ------------------------------ (Principal Accounting March 31, 1999
Robert A. Maresca Officer)

/s/ JOHN P. IMLAY, JR. Director
- ------------------------------ March 31, 1999
John P. Imlay, Jr.

/s/ CLARK A. JOHNSON Director
- ------------------------------ March 31, 1999
Clark A. Johnson

/s/ RICHARD J. SHERWIN Director
- ------------------------------ March 31, 1999
Richard J. Sherwin

/s/ LEONARD WHITE Director
- ------------------------------ March 31, 1999
Leonard White

/s/ CARL E. SANDERS Director
- ------------------------------ March 31, 1999
Carl E. Sanders

72
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996................. F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996....... F-6
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 1998, 1997 and
1996..................................................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
Consolidated Financial Statement Schedules:
I. Condensed Financial Information of Registrant........................................................ S-1
II. Valuation and Qualifying Accounts.................................................................... S-5
</TABLE>

All other schedules have been omitted either as inapplicable or not required
under the Instructions contained in Regulation S-X or because the information
included in the Consolidated Financial Statements or the Notes thereto listed
above.
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Metromedia International Group, Inc.:

We have audited the accompanying consolidated financial statements of Metromedia
International Group, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules 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 financial position of Metromedia
International Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

KPMG LLP

New York, New York
March 24, 1999

F-2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- -----------
Revenues:
Communications Group...................................................... $ 30,208 $ 21,252 $ 14,047
Lawn and garden equipment................................................. 210,084 183,076 22,545
----------- ---------- -----------
240,292 204,328 36,592
Cost and expenses:
Cost of sales and operating expenses...................................... 155,916 126,544 22,257
Selling, general and administrative....................................... 153,327 141,125 57,184
Depreciation and amortization............................................. 20,588 16,734 7,677
Nonrecurring charges...................................................... 40,317 -- --
----------- ---------- -----------
Operating loss.............................................................. (129,856) (80,075) (50,526)
Other income (expense):
Interest expense.......................................................... (16,331) (20,922) (19,090)
Interest income........................................................... 12,746 9,840 5,308
Gain on sale of Protocall Ventures, net................................... 5,527 -- --
Equity in losses of and writedown of investment in unconsolidated
investees............................................................... (18,151) (53,150) (7,835)
Foreign currency loss..................................................... (137) (714) (255)
----------- ---------- -----------
(16,346) (64,946) (21,872)
Loss before income tax benefit (expense), minority interest, discontinued
operations and extraordinary items...................................... (146,202) (145,021) (72,398)
Income tax benefit (expense)................................................ 358 5,227 (414)
Minority interest........................................................... 9,858 8,893 666
----------- ---------- -----------
Loss from continuing operations............................................. (135,986) (130,901) (72,146)
Discontinued operations:
Gain on disposal and (loss) on assets held for sale....................... 12,316 266,294 (16,305)
Loss from discontinued operations......................................... -- (32,258) (22,287)
----------- ---------- -----------
(123,670) 103,135 (110,738)
Extraordinary items:
Loss and equity in loss on early extinguishment of debt................... -- (14,692) (4,505)
----------- ---------- -----------
Net income (loss)........................................................... (123,670) 88,443 (115,243)
Cumulative convertible preferred stock dividend requirement................. (15,008) (4,336) --
----------- ---------- -----------
Net income (loss) attributable to common stockholders....................... $ (138,678) $ 84,107 $ (115,243)
----------- ---------- -----------
----------- ---------- -----------
Weighted average number of common shares--Basic............................. 68,955 66,961 54,293
----------- ---------- -----------
----------- ---------- -----------
Income (loss) per common share--Basic:......................................
Continuing operations..................................................... $ (2.19) $ (2.02) $ (1.33)
Discontinued operations................................................... $ 0.18 $ 3.50 $ (0.71)
Extraordinary items....................................................... $ -- $ (0.22) $ (0.08)
Net income (loss)......................................................... $ (2.01) $ 1.26 $ (2.12)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................................................... $ 137,625 $ 129,661
Short-term investments............................................................. -- 100,000
Accounts receivable:...............................................................
Snapper, net..................................................................... 27,055 26,494
Other, net....................................................................... 18,826 5,190
Inventories........................................................................ 62,777 96,436
Other assets....................................................................... 5,441 4,021
------------ ------------
Total current assets........................................................... 251,724 361,802
Investments in and advances to Joint Ventures:
Eastern Europe and the Republics of the Former Soviet Union........................ 87,163 86,442
China.............................................................................. 71,559 45,851
Net assets of Landmark Theatre Group................................................. -- 48,531
Property, plant and equipment, net of accumulated depreciation....................... 36,067 44,010
Intangible assets, less accumulated amortization..................................... 159,530 200,120
Other assets......................................................................... 3,598 2,516
------------ ------------
Total assets................................................................... $ 609,641 $ 789,272
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................................................... $ 28,779 $ 30,036
Accrued expenses................................................................... 63,329 73,349
Current portion of long-term debt.................................................. 1,723 21,478
------------ ------------
Total current liabilities........................................................ 93,831 124,863
Long-term debt....................................................................... 50,111 57,938
Other long-term liabilities.......................................................... 5,410 8,225
------------ ------------
Total liabilities................................................................ 149,352 191,026
------------ ------------
Minority interest.................................................................... 34,749 37,564

Commitments and contingencies

Stockholders' equity:
7 1/4% Cumulative Convertible Preferred Stock...................................... 207,000 207,000
Common Stock, $1.00 par value, authorized 400,000,000 shares, issued and
outstanding 69,118,841 and 68,390,800 shares at December 31, 1998 and 1997,
respectively..................................................................... 69,119 68,391
Paid-in surplus.................................................................... 1,012,794 1,007,272
Accumulated deficit................................................................ (857,293) (718,615)
Accumulated other comprehensive loss............................................... (6,080) (3,366)
------------ ------------
Total stockholders' equity....................................................... 425,540 560,682
------------ ------------
Total liabilities and stockholders' equity....................................... $ 609,641 $ 789,272
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- -----------
Operating activities:
Net income (loss)......................................................... $ (123,670) $ 88,443 $ (115,243)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
(Gain) on disposal and loss on assets held for sale..................... (12,316) (266,294) 16,305
Loss from discontinued operations....................................... -- 32,258 22,287
Loss and equity in loss on early extinguishment of debt................. -- 14,692 4,505
Equity in losses and writedown of investment in unconsolidated
investees............................................................. 18,151 53,150 7,835
Nonrecurring charges.................................................... 40,317 -- --
Gain on sale of Protocall Ventures, net................................. (5,527) -- --
Depreciation and amortization........................................... 20,588 16,734 7,677
Minority interest....................................................... (9,858) (8,893) (666)
Other................................................................... (909) 3,922 2,881
Changes in assets and liabilities, net of effect of acquisitions, dispo-
sitions and consolidation of Snapper:
(Increase) decrease in accounts receivable.............................. (3,838) 10,443 (909)
(Increase) decrease in inventories...................................... 32,475 (41,137) (2,473)
(Increase) decreases in other assets.................................... (4,099) 1,691 (5,700)
Increases (decrease) in accounts payable and accrued expenses........... (10,492) (29,681) 1,335
Other operating activities, net......................................... (2,185) 900 (968)
----------- ---------- -----------
Cash used in operating activities..................................... (61,363) (123,772) (63,134)
----------- ---------- -----------
Investing activities:
Investments in and advances to Joint Ventures............................. (48,171) (64,714) (37,755)
Distributions from Joint Ventures......................................... 5,441 5,630 3,438
Proceeds from sale of Protocall Ventures.................................. 14,533 -- --
Cash paid for acquisitions and additional equity in subsidiaries.......... (10,997) (17,851) (2,545)
Net proceeds from sale of discontinued operations......................... 57,298 276,607 --
Investment in RDM Sports Group, Inc....................................... -- (15,000) --
Purchase of short-term investments........................................ (3,069) (100,000) --
Proceeds from sale of short-term investments.............................. 103,069 -- 5,366.00
Additions to property, plant and equipment................................ (11,400) (10,451) (5,081)
Other investing activities, net........................................... (134) 1,154 12,988
----------- ---------- -----------
Cash provided by (used in) investing activities....................... 106,570 75,375 (23,589)
----------- ---------- -----------
Financing activities:
Proceeds from issuance of long-term debt.................................. 49,918 30,124 52,594
Payments on notes and subordinated debt................................... (77,500) (156,771) (81,522)
Proceeds from issuance of stock related to public stock offerings......... -- 199,442 190,604
Proceeds from issuance of common stock related to incentive plans......... 5,347 18,153 972
Preferred stock dividends paid............................................ (15,008) (3,709) --
Other financing activities, net........................................... -- 1,419 (7,130)
----------- ---------- -----------
Cash provided by (used in) financing activities....................... (37,243) 88,658 155,518
----------- ---------- -----------
Net increase in cash and cash equivalents................................. 7,964 40,261 68,795
Cash and cash equivalents at beginning of year............................ 129,661 89,400 20,605
----------- ---------- -----------
Cash and cash equivalents at end of year.................................. $ 137,625 $ 129,661 $ 89,400
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
7 1/4% CUMULATIVE
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- ------------------------
NUMBER OF NUMBER OF PAID-IN RESTRICTED
SHARES AMOUNT SHARES AMOUNT SURPLUS STOCK
----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995...................... -- -- 42,613,738 $ 42,614 $ 728,747 $ --
Issuance of stock related to public offering,
net............................................ -- -- 18,400,000 18,400 172,204 --
Issuance of stock related to the acquisitions of
the Samuel Goldwyn and Motion Picture
Corporation of America......................... -- -- 4,715,869 4,716 54,610 --
Issuance of stock related to incentive plans..... -- -- 423,832 423 3,997 (3,174)
Amortization of restricted stock................. -- -- -- -- -- 529
Other comprehensive loss......................... -- -- -- -- -- --
Net loss......................................... -- -- -- -- -- --
----------- --------- ----------- ----------- --------- -----------
Balances, December 31, 1996...................... -- -- 66,153,439 66,153 959,558 (2,645)
Issuance of stock related to public offering,
net............................................ 4,140,000 207,000 -- -- (7,558) --
Increase in equity resulting from issuance of
stock by subsidiary............................ -- -- -- -- 35,957 --
Issuance of stock related to the acquisitions of
a minority interest of a subsidiary............ -- -- 250,000 250 2,719 --
Issuance of stock related to incentive plans..... -- -- 1,987,361 1,988 16,596 --
Dividends on 7 1/4% cumulative convertible
preferred stock................................ -- -- -- -- -- --
Amortization of restricted stock................. -- -- -- -- -- 2,645
Other comprehensive loss......................... -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
----------- --------- ----------- ----------- --------- -----------
Balances, December 31, 1997...................... 4,140,000 207,000 68,390,800 68,391 1,007,272 --
Issuance of stock and stock options related to
incentive plans................................ -- -- 728,041 728 5,522 --
Dividends on 7 1/4% cumulative convertible
preferred stock................................ -- -- -- -- -- --
Other comprehensive loss......................... -- -- -- -- -- --
Net loss......................................... -- -- -- -- -- --
----------- --------- ----------- ----------- --------- -----------
Balances, December 31, 1998...................... 4,140,000 $ 207,000 69,118,841 $ 69,119 $1,012,794 $ --
----------- --------- ----------- ----------- --------- -----------
----------- --------- ----------- ----------- --------- -----------

ACCUMULATED OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME (LOSS) TOTAL
------------ ------------------- ---------
<S> <C> <C> <C>
Balances, December 31, 1995...................... $ (688,106) $ 583 $ 83,838
Issuance of stock related to public offering,
net............................................ -- -- 190,604
Issuance of stock related to the acquisitions of
the Samuel Goldwyn and Motion Picture
Corporation of America......................... -- -- 59,326
Issuance of stock related to incentive plans..... -- -- 1,246
Amortization of restricted stock................. -- -- 529
Other comprehensive loss......................... -- (618) (618)
Net loss......................................... (115,243) -- (115,243)
------------ ------- ---------
Balances, December 31, 1996...................... (803,349) (35) 219,682
Issuance of stock related to public offering,
net............................................ -- -- 199,442
Increase in equity resulting from issuance of
stock by subsidiary............................ -- -- 35,957
Issuance of stock related to the acquisitions of
a minority interest of a subsidiary............ -- -- 2,969
Issuance of stock related to incentive plans..... -- -- 18,584
Dividends on 7 1/4% cumulative convertible
preferred stock................................ (3,709) -- (3,709)
Amortization of restricted stock................. -- -- 2,645
Other comprehensive loss......................... -- (3,331) (3,331)
Net income....................................... 88,443 -- 88,443
------------ ------- ---------
Balances, December 31, 1997...................... (718,615) (3,366) 560,682
Issuance of stock and stock options related to
incentive plans................................ -- -- 6,250
Dividends on 7 1/4% cumulative convertible
preferred stock................................ (15,008) -- (15,008)
Other comprehensive loss......................... -- (2,714) (2,714)
Net loss......................................... (123,670) -- (123,670)
------------ ------- ---------
Balances, December 31, 1998...................... $ (857,293) $ (6,080) $ 425,540
------------ ------- ---------
------------ ------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- --------- -----------
Net income (loss)............................................................ $ (123,670) $ 88,443 $ (115,243)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment.................................... (1,810) (2,526) (618)
Minimum pension liability.................................................. (904) (805) --
----------- --------- -----------
Other comprehensive loss..................................................... (2,714) (3,331) (618)
----------- --------- -----------
Comprehensive income (loss).................................................. $ (126,384) $ 85,112 $ (115,861)
----------- --------- -----------
----------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Metromedia International Group, Inc. ("MMG" or the "Company") and its
wholly-owned subsidiaries, Metromedia International Telecommunications, Inc.
("MITI") and Snapper, Inc. ("Snapper") as of November 1, 1996 (see note 7). All
significant intercompany transactions and accounts have been eliminated.

The Company reports the results of the operations of the Communications Group's
operations in Eastern Europe and the republics of the former Soviet Union, and
the distributable cash flow generated by the telephony systems of China Unicom,
on a three month lag.

For 1998, interest income from unconsolidated investees has been eliminated
against the equity in losses from unconsolidated investees. Amounts reported for
prior years have been reclassified to conform to the 1998 presentation. For
1997, equity in losses and writedown in RDM Sports Group, Inc. ("RDM") has been
included in equity in losses and writedown of unconsolidated investees.

In July 1997 and April 1998 the Company completed the sales of substantially all
of its entertainment assets (the "Entertainment Group Sale") and Landmark
Theatre Group, Inc. ("Landmark"), respectively (see notes 5 and 6). The
transactions have been recorded as discontinuances of business segments. In
addition, as of April 1, 1997, for financial statement reporting purposes, the
Company no longer qualified to treat its investment in RDM as a discontinued
operation and the Company has included in its results of continuing operations
the Company's share of the earnings and losses of RDM. On August 29, 1997, RDM
and certain of its affiliates filed a voluntary bankruptcy petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Georgia (see note 8).

DESCRIPTION OF THE BUSINESS

COMMUNICATIONS GROUP

The Company, through MITI and its majority owned subsidiary Metromedia China
Corporation ("MCC") which together is defined as the "Communications Group", is
the owner of various interests in joint ventures and subsidiaries ("Joint
Ventures") that are currently in operation or planning to commence operations in
Eastern Europe, the republics of the former Soviet Union, the People's Republic
of China ("China") and other selected emerging markets. For segment reporting
purposes, the Communications Group consists of two business segments,
communications and media businesses in Eastern Europe and the republics of the
former Soviet Union, and in China. The Communications Group's Joint Ventures in
Eastern Europe and the republics of the former Soviet Union currently offer
cellular telecommunications, fixed telephony, international and long distance
telephony, cable television, paging, and radio broadcasting. The Communications
Group's Joint Ventures in China provide financing, technical assistance and
consulting services for telecommunications projects. The Communications Group
develops communications businesses in heavily populated areas, primarily in
countries that lack reliable and efficient communications services. The
Communications Group's strategy is to gain early entry into target markets in
order to capitalize on the increasing demand for quality modern communications
systems.

F-8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
SNAPPER

Snapper manufacturers Snapper-Registered Trademark- brand premium-priced power
lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and
accessories. 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
under the Snapper-Registered Trademark- brand. Snapper provides lawn and garden
products through distribution channels to domestic and foreign retail markets.

A large percentage of the residential and commercial sales of lawn and garden
equipment are made during a 17-week period from early spring to mid-summer.
Although some sales are made to the dealers and distributors prior to and
subsequent to this period, the largest volume of sales to the ultimate consumer
is made during this time. The majority of revenues during the late fall and
winter periods are related to snow thrower shipments.

LIQUIDITY

MMG is a holding company, and accordingly, does not generate cash flows from
operations. The Communications Group is dependent on MMG for significant capital
infusions to fund its operations, its commitments to make capital contributions
and loans to its Joint Ventures and any acquisitions. Such funding requirements
are based on the anticipated funding needs of its Joint Ventures and certain
acquisitions committed to by the Company. Future capital requirements of the
Communications Group, including future acquisitions, will depend on available
funding from the Company or alternative sources of financing and on the ability
of the Communications Group's Joint Ventures to generate positive cash flows. In
addition, Snapper is restricted under covenants contained in its credit
agreement from making dividend payments or advances to MMG.

In the near-term, the Company intends to satisfy its working capital and capital
commitments with available cash on hand. However, the Communications Group's
businesses in the aggregate are capital intensive and require the investment of
significant amounts of capital in order to construct and develop operational
systems and market its services. As a result, the Company will require
additional financing in order to satisfy its on-going working capital,
acquisition and expansion requirements and to achieve its long-term business
strategies. Such additional capital may be provided through the public or
private sale of equity or debt securities of the Company or by separate equity
or debt financings by the Communications Group or certain companies of the
Communications Group. No assurance can be given that additional financing will
be available to the Company on acceptable terms, if at all. If adequate
additional funds are not available, the Company may be required to curtail
significantly its long term business objectives and the Company's results from
operations may be materially and adversely affected.

Management believes that its long term liquidity needs will be satisfied through
a combination of the Company's successful implementation and execution of its
growth strategy to become a global communications and media company and through
the Communications Group's Joint Ventures achieving positive operating results
and cash flows through revenue and subscriber growth and control of operating
expenses.

F-9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash equivalents consists of highly liquid instruments with maturities of three
months or less at the time of purchase.

INVESTMENTS

EQUITY METHOD INVESTMENTS

Investments in other companies and Joint Ventures which are not majority owned,
or which the Company does not control but in which it exercises significant
influence, are accounted for using the equity method. The Company reflects its
net investments in Joint Ventures under the caption "Investments in and advances
to Joint Ventures". Generally, under the equity method of accounting, original
investments are recorded at cost and are adjusted by the Company's share of
undistributed earnings or losses of the Joint Venture. Equity in the losses of
the Joint Ventures are recognized according to the percentage ownership in each
Joint Venture until the Company's Joint Venture partner's contributed capital
has been fully depleted. Subsequently, the Company recognizes the full amount of
losses generated by the Joint Venture if it is the principal funding source for
the Joint Venture.

DEBT AND EQUITY SECURITY INVESTMENTS

The Company classifies its investments in debt and equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the securities until maturity. All
other securities not classified as trading or held-to-maturity are classified 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.

Management determines the appropriate classification of investments as trading,
held-to-maturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. At December 31, 1998 and 1997,
the Company did not have any debt and equity security investments.

F-10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
INVENTORIES

Lawn and garden equipment inventories and pager, telephony and cable inventories
are stated at the lower of cost or market. Lawn and garden equipment inventories
are valued utilizing the last-in, first-out (LIFO) method. Pager, telephony and
cable inventories are calculated on the weighted-average method.

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. Leasehold improvements
are amortized using the straight-line method over the life of the improvements
or the life of the lease, whichever is shorter.

INTANGIBLE ASSETS

Intangible assets are stated at historical cost, net of accumulated
amortization. Intangibles such as broadcasting licenses and frequency rights are
amortized over periods of 20 to 25 years using the straight-line method.
Goodwill has been recognized for the excess of the purchase price over the value
of the identifiable net assets acquired. Such amount is amortized over 25 years
using the straight-line method.

Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of intangible assets, their carrying
amount is compared to management's best estimate of undiscounted future cash
flows over the remaining amortization period. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. The
Company believes that the carrying value of recorded intangibles is not impaired
(see note 2).

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangibles are reviewed by the
Company for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount to
undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

F-11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

COMMUNICATIONS GROUP

The Communications Group and its Joint Ventures' cable, paging and telephony
operations recognize revenues in the period the service is provided.
Installation fees are recognized as revenues upon subscriber hook-up to the
extent installation costs are incurred. Installation fees in excess of
installation costs are deferred and recognized over the length of the related
individual contract. The Communications Group and its Joint Ventures' radio
operations recognize advertising revenue when commercials are broadcast.

SNAPPER

Sales are recognized when the products are shipped to distributors or dealers. A
provision for estimated warranty costs is recorded at the time of sale and
periodically adjusted to reflect actual experience.

BARTER TRANSACTIONS

In connection with its radio broadcasting business, the Company trades
commercial air time for goods and services used principally for promotional,
sales and other business activities. An asset and a liability are recorded at
the fair market value of the goods or services received. Barter revenue is
recorded and the liability is relieved when commercials are broadcast, and
barter expense is recorded and the assets are relieved when the goods or
services are received or used.

RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS

Research and development and advertising costs are expensed as incurred.

SELF-INSURANCE

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

MINORITY INTERESTS

Recognition of minority interests' share of losses of consolidated subsidiaries
is limited to the amount of such minority interests allocable portion of the
common equity of those consolidated subsidiaries.

INCOME TAXES

The Company accounts for deferred income taxes using the asset and liability
method of accounting. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax

F-12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Deferred tax assets and
liabilities are measured using rates expected to be in effect when those assets
and liabilities are recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

STOCK OPTION PLANS

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. The Company
discloses the pro forma effect on net income (loss) and earnings per share as
required by Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," of recognizing as expense over the
vesting period the fair value of all stock-based awards on the date of grant.

PENSION AND OTHER POSTRETIREMENT PLANS

Snapper has a defined benefit pension plan covering substantially all of its
collective bargaining unit employees. The benefits are based on years of service
multiplied by a fixed dollar amount and the employee's compensation during the
five years before retirement. The cost of this program is funded currently.

Snapper also sponsors a defined benefit health care plan for substantially all
of its retirees and employees. Snapper measures the costs of its obligation
based on its best estimate. The net periodic costs are recognized as employees
render the services necessary to earn postretirement benefits.

FOREIGN CURRENCY TRANSLATION

The statutory accounts of the Company's consolidated foreign subsidiaries and
Joint Ventures are maintained in accordance with local accounting regulations
and are stated in local currencies. Local statements are translated into U.S.
generally accepted accounting principles and U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Accounting for
Foreign Currency Translation."

Under SFAS 52, foreign currency assets and liabilities are generally translated
using the exchange rates in effect at the balance sheet date. Results of
operations are generally translated using the average exchange rates prevailing
throughout the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as
part of the foreign currency translation adjustment in stockholders' equity.
Gains and losses from foreign currency transactions are included in net income
in the period in which they occur. Translation differences resulting from the
effect of exchange rate changes on cash and cash equivalents were immaterial and
are not reflected in the Company's consolidated statements of cash flows for
each of the periods presented.

F-13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are remeasured, in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations are translated using the monthly average exchange rates.
Transaction differences resulting from the use of these different rates are
included in the accompanying consolidated statements of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company is required to disclose 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. These techniques are significantly affected by the
assumptions used, including discount rates 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 instruments. Certain financial instruments and all
non-financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value to the Company.

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

CASH AND CASH EQUIVALENTS, RECEIVABLES, SHORT-TERM INVESTMENTS, AND ACCOUNTS
PAYABLE

The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, short-term investments, current receivables and
accounts payable approximate fair values.

DEBT AND EQUITY SECURITY INVESTMENTS

For debt and equity security 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.

LONG-TERM DEBT

For long-term 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 note 4 for the fair values of
long-term debt.

F-14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE OF COMMON STOCK

Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share" specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). SFAS 128 requires the presentation of basic EPS and
diluted EPS.

Basic EPS excludes all dilutive securities. It is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities to issue common
stock were exercised or converted into common stock. In calculating diluted EPS,
no potential shares of common stock are to be included in the computation when a
loss from continuing operations available to common stockholders exists. For the
years ended December 31, 1998, 1997, and 1996 the Company had losses from
continuing operations.

The computation of basic EPS for the years ended December 31, 1998, 1997 and
1996 is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ --------------- -----------
<S> <C> <C> <C>
1998:
Loss from continuing operations.......................................... $ (135,986)
Less: Preferred stock dividend requirement............................... 15,008
------------
Loss from continuing operations attributable to common stockholders...... $ (150,994) 68,955 $ (2.19)
------------ ------ -----------
------------ ------ -----------

1997:
Loss from continuing operations.......................................... $ (130,901)
Less: Preferred stock dividend requirement............................... 4,336
------------
Loss from continuing operations attributable to common stockholders...... $ (135,237) 66,961 $ (2.02)
------------ ------ -----------
------------ ------ -----------

1996:
Loss from continuing operations.......................................... $ (72,146) 54,293 $ (1.33)
------------ ------ -----------
------------ ------ -----------
</TABLE>

The Company had for the years ended December 31, 1998, 1997 and 1996,
potentially dilutive shares of common stock of 19,003,000, 19,673,000, and
6,381,000, respectively (see note 10).

F-15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of the
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Estimates are used when accounting for the allowance for doubtful accounts,
inventory obsolescence, long-lived assets, intangible assets, product warranty
expenses, self-insured workers' compensation and product liability claims,
depreciation and amortization, employee benefit plans, income taxes and
contingencies, among others. The Company reviews all significant estimates
affecting its consolidated financial statements on a recurring basis and records
the effect of any necessary adjustment prior to their publication. Uncertainties
with respect to such estimates and assumptions are inherent in the preparation
of the Company's consolidated financial statements; accordingly, it is possible
that actual results could differ from those estimates and changes to estimates
could occur in the near term.

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION

The Communications Group records its investments in other companies and Joint
Ventures which are less than majority-owned, or which the Company does not
control but in which it exercises significant influence, at cost, net of its
equity in earnings or losses. Advances to the Joint Ventures under the line of
credit agreements between the Company or one of its subsidiaries and the Joint
Ventures are reflected based on amounts recoverable under the credit agreement,
plus accrued interest.

Advances are made to Joint Ventures in the form of cash, for working capital
purposes and for payment of expenses or capital expenditures, or in the form of
equipment purchased on behalf of the Joint Ventures. Interest rates charged to
the Joint Ventures range from prime rate to prime rate plus 6%. The credit
agreements generally provide for the payment of principal and interest from 90%
of the Joint Ventures' available cash flow, as defined, prior to any substantial
distributions of dividends to the Joint Venture partners. The Communications
Group has entered into charter fund and credit agreements with its Joint
Ventures to provide up to $212.1 million in funding of which $49.4 million in
funding obligations remain at December 31, 1998. The Communications Group's
funding commitments are contingent on its approval of the Joint Ventures'
business plans.

The Communications Group's paging business is experiencing increasing
competition from cellular telephony in some of the markets in which its
operates. There is an expectation of similar competition in the future in other
markets where the Communications Group has paging operations. Despite a number
of operating and marketing initiatives to diminish the effects of the increased
competition, including calling party pays, the paging operations continued to
generate operating losses in 1998. In the current environment, the potential for
growth in most of the markets the Communications Group paging operations
competes in is limited in the near term. Consistent with the Company's strategy
to maximize value for the capital employed, the Communications Group has
developed a revised operating plan to stabilize its paging operations. Under the
revised plan, the Communications Group intends to manage its paging business to
a level that will not require significant additional funding for its operations.
The Company has determined that the Communications Group's estimated future
undiscounted cash flows from the revised plan are below the carrying value of
the Communications Group's long-lived assets, and has adjusted the carrying
value of these long-lived assets. As a result of

F-16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)
the revised plan, the Company has taken a non-cash, nonrecurring charge on its
paging assets of $49.9 million, which includes a $35.9 million write off of
goodwill and other intangibles. The non-cash, nonrecurring charge adjusted the
carrying value of goodwill and other intangibles, fixed assets and investments
in and advances to Joint Ventures and wrote down inventory. The write down
relates to both consolidated Joint Ventures and Joint Ventures recorded under
the equity method. The Company has adjusted its investments in certain paging
operations which are recorded under the equity method to zero, and unless it
provides future funding will no longer record its proportionate share of any
future net losses of these investees.

The Company believes that there is an inherent value to delivery of data via a
wireless transmission and the increased demand for data transmission may create
a valuable business for the use of its paging frequencies. The Company will
continue to explore these areas and other opportunities for the paging business.

In addition, during the fourth quarter of 1998, pager inventory of $1.5 million
and $2.7 million of material relating to a promotional campaign in Romania was
written off which is included in the cost of sales in the Company's consolidated
results of operations for the year ended December 31, 1998.

At December 31, 1998 and 1997, the Communications Group's unconsolidated
investments in the Joint Ventures in Eastern Europe and the republics of the
former Soviet Union, at cost, net of adjustments for its equity in earnings or
losses, and distributions were as follows (in thousands):

<TABLE>
<CAPTION>
YEAR YEAR
VENTURE OPERATIONS
NAME 1998 1997 OWNERSHIP % FORMED COMMENCED
- ------------------------------------------------------------- --------- --------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
CELLULAR TELECOMMUNICATIONS
Baltcom GSM, Latvia (2)...................................... $ 9,817 $ 11,996 22% 1996 1997
Magticom, Georgia (2)........................................ 13,048 6,951 35% 1996 1997
--------- ---------
22,865 18,947
--------- ---------
FIXED TELEPHONY
Instaphone, Kazakhstan (1)................................... 1,168 684 50% 1998 1998
--------- ---------
INTERNATIONAL AND LONG DISTANCE TELEPHONY
Telecom Georgia, Georgia..................................... 5,922 6,080 30% 1994 1994
--------- ---------
CABLE TELEVISION
Kosmos TV, Moscow, Russia.................................... 1,385 (123) 50% 1991 1992
Baltcom TV, Riga, Latvia..................................... 4,003 6,093 50% 1991 1992
Ayety TV, Tbilisi, Georgia................................... 3,045 3,732 49% 1991 1993
Kamalak TV, Tashkent, Uzbekistan............................. 2,976 2,824 50% 1992 1993
Sun TV, Chisinau, Moldova.................................... 4,731 4,671 50% 1993 1994
Cosmos TV, Minsk, Belarus.................................... 2,934 2,135 50% 1993 1996
Alma TV, Almaty, Kazakhstan.................................. 5,994 2,597 50% 1994 1995
Teleplus, St. Petersburg, Russia (1)......................... 1,941 1,093 45% 1996 1998
--------- ---------
27,009 23,022
--------- ---------
</TABLE>

F-17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)

<TABLE>
<CAPTION>
YEAR YEAR
VENTURE OPERATIONS
NAME 1998 1997 OWNERSHIP % FORMED COMMENCED
- ------------------------------------------------------------- --------- --------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
PAGING
Baltcom Plus, Latvia (4)..................................... -- 1,232 50% 1994 1995
Paging One, Georgia (4)...................................... -- 1,037 45% 1993 1994
Raduga Poisk, Nizhny Novgorod, Russia (4).................... -- 549 45% 1993 1994
PT Page, St. Petersburg, Russia (4).......................... -- 1,006 40% 1994 1995
Paging Ajara, Batumi, Georgia (4)............................ -- 277 35% 1996 1997
Kazpage, Kazakhstan (4) (5).................................. -- 864 26-41% 1996 1997
Kamalak Paging, Tashkent, Uzbekistan......................... 2,260 2,243 50% 1992 1993
Alma Page, Almaty, Kazakhstan (4)............................ -- 1,936 50% 1994 1995
Mobile Telecom, Russia (6)................................... 7,405 -- 50% 1998 1998
--------- ---------
9,665 9,144
--------- ---------
RADIO BROADCASTING
Radio Katusha, St. Petersburg, Russia (7).................... -- 971 75% 1993 1995
Radio Nika, Socci, Russia.................................... 244 337 51% 1995 1995
AS Trio LSL, Estonia......................................... 1,903 1,593 49% 1997 1997
--------- ---------
2,147 2,901
--------- ---------
OTHER
Trunked mobile radio ventures (3)............................ -- 6,150
--------- ---------
PRE-OPERATIONAL (8)
ATK Cable, Arkangelsk Region, Russia (9)..................... 1,746 -- 81% 1998 --
Tyumenruskom, Russia......................................... 2,228 -- 46% 1998 --
Caspian American Telecom, Azerbaijian........................ 5,488 -- 38% 1998 --
Telephony related ventures and equipment..................... 2,612 9,003
Other........................................................ 6,313 10,511
--------- ---------
18,387 19,514
--------- ---------
TOTAL........................................................ $ 87,163 $ 86,442
--------- ---------
--------- ---------
</TABLE>

- ------------------------------
(1) Included in pre-operational at December 31, 1997.

(2) In August 1998, the Communications Group increased its ownership at Baltcom
GSM from 21% to 22% and in Magticom from 34% to 35%.

(3) In July 1998, the Communications Group sold its investment in Protocall
Ventures Limited. The Company's interest in Spectrum, a trunked mobile radio
venture in Kazakhstan, was written off during the fourth quarter of 1998.

(4) Investment balance reflects write-down of investment.

(5) Kazpage is comprised of a service entity and 10 paging Joint Ventures. The
Company's interest in the paging Joint Ventures ranges from 26% to 41% and
its interest in the service entity is 51%.

(6) In January 1998, the Communications Group signed a definitive agreement to
purchase 50% of Mobile Telecom. The purchase closed during June 1998 at a
price of $7.0 million plus two future contingent payments of $2.5 million
each, to be adjusted up or down based on performance of the business.
Simultaneously with the purchase of Mobile Telecom, the Company purchased a
50% interest in a paging distribution company for $500,000. Approximately
$7.0 million of the purchase price was allocated to goodwill.

(7) In November 1997, the Communications Group purchased an additional interest
in Radio Katusha, increasing its ownership to 75%. This Joint Venture is now
consolidated.

F-18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)
(8) At December 31, 1998 and 1997, amounts disbursed for proposed Joint
Ventures, pre-operational Joint Ventures and amounts expended for equipment
for future wireless local loop projects are included in pre-operational
Joint Ventures.

(9) The investment in this Joint Venture was made in the quarter ended December
31, 1998. The Joint Venture's results of operations will be consolidated
with the Company's financial statements in the quarter ended March 31, 1999.

Summarized combined balance sheet financial information of unconsolidated Joint
Ventures as of September 30, 1998 and 1997 and combined statement of operations
financial information for the years ended September 30, 1998, 1997 and 1996
accounted for under the equity method that have commenced operations as of the
dates indicated are as follows (in thousands):

COMBINED INFORMATION OF UNCONSOLIDATED JOINT VENTURES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Assets:
Current assets.......................................................................... $ 34,617 $ 30,563
Investments in systems and equipment.................................................... 111,114 84,875
Other assets............................................................................ 7,103 9,758
---------- ----------
Total assets........................................................................ $ 152,834 $ 125,196
---------- ----------
---------- ----------
Liabilities and Joint Ventures' Deficit:
Current liabilities..................................................................... $ 31,934 $ 28,280
Amount payable under MITI credit facility............................................... 66,574 50,692
Other long-term liabilities............................................................. 82,314 49,232
---------- ----------
180,822 128,204
Joint Ventures' deficit................................................................. (27,988) (3,008)
---------- ----------
Total liabilities and Joint Ventures' deficit....................................... $ 152,834 $ 125,196
---------- ----------
---------- ----------
</TABLE>

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues...................................................................... $ 98,709 $ 70,418 $ 44,800
Costs and Expenses:
Cost of sales and operating expenses........................................ 26,697 17,619 15,490
Selling, general and administrative......................................... 50,082 35,860 25,381
Depreciation and amortization............................................... 25,768 14,348 8,039
Other....................................................................... (5) 30 1,674
--------- --------- ---------
Total expenses.......................................................... 102,542 67,857 50,584
--------- --------- ---------
Operating income (loss)..................................................... (3,833) 2,561 (5,784)
Interest expense............................................................ (13,521) (6,339) (3,883)
Other loss.................................................................. (2,384) (2,689) (391)
Foreign currency transactions............................................... (4,055) (2,757) (425)
--------- --------- ---------
Net loss.................................................................... $ (23,793) $ (9,224) $ (10,483)
--------- --------- ---------
--------- --------- ---------
</TABLE>

For the years ended December 31, 1998, 1997 and 1996 the results of operations
presented above are before the elimination of intercompany interest. Financial
information for Joint Ventures which are not yet operational is not included in
the above summary.

F-19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)

The following tables represent summary financial information for all operating
entities being grouped as indicated as of and for the years ended December 31,
1998, 1997 and 1996. For the years ended December 31, 1998, 1997 and 1996 the
results of operations presented below are before the elimination of intercompany
interest (in thousands, except subscribers):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL
AND LONG
CELLULAR TELE- FIXED DISTANCE CABLE RADIO
COMMUNICATIONS TELEPHONY TELEPHONY TELEVISION PAGING BROADCASTING OTHER (2) TOTAL
-------------- --------- ------------- ---------- -------- ------------ --------- --------
COMBINED
Revenues................. $ 22,091 $ 30 $27,187 $ 31,440 $ 20,426 $19,215 $ 6,249 $126,638
Depreciation and
amortization........... 9,384 13 1,927 13,597 3,161 1,440 1,087 30,609
Operating income
(loss)................. (5,665) (403) 7,849 (5,212) (19,999) 1,046 (2,571) (24,955)
Interest income.......... 2 -- 14 4 16 363 29 428
Interest expense......... 6,831 96 375 5,480 2,572 495 921 16,770
Net income (loss)........ (12,821) (495) 5,333 (11,705) (26,256) (1,767) (3,584) (51,295)

Assets................... 75,629 1,105 25,599 40,652 16,727 20,884 15,255 195,851
Capital expenditures..... 31,781 652 2,062 12,807 4,482 1,427 3,278 56,489
Subscribers
(unaudited)............ 49,607 n/a n/a 315,864 110,234 n/a n/a 475,705

CONSOLIDATED SUBSIDIARIES
AND JOINT VENTURES (1)
Revenues................. $-- $ -- $-- $ 3,444 $ 4,204 $17,081 $ 3,200 $ 27,929
Depreciation and
amortization........... -- -- -- 1,541 1,591 1,228 481 4,841
Operating income
(loss)................. -- -- -- (1,475) (20,632) 1,171 (186) (21,122)
Interest income.......... -- -- -- -- 13 363 29 405
Interest expense......... -- -- -- 942 1,721 480 106 3,249
Net loss................. -- -- -- (2,720) (22,872) (1,546) (364) (27,502)

Assets................... -- -- -- 7,289 3,629 19,564 12,535 43,017
Capital expenditures..... -- -- -- 760 2,278 1,099 -- 4,137

UNCONSOLIDATED JOINT
VENTURES
Revenues................. $ 22,091 $ 30 $27,187 $ 27,996 $ 16,222 $ 2,134 $ 3,049 $ 98,709
Depreciation and
amortization........... 9,384 13 1,927 12,056 1,570 212 606 25,768
Operating income
(loss)................. (5,665) (403) 7,849 (3,737) 633 (125) (2,385) (3,833)
Interest income.......... 2 -- 14 4 3 -- -- 23
Interest expense......... 6,831 96 375 4,538 851 15 815 13,521
Net income (loss)........ (12,821) (495) 5,333 (8,985) (3,384) (221) (3,220) (23,793)

Assets................... 75,629 1,105 25,599 33,363 13,098 1,320 2,720 152,834
Capital expenditures..... 31,781 652 2,062 12,047 2,204 328 3,278 52,352

Net investment in Joint
Ventures............... 22,865 1,168 5,922 27,009 9,665 2,147 -- 68,776
Equity in income (losses)
of unconsolidated
investees.............. (5,867) (515) 1,600 (3,877) (7,460) (108) (884) (17,111)
</TABLE>

F-20
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL
AND LONG
CELLULAR TELE- DISTANCE CABLE RADIO
COMMUNICATIONS TELEPHONY TELEVISION PAGING BROADCASTING OTHER (2) TOTAL
--------------- ------------- ----------- --------- ------------- ----------- ---------
COMBINED
Revenues........................... $ 2,587 $ 30,866 $ 23,314 $ 12,999 $ 16,015 $ 4,004 $ 89,785
Depreciation and amortization...... 2,380 1,287 9,648 1,630 699 981 16,625
Operating income (loss)............ (6,761) 17,244 (6,831) (3,905) 4,182 (3,325) 604
Interest income.................... 12 31 9 70 152 22 296
Interest expense................... 1,046 382 4,146 1,483 469 460 7,986
Net income (loss).................. (8,129) 14,030 (12,529) (6,516) 1,477 (3,886) (15,553)

Assets............................. 53,495 27,558 36,618 18,001 16,637 10,821 163,130
Capital expenditures............... 42,276 8,331 9,667 2,838 739 2,560 66,411
Subscribers (unaudited)............ 10,429 n/a 225,525 57,831 n/a n/a 293,785

CONSOLIDATED SUBSIDIARIES AND JOINT
VENTURES (1)
Revenues........................... $ -- $ -- $ 1,902 $ 3,318 $ 13,549 $ 598 $ 19,367
Depreciation and amortization...... -- -- 791 790 607 89 2,277
Operating income (loss)............ -- -- (1,953) (4,084) 3,935 145 (1,957)
Interest income.................... -- -- 5 66 146 22 239
Interest expense................... -- -- 577 683 387 -- 1,647
Net income (loss).................. -- -- (2,654) (5,198) 1,356 167 (6,329)

Assets............................. -- -- 8,148 8,132 15,073 6,581 37,934
Capital expenditures............... -- -- 1,423 1,895 238 -- 3,556

UNCONSOLIDATED JOINT VENTURES
Revenues........................... $ 2,587 $ 30,866 $ 21,412 $ 9,681 $ 2,466 $ 3,406 $ 70,418
Depreciation and amortization...... 2,380 1,287 8,857 840 92 892 14,348
Operating income (loss)............ (6,761) 17,244 (4,878) 179 247 (3,470) 2,561
Interest income.................... 12 31 4 4 6 -- 57
Interest expense................... 1,046 382 3,569 800 82 460 6,339
Net income (loss).................. (8,129) 14,030 (9,875) (1,318) 121 (4,053) (9,224)

Assets............................. 53,495 27,558 28,470 9,869 1,564 4,240 125,196
Capital expenditures............... 42,276 8,331 8,244 943 501 2,560 62,855

Net investment in Joint Ventures... 18,947 6,080 23,022 9,144 2,901 6,150 66,244
Equity in income (losses) of
unconsolidated investees......... (2,027) 4,209 (7,212) (761) 159 (1,601) (7,233)
</TABLE>

F-21
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL
AND LONG
DISTANCE CABLE RADIO
TELEPHONY TELEVISION PAGING BROADCASTING OTHER TOTAL
------------- ----------- --------- ------------- --------- ---------
COMBINED
Revenues.............................................. $ 19,177 $ 15,243 $ 10,864 $ 10,899 $ 1,030 $ 57,213
Depreciation and amortization......................... 617 5,964 1,645 257 493 8,976
Operating income (loss)............................... 3,122 (5,990) (943) 279 (1,409) (4,941)
Interest income....................................... -- -- 84 90 -- 174
Interest expense...................................... 65 2,685 1,039 434 223 4,446
Net income (loss)..................................... 2,997 (9,170) (2,896) (681) (1,690) (11,440)

Assets................................................ 13,815 27,238 12,829 4,125 8,345 66,352
Capital expenditures.................................. 2,096 7,944 3,439 789 -- 14,268
Subscribers (unaudited)............................... n/a 69,118 44,836 n/a n/a 113,954

CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES (1)
Revenues.............................................. $ -- $ 170 $ 2,880 $ 9,363 $ -- $ 12,413
Depreciation and amortization......................... -- 302 461 174 -- 937
Operating income (loss)............................... -- (832) (427) 2,102 -- 843
Interest income....................................... -- -- 81 90 -- 171
Interest expense...................................... -- 116 270 177 -- 563
Net income (loss)..................................... -- (1,216) (1,209) 1,468 -- (957)

Assets................................................ -- 2,017 3,232 3,483 -- 8,732
Capital expenditures.................................. -- 1,813 443 555 -- 2,811

UNCONSOLIDATED JOINT VENTURES
Revenues.............................................. $ 19,177 $ 15,073 $ 7,984 $ 1,536 $ 1,030 $ 44,800
Depreciation and amortization......................... 617 5,662 1,184 83 493 8,039
Operating income (loss)............................... 3,122 (5,158) (516) (1,823) (1,409) (5,784)
Interest income....................................... -- -- 3 -- -- 3
Interest expense...................................... 65 2,569 769 257 223 3,883
Net income (loss)..................................... 2,997 (7,954) (1,687) (2,149) (1,690) (10,483)

Assets................................................ 13,815 25,221 9,597 642 8,345 57,620
Capital expenditures.................................. 2,096 6,131 2,996 234 -- 11,457

Net investment in Joint Ventures...................... 2,704 23,662 9,869 796 2,049 39,080
Equity in income (losses) of unconsolidated
investees........................................... 899 (5,011) (1,232) (1,896) (595) (7,835)
</TABLE>

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

(1) Does not reflect the Communications Group's and Protocall's headquarters
revenue and selling, general and administrative expenses for the years ended
December 31, 1998, 1997 and 1996, respectively.

(2) Other includes the results of Protocall Ventures, the Communications Group's
trunked mobile radio operations, consolidated and unconsolidated Joint
Ventures through the six months ended June 30, 1998 and the results of
Spectrum through the year ended December 31, 1998.

In December 1998, the Communications Group purchased an 81% interest in ATK, a
cable television Joint Venture in the Archangelsk region of Russia.

F-22
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET
UNION (CONTINUED)

In November 1998, the Communications Group announced its investment in a fixed
mobile cellular telephone system in the regions of Tyumen and Tobolsk, Russian
Federation ("Russia"). The Communications Group has agreed to make a $1.7
million equity contribution to its Joint Venture, Tyumen Ruskom, and to lend the
Joint Venture up to $4.0 million for start-up costs and other operating
expenses. Tyumen Ruskom also intends to provide wireless local loop telephone
services.

In August 1998, the Communications Group formed a venture to acquire a 76%
interest in Omni-Metromedia Caspian, Ltd., a company that owns 50% of a joint
venture in Azerbaijan, Caspian American Telecommunications, LLC ("CAT"). CAT has
been licensed by the Ministry of Communications of Azerbaijan to provide high
speed wireless local loop services and digital switching throughout Azerbaijan.
Omni-Metromedia has committed to provide up to $40.5 million in loans to CAT for
the funding of equipment acquisition and operational expenses in accordance with
CAT's business plans.

In July 1998 the Communications Group sold its share of Protocall Ventures
Limited ("Protocall Ventures"). As part of the transaction, Protocall Ventures
repaid the outstanding amount of its debt to the Communications Group. The
Company recorded a gain on the sale of Protocall Ventures of approximately $7.1
million. The Company has written down the carrying value of its remaining
trunked mobile radio investment at December 31, 1998. The write off of $1.5
million is offset against the gain on the sale of Protocall Ventures.

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA

In February 1997, MCC, a subsidiary of the Company with telephony interests in
China, acquired Asian American Telecommunications Corporation ("AAT") pursuant
to a Business Combination Agreement (the "BCA") in which MCC and AAT agreed to
combine their businesses and operations. Pursuant to the BCA, each AAT
shareholder and warrant holder exchanged (i) one share of AAT common stock (the
"AAT Common Stock") for one share of MCC Common Stock, par value $.01 per share
("MCC Common Stock"), (ii) one warrant to acquire one share of AAT Common Stock
at an exercise price of $4.00 per share for one warrant to acquire one share of
MCC Common Stock at an exercise price of $4.00 per share and (iii) one warrant
to acquire one share of AAT Common Stock at an exercise price of $6.00 per share
for one warrant to acquire one share of MCC Common Stock at an exercise price of
$6.00 per share. AAT is engaged in providing funding, consultation and support
services to Chinese operators undertaking development and construction of
communications services in China. The transaction was accounted for as a
purchase, with MCC as the acquiring entity.

As a condition to the closing of the BCA, MITI purchased from MCC, for an
aggregate purchase price of $10.0 million, 3,000,000 shares of MCC Class A
Common Stock, par value $.01 per share (the "MCC Class A Common Stock") and
warrants to purchase an additional 1,250,000 shares of MCC Class A Common Stock,
at an exercise price of $6.00 per share. Shares of MCC Class A Common Stock are
identical to shares of MCC Common Stock except that they are entitled, when
owned by MITI, to three votes per share on all matters voted upon by MCC's
stockholders and to vote as a separate class to elect six of the ten members to
MCC's Board of Directors. The securities received by the Communications Group
are not registered under the Securities Act, but have certain demand and
piggyback registration rights as provided in the stock purchase agreement. As a
result of the transaction MITI owned 56.5% of MCC's outstanding common stock
with 79.6% voting rights. Subsequently,

F-23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)
additional shares were purchased from a minority shareholder, increasing the
ownership percentage to 58.4% with 80.4% of the voting rights.

The purchase price of the AAT transaction was determined to be $86.0 million.
The excess of the purchase price over the fair value of the net tangible assets
acquired was $69.0 million. This has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. The amortization of such
goodwill for the year ended December 31, 1997 was approximately $2.3 million.
The purchase price was allocated as follows (in thousands):

<TABLE>
<S> <C>
Current assets..................................................... $ 46
Property, plant and equipment...................................... 279
Investments in Joint Ventures...................................... 18,950
Goodwill........................................................... 68,975
Current liabilities................................................ (2,202)
Other liabilities.................................................. (5)
---------
Purchase price..................................................... $ 86,043
---------
---------
</TABLE>

The difference between the Company's investment balance of $18.6 million in MCC
prior to the acquisition of AAT and 56.52% of the net equity of MCC subsequent
to the acquisition of AAT of $53.7 million was recorded as an increase to
paid-in surplus of $35.1 million in the consolidated statements of stockholders'
equity.

At December 31, 1998 and 1997, the Company's investments in the Joint Ventures
in China, at cost, net of adjustments for its equity in earnings or losses and
distributions, were as follows (in thousands):

The Joint Ventures participate in cooperation contracts with China Unicom that
entitle the Joint Ventures to certain percentages of the projects' distributable
cash flows. The Joint Ventures amortize the contributions to these cooperation
contracts over the cooperation periods of benefit (15 to 25 years).

(A) SICHUAN JV

On May 21, 1996, AAT, a majority-owned subsidiary of the Company, entered into a
Joint Venture Agreement with China Huaneng Technology Development Corp. ("CHTD")
for the purpose of

F-24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)
establishing Sichuan Tai Li Feng Telecommunications Co., Ltd. Also on May 21,
1996, Sichuan JV entered into a Network Systems Cooperation Contract (the "STLF
Contract") with China Unicom. The STLF Contract covers the funding, construction
and development of a fixed line Public Services Telephone Network ("PSTN")
providing local telephone service in cities within Sichuan Province and long
distance telephone service among those cities (the "Sichuan Network"). The
initial project covered by the STLF Contract includes development of 50,000
local telephone lines in Chengdu and Chongqing cities, and construction of a
fiber optic long distance facility between these two cities. Subsequent projects
covered by the STLF Contract and the existing and future Joint Ventures may
expand services to 1,000,000 local telephone lines in cities throughout Sichuan
Province, and to construct fiber optic long distance facilities among these
cities. The STLF Contract has a cooperation term of twenty-five years.

Under the STLF Contract, China Unicom will be responsible for the construction
and operation of the Sichuan Network, while Sichuan JV will provide financing
and consulting services for the project. Distributable cash flows, as defined in
the STLF Contract, are to be distributed 22% to China Unicom and 78% to Sichuan
JV throughout the term of the STLF contract. Sichuan JV holds non-transferable
title to all assets acquired or constructed with the funds that it provides to
China Unicom, except for any assets used to provide inter-city long distance
service, title to which immediately passes to China Unicom. On the tenth
anniversary of completion of the Sichuan Network's initial phase, title to
assets held by Sichuan JV will transfer to China Unicom. Sichuan JV and China
Unicom consider the cost of all assets acquired or constructed with investment
funds from Sichuan JV to be part of Sichuan JV's contribution to the STLF
Contract, regardless of whether Sichuan JV holds title to such assets.

The total amount to be invested in Sichuan JV is $29.5 million with equity
contributions from its shareholders amounting to $12.0 million. AAT has made
capital contributions to Sichuan JV of $11.1 million of its total $11.4 million
contribution and CHTD has contributed $600,000. The remaining investment will be
in the form of up to $17.5 million of loans from AAT, plus deferred payment
credit from the manufacturers of the equipment used in construction of the
Sichuan Network. As of December 31, 1998, AAT had loans outstanding to Sichuan
JV in the amount of $9.3 million. These loans bear interest at 10% per annum.
Ownership of the Sichuan JV is 92% by AAT and 8% by CHTD.

AAT also has a consulting contract with CHTD covering the latter's assistance
with operations in China. Under the contract, AAT is obligated to pay CHTD an
annual consulting fee of RMB 15.0 million (U.S. $1.8 million at December 31,
1998 exchange rates).

(B) CHONGQING JV

In May 1997, Chongqing Municipality was made a separate region from Sichuan
Province administered directly by the Chinese government. In an amendment to the
STLF Contract, China Unicom agreed to recognize Chongqing Municipality as being
covered by the terms of that contract, thereby explicitly extending Sichuan JV's
rights and obligations under that contract to include the newly independent
Chongqing Municipality, including rights and obligations for any long distance
services developed by China Unicom between cities in Chongqing Municipality and
those of Sichuan Province. On September 9, 1997, AAT entered into a Joint
Venture Agreement with CHTD for the purpose of establishing Chongqing JV.
Sichuan JV and Chongqing JV entered into an agreement whereby Chongqing JV
assumed the rights and obligations of Sichuan JV under the STLF Contract, as

F-25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)
amended, that relate to financing of and consulting services for those portions
of the originally contemplated Sichuan Network that would now lie within
Chongqing Municipality (the "Chongqing Network"). Rights and obligations under
the STLF Contract, as amended, that relate to financing and consulting services
for those portions of the originally contemplated Sichuan Network lying within
the redefined boundaries of Sichuan Province (a redefinition of the "Sichuan
Network") would remain with Sichuan JV.

The total amount to be invested in Chongqing JV is $29.5 million with registered
capital contributions from its shareholders amounting to $14.8 million. AAT has
made capital contributions of $13.6 million of its total $14.1 million
contribution and CHTD has contributed $740,000. The remaining investment in
Chongqing JV will be in the form of up to $14.7 million of loans from AAT plus
deferred payment credit from the manufacturers of the equipment used in
construction of the Chongqing Network. As of December 31, 1998, AAT had loans
outstanding to Chongqing JV in the amount of $2.5 million. The loans bear
interest at 10% per annum. Ownership in Chongqing JV is 92% by AAT and 8% by
CHTD.

Commercial operations were launched on the Chongqing Network and Sichuan Network
in January 1999.

AAT entered into a Joint Venture Agreement with Ningbo United Telecommunications
Investment Co., Ltd. ("NUT") on September 17, 1996 for the purpose of
establishing Ningbo Ya Mei Telecommunications Co., Ltd. ("Ningbo JV").
Previously NUT had entered into a Network System Cooperation Contract with China
Unicom (the "NUT Contract") covering development of a GSM telecommunications
project in the City of Ningbo, Zhejiang Province, for China Unicom. The project
entails construction of a mobile communications network with a total capacity of
50,000 subscribers. China Unicom constructed and operates the network. Under the
NUT Contract, NUT is to provide financing and consulting services to China
Unicom. The cooperation period for the NUT Contract is fifteen years.

With the formation of Ningbo JV, NUT assigned all of its rights and obligations
under the NUT Contract to Ningbo JV. This assignment of rights and obligations
was explicitly ratified by China Unicom in an amendment to the NUT Contract. NUT
also agreed to assign rights of first refusal on additional telecommunications
projects to Ningbo JV in the event such rights are granted to NUT by China
Unicom. Distributable cash flows, as defined in the amended NUT Contract, are to
be distributed 27% to China Unicom and 73% to Ningbo JV throughout the
contract's cooperation period. Under the amended NUT Contract, Ningbo JV will
hold non-transferable title to 70% of all assets acquired or constructed by
China Unicom with investment funds provided by Ningbo JV. Ningbo JV's title to
these assets will transfer to China Unicom as Ningbo JV's funding of the assets
is returned by distributions from China Unicom. Ningbo JV and China Unicom
consider the cost of all assets acquired with funding from Ningbo JV to be part
of Ningbo JV's contribution to the NUT Contract, regardless of whether Ningbo JV
holds title to such assets.

The initial amount to be invested in Ningbo JV was $29.5 million with registered
capital contributions from its investors amounting to $11.9 million. AAT has
currently provided $8.3 million in capital contributions, representing 70% of
Ningbo JV's registered capital. NUT provided $3.6 million of registered capital
contributions to Ningbo JV, representing 30% of Ningbo JV's equity. Ningbo JV
has arranged loans with AAT, manufacturers of the equipment for the project and
banks. As of

F-26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)
December 31, 1998, AAT had long term loans to Ningbo JV in the amount of $23.0
million. A substantial portion of these loans was incurred to refinance previous
loans from manufacturers. These loans bear interest at 10% per annum. Ownership
in Ningbo JV is 70% by AAT and 30% by NUT.

(D) NINGBO JV II

Pursuant to the Ningbo Expansion Agreement, AAT and NUT entered into a second
Joint Venture Agreement and formed Ningbo Ya Lian Telecommunications Co., Ltd.
In an amendment to the Ningbo Expansion Agreement dated July 8, 1998, China
Unicom and Ningbo JV agreed to assign all rights and obligations originally held
by Ningbo JV under the Ningbo Expansion Agreement to Ningbo JV II.

The total amount to be invested in Ningbo JV II is $18.0 million with registered
capital contributions from its investors amounting to $7.2 million. As of
December 31, 1998, AAT had made its $5.0 million registered capital
contribution, and NUT had made its $2.2 million registered capital contribution.
The remaining investment in Ningbo JV II beyond planned registered capital
contributions from its investors will be in the form of up to $10.8 million of
loans from AAT plus deferred payment credit from the manufacturers of the
equipment used in construction of the expansion network. As of December 31,
1998, AAT had loans outstanding to Ningbo JV II in the amount of $2.0 million.
This loan bears interest at 8% per annum. Ownership in Ningbo JV II is 70% by
AAT and 30% by NUT.

Commercial services commenced on the completed portions of the Ningbo expansion
in November 1998. The network was fully completed and in service in February
1999.

F-27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)
The following tables represent summary financial information for the Joint
Ventures and their related projects in China as of and for the years ended
December 31, 1998 and 1997, respectively, (in thousands, except subscribers):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINGBO SICHUAN CHONGQING
NINGBO JV JV II JV JV TOTAL
----------- ----------- --------- ----------- ---------
Revenues.................................................. $ 3,429 $ -- $ -- $ 54 $ 3,483
Depreciation and amortization............................. 2,418 -- 38 206 2,662
Operating income (loss)................................... 707 (46) (691) (630) (660)
Interest income (expense), net............................ (2,584) (1) (363) 41 (2,907)
Net loss.................................................. (1,877) (47) (1,054) (589) (3,567)

Assets.................................................... 33,864 9,856 20,570 16,885 81,175
Net investment in project 31,332 6,399 17,028 9,491 64,250
Equity in income (losses) of Joint Ventures 133 (27) (632) (514) (1,040)
Subscribers 44,477 -- -- -- 44,477
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------
<S> <C> <C> <C> <C>
NINGBO SICHUAN CHONGQING
JV JV JV TOTAL
----------- --------- ----------- ---------
Revenues............................................................ $ 1,422 $ -- $ -- $ 1,422
Depreciation and amortization....................................... 1,154 25 -- 1,179
Operating income (loss)............................................. 56 (223) (20) (187)
Interest income (expense), net...................................... (1,870) 70 5 (1,795)
Net loss............................................................ (1,814) (153) (15) (1,982)

Assets.............................................................. 36,605 11,899 7,901 56,405
Net investment in project........................................... 32,669 8,815 3,791 45,275
Equity in losses of Joint Ventures.................................. (706) (141) (14) (861)
Subscribers......................................................... 11,413 -- -- 11,413
</TABLE>

For the years ended December 31, 1998, 1997 and 1996 the results of operations
presented above are before the elimination of intercompany interest. Ningbo JV
records revenues from the Ningbo China Unicom GSM project based on amounts of
revenues and profits reported to it by China Unicom through the period October
1, 1997 to September 30, 1998 and May 17, 1997 to September 30, 1997. Chongqing
JV records revenues from the lease of space currently unused by China Unicom
within a building that was purchased by Chongqing JV for China Unicom's long
term use as a switching and operations center. As of December 31, 1998,
Chongqing JV directly owned this building, but Chongqing JV plans to eventually
transfer the building to China Unicom as part of its funding and support under
the STLF Contract.

F-28
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED)

(E) GOLDEN CELLULAR JV

In 1998, the Company dissolved Beijing Metromedia-Jinfeng Communications
Technology Development Co. Ltd. ("Golden Cellular JV"), a Joint Venture created
in March 1996 with Golden Cellular Communication Co., Ltd. ("GCC") for the
purpose of developing, manufacturing, assembling and servicing of wireless
telecommunications equipment, central telephone terminals and subscriber
telephone terminals equipment and networks using Airspan Communications
Corporation (an equipment manufacturer) technology in China.

GCC and Metromedia China Telephony Limited ("MCTL") entered into a settlement
contract on March 3, 1998 which provides the terms for dissolution of the Golden
Cellular JV. MCTL has agreed to reimburse GCC $876,000 for certain development
expenses incurred by GCC and assign to GCC all of MCTL's rights to the assets of
the Golden Cellular JV, valued at approximately $720,000. Certain equipment
imported to China by MCTL has been transferred out of China. MCTL was
responsible for the costs of shipping the equipment out of China. The Company
recorded $1.5 million as the cost to dissolve the Golden Cellular JV, which is
included in operating expenses in the consolidated statements of operations.

4. LONG-TERM DEBT

Long-term debt at December 31, 1998 and 1997 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
MMG.................................................................... $ -- $ 1,410
--------- ----------
SNAPPER
Snapper Term Loan...................................................... 5,000 --
Snapper Revolving Loan................................................. 44,918 --
Snapper Revolver....................................................... -- 75,359
Industrial Development Bonds........................................... 1,000 1,024
--------- ----------
50,918 76,383
--------- ----------
Capital lease obligations, interest rates of 7% to 13% 916 1,623
--------- ----------
Long-term debt....................................................... 51,834 79,416
Current portion...................................................... 1,723 (21,478)
--------- ----------
Long-term debt..................................................... $ 50,111 $ 57,938
--------- ----------
--------- ----------
</TABLE>

Aggregate annual repayments of long-term debt over the next five years and
thereafter are as follows (in thousands):

F-29
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
MMG DEBT

In connection with the Entertainment Group Sale in 1997 (see note 5), the
Company repaid all of its outstanding debentures. During August 1997 the Company
repaid its 9 1/2% Subordinated Debentures, 10% Subordinated Debentures and
6 1/2% Convertible Subordinated Debentures. In connection with the repayment of
its outstanding debentures, the Company expensed certain unamortized discounts
associated with the debentures and recognized an extraordinary loss of $13.6
million on the extinguishment of the debt.

SNAPPER

On November 11, 1998, Snapper entered into a Loan and Security Agreement with
Fleet Capital Corporation ("Fleet"), as agent and as the initial Lender,
pursuant to which the Lenders agreed to provide Snapper with a $5.0 million term
loan facility and a $55.0 million revolving credit facility (the "Snapper
Loan"), the proceeds of which were used to refinance Snapper's obligations under
the old Snapper Credit Agreement (as defined below) and will also be used for
working capital purposes. The Snapper Loan will mature in November 2003,
(subject to automatic one year renewals) and is guaranteed by the Company up to
$10,000,000 (increasing to $15,000,000 on the occurrence of specified events).
Snapper was in compliance with all bank covenants under the Loan and Security
Agreement at December 31, 1998.

Interest under the Snapper Loan agreement is payable at the Company's option at
a rate equal to either (i) the prime rate plus .25% (from November 11, 1998
through March 31, 2000) or at the prime rate, the prime rate plus .25% or .5%
(from April 1, 2000 to the Snapper Loan agreement termination date) depending on
meeting certain leverage ratios or (ii) LIBOR (as defined in the Snapper loan
agreement) plus 3.0% (from November 11, 1998 through March 31, 2000) or LIBOR
plus 2.50%, 2.75%, 3.00%, 3.25%, (from April 1, 2000 to the Snapper Loan
agreement termination date) depending on meeting certain leverage ratios. The
Snapper loan agreement contains customary covenants, including delivery of
certain monthly, quarterly, and annual financial information; delivery of
budgets and other information related to Snapper; limitations on Snapper's
ability to (i) sell, transfer, lease (including sale-leaseback), or otherwise
dispose of all or any portion of its assets or merge with any person; (ii)
acquire an equity interest in another business; (iii) enter into any contracts,
leases, sales, or other transactions with any division or an affiliate of the
Company, without the prior written consent of Fleet; (iv) declare or pay any
dividends or make any distributions upon any of its stock or directly or
indirectly apply any of its assets to the redemption, retirement, purchase or
other acquisition of its stock; (v) make any payments to the Company on a
subordinated promissory note issued by Snapper to the Company; (vi) make capital
expenditures that exceed $5.0 million in any fiscal year or exceed $2.0 million
financed for longer than three years in any fiscal year; and (vii) make loans,
issue additional indebtedness, or make any guarantees. In addition, Snapper is
required to maintain at all times as of the last day of each month a specified
net worth, as well as a quarterly specified fixed charge coverage ratio. The
Snapper Loan agreement is secured by a continuing security interest on all of
Snapper's assets and properties.

On November 26, 1996, Snapper entered into a credit agreement (the "old Snapper
Credit Agreement") with AmSouth Bank of Alabama ("AmSouth"), pursuant to which
AmSouth had agreed to make available to Snapper a revolving line of credit up to
$55.0 million, upon the terms and subject to conditions contained in the old
Snapper Credit Agreement (the "Snapper Revolver") for a period

F-30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
ending on January 1, 1999 (the "Snapper Revolver Termination Date"). The Snapper
Revolver was guaranteed by the Company, and was repaid. Interest under the
Snapper Revolver was payable at Snapper's option at a rate equal to either (i)
prime plus .5% (from November 26, 1996 through May 25, 1997) and prime plus 1.5%
(from May 26, 1997 to the Snapper Revolver Termination Date) and (ii) LIBOR (as
defined in the old Snapper Credit Agreement) plus 2.5% (from November 26, 1996
through May 25, 1997) and LIBOR plus 3.5% (from May 26, 1997 to the Snapper
Revolver Termination Date).

The Snapper Revolver contained standard representations and warranties,
covenants and events of default and provided for the grant of a security
interest in substantially all of Snapper's assets. The old Snapper Credit
Agreement was secured by a first priority security interest in all of Snapper's
assets and properties and was also entitled to the benefit of a replenishable
$1.0 million cash collateral account, which was initially funded by Snapper.
Under the old Snapper Credit Agreement, AmSouth could draw upon amounts in the
cash collateral account to satisfy any payment defaults by Snapper and Messrs.
Kluge and Subotnick, Chairman of the Board of MMG and Vice Chairman, President
and Chief Executive Officer of MMG, respectively, were obligated to replenish
such account any time amounts were so withdrawn up to the entire amount of the
Snapper Revolver.

At December 31, 1996, Snapper was not in compliance with certain of these
covenants. The Company and AmSouth amended the Snapper Credit Agreement to
provide for (i) an annual administrative fee to be paid on December 31, 1997,
(ii) an increase in Snapper's borrowing rates as of December 31, 1997 (from
prime rate to prime rate plus 1.50% and from LIBOR plus 2.50% to LIBOR plus
4.00%), and (iii) an increase in Snapper's commitment fee as of December 31,
1997 from .50% per annum to .75% per annum. As part of the amendment to the old
Snapper Credit Agreement AmSouth waived: (i) the covenant defaults as of
December 31, 1996, (ii) the $250,000 semi-annual administrative fee requirement
which was set to commence on May 26, 1997 and (iii) the mandatory borrowing rate
and commitment fee increase that was to occur on May 26, 1997. Furthermore, the
amendment replaced certain existing financial covenants with covenants on
minimum quarterly cash flow and equity requirements, as defined. In addition,
the Company and AmSouth agreed to a $10.0 million credit facility.

On April 30, 1997, Snapper closed a $10.0 million working capital facility
("Working Capital Facility") with AmSouth which amended Snapper's then existing
$55.0 million facility. The Working Capital Facility (i) provided AmSouth with a
PARI PASSU collateral interest in all of Snapper's assets (including rights
under a Make-Whole and Pledge Agreement made by Metromedia in favor of AmSouth
in connection with the Snapper Revolver), (ii) accrued interest on borrowings at
AmSouth's floating prime rate (same borrowing rate as the Snapper Revolver), and
(iii) was due and payable on October 1, 1997. On October 1, 1997 the Company
repaid the $10.0 million Working Capital Facility.

On November 12, 1997, Snapper amended and restated the old Snapper Credit
Agreement to increase the amount of the revolving line of credit from $55.0
million to $80.0 million. The Snapper Revolver bore interest at an applicable
margin above the prime rate (up to 1.5%) or a LIBOR rate (up to 4.0%). The
Snapper Revolver was to mature on January 1, 2000. The Snapper Revolver was
guaranteed by the Company and Messrs. Kluge and Subotnick agreed to guarantee
$10.0 million of the Snapper Revolver. The old Snapper Credit Agreement, as
amended, continued to contain certain financial covenants regarding maintaining
minimum tangible net worth and satisfying certain quarterly cash flow
requirements.

F-31
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
At December 31, 1997, Snapper was not in compliance with the financial covenants
under the Snapper Revolver. The Company and AmSouth amended the Snapper Credit
Agreement to provide for (i) a reduction in the amount of the line of credit
from $80.0 million to $55.0 million as of July 1, 1998 and (ii) a reduction in
the finished goods advance rate from 80% to 70% as of July 1, 1998 and a further
reduction to 50% on December 31, 1998. As a part of the amendment to the old
Snapper Credit Agreement, AmSouth waived the covenant defaults as of December
31, 1997. Furthermore, the amendment replaced the existing 1998 financial
covenants with covenants reflecting Snapper's anticipated cash flow and equity
changes based on the seasonality of the business.

As of June 30, 1998, Snapper was not in compliance with certain financial
covenants under the old Snapper Credit Agreement. The Company and AmSouth
amended the old Snapper Credit Agreement which provided for a reduction of the
line of credit from $55.0 million to $51.0 million as of August 13, 1998. As
part of the amendment to the old Snapper Credit Agreement, AmSouth waived the
covenant defaults as of June 30, 1998. As of September 30, 1998, Snapper was not
in compliance with certain financial covenants under the old Snapper Credit
Agreement.

It is assumed that the carrying value of Snapper's bank debt approximates its
face value because it is a floating rate instrument.

In addition, Snapper has industrial development bonds with certain
municipalities. The industrial development bonds mature in 1999 and 2001, and
their interest rates range from 62% to 75% of the prime rate.

5. THE ENTERTAINMENT GROUP SALE

On July 10, 1997, the Company sold the stock of Orion Pictures Corporation
("Orion"), including substantially all of the assets of its entertainment group
(the "Entertainment Group"), consisting of Orion, Goldwyn Entertainment Company
("Goldwyn") and Motion Picture Corporation of America ("MPCA") (and their
respective subsidiaries) which included a feature film and television library of
over 2,200 titles, to P&F Acquisition Corp. ("P&F"), the parent company of
Metro-Goldwyn-Mayer Inc. ("MGM") for a gross consideration of $573.0 million of
which $296.4 million of the proceeds from the Entertainment Group Sale was used
to repay amounts outstanding under the Entertainment Group's credit facilities
and certain other indebtedness of the Entertainment Group.

The net gain on sale reflected in the consolidated statement of operations for
the year ended December 31, 1997 is as follows (in thousands):

<TABLE>
<S> <C>
Net proceeds...................................................... $ 276,607
Net liabilities of Entertainment Group at May 2, 1997............. 22,089
Transaction costs................................................. (6,000)
Income taxes...................................................... (26,402)
---------
Gain on Entertainment Group Sale.................................. $ 266,294
---------
---------
</TABLE>

The Entertainment Group's revenues for the period January 1, 1997 to May 2, 1997
and the year ended December 31, 1996 were $41.7 million and $135.6 million,
respectively. The Entertainment Group's loss from operations for the period
January 1, 1997 to May 2, 1997 and the year ended December 31, 1996 were $32.2
million and $23.4 million, respectively. Loss from operations for the

F-32
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. THE ENTERTAINMENT GROUP SALE (CONTINUED)
period January 1, 1997 to May 2, 1997 and the years ended December 31, 1996
include income tax expense (benefit) of ($3.2) million and $1.0 million,
respectively.

For the year ended December 31, 1998, included in discontinued operations is
$8.7 million which represents a refund of tax payments made by the Entertainment
Group in prior years.

In connection with the refinancing of an existing credit facility, the
Entertainment Group expensed the deferred financing costs associated with the
existing credit facility and recorded an extraordinary loss of approximately
$4.5 million in 1996.

The following unaudited pro forma information illustrates the effect on the
Company's results of operations of (1) the Entertainment Group Sale, (2) the
repayment of MMG's outstanding subordinated debentures (see note 4), (3) the
acquisition of AAT (see note 3) and (4) the sale of Landmark (see note 6) on
revenues, loss from continuing operations and loss from continuing operations
per share for the year ended December 31, 1997. The unaudited pro forma
information assumes (1) the Entertainment Group Sale, (2) the repayment of MMG's
outstanding subordinated debentures and (3) the acquisition of AAT and (4) the
sale of Landmark occurred at the beginning of the period (in thousands, except
per share amounts).

<TABLE>
<CAPTION>
1997
-----------
<S> <C>
(UNAUDITED)
Revenues......................................................................... $ 204,328
-----------
-----------
Loss from continuing operations.................................................. $ (123,015)
-----------
-----------
Loss from continuing operations per share........................................ $ (1.84)
-----------
-----------
</TABLE>

6. SALE OF LANDMARK THEATRE GROUP

On April 16, 1998, the Company sold to Silver Cinemas, Inc. (the "Landmark
Sale") all of the assets of Landmark, except cash, for an aggregate cash
purchase price of approximately $62.5 million and the assumption of certain
Landmark liabilities. The Landmark Sale has been recorded as a discontinuance of
a business segment in the accompanying consolidated financial statements.

F-33
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SALE OF LANDMARK THEATRE GROUP (CONTINUED)

The gain on the Landmark Sale reflected in the consolidated statements of
operations is as follows (in thousands):

<TABLE>
<S> <C>
Net proceeds....................................................... $ 57,298
Net assets of Landmark at November 12, 1997........................ (48,531)
Income taxes....................................................... (5,115)
---------
Gain on Landmark Sale.......................................... $ 3,652
---------
---------
</TABLE>

The net assets of Landmark at December 31, 1997 and November 12, 1997, the date
the Company adopted a plan to dispose of Landmark, were as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 12,
1997 1997
------------ ------------
<S> <C> <C>
Current assets................................................... $ 793 $ 906
Non-current assets............................................... 57,183 57,523
Current liabilities.............................................. (6,286) (4,738)
Non-current liabilities.......................................... (4,922) (5,160)
------------ ------------
Net assets................................................... $ 46,768 $ 48,531
------------ ------------
------------ ------------
</TABLE>

Landmark's revenues and income (loss) from operations for the period January 1,
1997 to November 12, 1997 and for the period July 2, 1996 (date of acquisition
of Landmark) to December 31, 1996 were $48.7 million, ($108,000), $29.6 million
and $1.2 million, respectively. Income (loss) from operations for the period
January 1, 1997 to November 12, 1997 includes income taxes of $408,000.

7. SNAPPER, INC.

In connection with a business combination consummated on November 1, 1995,
Snapper was classified as an asset held for sale and was recorded in an amount
equal to the sum of estimated cash flows from the operations of Snapper plus the
anticipated proceeds from the sale of Snapper which amounted to $79.2 million.
Subsequently, the Company announced its intention not to continue to pursue its
previously adopted plan to dispose of Snapper and to actively manage Snapper.
Snapper has been included in the consolidated financial statements from November
1, 1996.

The following table summarizes the operating results of Snapper for the ten
months ended October 31, 1996:

<TABLE>
<S> <C>
Revenue........................................................... $ 130,623
Operating expenses................................................ 148,556
---------
Operating loss.................................................... (17,933)
Interest expense.................................................. (6,859)
Other income (expenses)........................................... 1,210
---------
Loss before income taxes.......................................... (23,582)
Income taxes...................................................... --
---------
Net loss.......................................................... $ (23,582)
---------
---------
</TABLE>

As part of Snapper's transition to the dealer-direct business, Snapper had from
time to time reacquired the inventories and less frequently had purchased the
accounts receivable of distributors it had

F-34
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SNAPPER, INC. (CONTINUED)
cancelled. The purchase of inventories is recorded by reducing sales for the
amount credited to accounts receivable from the cancelled distributor and
recording the repurchased inventory at the lower of cost or market. During 1997
and 1996, 9 and 18 distributors were cancelled, respectively. Snapper completed
the distributor repurchases in 1997. Inventories purchased (and/or credited to
the account of cancelled distributors) under such arrangements amounted to (in
thousands):

<TABLE>
<CAPTION>
TEN MONTHS
TWO MONTHS ENDED
YEAR ENDED ENDED OCTOBER 31,
DECEMBER 31, 1997 DECEMBER 31, 1996 1996
----------------- ----------------- ---------------
<S> <C> <C> <C>
Inventories............................................... $ 25,405 $ 3,117 $ 21,376
Decrease in gross profit.................................. 8,383 2,106 5,967
</TABLE>

8. INVESTMENT IN RDM

In connection with a business combination consummated on November 1, 1995, RDM
was classified as an asset held for sale and the Company excluded its equity in
earnings and losses of RDM from its results of operations. At November 1, 1995,
the Company recorded its investment in RDM to reflect the anticipated proceeds
from its sale. During 1996, the Company reduced the carrying value of its
investment in RDM to its then estimated net realizable value of $31.2 million
and the writedown of $16.3 million was reflected as a discontinued operation in
the 1996 consolidated statement of operations.

On April 1, 1997, for financial statement reporting purposes, the Company no
longer qualified to treat its investment in RDM as a discontinued operation.
Since April 1, 1997, the Company recorded in its results of operations in 1997 a
reduction in the carrying value of its investment in RDM of $18.0 million and
its share of the expected net loss of RDM of $8.2 million.

On June 20, 1997, RDM entered into a $100.0 million revolving and term credit
facility (the "RDM Credit Facility"). The RDM Credit Facility was guaranteed by
a letter of credit in the amount of $15.0 million in favor of the lenders
thereunder (the "Lenders"), which was obtained from Metromedia Company (an
affiliate of the Company) and could not be drawn until five days after a payment
default and fifteen days after Non-Payment Default (as defined under the RDM
Credit Facility). In consideration of providing the letters of credit,
Metromedia Company ("Metromedia") was granted warrants to purchase 3 million
shares of RDM Common Stock (approximately 5% of RDM) ("RDM Warrants") at an
exercise price of $.50 per share. The RDM Warrants had a ten year term and were
exercisable beginning September 19, 1997. In accordance with the terms of the
agreement entered into in connection with the RDM Credit Facility, Metromedia
offered the Company the opportunity to substitute its letter of credit for
Metromedia's letter of credit and to receive the RDM Warrants. On July 10, 1997,
the Company's Board of Directors elected to substitute its letter of credit for
Metromedia's letter of credit and the RDM Warrants were assigned to the Company.

On August 22, 1997, RDM announced that it had failed to make the August 15, 1997
interest payment due on its subordinated debentures and that it had no present
ability to make such a payment. As a result of the foregoing, on August 22,
1997, the Lenders declared an Event of Default, as defined under the RDM Credit
Facility, and accelerated all amounts outstanding under such facility. On August
28, 1997, an involuntary bankruptcy petition was filed against a subsidiary of
RDM in Federal bankruptcy court in Montgomery, Alabama. RDM and certain of its
affiliates each subsequently filed voluntary petitions for relief under chapter
11 of the Bankruptcy Code. Since the commencement of their respective chapter 11
cases, RDM and its affiliates have proceeded with the liquidation of their

F-35
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INVESTMENT IN RDM (CONTINUED)
assets and properties and discontinued ongoing business operations. The Company
does not currently anticipate that it will receive any distributions on account
of its RDM common stock or the RDM Warrants. The Company recorded in its results
of operations in 1997 a further reduction in the carrying value of RDM of $4.9
million and a loss of $15.0 million on its letter of credit guarantee.

After the commencement of RDM's and its affiliates' chapter 11 cases, the
Lenders drew upon the entire amount of the Company's letter of credit.
Consequently, the Company will become subrogated to the Lenders' secured claims
against the Company in an amount equal to the drawing under the letter of credit
following payment in full of the Lenders. The Company intends to vigorously
pursue its subrogation claims in the chapter 11 cases. However, it is uncertain
whether the Company will succeed in any such subrogation claims or, if it is
successful in asserting any such subrogation claims, whether RDM's remaining
assets will be sufficient to pay them.

On February 18, 1998 the Office of the United States Trustee filed a motion to
appoint a chapter 11 trustee in the United States Bankruptcy Court for the
Northern Division of Georgia. RDM and its affiliates subsequently filed a motion
to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code.
On February 19, 1998, the bankruptcy court granted the United States Trustee's
motion and ordered that a chapter 11 trustee be appointed. On February 25, 1998,
each of the Company's designees on RDM's Board of Directors submitted a letter
of resignation.

The Chapter 11 trustee is in the process of selling all of RDM's assets to
satisfy its obligations to its creditors and the Company believes that its
equity interest will not be entitled to receive any distribution. To date, RDM
has not confirmed a chapter 11 plan or made distributions to creditors other
than the Lender.

On August 19, 1998, a purported class action lawsuit, THEOHAROUS V. FONG, ET AL,
Civ. No. 1:98CV2366, was filed in United States District Court for the Northern
District of Georgia. The complaint alleges that certain officers, directors and
shareholders of RDM, including the Company, are liable under federal securities
laws for misrepresenting and failing to disclose information regarding RDM's
alleged financial condition during the period between July 19, 1996 and August
22, 1997, on which date RDM disclosed that its management had discussed the
possibility of filing for bankruptcy. The complaint also alleges that the
plaintiffs, including the Company, are secondarily liable as controlling persons
of RDM. On October 19, 1998, a second purported class action lawsuit with
substantially the same allegations, SCHUETTE V. FONG, ET AL., Civ. No.
1:98CV3034, was filed in United States District Court for the Northern District
of Georgia. On December 30, 1998, the chapter 11 trustee of RDM brought an
adversary proceeding in the bankruptcy of RDM, HAYS, ET AL. v. FONG, ET AL.,
Adv. Proc. No. 98-1128, in the United States Bankruptcy Court, Northern District
of Georgia, alleging that former officers or directors of the Company, while
serving as directors on the board of RDM, breached fiduciary duties allegedly
owed to RDM's shareholders and creditors in connection with the bankruptcy of
RDM. On January 25, 1999, the plaintiff filed a first amended complaint. The
official committee of unsecured creditors of RDM ("the Creditors' Committee")
has moved to proceed as co-plaintiff or to intervene in this proceeding, and the
official committee of bondholders of RDM ("the Bondholders' Committee") has
moved to intervene in or join the proceeding. On February 16, 1999, the
Creditors' Committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF RDM SPORTS GROUP, INC. AND RELATED DEBTORS v. METROMEDIA
INTERNATIONAL GROUP, INC. Adv. Proc. No. 99-1023, seeking in the alternative to
recharacterize as contributions to equity a secured claim in the amount of $15
million made by the Company arising out of the Company's financing of RDM, or to
equitably subordinate such claim made by Metromedia against RDM and other
debtors in the bankruptcy proceedings. On

F-36
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INVESTMENT IN RDM (CONTINUED)
March 3, 1999, the Bondholders' Committee brought an adversary proceeding, THE
OFFICIAL COMMITTEE OF BONDHOLDERS OF RDM SPORTS GROUP, INC. v. METROMEDIA
INTERNATIONAL GROUP, INC., Adv. Proc. No. 99-1029, with substantially the same
allegations as the above proceedings. The Company believes it has meritorious
defenses and plans to vigorously defend these actions. Due to the early stage of
these proceedings, the Company cannot evaluate the likelihood of an unfavorable
outcome or an estimate of the likely amount or range of possible loss, if any.

9. ENTERTAINMENT GROUP ACQUISITIONS

On July 2, 1996, the Company consummated the acquisition (the "Goldwyn Company
Merger") of the Samuel Goldwyn Company ("Goldwyn Company") by merging the
Company's newly formed subsidiary, SGC Merger Corp., into Goldwyn Company. Upon
consummation of the Goldwyn Company Merger, Goldwyn was renamed Goldwyn
Entertainment Company. Holders of Goldwyn Company common stock received .3335
shares of the Company's common stock (the "Common Stock") for each share of
Goldwyn Company common stock in accordance with a formula set forth in the
Agreement and Plan of Merger relating to the Goldwyn Company Merger (the
"Goldwyn Company Merger Agreement"). Pursuant to the Goldwyn Company Merger, the
Company issued 3,130,277 shares of common stock.

The purchase price, including the value of existing Goldwyn Company stock
options and transaction costs related to the Goldwyn Company Merger, was
approximately $43.8 million.

Also on July 2, 1996, the Company consummated the acquisition (the "MPCA
Merger", together with the Goldwyn Company Merger, the "July 2 Mergers") of
Motion Picture Corporation of America ("MPCA") by merging the Company's recently
formed subsidiary, MPCA Merger Corp., with MPCA. In connection with the MPCA
Merger, the Company (i) issued 1,585,592 shares of common stock to MPCA's sole
stockholders, and (ii) paid such stockholders approximately $1.2 million in
additional consideration, consisting of promissory notes. The purchase price,
including transaction costs, related to the acquisition of MPCA was
approximately $21.9 million.

The excess of the purchase price over the net fair value of liabilities assumed
in the July 2 Mergers amounted to $125.4 million.

Following the consummation of the July 2 Mergers, the Company contributed its
interests in Goldwyn and MPCA to Orion, with Goldwyn and MPCA becoming
wholly-owned subsidiaries of Orion. Orion, Goldwyn and MPCA were collectively
referred to as the Entertainment Group (see note 5). The July 2 Mergers were
recorded in accordance with the purchase method of accounting for business
combinations. The purchase price to acquire both Goldwyn and MPCA was allocated
to the net assets acquired according to management's estimate of their
respective fair values and the results of those purchased businesses have been
included in the accompanying consolidated financial statements from July 2,
1996, the date of acquisition (see note 5).

10. STOCKHOLDERS' EQUITY

PREFERRED STOCK

There are 70,000,000 shares of preferred stock authorized and 4,140,000 shares
were outstanding as of December 31, 1998 and 1997.

On September 16, 1997 the Company completed a public offering of 4,140,000
shares of $1.00 par value, 7 1/4% cumulative convertible preferred stock
("Preferred Stock") with a liquidation preference of $50 per share, generating
net proceeds of approximately $199.4 million. Dividends on the Preferred

F-37
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCKHOLDERS' EQUITY (CONTINUED)
Stock are cumulative from the date of issuance and payable quarterly, in
arrears, commencing on December 15, 1997. The Company may make any payments due
on the Preferred Stock, including dividend payments and redemptions (i) in cash;
(ii) issuance of the Company's common stock or (iii) through a combination
thereof. The Preferred Stock is convertible at the option of the holder at any
time, unless previously redeemed, into the Company's common stock, at a
conversion price of $15.00 per share (equivalent to a conversion rate of 3 1/3
shares of common stock for each share of Preferred Stock), subject to adjustment
under certain conditions.

The Preferred Stock is redeemable at any time on or after September 15, 2000, in
whole or in part, at the option of the Company, initially at a price of $52.5375
and thereafter at prices declining to $50.00 per share on or after September 15,
2007, plus in each case all accrued and unpaid dividends to the redemption date.
Upon any Change of Control (as defined in the certificate of designation of the
Preferred Stock (the "Certificate of Designation")), each holder of Preferred
Stock shall, in the event that the market value at such time is less than the
conversion price of $15.00, have a one-time option to convert the Preferred
Stock into the Company's common stock at a conversion price equal to the greater
of (i) the Market Value, as of the Change of Control Date (as defined in the
Certificate of Designation) and (ii) $8.00. In lieu of issuing shares of the
Company's common stock, the Company may, at its option, make a cash payment
equal to the Market Value of the Company's common stock otherwise issuable.

COMMON STOCK

On July 2, 1996, the Company completed a public offering of 18,400,000 shares of
common stock, generating net proceeds of approximately $190.6 million.

On August 29, 1996, the Company increased the number of authorized shares of
common stock from 110,000,000 to 400,000,000. At December 31, 1998, 1997 and
1996 there were 69,118,841, 68,390,800 and 66,153,439 shares issued and
outstanding, respectively.

As part of the MPCA Merger, the Company issued 256,504 shares of restricted
common stock to certain employees. The common stock was to vest on a pro-rata
basis over a three year period ending in July 1999. The total market value of
the shares at the time of issuance was treated as unearned compensation and was
charged to expense over the vesting period. Unearned compensation charged to
expense for the period ended December 31, 1997 and 1996 was $352,000 and,
$529,000, respectively. In connection with the Entertainment Group Sale, the
256,504 shares of restricted common stock became fully vested. The cost of $2.3
million associated with the vesting of the restricted common stock was recorded
as a reduction to the Entertainment Group Sale gain.

At December 31, 1998, the Company has reserved for future issuance shares of
Common Stock in connection with the stock option plans and Preferred Stock
listed below:

<TABLE>
<S> <C>
Stock option plans................................ 8,154,069
Preferred stock................................... 13,800,000
-----------
21,954,069
-----------
-----------
</TABLE>

F-38
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS

On August 29, 1996, the stockholders of MMG approved the Metromedia
International Group, Inc. 1996 Incentive Stock Option Plan (the "MMG Plan"). The
aggregate number of shares of common stock that may be the subject of awards
under the MMG Plan is 8,000,000. The maximum number of shares which may be the
subject of awards to any one grantee under the MMG Plan may not exceed 250,000
in the aggregate. The MMG Plan provides for the issuance of incentive stock
options, nonqualified stock options and stock appreciation rights in tandem with
stock options. Incentive stock options may not be issued at a per share price
less than the market value at the date of grant. Nonqualified stock options may
be issued at prices and on terms determined in the case of each stock option
grant. Stock options and stock appreciation rights may be granted for terms of
up to but not exceeding ten years and vest and become fully exercisable after
four years from the date of grant. At December 31, 1998 there were aproximately
3.0 million additional shares available for grant under the MMG Plan.

Following the Goldwyn Merger, the Goldwyn stock option plans were converted into
stock options exercisable for common stock of MMG in accordance with its
respective exchange ratios.

The per share weighted-average fair value of stock options granted during 1998,
1997 and 1996 were $6.99, $4.33 and $7.36, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 77% in 1998, 50% in 1997 and 49% in 1996,
expected dividend yield of zero percent, risk-free interest rate of 5.1% in
1998, 5.5% in 1997 and 5.2% in 1996 and an expected life of 4 years in 1998 and
1997 and 7 years in 1996.

The Company applies APB 25 in recording the value of stock options granted
pursuant to its plans. No compensation cost has been recognized for stock
options granted under the MMG Plan for the years ended December 31, 1997 and
1996. For the year ended December 31, 1998, compensation expense of $626,000 was
recorded under the MMG Plan, and for the year ended December 31, 1996,
compensation expense of $153,000 has been recorded under a predecessor plan in
the consolidated statements of operations. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's net income (loss) would have (decreased)
increased to the pro forma amounts indicated below (in thousands, except per
share amount):

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) attributable to common stockholders:
As reported.............................................................. $ (138,678) $ 84,107 $ (115,243)
Pro forma................................................................ $ (144,778) $ 75,925 $ (118,966)
Income (loss) per common share--Basic:
As reported.............................................................. $ (2.01) $ 1.26 $ (2.12)
Pro forma................................................................ $ (2.10) $ 1.13 $ (2.19)
</TABLE>

Pro forma net income reflects only options granted in 1998, 1997 and 1996. In
addition, the Goldwyn stock options granted prior to the Goldwyn Company Merger
were recorded at fair value and included in the Goldwyn purchase price.

F-39
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCKHOLDERS' EQUITY (CONTINUED)
Stock option activity during the periods indicated is as follows (in thousands):

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------- -------------
<S> <C> <C>
Balance at December 31, 1996................................................. 4,579 $ 10.09
Options granted.............................................................. 6,629 $ 8.75
Options exercised............................................................ (2,333) $ 9.23
Options forfeited............................................................ (234) $ 10.22
Options cancelled............................................................ (2,768) $ 12.75
-----------
Balance at December 31, 1997................................................. 5,873 $ 7.66
Options granted.............................................................. 327 $ 11.17
Options exercised............................................................ (728) $ 7.72
Options forfeited............................................................ (269) $ 16.00
-----------
Balance at December 31, 1998................................................. 5,203 $ 7.44
-----------
-----------
</TABLE>

At December 31, 1998 the range of exercise prices and the weighted-average
remaining contractual lives of outstanding options was $1.08--$11.88 and 7.9
years, respectively.

At December 31, 1998 and 1997, the number of stock options exercisable was
2,831,000 and 2,573,000 respectively, and the weighted-average exercise price of
these options was $6.63 and $6.99, respectively.

On April 18, 1997, two officers of the Company were granted stock options, not
pursuant to any plan, to purchase 1,000,000 shares each of Common Stock at a
purchase price of $7.44 per share, the fair market value of the Common Stock at
such date. The stock options vest and become fully exercisable four years from
the date of grant.

On March 26, 1997 the Board of Directors approved the cancellation and
reissuance of all stock options previously granted pursuant to the MMG Plan at
an exercise price of $9.31, the fair market value of MMG Common Stock at such
date. In addition, on March 26, 1997, the Board of Directors authorized the
grant of approximately 1,900,000 stock options at an exercise price of $9.31
under the MMG Plan.

11. INCOME TAXES

The Company files a consolidated Federal income tax return with all of its 80%
or greater owned subsidiaries. A consolidated subsidiary group in which the
Company owns less than 80% files a separate Federal income tax return. The
Company and such subsidiary group calculate their respective tax liabilities on
a separate return basis.

F-40
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and
1996, consists of the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal......................................................................... $ (1,615) $ (9,935) $ --
State and local................................................................. -- 1,982 --
Foreign......................................................................... 1,257 914 414
--------- --------- ---------
Current......................................................................... (358) (7,039) 414
Deferred........................................................................ -- 1,812 --
--------- --------- ---------
$ (358) $ (5,227) $ 414
--------- --------- ---------
--------- --------- ---------
</TABLE>

The provision for income taxes for the years ended December 31, 1998, 1997 and
1996 applies to continuing operations.

The federal income tax portion of the provision for income taxes includes the
benefit of state income taxes provided.

The Company had pre-tax losses from foreign operations of $38.4 million, $23.2
million and $4.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Pre-tax losses from domestic operations were $97.9 million, $112.9
million, and $67.3 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

State and local income tax expense for the years ended December 31, 1998, 1997
and 1996 includes an estimate for franchise and other state tax levies required
in jurisdictions which do not permit the utilization of the Company's net
operating loss carryforwards to mitigate such taxes. Foreign tax expense for the
years ended December 31, 1998, 1997 and 1996 reflects estimates of withholding
and remittance taxes.

The temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) at December 31, 1998 and 1997 are as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforward......................................................... $ 67,887 $ 65,261
Allowance for doubtful accounts......................................................... 2,912 3,842
Reserves for self-insurance............................................................. 8,512 10,464
Investment in equity investee........................................................... 28,425 28,425
Purchase of safe harbor lease investment................................................ (6,216) (6,628)
Minimum tax credit (AMT) carryforward................................................... 13,036 13,036
Other reserves.......................................................................... 11,422 10,604
Other................................................................................... (2,432) (117)
----------- -----------
Subtotal before valuation allowance..................................................... 123,546 124,887
Valuation allowance..................................................................... (123,546) (124,887)
----------- -----------
Deferred taxes.......................................................................... $ -- $ --
----------- -----------
----------- -----------
</TABLE>

F-41
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
The net change in the total valuation allowance for the years ended December 31,
1998, 1997 and 1996 was a decrease of $1.3 million and increases of $23.4
million and $18.3 million, respectively.

The Company's income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996, differs from the expense (benefit) that would have resulted
from applying the federal statutory rates during those periods to income (loss)
before the income tax expense (benefit). The reasons for these differences are
explained in the following table (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Benefit based upon federal statutory rate of 35%.............................. $ (47,720) $ (47,645) $ (25,106)
Foreign taxes in excess of federal credit..................................... 1,257 914 414
Amortization of goodwill...................................................... 6,340 1,729 1,492
Foreign operations............................................................ 13,458 8,126 1,548
Change in valuation allowance................................................. 10,572 17,370 11,330
Equity in losses of Joint Ventures............................................ 9,036 7,616 10,690
Minority interest of consolidated subsidiaries................................ (3,450) (3,112) (233)
Impact of alternative minimum tax............................................. 1,211 7,452 --
Other, net.................................................................... 8,938 2,323 279
---------- ---------- ----------
Income tax expense (benefit).................................................. $ (358) $ (5,227) $ 414
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

At December 31, 1998 the Company had available net operating loss carryforwards
and unused minimum tax credits of approximately $193.9 million and $13.0
million, respectively, which can reduce future federal income taxes. These
carryforwards and credits begin to expire in 2008. The minimum tax credit may be
carried forward indefinitely to offset regular tax in certain circumstances.

The use by the Company of the pre-November 1, 1995 net operating loss
carryforwards from the business combination consumated on November 1, 1995
reported by The Actava Group, Inc. ("Actava") and MITI ("the Pre-November 1
Losses") (and the subsidiaries included in their respective affiliated groups of
corporations which filed consolidated Federal income tax returns with Actava and
MITI as the parent corporations) are subject to certain limitations as a result
of the business combination, respectively.

Under Section 382 of the Internal Revenue Code, annual limitations generally
apply to the use of the Pre-November 1 Losses by the Company. The annual
limitations on the use of the Pre-November 1 Losses of Actava and MITI by the
Company approximate $18.3 million and $10.0 million per year, respectively. To
the extent Pre-November 1 Losses equal to the annual limitation with respect to
Actava and MITI are not used in any year, the unused amount is generally
available to be carried forward and used to increase the applicable limitation
in the succeeding year.

The use of Pre-November 1 Losses of MITI is also separately limited by the
income and gains recognized by the corporations that were members of the MITI
affiliated groups. Under proposed Treasury regulations, such Pre-November 1
Losses of any such former members of such group, are usable on an aggregate
basis to the extent of the income and gains of such former members of such
group.

F-42
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED

As a result of the November 1, 1995 business combination, the Company succeeded
to approximately $92.2 million of Pre-November 1 Losses of the Actava Group.
SFAS 109 requires assets acquired and liabilities assumed to be recorded at
their "gross" fair value. Differences between the assigned values and tax bases
of assets acquired and liabilities assumed in purchase business combinations are
temporary differences under the provisions of SFAS 109. To the extent all of the
Actava intangibles are eliminated, when the Pre-November 1 Losses are utilized
they will reduce income tax expense.

12. EMPLOYEE BENEFIT PLANS

The Communications Group and Snapper have defined contribution plans which
provide for discretionary annual contributions covering substantially all of
their employees. Participating employees can defer receipt of up to 15% of their
compensation, subject to certain limitations. The Communications Group matches
50% of the amounts contributed by plan participants up to 6% of their
compensation. Snapper's employer match is determined each year, and was 50% of
the first 6% of compensation contributed by each participant for the years ended
December 31, 1998 and 1997 and the period November 1, 1996 to December 31, 1996.
Snapper has committed in 1999 to implement a defined contribution plan for all
bargaining unit employees. This plan is similar to the non-bargaining defined
contribution plan described above. The Company's contribution expense for the
years ended December 31, 1998, 1997 and 1996 was $517,000, $527,000 and
$375,000, respectively.

In addition, Snapper has a profit sharing plan covering substantially all
non-bargaining unit employees. Contributions are made at the discretion of
management. No profit sharing amounts were approved by management for the years
ended December 31, 1998, 1997 and 1996.

Snapper sponsors a defined benefit pension plan which covers substantially all
bargaining unit employees. Benefits are based upon the employee's years of
service multiplied by fixed dollar amounts. Snapper's funding policy is to
contribute annually such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid to the plan's members and keep the plan
actuarially sound.

In addition, Snapper provides a group medical plan 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 Snapper's
expressed intent to increase the retiree contribution rate annually for the
expected medical trend rate for that year. The coordination of benefits with
Medicare uses a supplemental, or exclusion of benefits approach. Snapper funds
the excess of the cost of benefits under the plans over the participants'
contributions as the costs are incurred.

The net periodic pension cost and net periodic post-retirement benefit cost
(income) for the years ended December 31, 1998 and 1997 amounts to $110,000 and
($21,000) and $61,000 and ($90,000), respectively. Snapper's defined benefit
plan's projected benefit obligation and fair value of plan assets at December
31, 1998 and 1997 were $7.5 million and $7.7 million and $6.7 million and $7.2
million, respectively. Accrued post-retirement benefit cost at December 31, 1998
and 1997 was $3.0 million and $3.0 million, respectively. Disclosures regarding
the reconciliation of benefit obligations, fair value of plan assets and the
funded status of the plan have not been included herein because they are not
material to the Company's consolidated financial statements at December 31, 1998
and 1997.

F-43
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. BUSINESS SEGMENT DATA

The business activities of the Company constitute three business segments (see
note 1, Description of the Business) and are set forth in the following table
(in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS
OF THE FORMER SOVIET UNION:
Revenues................................................................... $ 30,208 $ 21,252 $ 14,047
Direct operating costs..................................................... (87,907) (55,466) (36,724)
Nonrecurring charges....................................................... (40,317) -- --
Depreciation and amortization.............................................. (10,625) (7,183) (6,382)
----------- ----------- -----------
Operating loss........................................................... (108,641) (41,397) (29,059)
----------- ----------- -----------
----------- ----------- -----------
Equity in losses of unconsolidated investees............................... (17,111) (7,233) (7,835)
Gain on sale of Protocall Ventures......................................... 5,527 -- --
Foreign currency loss...................................................... (137) (770) (255)
Minority interest.......................................................... 1,527 561 666
----------- ----------- -----------
----------- ----------- -----------
Assets at year end......................................................... 194,864 227,679 189,979
Capital expenditures....................................................... $ 7,338 $ 4,429 $ 3,767
----------- ----------- -----------
----------- ----------- -----------
COMMUNICATIONS GROUP--CHINA:
Revenues................................................................... $ -- $ -- $ --
Direct operating costs..................................................... (11,278) (15,305) (2,708)
Depreciation and amortization.............................................. (3,226) (2,566) (21)
----------- ----------- -----------
Operating loss........................................................... (14,504) (17,871) (2,729)
----------- ----------- -----------
----------- ----------- -----------
Equity in losses of unconsolidated investees............................... (1,040) (861) --
Foreign currency gain...................................................... -- 56 --
Minority interest.......................................................... 8,331 8,332 --
----------- ----------- -----------
----------- ----------- -----------
Assets at year end......................................................... 139,726 118,758 5,026
Capital expenditures....................................................... $ 155 $ 403 $ 62
----------- ----------- -----------
----------- ----------- -----------
SNAPPER (1):
Revenues................................................................... $ 210,084 $ 183,076 $ 22,545
Direct operating costs..................................................... (210,963) (191,349) (30,654)
Depreciation and amortization.............................................. (6,728) (6,973) (1,256)
----------- ----------- -----------
Operating loss........................................................... (7,607) (15,246) (9,365)
----------- ----------- -----------
----------- ----------- -----------
Assets at year end......................................................... 134,460 167,858 140,327
Capital expenditures....................................................... $ 3,907 $ 5,619 $ 1,252
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-44
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. BUSINESS SEGMENT DATA (CONTINUED)

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OTHER:
Revenues................................................................... $ -- $ -- $ --
Direct operating costs..................................................... 905 (5,549) (9,355)
Depreciation and amortization.............................................. (9) (12) (18)
----------- ----------- -----------
Operating income (loss).................................................. 896 (5,561) (9,373)
----------- ----------- -----------
----------- ----------- -----------
Assets at year end including discontinued operations and eliminations...... $ 140,591 $ 274,977 $ 177,786
----------- ----------- -----------
----------- ----------- -----------
CONSOLIDATED:
Revenues................................................................... $ 240,292 $ 204,328 $ 36,592
Direct operating costs..................................................... (309,243) (267,669) (79,441)
Nonrecurring charges....................................................... (40,317) -- --
Depreciation and amortization.............................................. (20,588) (16,734) (7,677)
----------- ----------- -----------
Operating loss........................................................... (129,856) (80,075) (50,526)
Interest expense........................................................... (16,331) (20,922) (19,090)
Interest income............................................................ 12,746 9,840 5,308
Gain on sale of Protocall Ventures, net.................................... 5,527 -- --
Equity in losses and writedown of unconsolidated investees................. (18,151) (53,150) (7,835)
Foreign currency loss...................................................... (137) (714) (255)
Minority interest.......................................................... 9,858 8,893 666
----------- ----------- -----------
Loss before income tax benefit (expense)................................. (136,344) (136,128) (71,732)
Income tax benefit (expense)............................................... 358 5,227 (414)
----------- ----------- -----------
Loss from continuing operations.......................................... (135,986) (130,901) (72,146)
Discontinued operations.................................................... 12,316 234,036 (38,592)
Extraordinary items........................................................ -- (14,692) (4,505)
----------- ----------- -----------
Net income (loss)........................................................ $ (123,670) $ 88,443 $ (115,243)
----------- ----------- -----------
----------- ----------- -----------
Assets at year end......................................................... 609,641 789,272 513,118
Capital expenditures....................................................... $ 11,400 $ 10,451 $ 5,081
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

(1) Represents Snapper's operations from November 1, 1996 to December 31, 1996
and for the years ended December 31, 1998 and 1997.

F-45
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. BUSINESS SEGMENT DATA (CONTINUED)
Information about the Communications Group's operations in different geographic
locations for 1998, 1997 and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
COUNTRY ASSETS REVENUES ASSETS REVENUES ASSETS REVENUES
- ----------------------------------------------------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Austria.............................................. $ 1,049 $ 802 $ 6,710 $ 179 $ 1,696 $ --
Azerbaijan........................................... 5,172 -- -- -- -- --
Belarus.............................................. 2,934 -- 2,135 -- 1,981 --
Czech Republic....................................... 3,527 912 2,986 220 283 --
Estonia.............................................. 2,026 1,008 4,943 667 3,154 --
Georgia.............................................. 24,412 180 18,911 -- 11,043 --
Germany.............................................. 4,941 114 5,038 36 -- --
Hungary.............................................. 6,288 6,799 8,154 8,477 10,251 9,214
Indonesia............................................ -- -- 20 -- 235 --
Kazakhstan........................................... 7,162 -- 6,840 -- 3,274 --
Latvia............................................... 14,219 668 19,786 -- 18,558 --
Lithuania............................................ 2,141 610 2,375 296 1,557 69
Moldova.............................................. 4,896 -- 4,673 -- 3,590 --
People's Republic of China........................... 139,726 -- 118,758 -- 5,026 --
Portugal............................................. -- -- 6,581 598 -- --
Romania.............................................. 6,115 4,534 9,412 4,079 4,791 2,981
Russia............................................... 17,676 7,905 4,601 3,406 4,742 60
Ukraine.............................................. 3,640 87 -- -- -- --
United Kingdom....................................... 1,568 3,492 11,463 543 9,435 52
United States (1).................................... 81,862 3,097 107,883 2,751 109,257 1,671
Uzbekistan........................................... 5,236 -- 5,168 -- 6,132 --
---------- --------- ---------- --------- ---------- ---------
$ 334,590 $ 30,208 $ 346,437 $ 21,252 $ 195,005 $ 14,047
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------
</TABLE>

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

(1) Includes goodwill of $54.5 million, $89.0 million and $87.0 million at
December 31, 1998, 1997 and 1996, respectively.

The revenues and assets by the Communications Group's line of business
operations are disclosed in notes 2 and 3.

All remaining assets and substantially all remaining revenue relate to
operations in the United States.

14. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION

SHORT-TERM INVESTMENTS

Short-term investments consist of repurchase agreements, which have maturities
of less than six months.

ACCOUNTS RECEIVABLE

The total allowance for doubtful accounts at December 31, 1998 and 1997 was $2.2
million and $2.6 million, respectively.

F-46
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)

INVENTORIES

Inventories consist of the following as of December 31, 1998 and 1997 (in
thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Lawn and garden equipment:
Raw materials............................................... $ 8,388 $ 11,031
Finished goods.............................................. 55,488 84,523
--------- ---------
63,876 95,554
Less: LIFO reserve............................................ 1,660 1,306
--------- ---------
62,216 94,248
--------- ---------
Telecommunications:
Pagers...................................................... -- 1,083
Telephony................................................... -- 425
Cable....................................................... 561 680
--------- ---------
561 2,188
--------- ---------
$ 62,777 $ 96,436
--------- ---------
--------- ---------
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 1998 and 1997 consists of the
following (in thousands):

<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Land......................................................... $ 1,224 $ 871
Buildings and improvements................................... 7,274 6,565
Machinery and equipment...................................... 41,263 46,259
Leasehold improvements....................................... 967 840
---------- ---------
50,728 54,535
Less: Accumulated depreciation and amortization.............. 14,661 10,525
---------- ---------
$ 36,067 $ 44,010
---------- ---------
---------- ---------
</TABLE>

INTANGIBLE ASSETS

Accumulated amortization at December 31, 1998 and 1997 was $22.4 million and
$13.8 million, respectively.

F-47
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
ACCRUED EXPENSES

Accrued expenses at December 31, 1998 and 1997 consist of the following (in
thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accrued salaries and wages.................................... $ 4,812 $ 4,737
Accrued taxes................................................. 3,309 2,842
Accrued interest.............................................. 1,696 1,727
Self-insurance claims payable................................. 23,311 29,507
Accrued warranty costs........................................ 4,420 4,293
Other......................................................... 25,781 30,243
--------- ---------
$ 63,329 $ 73,349
--------- ---------
--------- ---------
</TABLE>

SELF-INSURANCE CLAIMS PAYABLE

For the year ended December 31, 1998, the Company revised the estimated value of
its self-insured workers' compensation and product liability claims based on its
claims experience, which resulted in a reduction in the liability of $6.6
million at December 31, 1998.

RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS

Research and development costs for the years ended December 31, 1998 and 1997
and the period November 1, 1996 to December 31, 1996 were $3.0 million, $3.8
million and $930,000, respectively. The Company's advertising costs for the
years ended December 31, 1998, 1997, and 1996 were $24.9 million, $19.8 million
and $4.5 million, respectively.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The accumulated other comprehensive income (loss) at December 31, 1998, 1997 and
1996 is as follows (in thousands):

<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY MINIMUM OTHER
TRANSLATION PENSION COMPREHENSIVE
ADJUSTMENTS LIABILITY INCOME (LOSS)
----------- ----------- --------------
<S> <C> <C> <C>
Balances, December 31, 1995................ $ 583 $ -- $ 583
Current-period change...................... (618) -- (618)
----------- ----------- -------
Balances, December 31, 1996................ (35) -- (35)
Current-period change...................... (2,526) (805) (3,331)
----------- ----------- -------
Balances, December 31, 1997................ (2,561) (805) (3,366)
Current-period change...................... (1,810) (904) (2,714)
----------- ----------- -------
Balances, December 31, 1998................ $ (4,371) $ (1,709) $ (6,080)
----------- ----------- -------
----------- ----------- -------
</TABLE>

F-48
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. OTHER CONSOLIDATED FINANCIAL STATEMENT INFORMATION (CONTINUED)
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME (LOSS)

The tax effects allocated to each component of other comprehensive income (loss)
for the years ended December 31, 1998, 1997, and 1996 is as follows (in
thousands):

<TABLE>
<CAPTION>
PRE-TAX TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
--------- ------------- -----------
<S> <C> <C> <C>
Year ended December 31, 1998:
Foreign currency translation adjustments...... $ (1,810) $ -- $ (1,810)
Minimum pension liability..................... (904) -- (904)
--------- ------ -----------
Other comprehensive income.................... $ (2,714) $ -- $ (2,714)
--------- ------ -----------
--------- ------ -----------
Year ended December 31, 1997:
Foreign currency translation adjustments...... $ (3,939) $ 1,378 $ (2,561)
Minimum pension liability..................... (1,238) 433 (805)
--------- ------ -----------
Other comprehensive loss...................... $ (5,177) $ 1,811 $ (3,366)
--------- ------ -----------
--------- ------ -----------
Year ended December 31, 1996:
Foreign currency translation adjustments...... $ (951) $ 333 $ (618)
--------- ------ -----------
Other comprehensive income.................... $ (951) $ 333 $ (618)
--------- ------ -----------
--------- ------ -----------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Supplemental disclosure of cash flow information for the years ended December
31, 1998, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.................................................. $ 16,482 $ 22,434 $ 15,545
--------- --------- ---------
--------- --------- ---------
Taxes..................................................... $ 2,091 $ 26,200 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>

In connection with acquisition of Motion Picture Corporation of America in 1996,
the Company issued debt of $1.2 million and restricted common stock valued at
$3.2 million.

See note 7 regarding the consolidation of Snapper.

See note 3 regarding the acquisition of AAT.

Interest expense includes amortization of debt discount of $1.7 million and $2.6
million for the years ended December 31, 1997 and 1996, respectively.

15. COMMITMENTS AND CONTINGENT LIABILITIES

COMMITMENTS

The Company is obligated under various operating and capital leases. Total rent
expense amounted to $5.8 million, $4.7 million and $1.3 million for the years
ended December 31, 1998, 1997 and 1996,

F-49
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
respectively. Plant, property and equipment included capital leases of $2.4
million and related accumulated amortization of $873,000 and $548,000 at
December 31, 1998 and 1997, respectively.

Minimum rental commitments under non-cancellable leases are set forth in the
following table (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999..................................................................... $ 773 $ 4,547
2000..................................................................... 166 3,655
2001..................................................................... 23 2,409
2002..................................................................... 12 1,389
2003..................................................................... -- 766
Thereafter............................................................... -- 166
----- -----------
Total.................................................................... 974 $ 12,932
-----------
-----------
Less: amount representing interest....................................... 58
-----
Present value of future minimum lease payments........................... $ 916
-----
-----
</TABLE>

Certain of the Company's subsidiaries have employment contracts with various
officers, with remaining terms of up to 3 years, at amounts approximating their
current levels of compensation. The Company's remaining aggregate commitment at
December 31, 1998 under such contracts is approximately $7.0 million.

The Company pays a management fee to Metromedia for certain general and
administrative services provided by Metromedia personnel. Such management fee
amounted to $3.5 million, $3.3 million and $1.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The management fee commitment
for the year ended December 31, 1999 is $3.8 million.

Snapper has entered into various long-term manufacturing and purchase agreements
with certain vendors for the purchase of manufactured products and raw
materials. As of December 31, 1998, non-cancellable commitments under these
agreements amounted to approximately $14.7 million.

Snapper has an agreement with a financial institution which makes available
floor-plan financing to dealers of Snapper products. This agreement provides
financing for dealer inventories and accelerates Snapper's cash flow. Under the
terms of the agreement, a default in payment by a dealer is non-recourse to
Snapper. However, Snapper is obligated to repurchase any new and unused
equipment recovered from the dealer. At December 31, 1998, there was
approximately $96.4 million outstanding under this floor-plan financing
arrangement. The Company guarantees the payment obligation of Snapper under this
agreement.

CONTINGENCIES

RISKS ASSOCIATED WITH THE COMMUNICATIONS GROUP'S INVESTMENTS

The ability of the Communications Group and its Joint Ventures to establish
profitable operations is subject to, among other things, significant political,
economic and social risks inherent in doing business in Eastern Europe, the
republics of the former Soviet Union and China. These include potential risks

F-50
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
arising out of government policies, economic conditions, imposition of taxes or
other similar charges by government bodies, foreign exchange fluctuations and
controls, civil disturbances, deprivation or unenforceablility of contractual
rights, and taking of property without fair compensation.

The Communications Group's strategy is to minimize its foreign currency risk. To
the extent possible, in countries that have experienced high rates of inflation,
the Communications Group bills and collects all revenues in U.S. dollars or an
equivalent local currency amount adjusted on a monthly basis for exchange rate
fluctuations. The Communications Group's Joint Ventures are generally permitted
to maintain U. S. dollar accounts to serve their U.S. dollar debt and current
account obligations, thereby reducing foreign currency risk. As the
Communications Group and its Joint Ventures expand their operations and become
more dependent on local currency based transactions, the Communications Group
expects that its foreign currency exposure will increase. The Communications
Group does not hedge against foreign exchange rate risks at the current time
and, therefore, could be subject in the future to any declines in exchange rates
between the time a Joint Venture receives its funds in local currencies and the
time it distributes such funds in U.S. dollars to the Communications Group.

F-51
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
proposed legislation that would limit the number of radio and television
businesses that any company could own in a single market. While such proposed
legislation has not been enacted, it is possible that such legislation could be
enacted in Russia and that other countries in Eastern Europe and the republics
of the former Soviet Union may enact similar legislation which could have a
material adverse effect on the business operations, financial condition or
prospects of the Communications Group. The proposed foreign investment
legislation could be similar to United States Federal law which limits foreign
ownership in entities owning broadcasting licenses. There is no way of
predicting whether additional ownership limitations will be enacted in any of
the Communications Group's markets, or whether any such law, if enacted, will
force the Communications Group to reduce or restructure its ownership interest
in any of the ventures in which the Communications Group currently has an
ownership interest. If additional ownership limitations are enacted in any of
the Communications Group's markets and the Communications Group is required to
reduce or restructure its ownership interests in any ventures, it is unclear how
such reduction or restructuring would be implemented, or what impact such
reduction or restructuring would have on the Communications Group.

Current Chinese law and regulation prohibit foreign companies and foreign
invested enterprises in which they participate from providing telehony services
to customers in China and generally limit the role that foreign companies or
their foreign invested enterprises may play in the telecommunications industry.
As a result the Communications Group's investments in Joint Ventures in China
have been made through a structure known as the Sino-Sino-Foreign ("SSF") joint
venture, a widely used method for foreign investment in the Chinese
telecommunications industry, in which the SSF venturer is a provider of
telephony equipment, financing and technical services to telecommunications
operators and not a direct provider of telephone service.

Since mid-1998, there has been uncertainty regarding possible significant
changes in the regulation of and policy concerning foreign participation in and
financing of the telecommunications industry in China, including the continued
viability of the SSF structure and associated service and consulting
arrangements with China Unicom. There has been no official policy statement or
new regulations as yet announced, and the Company has not received any official
notice regarding new policy or regulation. The Communications Group is not now
holding discussions regarding new projects in the Chinese telephony sector. The
Company believes that no such discussions can be productive until more
definitive information is available. In light of the current regulatory
uncertainty, the Company is unable to estimate the impact such changes in policy
or regulation, if any, would have on the Communications Group's Chinese Joint
Ventures ability to generate significant revenue, cash flow or net income.

The foregoing factors relating to economic and financial conditions in the
Russian Federation and other emerging markets, and to Chinese law and regulation
relating to foreign investment in the telecommunications industry, have not had
an effect on the Company's financial condition or results of operations as of
and for the year ended December 31, 1998. As is noted above, the Company cannot
yet predict the impact that such factors may have on its financial condition or
results of operations. In addition, the Company reports the results of the
operations of the Communications Group's operations in Eastern Europe and the
republics of the former Soviet Union and the distributable cash flow generated
by the telephony networks of China Unicom on a three month lag and therefore the
impact of such factors, if any, are not yet fully reflected in the Company's
results of operations.

F-52
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
the next several years. Two of the licenses held by the Communications Group
have expired, although the Communications Group has been permitted to continue
operations while the decision on reissuance is pending. One of these licenses is
for the Company's radio Joint Venture in Hungary. The Company has been informed
that its bid in a competitive tender has been accepted and expects to receive a
new license shortly. Certain other licenses held or used by the Communications
Group will expire during 1999. The Communications Group expects the license fee
to be approximately $8.0 million payable over 8 years in Hungarian Forints
adjusted for inflation. The failure of such licenses to be renewed may have a
material adverse effect on the Company's results of operations. Additionally,
certain of the licenses pursuant to which the Communications Group's businesses
operate contain network build-out milestone clauses. The failure to satisfy such
milestones could result in the loss of such licenses which may have a material
adverse effect on the Communications Group.

The Communications Group has sold a 17.1% participation in the $36.5 million
loan to AIG Silk Road Fund, Ltd., ("AIG") which requires AIG to provide the
Communications Group 17.1% of the funds to be provided under the loan agreement
and entitles AIG to 17.1% of the repayments to the Communications Group. The
Communications Group has agreed to repurchase such loan participation from AIG
in August 2005 on terms and conditions agreed by the parties. In addition, the
Communications Group has provided AIG the right to put its 15.7% ownership
interest in Omni-Metromedia to the Communications Group starting in February
2001 for a price equal to seven times the EBITDA of CAT minus debt, as defined,
multiplied by AIG's percentage ownership interest.

CREDIT CONCENTRATIONS

The Communications Group's trade receivables do not represent significant
concentrations of credit risk at December 31, 1998, due to the wide variety of
customers/subscribers and markets into which the Company's services are sold and
their dispersion across many geographic areas.

No single customer represents a significant concentration of credit risk for
Snapper at December 31, 1998 and 1997.

FINANCIAL GUARANTEES

In connection with MCC's investments in the Sichuan JV and the Chongqing JV, the
Joint Ventures entered into a loan for the initial phase ("Phase 1 Loan") with
Nortel for $20.0 million to finance the purchase of Nortel equipment for the
Sichuan Province and City of Chongqing initial phase project with China Unicom
("Phase 1 Project"). The Company secured the Phase 1 Loan repayment with a $20.0
million letter of credit. Pursuant to an agreement executed among Nortel,
Sichuan JV, Chongqing JV and China Unicom in December 1998, other than
outstanding equipment and interest of $3.3 million, payable in September 1999,
all outstanding deferred amounts owed to Nortel were paid. The loan agreement
between Nortel and the Joint Ventures was terminated. The $20.0 million letter
of credit associated with the loan agreement was reduced to $3.3 million and
Nortel has the right to draw on the $3.3 million in September 1999.

F-53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
In addition, the Company has guaranteed certain indebtness of one of the
Company's cellular telecommunications Joint Ventures. The total guarantee is for
$25.0 million of which $19.8 million has been borrowed at December 31, 1998.

As part of the financing of a Joint Venture, the Company and its Joint Venture
partner provided a 5% equity interest to the lender. The lender can put back the
equity interest to the Company and its Joint Venture partner at certain dates in
the future at an amount not to exceed $6.0 million. In addition, in connection
with the financing, MITI and its Joint Venture partner agreed to provide an
additional $7.0 million in funding to the Joint Venture.

SELF-INSURANCE LIABILITIES

At December 31, 1998 the Company had $17.8 million of outstanding letters of
credit which principally collateralize certain liabilities under the Company's
self-insurance program.

LITIGATION

The Company is involved in various legal and regulatory proceedings and while
the results of any litigation or regulatory issue contain an element of
uncertainty, management believes that the outcome of any known, pending or
threatened legal proceedings, except as disclosed in note 8, will not have a
material effect on the Company's consolidated financial position and results of
operations.

ENVIRONMENTAL PROTECTION

Snapper's manufacturing plant is subject to federal, state and local
environmental 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,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1998 and are not expected to
be material in future years.

The Company has agreed to indemnify a former subsidiary of the Company for
certain obligations, liabilities and costs incurred by the subsidiary arising
out of environmental conditions existing on or prior to the date on which the
subsidiary was sold by the Company in 1987. Since that time, the Company has
been involved in various environmental matters involving property owned and
operated by the subsidiary, including clean-up efforts at landfill sites and the
remediation of groundwater contamination. The costs incurred by the Company with
respect to these matters have not been material during any year through and
including the year ended December 31, 1998. As of December 31, 1998, the Company
had a remaining reserve of approximately $2.2 million to cover its obligations
to its former subsidiary. During 1996, the Company was notified by certain
potentially responsible parties at a superfund site in Michigan that the former
subsidiary may also be a potentially responsible party at the superfund site.
The former subsidiary has agreed to participate in remediation in a global
settlement that is subject to court approval, but the amount of the liability
has not been finally determined. The Company believes that such liability will
not exceed the reserve.

F-54
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

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 Corporation ("DP"), a former
subsidiary of the Company, and was transferred to a wholly-owned subsidiary of
the Company in connection with the sale of the Company's former sporting goods
business to RDM. DP 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, DP discontinued the
manufacture of exercise weights and no longer needed to use the Opelika Property
as a storage area. In connection with the sale to RDM, RDM 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 sale, the
Company and RDM entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify RDM for costs
and liabilities resulting from the presence on or migration of regulated
materials from the Opelika Property. The Company's obligations under the
Indemnity Agreement with respect to the Opelika Property are not limited. The
Indemnity Agreement does not cover environmental liabilities relating to any
property now or previously owned by DP except for the Opelika Property. On
January 22, 1996, the Alabama Department of Environmental Management ("ADEM")
advised the Company that the Opelika Property contains an "unauthorized dump" in
violation of Alabama environmental regulations. The letter from ADEM required
the Company to present for ADEM's approval a written environmental remediation
plan for the Opelika Property. The Company retained an environmental consulting
firm to develop an environmental remediation plan for the Opelika Property. In
1997, the Company received the consulting firm's report. The Company has
conducted a grading and capping in accordance with the remediation plan and has
reported to ADEM that the work was successfully completed. The Company has
proposed to ADEM an accelerated ground water monitoring schedule. If ADEM
responds favorably, the Company anticipates closure of this site in 1999. The
Company believes its reserve of $100,000 will be adequate to cover any further
costs.

F-55
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected financial information for the quarterly periods in 1998 and 1997 is
presented below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
------------------------ -----------------------
1998 1997(A)(B) 1998 1997(B)
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 60,219 $ 58,975 $ 74,239 $ 52,000
Operating loss.............................................. (17,046) (10,164) (22,969) (17,059)
Equity in losses of unconsolidated investees................ (5,500) (740) (2,145) (24,364)(f)
Loss from continuing operations attributable to common
stockholders.............................................. (26,715)(e) (13,505) (25,941)(e) (45,958)
Income (loss) from discontinued operations.................. -- (8,753)(c)(d) 5,267(d) (25,914)(c)(d)
Loss from extraordinary items............................... -- -- -- (1,094)(f)
Net loss attributable to common stockholders................ (26,715) (22,258) (20,674) (72,966)
Income (loss) per common share--Basic:......................
Continuing operations..................................... $ (0.39) $ (0.21) $ (0.38) $ (0.69)
Discontinued operations................................... $ -- $ (0.13) $ 0.08 $ (0.39)
Extraordinary items....................................... $ -- $ -- $ -- $ (0.02)
Net loss.................................................. $ (0.39) $ (0.34) $ (0.30) $ (1.10)
</TABLE>

<TABLE>
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
------------------------ -----------------------
1998 1997 1998 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 55,052 $ 36,545 $ 50,782 $ 56,808
Operating loss.............................................. (26,004) (20,803) (63,837)(i) (32,049)
Equity in losses of unconsolidated investees................ (1,293) (23,959)(g) (9,213)(i) (4,087)
Loss from continuing operations attributable to common
stockholders.............................................. (23,101)(e) (31,863)(e) (75,237)(e) (43,911)(e)
Income (loss) from discontinued operations.................. -- 269,072(c)(d) 7,049(c) (369)(d)
Loss from extraordinary items............................... -- (13,598)(h) -- --
Net income (loss) attributable to common stockholders....... (23,101) 223,611 (68,188) (44,280)
Income (loss) per common share--Basic:
Continuing operations..................................... $ (0.33) $ (0.48) $ (1.09) $ (0.64)
Discontinued operations................................... $ -- $ 4.01 $ 0.10 $ (0.01)
Extraordinary items....................................... $ -- $ (0.20) $ -- $ --
Net income (loss)......................................... $ (0.33) $ 3.33 $ (0.99) $ (0.65)
</TABLE>

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

(a) Revenues, operating loss and interest income (expense), net, have been
restated to reflect the Entertainment Group Sale.

(b) Revenues, operating loss and interest income (expense), net, have been
restated to reflect Landmark as a discontinued operation.

(c) On July 10, 1997, the Company consummated the Entertainment Group Sale
resulting in a gain of $266.3 million, net of taxes. The transaction has
been treated as a discontinuance of a business segment and, accordingly, the
consolidated financial statements reflect the results of operations of the
Entertainment Group as a discontinued segment. In 1998, the Company received
refunds of tax payments of $8.7 million made by the Entertainment Group in
prior years.

(d) The Company completed the Landmark Sale on April 16, 1998, resulting in a
gain of $5.3 million, net of taxes. The transaction has been treated as a
discontinuance of a business segment and, accordingly, the consolidated
financial statements reflect the results of operations of Landmark as a
discontinued segment.

(e) Loss from continuing operations has been adjusted to reflect the dividend
requirements on the Company's 7 1/4% Cumulative Convertible Preferred Stock
issued on September 16, 1997.

(f) Includes the equity in losses of and writedown of investment in RDM of $25.1
million and the equity in early extinguishment of debt of RDM.

(g) Includes equity in losses of RDM of $19.9 million.

(h) In connection with the Entertainment Group Sale, the Company repaid all of
its outstanding debentures and expensed the unamortized discounts associated
with the debentures.

(i) The Company adjusted the carrying value of goodwill and other intangibles,
fixed assets, investments in and advances to Joint Ventures and wrote down
paging inventory. The total non-cash, nonrecurring charge and writedown was
$49.9 million.

F-56
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

METROMEDIA INTERNATIONAL GROUP, INC.

CONDENSED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Revenues................................................................... $ -- $ -- $ --
Cost and expenses:
Selling, general and administrative...................................... (905) 5,549 9,355
Depreciation and amortization............................................ 9 12 18
----------- ----------- -----------
Operating income (loss).................................................... 896 (5,561) (9,373)
Interest income (expense), net............................................. 14,926 2,156 (13,313)
Equity in losses of subsidiaries........................................... (153,423) (88,581) (49,460)
Equity in losses of and writedown of investment in RDM Sports Group,
Inc...................................................................... -- (45,056) --
Income tax benefit......................................................... 1,615 6,141 --
----------- ----------- -----------
Loss from continuing operations............................................ (135,986) (130,901) (72,146)
Discontinued operations:
Gain on disposal and (loss) on asset held for sale....................... 12,316 266,294 (16,305)
Equity in losses of discontinued operations.............................. -- (32,258) (22,287)
----------- ----------- -----------
Income (loss) before extraordinary items................................... (123,670) 103,135 (110,738)
Extraordinary item:
Loss and equity in on early extinguishment of debt....................... -- (14,692) (4,505)
----------- ----------- -----------
Net income (loss).......................................................... (123,670) 88,443 (115,243)
Cumulative convertible preferred stock dividend requirement................ (15,008) (4,336) --
----------- ----------- -----------
Net income (loss) attributable to common stockholders...................... $ (138,678) $ 84,107 $ (115,243)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common shares--Basic............................ 68,955 66,961 54,293
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share--Basic:
Continuing operations.................................................... $ (2.19) $ (2.02) $ (1.33)
Discontinued operations.................................................. $ 0.18 $ 3.50 $ (0.71)
Extraordinary items...................................................... $ -- $ (0.22) $ (0.08)
Net income (loss)........................................................ $ (2.01) $ 1.26 $ (2.12)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of the condensed financial
information.
See notes to Condensed Financial Information on page S-4.

S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED

METROMEDIA INTERNATIONAL GROUP, INC.

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 128,219 $ 121,892
Short-term investments -- 100,000
Other assets 11,384 2,631
------------ ------------
Total current assets 139,603 224,523

Net assets of discontinued operations -- 48,531
Investment in and receivables from subsidiaries 325,719 338,846
Other assets 989 1,923
------------ ------------
Total assets $ 466,311 $ 613,823
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 2,728 $ 2,039
Accrued expenses 37,804 49,443
Current portion of long term-debt -- 420
------------ ------------
Total current liabilities 40,532 51,902

Long-term debt -- 990
Other long term liabilities 239 249
------------ ------------
Total liabilities 40,771 53,141
------------ ------------

Stockholders' equity
Preferred stock 207,000 207,000
Common stock 69,119 68,391
Paid-in surplus 1,012,794 1,007,272
Accumulated deficit (857,293) (718,615)
Accumulated other comprehensive loss (6,080) (3,366)
------------ ------------
Total stockholders' equity 425,540 560,682
------------ ------------
Total liabilities and stockholder equity $ 466,311 $ 613,823
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of the condensed financial
information.
See Notes to Condensed Financial Information on page S-4.

S-2
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED

METROMEDIA INTERNATIONAL GROUP, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- -----------
Operating activities:
Net income (loss)......................................................... $ (123,670) $ 88,443 $ (115,243)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
(Gain) on disposal and loss on assets held for sale..................... (12,316) (266,294) 16,305
Equity in losses from discontinued operations........................... -- 32,258 22,287
Loss and equity in loss on early extinguishment of debt................. -- 14,692 4,505
Equity in losses and writedown of investment in RDM Sports Group,
Inc................................................................... -- 45,056 --
Equity in losses of subsidiaries........................................ 153,423 88,581 49,460
Changes in cumulative translation adjustment of subsidiaries............ (1,810) (2,526) (618)
Other................................................................... (6,556) 1,711 2,607
Changes in operating assets and liabilities:
(Increase) decreases in other current assets............................ (89) 134 245
Decrease in other assets................................................ 934 619 1,983
Increase (decrease) in accounts payable, accrued expenses and other
liabilities........................................................... (10,423) (41,804) (7,651)
----------- ---------- -----------
Cash used in operating activities..................................... (507) (39,130) (26,120)
----------- ---------- -----------
Investing activities:
Net proceeds from sale of discontinued operations....................... 57,298 276,607 --
Investment in RDM Sports Group, Inc..................................... -- (15,000) --
Distributions from subsidiaries......................................... 14,533 -- 5,400
Purchase of short-term investments...................................... -- (100,000) --
Proceeds from sale of short-term investments............................ 100,000 -- 5,366
Other investing activities, net......................................... -- -- 819
----------- ---------- -----------
Cash provided by investing activities................................. 171,831 161,607 11,585
----------- ---------- -----------
Financing activities:
Payment of revolving term loan.......................................... -- -- (28,754)
Payments on notes and subordinated debt................................. (1,410) (156,524) (7,656)
Proceeds from issuance of stock......................................... 5,347 217,595 191,576
Preferred stock dividends paid.......................................... (15,008) (3,709) --
Due from subsidiary..................................................... (153,926) (143,221) (66,128)
Due to (from) discontinued operations................................... -- 1,419 (7,130)
----------- ---------- -----------
Cash provided by (used in) financing activities....................... (164,997) (84,440) 81,908
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents.................... 6,327 38,037 67,373
Cash and cash equivalents at beginning of year.......................... 121,892 83,855 16,482
----------- ---------- -----------
Cash and cash equivalents at end of year................................ $ 128,219 $ 121,892 $ 83,855
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

The accompanying notes are an integral part of the condensed financial
information.

See Notes to Condensed Financial Information on page S-4.

S-3
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED

METROMEDIA INTERNATIONAL GROUP, INC.

NOTES TO CONDENSED FINANCIAL INFORMATION

DECEMBER 31, 1998, 1997, AND 1996

(A) The accompanying parent company financial statements reflect only the
operations of MMG for the years ended December 31, 1998, 1997 and 1996 and
the equity in losses of subsidiaries and discountinued operations for the
years ended December 31, 1998, 1997, and 1996.

(B) There are no principal repayments of the Registrant's borrowings under debt
agreements and other debt outstanding at December 31, 1998.

For additional information regarding the Registrant's and subsidiaries'
borrowings under debt agreements and other debt, see note 4 to the "Notes to
Consolidated Financial Statements."

S-4
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

METROMEDIA INTERNATIONAL GROUP, INC.
ALLOWANCES FOR DOUBTFUL ACCOUNTS, ETC. (DEDUCTED FROM CURRENT RECEIVABLES)
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND OTHER DEDUCTION/ BALANCE AT
OF PERIOD EXPENSES CHARGES WRITE-OFFS END OF PERIOD
----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998........................ $ 2,576 $ 2,300 $ -- $ (2,685) $ 2,191
----------- ----------- --------- ----------- ------
----------- ----------- --------- ----------- ------
Year ended December 31, 1997........................ $ 1,691 $ 1,675 $ -- $ (790) $ 2,576
----------- ----------- --------- ----------- ------
----------- ----------- --------- ----------- ------
Year ended December 31, 1996........................ $ 313 $ 1,378 $ -- $ -- $ 1,691
----------- ----------- --------- ----------- ------
----------- ----------- --------- ----------- ------
</TABLE>

S-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- ------------- ------------------------------------------------ ------------------------------------------------
<C> <S> <C>

2.2 Agreement and Plan of Reorganization dated as of Quarterly Report on Form 10-Q for the three
July 20, 1994 by and among, The Actava Group months ended June 30, 1994, Exhibit 99.1
Inc., Diversified Products Corporation, Hutch
Sports USA Inc., Nelson/Weather-Rite, Inc.,
Willow Hosiery Company, Inc. and Roadmaster
Industries, Inc.

2.3 Amended and Restated Agreement and Plan of Current Report on Form 8-K for event occurring
Merger dated as of September 27, 1995 by and on September 27, 1995, Exhibit 99(a)
among The Actava Group Inc., Orion Pictures
Corporation, MCEG Sterling Incorporated,
Metromedia International Telecommunications,
Inc., OPG Merger Corp. and MITI Merger Corp. and
exhibits thereto. The Registrant agrees to
furnish copies of the schedules supplementally
to the Commission on request.

2.5 Agreement and Plan of Merger dated as of January Current Report on Form 8-K dated January 31,
31, 1996 by and among Metromedia International 1996, Exhibit 99.1
Group, Inc., The Samuel Goldwyn Company and SGC
Merger Corp. and exhibits thereto. The
registrant agrees to furnish copies of the
schedules to the Commission upon request.

3.1 Restated Certificate of Incorporation of Registration Statement on Form S-3 (Registration
Metromedia International Group, Inc. No. 33-63853), Exhibit 3.1

3.2 Restated By-laws of Metromedia International Registration Statement on Form S-3 (Registration
Group, Inc. No. 33-6353), Exhibit 3.2

4.1 Indenture dated as of August 1, 1973, with Application of Form T-3 for Qualification of
respect to 9 1/2% Subordinated Debentures due Indenture under the Trust Indenture Act of 1939
August 1, 1998, between The Actava Group Inc. (File No. 22-7615), Exhibit 4.1
and Chemical Bank, as Trustee.

4.2 Agreement among The Actava Group, Inc., Chemical Registration Statement on Form S-14
Bank and Manufacturers Hanover Trust Company, (Registration No. 2-81094), Exhibit 4.2
dated as of September 26, 1980, with respect to
successor trusteeship of the 9 1/2% Subordinated
Debentures due August 1, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
- ------------- ------------------------------------------------ ------------------------------------------------
<C> <S> <C>
4.3 Instrument of registration, appointment and Annual Report on Form 10-K for the year ended
acceptance dated as of June 9, 1986 among The December 31, 1986, Exhibit 4.3
Actava Group Inc., Manufacturers Hanover Trust
Company and Irving Trust Company, with respect
to successor trusteeship of the 9 1/2%
Subordinated Debentures due August 1, 1998.

4.4 Indenture dated as of March 15, 1977, with Registration Statement on Form S-7 (Registration
respect to 9 7/8% Senior Subordinated Debentures No. 2-58317), Exhibit 4.4
due March 15, 1997, between The Actava Group
Inc. and The Chase Manhattan Bank, N.A., as
Trustee.

4.5 Agreement among The Actava Group Inc., The Chase Registration Statement on Form S-14
Manhattan Bank, N.A. and United States Trust (Registration No. 2-281094), Exhibit 4.5
Company of New York, dated as of June 14, 1982,
with respect to successor trusteeship of the
9 7/8% Senior Subordinated Debentures due March
15, 1997.

4.6 Indenture between National Industries, Inc. and Post-Effective Amendment No. 1 to Application on
First National City Bank, dated October 1, 1974, Form T-3 for Qualification of Indenture Under
with respect to the 10% Subordinated Debentures, The Trust Indenture Act of 1939 (File No.
due October 1, 1999. 22-8076), Exhibit 4.6

4.7 Agreement among National Industries, Inc., The Registration Statement on Form S-14
Actava Group Inc., Citibank, N.A., and Marine (Registration No. 2-81094), Exhibit 4.7
Midland Bank, dated as of December 20, 1977,
with respect to successor trusteeship of the 10%
Subordinated Debentures due October 1, 1999.

4.8 First Supplemental Indenture among The Actava Registration Statement on Form S-7 (Registration
Group Inc., National Industries, Inc. and Marine No. 2-60566), Exhibit 4.8
Midland Bank, dated January 3, 1978,
supplemental to the Indenture dated October 1,
1974 between National and First National City
Bank for the 10% Subordinated Debentures due
October 1, 1999.

4.9 Indenture dated as of August 1, 1987 with Annual Report on Form 10-K for the year ended
respect to 6 1/2% Convertible Subordinated December 31, 1987, Exhibit 4.9
Debentures due August 4, 2002, between The
Actava Group Inc. and Chemical Bank, as Trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
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<C> <S> <C>
10.1 1982 Stock Option Plan of The Actava Group Inc. Proxy Statement dated March 31, 1982, Exhibit A

10.2 1989 Stock Option Plan of The Actava Group Inc. Proxy Statement dated March 31, 1989, Exhibit A

10.3 1969 Restricted Stock Plan of The Actava Group Annual Report on Form 10-K for the year ended
Inc. December 31, 1990, Exhibit 10.3

10.4 1991 Non-Employee Director Stock Option Plan. Annual Report on Form 10-K for the year ended
December 31, 1991, Exhibit 10.4

10.5 Amendment to 1991 Non-Employee Director Stock Annual Report on Form 10-K for the year ended
Option Plan. December 31, 1992, Exhibit 10.5

10.6 Snapper Power Equipment Profit Sharing Plan. Annual Report on Form 10-K for the year ended
December 31, 1987, Exhibit 10.6

10.7 Retirement Plan executed November 1, 1990, as Annual Report on Form 10-K for the year ended
amended effective January 1, 1989. December 31, 1990, Exhibit 10.7

10.8 Supplemental Retirement Plan of The Actava Group Annual Report on Form 10-K for the year ended
Inc. December 31, 1983, Exhibit 10.8

10.9 Supplemental Executive Medical Reimbursement Annual Report on Form 10-K for the year ended
Plan. December 31, 1990, Exhibit 10.9

10.10 Amendment to Supplemental Retirement Plan of The Annual Report on Form 10-K for the year ended
Actava Group Inc., effective April 1, 1992. December 31, 1991, Exhibit 10.10

10.11 1992 Officer and Director Stock Purchase Plan. Annual Report on Form 10-K for the year ended
December 31, 1991, Exhibit 10.11

10.12 Form of Restricted Purchase Agreement between Annual Report on Form 10-K for the year ended
certain officers of The Actava Group Inc. and December 31, 1991, Exhibit 10.12
The Actava Group Inc.

10.14 Form of Indemnification Agreement between Actava Annual Report on Form 10-K for the year ended
and certain of its directors and executive December 31, 1993, Exhibit 10.14
officers.

10.12 Form of Restricted Purchase Agreement between Annual Report on Form 10-K for the year ended
certain officers of The Actava Group Inc. and December 31, 1991, Exhibit 10.12
The Actava Group Inc.

10.14 Form of Indemnification Agreement between Actava Annual Report on Form 10-K for the year ended
and certain of its directors and executive December 31, 1993, Exhibit 10.14
officers.

10.15 Employment Agreement between The Actava Group Current Report on Form 8-K dated April 19, 1994,
Inc. and John D. Phillips dated April 19, 1994. Exhibit 10.15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
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<C> <S> <C>
10.16 First Amendment to Employment Agreement dated Annual Report on Form 10-K for the year ended
November 1, 1995 between Metromedia December 31, 1995, Exhibit 10.16
International Group and John D. Phillips.

10.17 Option Agreement between The Actava Group Inc. Current Report on Form 8-K dated April 19, 1994,
and John D. Phillips dated April 19, 1994. Exhibit 10.17

10.18 Registration Rights Agreement among The Actava Current Report on Form 8-K dated April 19, 1994,
Group Inc., Renaissance Partners and John D. Exhibit 10.18
Phillips dated April 19, 1994.

10.19 Shareholders Agreement dated as of December 6, Annual Report on Form 10-K for the year ended
1994 among The Actava Group Inc., Roadmaster, December 31, 1994, Exhibit 10.19
Henry Fong and Edward Shake.

10.20 Registration Rights Agreement dated as of Annual Report on Form 10-K for the year ended
December 6, 1994 between The Actava Group Inc. December 31, 1994, Exhibit 10.20
and Roadmaster.

10.21 Environmental Indemnity Agreement dated as of Annual Report on Form 10-K for the year ended
December 6, 1994 between The Actava Group Inc. December 31, 1994, Exhibit 10.21
and Roadmaster.

10.22 Lease Agreement dated October 21, 1994 between Annual Report on Form 10-K for the year ended
JDP Aircraft II, Inc. and The Actava Group Inc. December 31, 1994, Exhibit 10.22

10.23 Lease Agreement dated as of October 4, 1995 Quarterly Report on Form 10-Q for the quarter
between JDP Aircraft II, Inc. and The Actava ended September 30, 1995, Exhibit 10.23
Group Inc.

10.37 Management Agreement dated November 1, 1995 Annual Report on Form 10-K for the year ended
between Metromedia Company and Metromedia December 31, 1995, Exhibit 10.37
International Group, Inc.

10.38 The Metromedia International Group, Inc. 1996 Proxy Statement dated August 6, 1996, Exhibit B
Incentive Stock Plan.

10.39 License Agreement dated November 1, 1995 between Annual Report on Form 10-K for the year ended
Metromedia Company and Metromedia International December 31, 1995, Exhibit 10.39
Group, Inc.

10.40 MITI Bridge Loan Agreement dated February 29, Annual Report on Form 10-K for the year ended
1996, among Metromedia Company and MITI December 31, 1995, Exhibit 10.40

10.41 Metromedia International Telecommunications, Quarterly Report on Form 10-Q for the quarter
Inc. 1994 Stock Plan ended March 31, 1996, Exhibit 10.41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
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<C> <S> <C>
10.42 Amended and Restated Credit Security and Quarterly Report on Form 10-Q for the quarter
Guaranty Agreement dated as of November 1, 1995, ended June 30, 1996, Exhibit 10.42
by and among Orion Pictures Corporation, the
Corporate Guarantors' referred to herein, and
Chemical Bank, as Agent for the Lenders.

10.43 Metromedia International Group/Motion Picture Quarterly Report or Form 10-Q for the quarter
Corporation of America Restricted Stock Plan ended June 30, 1996, Exhibit 10.43

10.44 The Samuel Goldwyn Company Stock Awards Plan, as Registration Statement on Form S-8 (Registration
amended No. 333-6453), Exhibit 10.44

10.45 Loan and Security Agreement, dated November 11, Quarterly Report on Form 10-Q for the quarter
1998 among Snapper, Inc. the lenders named ended September 30, 1998, Exhibit 10
therein and Fleet Capital Corporation, as agent.

10.46* Limited Guaranty Agreement dated November 11,
1998 by Metromedia International Group, Inc. in
favor of Fleet Capital Corporation.

10.47 Amendment No. 1 to License Agreement dated June Annual Report on Form 10-K for the year ended
13, 1996 between Metromedia Company and December 31, 1996, Exhibit 10.46
Metromedia International Group, Inc.

10.48 Amendment No. 1 to Management Agreement dated as Annual Report on Form 10-K for the year ended
of January 1, 1997 between Metromedia Company December 31, 1996, Exhibit 10.47
and Metromedia International Group, Inc.

10.49 Amended and Restated Agreement and Plan of Annual Report on Form 10-K for the year ended
Merger, dated as of May 17, 1996 between December 31, 1996, Exhibit 10.48
Metromedia International Group, Inc., MPCA
Merger Corp. and Bradley Krevoy and Steven
Stabler and Motion Picture Corporation of
America

10.50 Asset Purchase Agreement dated as of December Annual Report on Form 10-K for the year ended
17, 1997 December 31, 1997, Exhibit 10.51

11* Statement of computation of earnings per share.

12* Ratio of earnings to fixed charges

16 Letter from Ernst & Young to the Securities and Current Report on Form 8-K dated November 1,
Exchange Commission. 1995

21 List of subsidiaries of Metromedia International Annual Report on Form 10-K for the year ended
Group, Inc. December 31, 1996, Exhibit 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION EXHIBITS INCORPORATED HEREIN BY REFERENCE
OF ------------------------------------------------
EXHIBIT IN DOCUMENT WITH WHICH EXHIBIT
THIS WAS PREVIOUSLY FILED WITH
FORM 10-K DESCRIPTION OF EXHIBITS COMMISSION
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<C> <S> <C>
23* Consent of KPMG regarding Metromedia
International Group, Inc.

27* Financial Data Schedule
</TABLE>

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

* Filed herewith

<PAGE>
Exhibit 99.1

LIMITED GUARANTY AGREEMENT

THIS LIMITED GUARANTY AGREEMENT (this "Guaranty") is made this ____ day
of November, 1998, by METROMEDIA INTERNATIONAL GROUP, INC., a corporation
organized under the laws of the State of Delaware ("Guarantor"), in favor of
FLEET CAPITAL CORPORATION, a Rhode Island corporation, in its capacity as
collateral and administrative agent (together with its successors in such
capacity, "Agent") for each of the lenders ("Lenders" and collectively with
Agent, the "Guaranteed Parties") now or hereafter parties to the Loan Agreement
(as defined below).

PREAMBLE

Agent, Lenders and SNAPPER, INC., a Georgia corporation ("Debtor"), are
parties to a certain Loan and Security Agreement dated the date hereof (as at
any time amended, modified, renewed or extended, the "Loan Agreement"), pursuant
to which Lenders have agreed to make Loans and other extensions of credit to or
for the benefit of Debtor on the terms and subject to all of the conditions set
forth in the Loan Agreement. Capitalized terms used in this Guaranty, unless
otherwise defined herein, shall have the meaning ascribed to them in the Loan
Agreement.

A condition to Lenders' extension of any credit to Debtor under the
Loan Agreement is the execution and delivery of this Guaranty by Guarantor. To
induce Lenders to make Loans and extend credit to Debtor under the Loan
Agreement in accordance with the terms thereof, Guarantor has agreed to execute
and deliver and be bound by the terms of this Guaranty.

STATEMENT OF AGREEMENT

NOW, THEREFORE, for Ten Dollars ($10.00) in hand paid and in order to
induce Lenders to make Loans or otherwise extend credit from time to time to
Debtor in accordance with the terms of the Loan Agreement, and for other good
and valuable consideration, the receipt and sufficiency of all of which is
hereby acknowledged, Guarantor hereby unconditionally and absolutely guarantees
to each of the Guaranteed Parties (and their respective successors and assigns)
the due and punctual payment, performance and discharge (whether upon stated
maturity, demand, acceleration or otherwise in accordance with the terms
thereof) of the principal of and interest on all Loans and other Obligations
(including LC Outstandings) of Debtor to any or all of the Guaranteed Parties
(including any portion thereof nominally held by any Guaranteed Party on behalf
of others who have acquired participation interests in any of such Obligations),
whether arising under the Loan Agreement or any of the other Loan Documents and
regardless of

<PAGE>

whether recovery upon any of such Loans or other Obligations becomes barred by
any statute of limitations, is void or voidable under any law relating to
fraudulent obligations or otherwise, or is or becomes invalid or unenforceable
for any other reason (all such Loans and other Obligations being hereinafter
referred to collectively as the "Guaranteed Obligations"). Without limiting the
generality of the foregoing, the term "Guaranteed Obligations" shall include all
reasonable attorneys' fees incurred by any of the Guaranteed Parties in any
Insolvency Proceeding of Debtor or any other Obligor and any interest, fees or
other charges accruing under any of the Loan Documents in any such Insolvency
Proceeding, whether or not any of the same are recoverable from Debtor or such
other Obligor estate under 11 U.S.C. Section 506. IN NO EVENT, HOWEVER, SHALL
GUARANTOR'S LIABILITY UNDER THIS GUARANTY EXCEED THE MAXIMUM LIABILITY AMOUNT
(AS DEFINED BELOW). THE "MAXIMUM LIABILITY AMOUNT" SHALL BE AN AMOUNT EQUAL TO
THE SUM OF (A) THE APPLICABLE PRINCIPAL CAP ON THE PAYMENT DUE DATE (AS THOSE
TERMS ARE DEFINED BELOW), PLUS (B) INTEREST ON THE UNPAID BALANCE OF THE
APPLICABLE PRINCIPAL CAP, FROM AND AFTER THE PAYMENT DUE DATE UNTIL THE
APPLICABLE PRINCIPAL CAP IS PAID IN FULL, AT A PER ANNUM RATE EQUAL TO THE
DEFAULT RATE APPLICABLE FROM TIME TO TIME FOR BASE RATE LOANS (CALCULATED AND
DETERMINED IN ACCORDANCE WITH THE LOAN AGREEMENT) AND (C) ALL COSTS AND
ATTORNEYS' FEES INCURRED BY THE GUARANTEED PARTIES IN ENFORCING THE TERMS OF
THIS GUARANTY. THE TERM "APPLICABLE PRINCIPAL CAP" SHALL MEAN (X) $10,000,000 IF
THE PAYMENT DUE DATE OCCURS PRIOR TO THE OCCURRENCE OF A SPECIFIED DEFAULT AND
(Y) $15,000,000 IF THE PAYMENT DUE DATE OCCURS CONCURRENTLY WITH OR AFTER THE
OCCURRENCE OF A SPECIFIED DEFAULT. THE TERM "PAYMENT DUE DATE" SHALL MEAN THE
EARLIEST TO OCCUR OF (I) THE DATE ON WHICH AN EVENT OF DEFAULT OCCURS UNDER
SECTION 11.1.10 OF THE LOAN AGREEMENT, (II) THE DATE ON WHICH AN EVENT OF
DEFAULT OCCURS UNDER SECTION 11.1.16 OF THE LOAN AGREEMENT, OR (III) THE DATE ON
WHICH AGENT MAKES WRITTEN DEMAND FOR PAYMENT BY GUARANTOR UNDER THIS GUARANTY ON
OR AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT (WHETHER OR NOT CONSTITUTING A
SPECIFIED DEFAULT). A "SPECIFIED DEFAULT" SHALL MEAN (A) ANY EVENT OF DEFAULT OF
THE TYPE DESCRIBED IN SECTIONS 11.1.2 (MATERIAL MISREPRESENTATION), 11.1.10
(INSOLVENCY PROCEEDINGS) OR 11.1.16 (REPUDIATION OF GUARANTY) OF THE LOAN
AGREEMENT AND (B) ANY BREACH OF ANY COVENANT CONTAINED IN SECTION 9.3 (FINANCIAL
COVENANTS) OF THE LOAN AGREEMENT, BUT ONLY AFTER 90 DAYS HAVE ELAPSED FROM THE
OCCURRENCE OF SUCH BREACH WITHOUT THE REQUIRED LENDERS, IN THEIR SOLE
DISCRETION, HAVING WAIVED SUCH EVENT OF DEFAULT IN WRITING, OR (C) BORROWER'S
FAILURE TO PAY ANY OF THE OBLIGATIONS ON THE DUE DATE THEREOF (WHETHER DUE AT
STATED MATURITY, ON DEMAND, UPON ACCELERATION OR OTHERWISE), INCLUDING
BORROWER'S FAILURE TO PAY ANY OF THE OBLIGATIONS AFTER AN

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<PAGE>

ACCELERATION OF THE MATURITY THEREOF PURSUANT TO SECTION 11.2 OF THE LOAN
AGREEMENT AS THE RESULT OF BORROWER'S BREACH OF ANY COVENANT CONTAINED IN
SECTION 9.3 (FINANCIAL COVENANTS) OF THE LOAN AGREEMENT. PAYMENT HEREUNDER SHALL
BE DUE AND PAYABLE, AND SHALL BE PAID BY GUARANTOR, ON THE PAYMENT DUE DATE,
WITHOUT FURTHER NOTICE TO OR DEMAND UPON GUARANTOR.

GUARANTOR HEREBY WAIVES: notice of acceptance hereof; notice of any
Loans or other extensions of credit from time to time made by any of the
Guaranteed Parties to Debtor and the creation or existence of any Guaranteed
Obligations; notice of the amount of Guaranteed Obligations from time to time,
subject to Guarantor's right to make inquiry of Agent to ascertain the amount of
Guaranteed Obligations at any reasonable time; notice of any adverse change in
Debtor's financial condition or of any other fact which might increase
Guarantor's risk; notice of presentment for payment, demand, protest and notice
thereof as to any Note or other instrument; notice of any Default, Event of
Default or acceleration and all other notices and demands to which Guarantor
might otherwise be entitled under Applicable Law; any right Guarantor may have
under Applicable Law to require any or all of the Guaranteed Parties to
institute suit against Debtor or any other Obligor after notice or demand from
Guarantor or to seek recourse first against Debtor or others, or to realize upon
any security for the Guaranteed Obligations, as a condition to enforcing
Guarantor's liability and obligations hereunder; any defense that Debtor may at
any time assert based upon the statute of limitations, the statute of frauds,
failure of consideration, fraud, bankruptcy, lack of legal capacity, usury, or
accord and satisfaction; any defense that other indemnity, guaranty or security
was to be obtained; any defense or claim that any Person purporting to bind
Debtor to the payment of Guaranteed Obligations did not have actual or apparent
authority to do so; and any right to contest the commercial reasonableness of
the disposition of any or all Collateral. Guarantor further waives any right
Guarantor may have under Applicable Law to any right to appraisement, valuation,
stay of execution, or notice of election to declare due the amount of any
Guaranteed Obligations or with regard to Agent's enforcement of any Lien or
other interest any Guaranteed Party may hold in any Property of Debtor.

If an Event of Default shall occur, then, whether or not any of the
Guaranteed Obligations is then due and payable or the maturity thereof has been
accelerated or demand for payment thereof from Debtor has been made, Agent may
(and shall at the direction of the Required Lenders), without notice to or
demand upon Guarantor, make the Guaranteed Obligations (not to exceed the
Maximum Liability Amount) immediately due and payable hereunder as to Guarantor
and the Guaranteed Parties shall be entitled to enforce the obligations of
Guarantor hereunder.

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<PAGE>

Each of the Guaranteed Parties shall have a Lien upon or right of
set-off to any and all credits and any and all other Property of Guarantor, now
or at any time whatsoever with or in the possession of such Guaranteed Party or
any Person holding for such Guaranteed Party as security for any and all
Guaranteed Obligations, no matter how or when arising and whether under this or
any other instrument or agreement or otherwise.

The obligations of Guarantor under this Guaranty are absolute and
unconditional, irrespective of the validity, legality or enforceability of any
of the Loan Documents and, to the fullest extent permitted by Applicable Law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of the parties that the obligations of Guarantor hereunder
shall be absolute and unconditional under any and all circumstances. Without
limiting the generality of the foregoing, Guarantor consents and agrees that,
without notice to or by Guarantor and without affecting or impairing the
liability or obligations of Guarantor hereunder, any or all of the Guaranteed
Parties may: compromise or settle, extend the period of duration or the time for
the payment, discharge or performance of any of the Guaranteed Obligations or
increase the amount of the Guaranteed Obligations; refuse to enforce, or release
all or any Obligors or other Persons liable for the payment of any of the
Guaranteed Obligations; increase, decrease or otherwise alter the rate of
interest payable with respect to any of the Guaranteed Obligations or grant
other indulgences to Debtor in respect thereof; amend or modify in any manner,
or terminate or release, any Loan Documents or other agreements now or hereafter
evidencing, securing or otherwise relating to any of the Guaranteed Obligations
(other than this Guaranty); release, surrender, exchange, modify or impair any
and all Collateral or other Property at any time securing (directly or
indirectly) any of the Guaranteed Obligations or on which any of the Guaranteed
Parties at any time may have a Lien; extend the time of payment of any
Collateral consisting of Accounts, Instruments, Chattel Paper or other rights to
the payment of money; refuse to enforce its rights, or make any compromise or
settlement or agreement therefor, in respect of any and all of such Collateral
and other Property, or with any Person liable for any of the Guaranteed
Obligations, or with any other Person whatsoever; or release or substitute any
one or more of the endorsers or guarantors of the Guaranteed Obligations.

None of the Guaranteed Parties shall be under any obligation to
marshall any assets in favor of Guarantor or against or in payment of any or all
of the Guaranteed Obligations. Guarantor shall pay all expenses incurred by any
or all of the Guaranteed Parties in connection with enforcement of Guaranteed
Parties' rights under this Guaranty, including court costs, collection charges
and reasonable attorneys' fees. If and to the extent any Guaranteed Party
receives any payment on account of any of the Guaranteed Obligations (whether
from Debtor or any other Obligor or

-4-
<PAGE>

from the sale or other disposition of any Collateral) and such payment or any
part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other Person in any Insolvency Proceeding, then the part of the Guaranteed
Obligations intended to be satisfied shall be revived and continued in full
force and effect as if said payment had not been made. The foregoing provisions
of this paragraph shall survive the termination or revocation of this Guaranty.

Any and all present and future debts and obligations of Debtor to
Guarantor are hereby waived and postponed in favor of and subordinated to the
full payment of the Guaranteed Obligations to the extent provided in the Debt
Subordination Agreement among Guarantor, Debtor and Agent, dated as of the date
hereof. The provisions of this Guaranty shall be supplemental to and not in
derogation of any rights and remedies of the Guaranteed Parties or any affiliate
of the Guaranteed Parties under any separate subordination agreement that the
Guaranteed Parties or such affiliate may at any time or from time to time enter
into with Guarantor.

Guarantor represents, warrants and covenants to the Guaranteed Parties,
as an inducement to the Guaranteed Parties to make Loans or otherwise grant
credit to Debtor under the Loan Documents, that, as of the date of this
Guaranty, the fair saleable value of Guarantor's assets exceeds Guarantor's
liabilities; Guarantor is meeting current liabilities as they mature; there are
not now pending any material court or administrative proceedings(other than as
disclosed in Guarantor's Form 10-Q for the quarter ended June 30, 1998)or
undischarged judgments against Guarantor and no federal or state tax Liens have
been filed or threatened against Guarantor nor is Guarantor in default or
claimed default under any agreement for borrowed money; Guarantor is duly
authorized to execute and deliver this Guaranty, and the person signing on its
behalf below has been duly authorized to do so by the board of directors of
Guarantor; and this Guaranty is a valid, binding and lawful obligation of
Guarantor, enforceable against Guarantor in accordance with the terms hereof
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights and general equitable principles. Guarantor shall immediately
give the Guaranteed Parties written notice of any material adverse change in
Guarantor's financial condition, including litigation commenced, tax liens
filed, defaults claimed under Guarantor's indebtedness for borrowed money or
Insolvency Proceedings commenced by or against Guarantor. Guarantor shall at
such reasonable times as the Guaranteed Parties request furnish Guarantor's
current financial statements to the Guaranteed Parties and such other
information as such Parties may reasonably request in order to evaluate the
financial condition of Guarantor; PROVIDED, HOWEVER, that so long as Guarantor
is subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, the foregoing

-5-
<PAGE>

requirement shall be satisfied by the delivery to the Guarantied Parties by
Guarantor of copies of Guarantor's Annual Report on Form 10-K and its Quarterly
Report of Form 10-Q. Guarantor shall preserve and maintain its corporate
existence and all of its material rights, privileges and franchises and will not
reorganize or consolidate with or merge into any other Person without the
written consent of the Required Lenders (which consent shall not be unreasonably
withheld) and unless the continuing or surviving Person assumes as primary
obligor the obligations of Guarantor under this Guaranty, pursuant to
documentation in form and substance acceptable to Agent, nor dispose of (whether
in one transaction or a series of transactions) all or any substantial part of
its Property, whether now owned or hereafter acquired.

This Guaranty is a primary and original obligation of Guarantor and is
an absolute, unconditional and continuing guaranty of payment of all of the
Guaranteed Obligations (not to exceed the Maximum Liability Amount) and not of
collectibility of such Guaranteed Obligations only, and shall remain in full
force and effect until all of the Guaranteed Obligations have been paid in full
and the Commitments have been terminated, without regard to future changes in
conditions, including change of law or any invalidity or irregularity with
respect to the issuance of any obligations of Debtor to the Guaranteed Parties
or with respect to the execution and delivery of any agreement between Debtor
and the Guaranteed Parties. This Guaranty shall be in addition to any other
present or future guaranty or other security for any of the Guaranteed
Obligations, shall not be prejudiced or unenforceable by the invalidity of any
such other guaranty or security and is not conditioned upon or subject to the
execution by any other Person of this Guaranty or any other guaranty or
suretyship agreement. The liability of Guarantor under this Guaranty shall not
be contingent upon the exercise or enforcement by any of the Guaranteed Parties
of any remedies that any or all of them may have against Debtor or any other
Obligor or the enforcement of any Lien or realization upon any Collateral in
which any or all of the Guaranteed Parties may at any time possess a Lien.

The Guaranteed Parties shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other document or
instrument evidencing any obligations of Guarantor to the Guaranteed Parties,
and against Debtor to the full extent provided for in the Loan Documents. No
election to proceed in one form of action or proceeding, or against any Obligor,
or on any obligation, shall constitute a waiver of any Guaranteed Party's right
to proceed in any other form of action or proceeding or against any other
Obligor unless such Guaranteed Party has expressly waived such right in writing.

Guarantor is fully aware of the financial condition of Debtor.
Guarantor delivers this Guaranty based solely upon Guarantor's own independent
investigation and in no part upon any representation or statement of the
Guaranteed Parties with respect thereto.

-6-
<PAGE>

Guarantor is in a position to and hereby assumes full responsibility for
obtaining any additional information concerning Debtor's financial condition as
Guarantor may deem material to Guarantor's obligations hereunder and Guarantor
is not relying upon, nor expecting the Guaranteed Parties to furnish Guarantor,
any information in any Guaranteed Party's possession concerning Debtor's affairs
or financial condition. Guarantor hereby knowingly accepts the full range of
risks encompassed within a contract of "guaranty," which risks include, without
limitation, the possibility that Debtor will contract additional Guaranteed
Obligations for which Guarantor may be liable hereunder after Debtor's financial
condition or ability to pay its lawful debts when they fall due has
deteriorated.

If for any reason Debtor has no legal existence or is under no legal
obligation to discharge any of the Guaranteed Obligations, or if any of the
Guaranteed Obligations have become unrecoverable from Debtor by reason of any
Insolvency Proceeding of Debtor or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on Guarantor up to the
Maximum Liability Amount to the same extent as if Guarantor had at all times
been the principal obligor on all such Guaranteed Obligations. In the event that
acceleration of the time for payment of any of the Guaranteed Obligations is
stayed upon the commencement of any Insolvency Proceeding or for any other
reason, all such amounts otherwise subject to acceleration under the terms of
any instrument or agreement evidencing or securing the payment of the Guaranteed
Obligations or otherwise executed in connection therewith shall be immediately
due and payable by Guarantor up to the Maximum Liability Amount.

To the fullest extent permitted by Applicable Law, Guarantor waives any
right that Guarantor may have to terminate or revoke this Guaranty. If
notwithstanding the foregoing waiver, Guarantor shall nevertheless have any
right under Applicable Law to terminate or revoke this Guaranty, Guarantor
agrees that such termination or revocation shall not be effective as to a
Guaranteed Party until a written notice of such termination or revocation,
specifically referring to this Guaranty and signed by Guarantor, is actually
received by an officer of such Guaranteed Party who is familiar with Debtor's
account with such Guaranteed Party and this Guaranty; but any such termination
or revocation shall not affect or impair the obligation of Guarantor or
Guarantor's successors or assigns with respect to any of the Guaranteed
Obligations owing to such Guaranteed Party and existing at the time of the
receipt by such Guaranteed Party of such revocation or to arise out of or in
connection with any transactions theretofore entered into by such Guaranteed
Party with or for the account of Debtor. If any Guaranteed Party makes Loans or
grants other extensions of credit to or for the benefit of Debtor or takes other
action after the termination or revocation by Guarantor but prior to such
Guaranteed Party's actual receipt of such written notice of termination or
revocation, then the rights of such Guaranteed Party with respect

-7-
<PAGE>

to such Guaranteed Obligations shall be the same as if such termination or
revocation had not occurred.

Guarantor agrees that all the rights, benefits and privileges herein
and hereby conferred upon each of the Guaranteed Parties shall vest in and be
enforceable by such Guaranteed Party and its successors and assigns. Guarantor
further agrees that all obligations and duties herein shall be binding upon
Guarantor and upon Guarantor's successors and assigns.

All sums payable to the Guaranteed Parties hereunder, whether of
principal, interest, fees, expenses or otherwise, shall be paid in full up to
the Maximum Liability Amount and in Dollars, without deduction, offset or
counterclaim, and free and clear of any Taxes or other charges, all of which
will be for the account of, and paid in full when due by, Guarantor.

Any provision of this Guaranty that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof and without affecting the validity or enforceability
of such provision in any other jurisdiction. To the extent any performance of
this Guaranty would violate any applicable usury statute or other Applicable
Law, the obligation to be fulfilled shall be reduced to the limit legally
permitted, so that this Guaranty shall not require any performance in excess of
the limit legally permitted, but such obligations shall be fulfilled to the
limit of the legal validity. The provisions of the paragraph shall control every
other provision of this Guaranty.

This Guaranty, all acts and transactions hereunder and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the internal laws of the State of Georgia, and is intended to take
effect as a sealed instrument under Georgia law. As part of the consideration
for the Guaranteed Parties' making Loans or otherwise granting credit to Debtor,
Guarantor hereby agrees that all actions, suits or proceedings arising directly
or indirectly hereunder may, at the option of any Guaranteed Party, be litigated
in any court having situs within the State of Georgia, and Guarantor hereby
expressly consents to the jurisdiction of the Superior Court of Fulton County,
Georgia, or, at Agent's option, the United States District Court for the
Northern District of Georgia, and consents that any service of process in such
action or proceedings may be made by personal service upon Guarantor wherever
Guarantor may be then located, or by certified or registered mail directed to
Guarantor at Guarantor's last known address. This Guaranty may be enforced by
any Guaranteed Party with respect to the Guaranteed Obligations owing to it,
without the necessity of joinder of any other Person (including any other
Obligor) in any action, suit or other proceeding commenced by such Guaranteed
Party. Agent may, on behalf of all Guaranteed Parties, commence any action, suit
or other proceeding to enforce

-8-
<PAGE>

this Guaranty on behalf of all Guaranteed Parties, and any amounts recovered
from Guarantor in connection with any such action, suit or other proceeding
shall be distributed by Agent to and among the Guaranteed Parties in accordance
with the terms of the Loan Agreement.

This Guaranty expresses the entire understanding of the parties hereto
with respect to the subject matter hereof and may not be changed orally, and no
obligation of Guarantor can be released or waived by the Guaranteed Parties or
any officer or agent of the Guaranteed Parties, except by a writing signed by
duly authorized officers of Agent and the Required Lenders (except under
circumstances when the written consent of all Lenders is required by the Loan
Agreement).

UNTIL ALL OF THE GUARANTEED OBLIGATIONS HAVE BEEN PAID IN FULL AND THE
COMMITMENTS HAVE BEEN TERMINATED, GUARANTOR SHALL HAVE NO CLAIM, RIGHT OR REMEDY
(WHETHER OR NOT ARISING IN EQUITY, BY CONTRACT OR APPLICABLE LAW) AGAINST DEBTOR
OR ANY OTHER PERSON BY REASON OF GUARANTOR'S PAYMENT OR OTHER PERFORMANCE
HEREUNDER. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, GUARANTOR HEREBY
SUBORDINATES TO THE FULL AND FINAL PAYMENT OF THE GUARANTEED OBLIGATIONS ANY AND
ALL LEGAL OR EQUITABLE RIGHTS OR CLAIMS THAT GUARANTOR MAY HAVE TO
REIMBURSEMENT, SUBROGATION, INDEMNITY AND EXONERATION AND AGREES THAT UNTIL ALL
OF THE GUARANTEED OBLIGATIONS HAS BEEN PAID IN FULL AND THE LOAN AGREEMENT HAS
BEEN TERMINATED, GUARANTOR SHALL HAVE NO RECOURSE TO ANY ASSETS OR PROPERTY OF
DEBTOR (INCLUDING ANY ASSETS SECURING ANY OF THE GUARANTEED OBLIGATIONS) AND NO
RIGHT OF RECOURSE AGAINST OR CONTRIBUTION FROM ANY OTHER PERSON IN ANY WAY
DIRECTLY OR CONTINGENTLY LIABLE FOR ANY OF THE GUARANTEED OBLIGATIONS, WHETHER
ANY OF SUCH RIGHTS ARISE UNDER CONTRACT, IN EQUITY OR UNDER APPLICABLE LAW.

As used herein, all references to the term "Guarantor" shall mean
Guarantor and Guarantor's successors and assigns (including any receiver,
trustee or custodian for Guarantor or any of its assets or Guarantor in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code); all references to the term "the Guaranteed Parties" shall mean each of
the Guaranteed Parties and its successors and assigns and all references to the
term "Debtor" shall mean Debtor and its successors and assigns (including any
receiver, trustee or custodian for Debtor or any of its assets or Debtor in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code); all references to the plural shall also mean the singular, and all
references to the singular shall also mean the plural; and all references to
"include" or "including" shall mean "including, without limitation."

-9-
<PAGE>

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR AND, BY
THEIR ACCEPTANCE HEREOF, THE GUARANTEED PARTIES EACH HEREBY WAIVES THE RIGHT TO
A JURY TRIAL IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR
RELATED TO THIS GUARANTY AND GUARANTOR FURTHER WAIVES ANY RIGHTS ARISING UNDER
APPLICABLE LAW TO REQUIRE ANY OR ALL OF THE GUARANTEED PARTIES TO INSTITUTE SUIT
AGAINST DEBTOR OR ANY OTHER PERSON LIABLE FOR ANY OF THE GUARANTEED OBLIGATIONS
OR TO EXHAUST ANY GUARANTEED PARTY'S RIGHTS AND REMEDIES AGAINST DEBTOR, ANY
OTHER PERSON LIABLE FOR ANY OF THE GUARANTEED OBLIGATIONS, OR ANY OF THE
COLLATERAL, GUARANTOR BEING BOUND TO THE PAYMENT OF ANY AND ALL GUARANTEED
OBLIGATIONS, WHETHER NOW EXISTING OR HEREAFTER ACCRUING, AS FULLY AS IF SUCH
GUARANTEED OBLIGATIONS WERE DIRECTLY OWING TO THE GUARANTEED PARTIES BY
GUARANTOR.

IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal on
the date first above written.

ATTEST: METROMEDIA INTERNATIONAL
GROUP, INC. ("Guarantor")

By:
- ---------------------------------- --------------------------------
MITCHELL J. STIER, SILVIA KESSEL, Executive Vice
Assistant Secretary President
[CORPORATE SEAL]

-10-

<PAGE>
EXHIBIT 11

METROMEDIA INTERNATIONAL GROUP, INC.

COMPUTATION OF EARNINGS PER SHARE

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Income (loss) per common share--Basic (A):
Continuing operations.................................................... $ (135,986) $ (130,901) $ (72,146)
Cumulative convertible preferred stock dividend requirement.............. (15,008) (4,336) --
----------- ----------- -----------
Continuing operations attributable to common stock shareholders.......... (150,994) (135,237) (72,146)
Discontinued operations.................................................. 12,316 234,036 (38,592)
Extraordinary items...................................................... -- (14,692) (4,505)
----------- ----------- -----------
Net income (loss) attributable to common stock shareholders.............. $ (138,678) $ 84,107 $ (115,243)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common stock shares outstanding during the period......... 68,955 66,961 54,293
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share--Basic:
Continuing operations.................................................... $ (2.19) $ (2.02) $ (1.33)
Discontinued operations.................................................. 0.18 3.50 (0.71)
Extraordinary items...................................................... -- (0.22) (0.08)
----------- ----------- -----------
Net income (loss)........................................................ $ (2.01) $ 1.26 $ (2.12)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

(A) In calculating diluted earnings per share, no potential shares of common
stock are to be included in the computation when a loss from continuing
operations available to common stock shareholders exists. For the years
ended December 31, 1998, 1997 and 1996, the Company had a loss from
continuing operations.

<PAGE>
EXHIBIT 12

METROMEDIA INTERNATIONAL GROUP, INC.

RATIO OF EARNINGS TO FIXED CHARGES

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
YEARS ENDED DECEMBER 31, FEBRUARY 28,
------------------------------------------------ ------------
1998 1997 1996 1995 1995
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Pretax loss from continuing operations before
minority interests and equity in losses of
unconsolidated investees attributable to common
stockholders.................................... $ (143,059) $ (96,207) $ (64,563) $ (30,086) $ (17,356)
Income distributions from less than fifty-
percent-owned joint ventures.................... 1,964 940 300 -- --
----------- ----------- ---------- ---------- ------------
Adjusted loss................................. $ (141,095) $ (95,267) $ (64,263) $ (30,086) $ (17,356)
----------- ----------- ---------- ---------- ------------
----------- ----------- ---------- ---------- ------------
FIXED CHARGES:
Interest expense, including amortization of debt
discount........................................ $ 16,331 $ 20,922 $ 19,090 $ 5,935 $ 1,109
Portion of rent expense representative of the
interest factor................................. 1,934 1,572 435 303 205
Preferred stock divided requirement............... 15,008 4,336 -- -- --
----------- ----------- ---------- ---------- ------------
Total fixed charges........................... $ 33,273 $ 26,830 $ 19,525 $ 6,238 $ 1,314
----------- ----------- ---------- ---------- ------------
----------- ----------- ---------- ---------- ------------
Ratio of earnings to fixed charges................ (A) (A) (A) (A) (A)
----------- ----------- ---------- ---------- ------------
----------- ----------- ---------- ---------- ------------
</TABLE>

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

(A) The ratios of earnings to fixed charges were computed by dividing fixed
charges into the sum of earnings (after certain adjustments) and fixed
charges. Earnings are defined as pre-tax earnings or loss from continuing
operations of the Company plus (i) its majority-owned subsidiaries, whether
or not consolidated, (ii) its proportionate share of any-fifty-percent-owned
joint ventures, and (iii) any income received from less-than
fifty-percent-owned joint ventures. Fixed charges include interest on all
debt of continuing operations (including amortization of debt discount) plus
the interest component of operating rents (deemed to be one-third) and
dividends on preferred stock. The ratio of earnings to fixed charges of the
Company was less than 1.00 for each of the years ended December 31, 1998,
1997, 1996 and 1995 and for the year ended February 28, 1995; thus, earnings
available for fixed charges were inadequate to cover fixed charges for such
periods. The deficiency in earnings to fixed charges for each of the years
ended December 31, 1998, 1997, 1996 and 1995 and for the year ended February
28, 1995 were $141.1 million, $95.3 million, $64.3 million, $30.1 million
and $17.4 million, respectively.

In addition, the Company has guaranteed the debt of certain of its Joint
Ventures. The interest expense associated with the debt that has been
guaranteed by the Company was $367,000 and $76,000 for the years ended
December 31, 1998 and 1997.

<PAGE>
EXHIBIT 23

The Board of Directors
Metromedia International Group, Inc.:

We consent to incorporation by reference in the registration statements (Nos.
333-02301, 333-07387, and 333-13763) on Form S-8 of Metromedia International
Group, Inc. of our report dated March 24, 1999, relating to the consolidated
balance sheets of Metromedia International Group, Inc. and subsidiaries as of
December 31, 1998, and 1997, and the related consolidated statements of
operations, stockholders' equity, comprehensive income (loss) and cash flows for
each of the years in the three-year period ended December 31, 1998, and all
related financial statement schedules, which report appears in the December 31,
1998, annual report on Form 10-K of Metromedia International Group, Inc.

KPMG LLP

New York, New York
March 31, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THE ANNUAL REPORT ON
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 137,625
<SECURITIES> 0
<RECEIVABLES> 48,072
<ALLOWANCES> (2,191)
<INVENTORY> 62,777
<CURRENT-ASSETS> 251,724
<PP&E> 60,728
<DEPRECIATION> (14,661)
<TOTAL-ASSETS> 609,641
<CURRENT-LIABILITIES> 93,831
<BONDS> 50,111
0
207,000
<COMMON> 69,119
<OTHER-SE> 149,421
<TOTAL-LIABILITY-AND-EQUITY> 609,641
<SALES> 240,292
<TOTAL-REVENUES> 240,292
<CGS> 155,916
<TOTAL-COSTS> 370,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,331
<INCOME-PRETAX> (136,344)
<INCOME-TAX> 358
<INCOME-CONTINUING> (135,986)
<DISCONTINUED> 12,316
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,670)
<EPS-PRIMARY> (2.01)
<EPS-DILUTED> (2.01)

</TABLE>