<PAGE>

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

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
   EXCHANGE ACT OF 1934.

   For the fiscal year ended June 30, 2000

                                      OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934.

   For the transition period from __________ to __________

                         Commission File No. 333-12995

                          FOX FAMILY WORLDWIDE, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
        <S>                                 <C>
                    DELAWARE                      95-4596247
        (State or other jurisdiction of        (I.R.S. Employer
         incorporation or organization)     Identification Number)
</TABLE>

            10960 Wilshire Boulevard, Los Angeles, California 90024
             (Address of registrant's principal executive offices)

                                (310) 235-5100
             (Registrant's telephone number, including area code)

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

          Securities registered pursuant to section 12(b) of the act:
                                     None

          Securities registered pursuant to section 12(g) of the act:
                                     None

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

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

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   Aggregate market value of Registrant's voting stock held by non-affiliates:
NOT APPLICABLE

   Number of shares of common stock outstanding as of September 20, 2000:
15,840,000 shares of Class B Common Stock; 160,000 shares of Class A Common
Stock.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

                                    PART I

ITEM 1. BUSINESS

Overview

   Fox Family Worldwide, Inc. (the "Company") is a fully integrated global
family and children's entertainment company that produces, broadcasts and
distributes live-action and animated family and children's television
programming. The Company's principal broadcast operations comprise (i) the Fox
Family Channel, one of the top 10 most widely distributed cable television
networks in the United States and one which provides family-oriented
entertainment programming reaching approximately 95% of all cable and
satellite television households, (ii) the Fox Kids Network, one of the leading
children's (ages 2-11) oriented broadcast television networks in the United
States, and (iii) the Fox Kids International Networks, including Fox Kids
Europe, N.V. ("FKE") and Fox Kids Latin America ("FKLA"), a growing portfolio
of Fox Kids branded cable and direct-to-home ("DTH") satellite channels
reaching approximately 31 million households operating in approximately
57 countries and 13 languages worldwide. The Company's production and
distribution operations include Saban Entertainment, Inc. and subsidiaries
("Saban"), whose library of approximately 6,200 half-hours of completed and
in-production children's programming is among the largest in the world (the
"Fox Family Kids Library"), and certain other subsidiaries. By combining a
widely distributed cable platform, a top-rated broadcast network, one of the
world's largest children's programming libraries, and the Fox Kids branded
international channels, the Company has the ability to manage family and
children's properties and brands from their creation through production,
distribution and the merchandising of related consumer products.

   The Company is the result of a joint venture launched in 1995 by Fox
Broadcasting Company ("Fox Broadcasting") and Saban to match the complementary
programming and broadcasting strengths of the Fox Kids Network and the
international reach of Fox Broadcasting's parent company, The News Corporation
Limited ("News Corp."), with the development, production, distribution and
merchandising strengths of Saban. In September 1997, the Company completed the
acquisition (the "IFE Acquisition") of International Family Entertainment,
Inc. ("IFE"), whose principal business is the Fox Family Channel, the
successor to The Family Channel. The IFE Acquisition provided the Company with
several strategic advantages, including (i) a widely distributed cable
platform, which reaches approximately 75 million viewers, or approximately 95%
of all U.S. cable and direct broadcast satellite ("DBS") homes, providing an
effective means for more vigorous competition with other family- and
children's-oriented cable services, (ii) an additional outlet for the
Company's existing children's programming library, (iii) increased awareness
in the children's (ages 2-11) target market through expanded hours, increased
brand exposure and additional licensing and merchandising opportunities and
(iv) cross-promotional opportunities with the Fox Kids Network.

   While maintaining the family image and general entertainment format of the
channel, the Company reformatted The Family Channel on August 15, 1998 as the
"Fox Family Channel" with a new schedule, look, marketing campaign and on-air
packaging designed to appeal to the adult ages 18-49 demographic during
primetime and evenings and to children during the day. From 7 a.m. to 6 p.m.,
the Fox Family Channel telecasts programming targeted principally to children
and tweens (early adolescents, approximately ages 11-14). From 6 p.m. to 11
p.m. and from midnight to 1 a.m., the Fox Family Channel telecasts programming
intended to appeal to adults ages 18-49 and carries advertising sold on the
basis of adult demographics. The channel's primetime strategy is to build its
viewership around acquired off-network programming such as Providence, 7th
Heaven, Early Edition and Freaks and Geeks.

   The Company also owns and operates the Fox Kids Network, one of the leading
U.S. children's broadcast television networks, which broadcasts 14 hours of
children's programming each week to 97% of U.S. television households, the
broadest reach of any network targeting children. The Fox Kids Network was
formed by Fox Broadcasting and most of Fox Broadcasting's affiliates to
provide children's programming weekdays and Saturday mornings. The Fox Kids
Network affords advertisers the opportunity to reach children in a cost-
effective manner, in part by ensuring consistent nationwide placement of their
advertisements by generally

                                       2
<PAGE>

broadcasting its programming at the same local time and on the same day ("day-
and-date") in each television market. The Fox Kids Network's advertising
customers include virtually every major children's advertiser.

   The Company, through its subsidiaries, creates, produces and acquires
quality animated and live-action children's television programming with brand-
name characters and elements which are either widely known to children, such
as the Mighty Morphin Power Rangers ("Power Rangers"), Digimon and NASCAR
Racers, or which are or have been developed or purchased due to their
likelihood of maturing into popular brands. The Company will produce, finance
or co-finance approximately 600 episodes of children's television programming
for the 2000/2001 and 2001/2002 broadcast seasons. The Company generally
retains worldwide rights to its brands, and currently has approximately 400
licensees worldwide, including toy companies Bandai America, Inc., Playmates
Toys, Inc. and Hasbro, Inc.

   One of the most attractive attributes of the Company's children's
programming is its "portability," in that it generally can be modified at
modest cost and resold for exhibition in other countries through editing and
dubbing into other languages. The Company currently distributes its children's
programming to more than 80 different terrestrial, cable and satellite lessees
in over 30 television markets throughout the world. These activities are
conducted in FKE's territories through FKE.

   In November 1999, certain of our operating companies were reorganized to
conduct business under FKE, a limited liability company organized under the
laws of The Netherlands. The ordinary shares of FKE are listed on the Official
Market of Amsterdam Exchanges N.V.'s stock market. FKE owns the broadcast,
distribution and home video rights to children's television series and
specials and all merchandising and internet rights to children's programming
and properties held by the Company for the territories of Europe (including
Central and Eastern Europe), the Middle East (except Israel) and certain
Caribbean and French-speaking African and South Pacific territories. FKE has
operations in many countries in Europe and currently is broadcasting eight
children's channel feeds in 12 different languages via cable and satellite
transmission to 38 countries, reaching over 21 million households. The main
television markets are the United Kingdom, France, Italy, The Netherlands, the
Nordic region, Spain, Poland and several other countries in Central and
Eastern Europe.

   FKE conducts consumer products activities, including home video and
merchandising, in 24 European countries in addition to the Middle East and
currently holds the rights to or represents more than 30 "active" properties
with over 145 agreements with approximately 100 licensees and home video
distributors.

   FKLA was launched in November 1996 and currently reaches approximately 10
million households in 19 countries in two different languages. FKLA is the
second most widely distributed children's cable/satellite network in Latin
America. On a combined basis, the Fox Kids International Networks reach in the
aggregate 31 million households throughout the world.

Programming

   The Company creates, produces and acquires quality family and children's
television programming. The Company has a library of approximately 4,400 hours
of completed family programming and made-for-television-movies. In addition,
the Fox Family Kids Library of approximately 6,200 half-hour episodes of
completed and in-production children's television programming is one of the
largest children's libraries in the world. The principal programming objective
of the Company is to develop or acquire appealing characters and concepts that
can be commercially exploited throughout the world through broadcast network
and cable television exhibition, home video sales, licensing and
merchandising.

   Fox Family Channel Programming. On August 15, 1998, the Company debuted the
Fox Family Channel with a completely revamped programming schedule. The
current daytime lineup features a variety of original, acquired and library
product targeted to children, ages 2-11 and tweens, with animated series
including The Three Friends & Jerry Show, The Kids from Room 402, Angela
Anaconda, Flint the Time Detective and Digimon, live action series such as I
Was A Sixth Grade Alien, Big Wolf on Campus, Great Pretenders, S Club 7 and

                                       3
<PAGE>

MXG Beach Countdown, scheduled Monday through Friday from 7 a.m.-6 p.m., and
Saturday and Sunday from 7 a.m.-4 p.m. From 6 p.m. to 11 p.m. and from
midnight to 1 a.m., the Fox Family Channel telecasts programming intended to
appeal to adults ages 18-49 and carries advertising sold on the basis of adult
demographics. With an emphasis on a balanced mix of off-network series, movies
and original programming, the Fox Family Channel airs such acquired series as
Providence, Freaks and Geeks, and Early Edition, in addition to new original
series such as Courage and Higher Ground and movie events such as Les
Miserables with Gerard Depardieu and John Malkovich. The Fox Family Channel
programs between 10 and 12 original movies per year, with at least one
original film such as Timeshare, Rockets Red Glare and The Man who Used to be
Me airing every month.

   Children's Programming. The two principal sources of the Fox Family Kids
Library are (i) television series that have been originally produced by the
Company through its Saban subsidiary for broadcast in the United States and
internationally (approximately 2,600 half-hours) and (ii) children's
programming produced by others for which the Company has acquired various
distribution rights (approximately 3,600 half-hours). Of the Fox Family Kids
Library, including episodes in production as of June 30, 2000, approximately
1,600 half-hours are original co-produced programming that meet applicable
European content requirements and are intended for initial broadcast in
Europe. In July 1998, the Company acquired the New World Communications Group
Incorporated's animation library of approximately 500 half-hour episodes from
FOX Television ("FOX Television"), a division of Fox Entertainment Group, Inc.
("Fox Entertainment Group").

   Creation and Development of Programming. The Company has and will continue
to pursue ideas and properties for original production from a number of
sources. For example, the Company may acquire production, distribution and
possibly other rights to an existing property (such as Power Rangers, NASCAR,
Digimon and The New Addams Family) or series (such as Scholastic/Protocol's
Goosebumps), develop internally a new property based on an existing public
domain property (such as Saban's Adventures of Oliver Twist) or create or
acquire an entirely new idea or character (such as Wizard Academy and Los
Luchadores, both currently in production).

   The Company also maintains a state-of-the-art post-production facility in
Los Angeles, California. The Company records all of the original music for its
programming and edits and adds audio and sound effects to its programming. The
Company also produces most of the on-air promotions, sales films and public
service announcements for the Fox Family Channel and the Fox Kids Network.

   The Company owns a full-service animation studio in Paris which develops
children's programming containing content that meets the local content
requirements of various European countries for local broadcast television. The
Paris studio has produced approximately 465 half-hours of children's
programming since its inception in 1990 through June 30, 2000. In general, the
Company enters into strategic co-production alliances to develop its French
and European content programming.

   International Sales of Programming. Most of the Company's children's
programming is distributed on a worldwide basis. The Company believes that by
owning and controlling the international distribution rights to its
programming, in addition to generating significant revenue from the sale of
its programming, it can also establish an international presence for the
Company and its properties.

   The Company is currently party to distribution arrangements with
international television broadcasters and distributors to exhibit and
distribute the Company's children's programming to over 400 terrestrial, cable
and satellite distribution platforms in approximately 100 countries. These
distribution arrangements accounted for approximately $158.6 million, or 25%
of the Company's consolidated revenues for the fiscal year ended June 30,
2000. Among these agreements are numerous multiple program deals, covering
territories such as Spain, Italy, France, Asia, Portugal, Scandinavia and
Poland, among others. In addition, the Company is currently a

                                       4
<PAGE>

partner in several co-production agreements with various broadcasters,
including ARD and RTL Disney Fernsehen GmbH in Germany as well as France 2, M6
and Television Francaise 1 in France.

Distribution Outlets

   The Company distributes its own programming, as well as the programming of
others, throughout the United States and in major markets throughout the
world. The Company is uniquely positioned as a distributor as a result of its
strategic relationship with Fox Broadcasting and News Corp. and by reason of
its large programming library. The Company owns three distribution outlets:
the Fox Family Channel, the Fox Kids Network and the Fox Kids International
Networks consisting of FKE and FKLA.

 The Fox Family Channel

   The Fox Family Channel is a basic cable network that provides family-
oriented entertainment and informational programming to approximately 95% of
all U.S. cable and satellite television households. The Company debuted the
Fox Family Channel in August 1998. The format includes daytime programming for
children followed by evening programming targeting adults, but which is
suitable for the entire family. Evening programming includes original series,
specials and movies produced and licensed to the Fox Family Channel, as well
as programs originally televised on the major broadcast networks.

   In general, pursuant to the Fox Family Channel's affiliation agreements,
each cable system operator or other delivery service distributing the Fox
Family Channel agrees to pay the Company a monthly fee per subscriber. The Fox
Family Channel affiliation agreements are generally three, five or ten years
in duration and provide for annual per subscriber rate increases. Increases in
per subscriber fees and, to a lesser extent, increased household penetration
have generated growth in the Fox Family Channel subscriber fee revenue. In
addition, the Fox Family Channel earns revenue through the sale of advertising
spots.

   Programming. From Monday through Friday the Company airs programming aimed
at children and tweens on the Fox Family Channel from 7 a.m. to 9:30 a.m. and
11 a.m. to 6 p.m. The Company targets an adult audience ages 18-49 from 6 p.m.
to 11 p.m. and midnight to 1 a.m. weekdays, airing a mix of original and
acquired series and movies. The weekend schedule includes programming aimed at
children and tweens from 7 a.m. to 2 p.m.; movies, series and specials aimed
at adults ages 18-49 air between 2 p.m. and 1 a.m.

   Transmission Facilities. With the reformatting of the Fox Family Channel in
August 1998, the Company began transmitting all programming for the Fox Family
Channel from the Fox Television Network Broadcast Center located in Los
Angeles, California, by means of an earth station transmitting antenna (an
"uplink"). The uplink facility transmits the programming signal to a
transponder on an orbiting satellite, which in turn retransmits the signal to
cable systems operators, DBS services and other alternative delivery services.
Programming is transmitted using two separate "feeds" (one for the eastern,
central and certain mountain time zones and another for all other mountain and
pacific time zones) which are transmitted to two different satellite
transponders. The Company owns the transponders for these two feeds as well as
a transponder on a third satellite. All of the Company's owned transponders
have "protected" status. "Protected" status means that should the transponder
fail, service will be transferred to a spare transponder.

 Fox Kids Network

   The Fox Kids Network, launched in September 1990, was the first broadcast
television network to air children's programs during the week (Monday through
Friday) as well as on Saturday. The guiding philosophy of the Fox Kids Network
is to provide a diverse slate of quality entertainment targeted toward
children. The Fox Kids Network broadcasts 14 hours of programming per week,
four hours on Saturday mornings, and two hours each weekday afternoon. One
half-hour of programming each week is dedicated to educational/informational
programming for children.

                                       5
<PAGE>

   Prior to September 1999, the Fox Kids Network broadcast 19 hours each week,
including one hour each weekday morning (the "Morning Block"). The Morning
Block was returned to the affiliates to program for a minimum of two years in
exchange for additional advertising spots during the remaining 14 hours per
week of Fox Kids Network programming. In addition, the Fox Kids Network agreed
to provide an optional 2.5 hours of educational programming to affiliates free
of charge to be broadcast in non-Fox Kids Network time periods. The Company
believes the revenue generated from the additional advertising spots will more
than offset the lost revenues from the Morning Block.

   Now in its tenth broadcast season, the Fox Kids Network currently is
carried by 179 television stations affiliated with the Fox Kids Network (the
"Fox Kids Network Affiliates"), 167 of which are affiliated with Fox
Broadcasting's member stations ("FOX Television Member Stations") including 11
currently owned and operated by FOX Television. The Fox Kids Network
Affiliates reach approximately 97% of all U.S. television households. The Fox
Kids Network produces and acquires programs, markets and promotes these
programs, makes its schedule available to its Fox Kids Network Affiliates and
sells network advertising. The Company cross-promotes the Fox Kids Network
through the Fox Family Channel, the Fox Kids Club, Fox Kids quarterly
magazine, Fox Family Countdown radio show and FoxKids.com.

   In July 1998, the financial arrangements between the Fox Kids Network and
the Fox Kids Network Affiliates were changed. The revised arrangement provides
that all of the Fox Kids Network Affiliates will receive from the Company
beginning July 1, 1998 an aggregate amount of approximately $15.0 million per
year for five years in exchange for (i) guaranteed clearance of Fox Kids
programming in its current time period for ten years, (ii) relinquishment of
any participation in the current or future profits of the Fox Kids Network,
and (iii) additional allocation of promotional advertising spots for the next
three and one-half years.

 Fox Kids International Networks

   In November 1999, the Company reorganized some of its operating companies
to conduct business under FKE, a limited liability company organized under the
laws of The Netherlands. The ordinary shares of FKE are listed on the Official
Market of Amsterdam Exchanges N.V.'s stock market. FKE owns the broadcast,
distribution and home video rights to children's television series and
specials, whether produced by Saban or others, and all merchandising and
internet rights to children's programming and properties held by Saban for the
territories of Europe (including Central and Eastern Europe), the Middle East
(except Israel) and certain Caribbean and French-speaking African and South
Pacific territories. FKE has operations in many countries in Europe and
currently is broadcasting eight children's channel feeds in 12 different
languages via cable and satellite transmission to 38 countries, reaching over
21 million households. The main television markets are the United Kingdom,
France, Italy, The Netherlands, the Nordic region, Spain, Poland and several
other countries in Central and Eastern Europe. In addition to the operations
of the Company's FKE subsidiary, FKLA reaches approximately 10 million
households in 19 countries in two different languages in Latin America. On a
combined basis, the Fox Kids International Networks reach in the aggregate 31
million households throughout the world.

 Internet

   A leading web site for kids ages 6-14, FoxKids.com is dedicated to
empowering kids through an action-adventure environment. The web site features
first-rate games, online animated shorts or "webisodes," and interactivity
with kids' favorite characters and television shows. Applying cutting-edge
technology and innovative content to its game and webisode portfolio,
FoxKids.com is a leader in online entertainment for kids.

   FKE also operates a developing online and interactive business. In doing
so, FKE is capitalizing on its inherent strengths including ownership of
quality content, promotional leverage of channel activities, consumer products
operations and significant internet resources developed by the U.S. and
international divisions of the Company. FKE currently operates ten localized
web sites in the United Kingdom, The Netherlands, France, Sweden, Denmark,
Norway, Spain, Italy, Poland and Russia. The Company intends to launch further
local web sites in additional major markets.

                                       6
<PAGE>

Advertising

   The extensive reach of the Fox Family Channel and Fox Kids Network affords
advertisers substantial day-and-date capacity to conduct nationwide
advertising campaigns. Substantially all of the revenues of the Fox Kids
Network are derived from national network advertising sales, and approximately
53% of the Fox Family Channel's revenues are derived from national advertising
sales. For the year ended June 30, 2000, the Company's domestic revenues from
advertising were approximately $238.2 million, or 37% of consolidated
revenues. One of the Company's objectives is to reach viewers in demographics
that are attractive to advertisers. The Company also derives revenues from
program sales which consist of sales of program length periods of time for
infomercials which currently air during certain portions of the 1:00 a.m. to
7:00 a.m. time block on the Fox Family Channel.

Merchandising and Licensing

   The Company capitalizes on its popular characters and properties by
entering into licensing agreements with manufacturers and retailers of
children's products. Under these agreements, the Company seeks to earn revenue
from the sale of products while limiting the costs and risks associated with
manufacturing, distributing and marketing merchandise. For the year ended June
30, 2000, the Company's licensing and merchandising activities represented
approximately 5% of the Company's consolidated revenues. The revenue derived
from licensing and merchandising depends not only on the success, recognition
and appeal of a character, but also on the quality and extent of the
marketing, product development and retail efforts of the Company and its
licensees and the whims of the public. Sales of licensed products also help
the Company's shows by promoting the Company's brands and characters. This in
turn reinforces the strength of the Company's distribution platform.

   The Company has entered into merchandise license agreements with a number
of toy manufacturers pursuant to which the manufacturers are given the right
to create, manufacture and develop products representing characters from the
Company's series. These licenses generally grant the exclusive right to
manufacture and sell toys based upon the characters and other creative
elements in the licensed series. Pursuant to these agreements, the Company
generally receives an up-front advance that is non-refundable but is credited
against royalties, generally based on a percentage of net sales of the
licensed product. The Company also retains approval rights regarding
advertising, packaging and the quality of its licensed product, as well as
continued ownership of the copyright and trademark. The Company has licensing
arrangements in place with approximately 400 different licensees worldwide for
consumer products targeting children, such as toys, apparel, publishing,
software, dinnerware/lunch boxes, watches, bedding and soft vinyl goods, such
as boots, backpacks and raincoats. Merchandise based on the Company's
characters and properties is sold in approximately 138 countries throughout
the world.

Home Video and Telefilms

   Home Video. Through agreements with Twentieth Century Fox Home
Entertainment, Inc. ("Fox Video"), the Company distributes throughout the
world its television programs. The Company receives rents from the sale of
home video cassettes of its television programming.

   Telefilms. Historically, prior to the acquisition of The Family Channel,
the Company acquired international distribution rights to several telefilms
ranging from 12 to 15 motion pictures per year. While the Company occasionally
acquired U.S. rights to these films, the primary objective of acquiring
telefilms was to complement the Company's international children's programming
sales activities. With the acquisition of The Family Channel, the Company
increased its acquisition of worldwide rights to telefilms. These films are
typically targeted at prime time audiences and consist of family films,
dramas, thrillers and action/adventure features. The Company airs these
features on the Fox Family Channel and distributes these features
internationally to television broadcasters and home video distributors.

   For information regarding the revenues, profits or losses and total assets
associated with the Company's various business segments and information
regarding the revenues and assets associated with the Company's

                                       7
<PAGE>

geographic segments, see Note 11 of the Notes to Fox Family Worldwide, Inc.
Consolidated Financial Statements.

The Strategic Alliance with Fox/News Corp.

   News Corp., along with its subsidiaries, including the Fox Entertainment
Group, is a diversified international communications company principally
engaged in the production and distribution of motion pictures and television
programming; television, satellite and cable broadcasting; the publication of
newspapers, magazines and books; the production and distribution of
promotional and advertising products and services; the development of digital
broadcasting; the development of conditional access and subscriber management
systems; and the creation and distribution of on-line programming. Fox
Entertainment Group owns 100% of Fox Broadcasting. As of Fall 2000, Fox
Broadcasting was affiliated with 200 television stations across the United
States including 23 stations that FOX owns and operates. In primetime, FOX
Television reached 99% of the U.S. television households as of the start of
the Fall 2000 season. Each television station affiliate is a party with Fox
Broadcasting to an affiliation agreement which governs the terms of the
relationship between them.

   The Fox Kids Network is distributed over the same broadcast facilities as
FOX Television. In December 1995, Fox Broadcasting and certain of its
affiliates (the "Fox Parties") joined with Saban to launch a joint venture to
match the complementary programming and broadcasting strengths of the Fox Kids
Network and the international reach of Fox Broadcasting's parent company, News
Corp., with the development, production, distribution and merchandising
strengths of Saban. Set forth below is a summary of certain of the material
portions of the relevant strategic alliance provisions contained in the Asset
Assignment Agreement (the "Asset Assignment Agreement"), pursuant to which the
Fox Parties assigned, effective as of June 1, 1995, certain assets and
interests, which are currently owned by the Company.

   License of "Fox" Name. The Fox Parties granted to the Company the perpetual
exclusive right to use the name "Fox" in conjunction with the words "Kids,"
"Kid" or "Children" in the United States and agreed not to use or license the
name "Fox" to others for similar purposes. The Fox Parties separately granted
to certain of the Company's non-United States affiliated subsidiaries similar
rights to the territories outside the United States.

   New Services and other Noncompetition Provisions. The Fox Parties agreed
not to operate in the United States any broadcast, cable or non-standard
programming service targeted toward children ages 2-11 (a "kids' service")
other than the Fox Kids Network. If the Fox Parties at any time determine to
acquire a new kids' service anywhere else in the world, which kids' service
would bear the "Fox" name, they are required to provide the Company with a
right of first refusal to acquire and own that new kids' service. Moreover,
should the Fox Parties or any of their affiliates at any time acquire a
television, cable or satellite network or any other business which includes a
kids' programming service, the Fox Parties will be required to offer the
Company the right to acquire and own that kids' service.

   First Right to Fox Parties Originated Programming. The Fox Parties have
agreed to provide the Company with the first right to acquire first run
exhibition rights to any new programming suitable for a kids' service ("kids'
programming") prior to its sale or license to any third party; however, the
Fox Parties may freely license kids' programming to any broad based
entertainment network (which is not a kids' service) for prime time or late
night broadcast and programming derived from properties (such as The Simpsons)
not originally launched on the Fox Kids Network.

   Option Agreements between Fox Broadcasting and the Saban
Stockholders. Under agreements between Haim Saban and the other former
stockholders of Saban (together, the "Saban Stockholders") and Fox
Broadcasting Sub, Inc. ("FBSI"), a wholly owned subsidiary of Fox
Broadcasting, FBSI has the right and option, commencing in December 2002 or
earlier in certain circumstances, to acquire all of the shares of Class B
Common Stock of the Company held by Mr. Saban and the other Saban
Stockholders. In addition, Mr. Saban has the right and option to cause Fox
Broadcasting to purchase all of such shares either (i) in January 2001 if
notice is given by December 31, 2000, (ii) between December 22, 2002 and
December 22, 2012, or (iii) earlier

                                       8
<PAGE>

in the event of a change in control of Fox Broadcasting or in the event of the
death of Mr. Saban. The purchase price formula under the options is based on
the fair market value of the Company. See Item 13. "Certain Relationships and
Related Transactions."

Competition

   The businesses in which the Company engages are highly competitive. Each of
the Company's primary business segments are subject to competition from
companies which, in some instances, have greater production, distribution and
capital resources than those of the Company.

   Programming. The Company competes on the basis of relationships and pricing
for access to a limited supply of facilities and creative personnel to produce
its programs. The Company competes with major motion picture studios, such as
Warner Bros. and The Walt Disney Company, and animation production companies,
including Hanna Barbera, Film Roman and Klasky Cuspo, for the services of
writers, producers, animators, actors and other creative personnel and
specialized production facilities.

   Distribution Outlets. In the United States and internationally, the Company
competes for ratings and related advertising revenues. In the United States,
the Company currently competes through the Fox Kids Network and the Fox Family
Channel with the other broadcast television networks, public television and
cable television channels, such as USA Cable Network, Turner Network
Television ("TNT"), The Cartoon Network and Nickelodeon for market acceptance
of its programming and for viewership ratings and related advertising
revenues. Internationally, the Company competes through FKE with Nickelodeon,
The Disney Channel and The Cartoon Network, and in each of FKE's markets it
also has local competition such as Trouble in the United Kingdom, Telefon in
France and Panda and Super Tres in Spain. To the extent that the Company
produces original programming for distribution outlets it does not own, it
competes with all other producers of children's programming. Internationally,
the Company competes with a large number of U.S.-based and international
distributors of children's programming, including The Walt Disney Company,
Warner Bros. and Nickelodeon, in the development or acquisition of programming
expected to appeal to international audiences. Such programming often must
comply with foreign broadcast rules and regulations, which may stipulate
certain minimum local content requirements.

   Internet. As the Company expands its web sites and internet business, the
Company will compete with companies with substantially greater internet
presence, financial, technical, marketing and other services.

   More generally, the Company competes with various other leisure-time
activities such as home videos, movie theaters, personal computers and other
alternative sources of entertainment and information.

Government Regulation

   Certain aspects of the Company's operations are subject, directly or
indirectly, to federal, state, and local regulation. At the federal level, the
operations of cable television systems, satellite distribution systems, other
multichannel distribution systems, broadcast television stations, and, in some
respects, vertically integrated cable programmers are subject to the
Communications Act of 1934, as amended, the Cable Communications Policy Act of
1984 (the "1984 Act"), the Cable Television Consumer Protection and
Competition Act (the "1992 Act"), and the Telecommunications Act of 1996 (the
"1996 Act") and regulations promulgated thereunder by the Federal
Communications Commission (the "FCC"). Cable television systems are also
subject to regulation at the state and local level (see "State and Local
Regulation").

   The following does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the
broadcasting and cable television industries and other industries involved in
the video marketplace; rather it attempts to identify those requirements that
could affect the

                                       9
<PAGE>

Company's business. Also, other existing legislation and regulations,
copyright licensing, and, in many jurisdictions, state and local franchise
requirements, are currently the subject of a variety of judicial proceedings,
legislative hearings and administrative and legislative proposals which could
affect, in varying degrees, the manner in which the broadcasting and cable
television industries and other industries involved in the video marketplace
operate.

 Federal Regulations and Legislation

   The broadcast stations and cable systems that distribute the Company's
programming must comply with the provisions of the Children's Television Act
of 1990 ("CTA") and the rules and policies of the FCC pertaining to television
programs directed to children, particularly with respect to the amount and
type of commercial matter broadcast during such programs. Failure to comply
with the children's television commercial limitations can result in the
imposition of sanctions, including substantial monetary fines, on a broadcast
television station or cable system, which could adversely impact the Company.

   Under FCC license renewal "processing guidelines" promulgated under the
CTA, broadcast television stations are required to broadcast at least three
hours per week, averaged over a six-month period, of programming that furthers
the educational and informational needs of children 16 and under ("Core
Programming"). Core Programming has been defined as educational and
informational programming that, among other things, (i) has "as a significant
purpose" serving the educational and informational needs of children (ii) has
a specified educational and informational objective and a specified target
child audience, (iii) is regularly scheduled, weekly programming, (iv) is at
least 30 minutes in length and (v) airs between 7:00 a.m. and 10:00 p.m. Any
station that satisfies the processing guideline will receive FCC staff-level
approval of the portion of its license renewal application pertaining to the
CTA. Alternatively, a station may qualify for staff-level approval even if it
broadcasts "somewhat less" than three hours per week of Core Programming by
demonstrating that it has aired a weekly package of different types of
educational and informational programming that is "at least equivalent" to
three hours of Core Programming. At the present time, the Company makes at
least three hours per week of Core Programming to the Fox Kids Network
Affiliates available, thereby enabling them to fulfill their obligations under
the CTA.

   The 1996 Act took effect in February 1996, altering the network of federal,
state, and local laws and regulations pertaining to telecommunications
providers and services. To the extent the 1996 Act fosters greater competition
for the provision of multichannel video services to individual subscribers,
the Company should generally be impacted either neutrally or advantageously,
as additional providers are additional potential customers for the Company.

   FCC regulations adopted pursuant to the 1992 Act prevent a cable operator
that has an attributable interest (including voting or non-voting stock
ownership of 5% or more or limited partnership equity interests of 5% or more)
in a programming vendor from exercising undue or improper influence over the
vendor in its dealings with competitors to cable. The regulations also
prohibit a cable programmer in which a cable operator has an attributable
interest from entering into exclusive contracts with any cable operator or
from discriminating among competing multichannel program distributors in the
price, terms and conditions of sale or delivery of programming. With respect
to cable systems having channel capacity of less than 76 channels, the FCC's
regulations limit to 40% the number of programming channels that may be
occupied by video programming services in which the cable operator has an
attributable interest. As a result of Liberty Media's ownership interest in
News Corp., the Fox Family Channel is subject to these requirements. The FCC's
program access and non-discrimination regulations therefore affect the ability
of this programming service to enter into exclusive contracts. The rules also
permit multichannel video programming distributors ("MVPDs")(such as MMDS,
satellite master antenna televisions ("SMATV"), DBS and DTH operators) to
bring complaints against the Company to the FCC charging they are unable to
obtain the affected programming networks on nondiscriminatory terms. While
cable systems are expanding their capacity, there may be instances in which an
AT&T BIS Cable system with 75 channels or less will not be able to carry Fox
Family Channel or will have to remove another affiliated channel.

                                      10
<PAGE>

   The 1992 Act subjects cable systems to "must carry" rules, pursuant to
which local broadcast stations may elect to demand carriage. It also provides
favorable channel positioning rights for broadcasters electing to exercise
their must carry rights. The 1992 Act also gives television broadcast stations
the right to withhold consent to be carried by a cable system which may result
in a station receiving compensation for carriage.

   The FCC adopted rules requiring closed captioning of most broadcast and
cable programming on a phased-in basis, beginning in the year 2000. The
broadcast and cable industries have adopted, and the FCC has approved, a
voluntary content ratings system which, when used in conjunction with so-
called "V-Chip" technology, will permit the blocking of programs with a common
rating. The FCC has directed that all television receiver models with picture
screens 13 inches or greater be equipped with "V-Chip" technology under a
phased implementation which began July 1, 1999. On July 21, 2000 the FCC
adopted a rule requiring broadcasters and MVPDs to supply "video descriptions"
of their programming. Video descriptions, which are transmitted on a separate
audio channel and are accessible through a decoding device attached to
television sets, are narrative descriptions of a program's visual aspects and
are intended for the visually impaired. The FCC's rules require stations
located in the top 25 markets and affiliated with one of the major television
networks to provide video descriptions for at least 50 hours of primetime
and/or children's programming per quarter commencing April 1, 2002. The rules
also require MVPDs with 50,000 or more subscribers to provide 50 hours per
calendar quarter of primetime and/or children's programming with video
descriptions on each of the top five national non-broadcast networks they
carry commencing April 1, 2002. The Company may be called upon to provide
increased closed captioning and video description to assist in complying with
rules promulgated by the FCC and may be required to provide assistance or
information to establish ratings for its programming. Either of these
undertakings could increase the Company's operating expenses.

 Online Services

   The Children's Online Privacy Protection Act ("COPPA"), which became
effective in April 2000, prohibits web sites from collecting personally
identifiable information from children under age 13 without prior parental
consent. Online services provided by the Company may be subject to COPPA
requirements. Congress may also consider online privacy legislation that would
apply to personal information collected from teens and adults.

   Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that may affect, directly or indirectly, the operation,
ownership and profitability of the Company's business. These proposed changes
include, for example, expansion of program access requirements and potential
must-carry rights for digital television broadcast signals (which could limit
MVPDs' channel capacity available for the Company's programming). The Company
is unable to predict the outcome of future federal legislation or the impact
of any such laws or regulations on its operations.

 State and Local Regulation

   Cable television systems are generally constructed and operated under non-
exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The 1984 Act places certain limitations on a local
franchising authority's ("LFA") ability to control the operations of a cable
operator, and the courts from time to time have reviewed the constitutionality
of several franchise requirements, often with inconsistent results. The 1992
Act prohibits exclusive franchises, and allows LFAs to exercise greater
control over the operation of franchised cable television systems, especially
in the areas of customer service and rate regulation. The 1992 Act also allows
LFAs to operate their own multichannel video distribution systems without
having to obtain franchises. Moreover, LFAs are immunized from monetary damage
awards arising from their regulation of cable television systems or their
decisions on franchise grants, renewals, transfers, and amendments.

   The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the

                                      11
<PAGE>

actual cable programming channels to be carried), and the provision of free
service to schools and certain other public institutions. The specific terms
and conditions of a franchise and the laws and regulations under which it is
granted directly affect the profitability of the cable television system, and
thus the cable television system's financial ability to carry programming.
Local governmental authorities also may certify to regulate basic cable rates,
and continue to exercise rate regulation authority over the basic tier despite
that regulation of other tiers has been eliminated. Local rate regulation for
a particular system could result in resistance on the part of the cable
operator to pay the amount of subscriber fees charged by the Company for its
programming.

   Various proposals have been introduced at the state and local level with
regard to the regulation of cable television systems, and a number of states
have enacted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies.

 International

   The Company is also subject to local content and quota requirements in
international markets which, although a significant portion of the Company's
library meets such current requirements in Europe, effectively limit access to
particular markets.

Intellectual Property

   The Company generally holds copyrights to its owned programming in its
library. Additionally, the Company holds registered trademarks on various
characters and series contained in its owned programming. The Company also
holds significant rights as licensee of other productions, programming,
characters and series, most of which are subject to copyrights and trademarks
owned by the respective licensors of such properties. The Company considers
its owned and licensed copyrights and trademarks to be of significant value
and importance to the Company's business. Accordingly, the Company's policy is
to vigorously enforce copyrights and trademarks with respect to owned and
licensed programming against unlawful infringement by third parties.

Employees

   As of June 30, 2000, the Company had 882 full-time and 8 part-time
employees in the United States. Outside the United States, the Company had 352
full-time (242 of which were employees of FKE) and 4 part-time employees. The
Company also regularly engages freelance creative staff and other independent
contractors on a project-by-project basis. The Company believes its relations
with its employees are good.

ITEM 2. PROPERTIES

   The Company currently leases a total of approximately 278,000 square feet
of office and production space in its headquarters building in Los Angeles,
California under a lease expiring in April 2006, subject to two separate five-
year extension options. The Company also leases a multi-purpose production
facility in Valencia, California under a lease that expires in January 19,
2001, subject to five annual one-year extensions. The Company's Paris
operations currently lease 1,847 square meters (approximately 29,000 square
feet) of office and production space under a lease expiring February 28, 2008;
this lease may be cancelled by the Company with six months prior notice on
February 28, 2003 or February 28, 2006. The Company also leases approximately
22,000 square feet of office space for its European headquarters in London,
England under a lease expiring September 30, 2007. This lease may be cancelled
after the fifth year with nine months advance notice. In connection with the
IFE Acquisition, the Company acquired IFE's executive and administrative
offices, a sales office and an affiliate relations office in Virginia Beach,
Virginia. The Company also leases office facilities in other locations
throughout the world, none of which are considered material. The Company
believes that its current office and production space, together with space
readily available without material cost in the markets in which it operates,
are adequate to meet its needs for the foreseeable future.

                                      12
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

   The Company currently and from time to time is engaged in litigation in the
ordinary course of its business. The Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, if decided adversely
to the Company, would be likely to have a material adverse effect on the
Company's financial position and results of operations.

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

   Not Applicable.

                                       13
<PAGE>

                                    PART II

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

   Not Applicable.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

   The selected consolidated financial data of the Company set forth below as
of June 30, 1999 and 2000 and for the fiscal years ended June 30, 1998, 1999
and 2000 are derived from the Company's consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants, included
elsewhere in this Report. The selected financial data of the Company set forth
below for the eight months ended June 30, 1996 and the fiscal year ended June
30, 1997 are derived from the Company's combined financial statements audited
by Ernst & Young LLP, independent auditors.

   The selected financial data of Saban set forth below as of October 31, 1995
and for the five months ended October 31, 1995 are derived from Saban's
consolidated financial statements audited by Ernst & Young LLP, independent
auditors. The selected financial data of FCN Holding set forth below as of
October 31, 1995 and for the four months ended October 31, 1995 are derived
from FCN Holding's consolidated financial statements audited by Ernst & Young
LLP, independent auditors.

   The financial statements of the Company for the year ended June 30, 1997
are not comparable to the eight month period ended June 30, 1996 due to the
different lengths of the time periods compared and because neither period
includes the operations of IFE. In addition, the financial statements of the
Company as of and for the year ended June 30, 1998 (which includes the results
of operations of IFE from August 1, 1997) are not comparable to the year ended
June 30, 1997 as the prior period did not include the operations of IFE and
the financial statements of the Company as of and for the years ended June 30,
1999 and 2000 are not comparable to the year ended June 30, 1998 as the prior
period included only eleven months of activity for IFE.

   The selected financial data presented below and under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
should be read in conjunction with the consolidated and combined financial
statements, including the notes thereto, appearing elsewhere in this Report.

                                      14
<PAGE>

The Company

<TABLE>
<CAPTION>
                          Eight Months
                             Ended     Year Ended
                            June 30,    June 30,  Year Ended Year Ended Year Ended
                              1996        1997     June 30,   June 30,   June 30,
                           (combined)  (combined)  1998(1)      1999       2000
                          ------------ ---------- ---------- ---------- ----------
                                                           (consolidated)
                                                  --------------------------------
                                               (in thousands)
<S>                       <C>          <C>        <C>        <C>        <C>
Statements of Operations
 Data:
Revenues................    $191,621    $307,820   $664,458   $635,273   $641,876
                            --------    --------   --------   --------   --------
Costs and expenses:
  Production and
   programming..........     107,790     186,575    345,574    302,232    270,549
  Selling, general and
   administrative.......      22,562      61,263    152,484    173,245    209,477
  Depreciation..........         510       1,203      9,370     10,083     10,883
  Amortization of
   intangible assets....         --          --      37,557     40,434     40,522
                            --------    --------   --------   --------   --------
                             130,862     249,041    544,985    525,994    531,431
                            --------    --------   --------   --------   --------
Operating income........      60,759      58,779    119,473    109,279    110,445
Investment advisory
 fee....................      10,000         --         --         --         --
Equity in loss of
 unconsolidated
 affiliates.............         --        1,546      6,790      5,088      1,609
Minority interest share
 of earnings (losses)...         --          --         140       (444)    (2,184)
Other income, net.......         --          --        (132)       (62)       --
Interest expense, net...         885       2,226    134,002    169,107    168,415
Gain on issuance of
 subsidiary stock:
 Staff Accounting
 Bulletin No. 51 gain...         --          --         --         --     117,316
 Gain on issuance of
  subsidiary stock......         --          --         --         --      78,623
                            --------    --------   --------   --------   --------
Income (loss) before
 provision for income
 taxes..................      49,874      55,007    (21,327)   (64,410)   138,544
Provision for income
 taxes..................      18,274      14,567      3,446      1,989     77,159
                            --------    --------   --------   --------   --------
Net income (loss).......    $ 31,600    $ 40,440   $(24,773)  $(66,399)  $ 61,385
                            ========    ========   ========   ========   ========
Other Data:
Ratio of earnings to
 fixed charges..........        22:1        11:1        --         --         2:1
Deficiency of earnings
 available to cover
 fixed charges..........         --          --    $(26,656)  $(68,848)       --
</TABLE>

<TABLE>
<CAPTION>
                                                              June 30,
                                                        ----------------------
                                                           1999        2000
                                                        ----------  ----------
                                                           (in thousands)
<S>                                                     <C>         <C>
Balance Sheets Data:
Cash and cash equivalents.............................. $   46,858  $   89,674
Programming costs, net.................................    538,219     658,712
Total assets...........................................  2,466,792   2,543,817
Long-term obligations (including current maturities)...  1,841,690   1,765,377
Mandatorily redeemable preferred stock.................    345,000     345,000
Stockholders' deficit..................................    (67,743)    (24,343)
</TABLE>

                                       15
<PAGE>

Saban Entertainment, Inc.
<TABLE>
<CAPTION>
                                                                   Five Months
                                                                      Ended
                                                                   October 31,
                                                                       1995
                                                                  --------------
                                                                  (in thousands)
<S>                                                               <C>
Statement of Operations Data:
Revenues(2)......................................................    $105,130
Costs and expenses:
  Production and programming.....................................      42,022
  Selling, general and administrative............................      11,538
                                                                     --------
Operating income.................................................      51,570
Interest expense, net............................................         539
                                                                     --------
Income before provision for income taxes.........................      51,031
Provision for income taxes.......................................      14,289
                                                                     --------
Net income.......................................................    $ 36,742
                                                                     ========
<CAPTION>
                                                                   October 31,
                                                                       1995
                                                                  --------------
                                                                  (in thousands)
<S>                                                               <C>
Balance Sheet Data:
Cash and cash equivalents........................................    $ 16,207
Programming costs, net...........................................     118,210
Total assets.....................................................     207,479
Long-term obligations (including current maturities).............       5,605
Stockholders' equity.............................................      94,971

FCN Holding, Inc.

<CAPTION>
                                                                   Four Months
                                                                      Ended
                                                                   October 31,
                                                                       1995
                                                                  --------------
                                                                  (in thousands)
<S>                                                               <C>
Statement of Operations Data:
Revenues(2)......................................................    $ 46,286
Costs and expenses:
  Production and programming.....................................      29,698
  Fees and costs to a related party..............................       7,313
  Selling, general and administrative............................       2,566
  Fox Kids Network affiliate participations......................       6,883
                                                                     --------
Operating loss(3)................................................        (174)
Interest expense, net............................................         145
                                                                     --------
Loss before provision for income taxes...........................        (319)
Provision for income taxes.......................................         --
                                                                     --------
Net loss.........................................................    $   (319)
                                                                     ========
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                   October 31,
                                                                       1995
                                                                  --------------
                                                                  (in thousands)
<S>                                                               <C>
Balance Sheet Data:
Cash and cash equivalents........................................    $   317
Programming costs, net ..........................................     27,085
Total assets.....................................................     52,807
Long-term obligations (including current maturities).............      8,727
Stockholders' deficit............................................     (4,130)
</TABLE>
--------
Notes to Selected Historical Financial Data

(1) Includes the results of operations of IFE from the date of the acquisition
    of a majority interest (August 1, 1997) through June 30, 1998.

(2) Includes revenues recognized by Saban from Fox Children's Network, Inc.
    ("FCN") and by FCN from Saban as set forth below:

<TABLE>
<CAPTION>
                                                         Five Months Four Months
                                                            Ended       Ended
                                                         October 31, October 31,
                                                            1995        1995
                                                         ----------- -----------
                                                             (in thousands)
<S>                                                      <C>         <C>
  Saban revenues from FCN...............................   $9,651        n/a
  FCN revenues from Saban...............................      n/a       $973
</TABLE>

(3) Under agreements between FCN and Fox Broadcasting, for periods prior to
    June 1, 1995, FCN paid administrative and other fees to Fox Broadcasting.
    Effective June 1, 1995, Fox Broadcasting assigned to the Company its
    rights to such payments accrued thereafter. The Company expensed $9.1
    million under these agreements for the four months ended October 31, 1995.

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

Introduction

   The Company's current principal operations are conducted through IFE, FCN,
Saban and the Fox Kids International Networks (consisting of FKE and FKLA).
IFE operates the Fox Family Channel, one of the top ten most widely
distributed cable television networks in the United States, reaching
approximately 95% of all cable and satellite television households. FCN
commenced operations with the launch, in September 1990, of the Fox Kids
Network, which is currently one of the top-rated children's-oriented broadcast
television networks in the United States. Saban, which commenced business in
1983, is currently one of the largest suppliers of children's television
programming in the world. The Fox Kids International Networks have
approximately 31 million subscribers and operate in approximately 57 countries
and in 13 languages worldwide.

   FCN Holding, Inc. ("FCN Holding"), which indirectly owns FCN, and Saban
entered into a strategic alliance, which included the formation of Fox Kids
Worldwide, LLC ("the LLC") pursuant to agreements entered into on November 1,
1995 (the "Effective Date"). Under the terms of the agreements relating to the
strategic alliance, between November 1, 1995 and August 1, 1997 (the date of
the Reorganization described below), each of Saban and FCN was operated by its
respective management subject to the overall supervision of a governing
committee comprised of an equal number of representatives of each of FCN and
Saban. As a result of the formation of the joint venture and the common
management of the joint venture business, the respective assets, liabilities
and operations of Saban, FCN Holding and the LLC have been combined at
historical cost from and after November 1, 1995.

   The Company was incorporated in August 1996 under Delaware law. Between
August 1996 and August 1997, the Company conducted no business or operations.
On August 1, 1997, in connection with the Company's

                                      17
<PAGE>

acquisition of a controlling interest in IFE, (i) FBSI exchanged its capital
stock in FCN Holding, which indirectly owns FCN, for 7,920,000 shares of
Class B Common Stock of the Company, (ii) the other stockholder of FCN Holding
exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares
of Class A Common Stock of the Company, (iii) the Saban Stockholders exchanged
their capital stock of Saban for an aggregate of 7,920,000 shares of Class B
Common Stock of the Company, and (iv) all outstanding management options to
purchase Saban capital stock became options to purchase an aggregate of
646,548 shares of Class A Common Stock of the Company (together, the
"Reorganization"). In addition, Fox Broadcasting exchanged its preferred, non-
voting interest in the LLC and its $50 million contingent note receivable from
the LLC for a new subordinated pay-in-kind note (the "Fox Subordinated Note")
from the Company, which accrues interest at the rate of 10.427%. The payment
of principal and interest under the Fox Subordinated Note are subordinated in
right to the obligations of the Company and its subsidiaries under the Second
Amended and Restated Credit Agreement dated as of October 28, 1997 between
certain subsidiaries of the Company and certain banks (as amended,
supplemented or otherwise modified from time to time, the "Amended Credit
Facility") and the indentures relating to the Company's 9 1/4% Senior Notes
and 10 1/4% Senior Discount Notes (collectively, the "Company Notes"), each
dated as of October 28, 1997 between the Company and the Bank of New York, as
Trustee (collectively, the "Indentures").

   The Company acquired a controlling interest in IFE on August 1, 1997 and
completed the IFE Acquisition on September 4, 1997. The IFE Acquisition was
accounted for using the purchase accounting method, and, consequently, the
historical financial statements included herein do not reflect the results of
operations of IFE prior to the date the Company first acquired a controlling
interest in IFE. Following the IFE Acquisition, the Company decided that
certain IFE assets unrelated to The Family Channel were not strategic to the
Company. The Company has sold, licensed or otherwise discontinued use of the
majority of these non-strategic assets which generated $72.8 million in
revenues and $116.5 million in operating expenses in the twelve month period
ended June 30, 1997. The operations of such businesses have been excluded from
operating results.

   The financial statements as of and for the years ended June 30, 1999 and
June 30, 2000 are not comparable to the year ended June 30, 1998 as the prior
period includes only eleven months of activity for IFE. In addition, the
Company has made significant changes to the programming of the Family Channel.
For example, each week the Fox Family Channel now broadcasts programming from
7 a.m. to 6 p.m. targeted principally to children. At the time of its
acquisition by the Company, The Family Channel did not carry any material
amounts of programming targeted to this audience. Because of these changes,
results of operations of IFE in prior periods may not be comparable to results
of operations for future periods.

   The following discussion provides information and analysis with respect to
the results of operations reflected in the financial statements included in
this Report, as well as the liquidity and capital resources of the Company.
This discussion should be read in conjunction with the financial statements
and related notes and Item 6, "Selected Consolidated Financial Data" included
elsewhere in this Report.

Significant Accounting Factors

 Use of Estimates

   As is industry practice, management has made a number of estimates and
assumptions relating to the amortization of programming costs and the
reporting of assets and liabilities in the preparation of the financial
statements discussed herein. Actual results could differ materially from these
estimates. Management periodically reviews and revises its estimates of future
airings and revenues as necessary, which may result in revised amortization of
its programming costs. Results of operations may be significantly affected by
the periodic adjustments in such amortization.

 Increased International Focus

   In recent years, revenues derived from international operations have become
increasingly significant to the Company, representing 27% of the Company's
consolidated revenues for the fiscal year ended June 30, 2000, as

                                      18
<PAGE>

compared to 25% and 21% for the fiscal years ended June 30, 1999 and 1998,
respectively. As part of its business strategy, the Company intends to expand
its international program production and distribution activities. Certain of
these activities, such as the rollout of new international channels, may
require material marketing and other expenses in advance of the receipt of
related revenues, thereby adversely affecting the Company's results of
operations as these activities are expanded and the international markets are
developed.

Results of Operations

 The Company

   The following tables set forth, for the periods indicated, certain data
with respect to revenues, and costs and expenses of the Company as a
percentage of total revenues.

<TABLE>
<CAPTION>
                                                    Years Ended June 30,
                                                 ----------------------------
                                                   1998      1999      2000
                                                 --------  --------  --------
                                                       (in thousands)
   <S>                                           <C>       <C>       <C>
   Revenues:
     Broadcasting............................... $423,060  $429,610  $434,392
     Production and distribution................  240,538   204,321   202,086
     Other......................................      860     1,342     5,398
                                                 --------  --------  --------
       Total revenues...........................  664,458   635,273   641,876
                                                 --------  --------  --------
   Costs and expenses:
     Production and programming.................  345,574   302,232   270,549
     Selling, general and administrative........  152,484   173,245   209,477
     Depreciation...............................    9,370    10,083    10,883
     Amortization of intangibles................   37,557    40,434    40,522
                                                 --------  --------  --------
                                                  544,985   525,994   531,431
                                                 --------  --------  --------
   Operating income.............................  119,473   109,279   110,445
   Other expenses:
     Equity in loss of unconsolidated
      affiliates................................    6,790     5,088     1,609
     Minority interest share of earnings
      (losses)..................................      140      (444)   (2,184)
     Other income, net..........................     (132)      (62)      --
     Interest expense, net......................  134,002   169,107   168,415
     Gain on issuance of subsidiary stock:
       Staff Accounting Bulletin No. 51 gain....      --        --    117,316
       Gain on issuance of subsidiary stock.....      --        --     78,623
                                                 --------  --------  --------
   Income (loss) before provision for income
    taxes.......................................  (21,327)  (64,410)  138,544
   Provision for income taxes...................    3,446     1,989    77,159
                                                 --------  --------  --------
   Net income (loss)............................ $(24,773) $(66,399) $ 61,385
                                                 ========  ========  ========
</TABLE>

                                      19
<PAGE>

             Costs and Expenses as a Percentage of Total Revenues

<TABLE>
<CAPTION>
                                                                Years Ended
                                                                  June 30,
                                                               ----------------
                                                               1998  1999  2000
                                                               ----  ----  ----
                                                               (in thousands)
<S>                                                            <C>   <C>   <C>
Costs and expenses:
  Production and programming.................................. 52.0% 47.6% 42.2%
  Selling, general and administrative......................... 23.0  27.3  32.6
  Depreciation................................................  1.4   1.6   1.7
  Amortization of intangibles.................................  5.6   6.3   6.3
                                                               ----  ----  ----
    Total costs and expenses.................................. 82.0  82.8  82.8
Operating income.............................................. 18.0% 17.2% 17.2%
</TABLE>

Year ended June 30, 2000 compared with the year ended June 30, 1999

   Revenues for the year ended June 30, 2000 were $641.9 million as compared
to $635.3 million for the year ended June 30, 1999, an increase of 1.0%.
Revenues for the Company's production and distribution segment decreased
slightly as compared to the prior year. Lower direct to video revenues of
$30.0 million were offset by higher foreign syndication and merchandising
revenues. The Company did not release or produce any new direct to video
titles in the current fiscal year due to the highly competitive marketplace
for family-oriented product. The Company's broadcast segment revenues
increased $4.8 million due to higher subscription fees and international ad
sales revenues offset by lower domestic cable and network advertising revenues
caused by lower rating levels as compared to the prior year. Subscriber fee
revenues for the Fox Family Channel increased due to higher subscriber counts
and subscription rates. Ad sales and subscriber fees for the Fox Kids
International Networks improved due to increased penetration for the Company's
previously existing channels plus the launch of additional channels.

   Production and programming costs for the year ended June 30, 2000 decreased
10.5% to $270.5 million as compared to $302.2 million for the prior year.
Production and programming costs as a percentage of total revenues decreased
to 42.2% for the year ended June 30, 2000 from 47.6% for the prior year. The
decrease is due primarily to the decrease in the direct to video sales
described above, which had high amortization rates. In addition, there was
lower amortization expense due to the Company's mix of domestic and foreign
revenues as compared to the prior year.

   Selling, general and administrative expenses for the year ended June 30,
2000 increased $36.2 million or 20.9% as compared to the prior year. As a
percentage of total revenues, selling, general and administrative expenses
increased to 32.6% in the current year from 27.3% in the prior year. This
increase is attributable to several factors, including the expansion of the
Company's international channels in Europe and worldwide internet activities,
as well as increased marketing and related expenses for the Fox Kids Network
and higher affiliate relations expenses for the Fox Family Channel. Offsetting
this increase somewhat were lower marketing expenses for the Fox Family
Channel as a result of the reformatting costs incurred in the prior year.

   Depreciation expense for the year ended June 30, 2000 increased $0.8
million or 7.9% as compared to the year ended June 30, 1999. As a percentage
of total revenues, depreciation expense increased to 1.7% in the current year
from 1.6% in the prior year. The increase is due to depreciation on property
and equipment additions.

   Amortization of intangible assets results from the acquisition of IFE in
August 1997. The intangible assets are being amortized over 40 years.

   The equity in loss of unconsolidated affiliates represents the Company's
portion of the loss generated by the Company's international channels in The
Netherlands ("TV10 BV") and Spain. Effective August 1998, as part of a joint
venture with a subsidiary of News Corp., a subsidiary of the Company, Fox Kids
Europe Holdings, Inc. ("FKEH"), contributed its interest in TV10 BV to a U.S.
limited liability company ("TV10 LLC") in

                                      20
<PAGE>

exchange for a 50% equity interest in TV10 LLC. The other 50% equity interest
is owned by a subsidiary of News Corp. In November 1999, the Company's
interest in TV10 LLC was transferred to FKE.

   Interest expense decreased by $0.7 million for the year ended June 30, 2000
as compared to the year ended June 30, 1999. The decrease is due to lower
levels of bank facility borrowing and lower imputed interest on long-term film
contracts assumed in connection with the acquisition of IFE offset by higher
levels of the Company's subordinated debt.

   In November 1999, FKE issued 12,519,307 previously unissued shares (15.2%)
for net proceeds of approximately $153.0 million in an initial public offering
of its ordinary shares on the Official Market of Amsterdam Exchanges. The
Company has accounted for the proceeds of the offering in accordance with
Staff Accounting Bulletin ("SAB") No. 51, "Accounting by the parent in
consolidation for sale of stock in subsidiary." Accordingly, a pre-tax gain of
$117.3 million was recorded in Fiscal 2000. The gain recorded represents the
Company's portion of the excess net offering price per share of FKE's ordinary
shares compared to the book carrying amount per share. Additionally, a
subsidiary of the Company caused to be transferred 7,507,591 shares of FKE, or
9.1% of its ordinary shares, to Fox Broadcasting as settlement of a $100.0
million subscription advance payable. These shares were issued to the public
on behalf of Fox Broadcasting, as a selling stockholder, in the initial public
offering and the net proceeds from these shares were retained by
Fox Broadcasting. A pre-tax gain of $78.6 million was recorded on the stock
issuance to Fox Broadcasting in Fiscal 2000.

   The Company's provision for income taxes for the twelve months ended June
30, 1999 reflects foreign withholding taxes and state income taxes related to
normal recurring business activity. The Company's provision for income taxes
for the twelve months ended June 30, 2000 reflects taxes associated with the
initial public offering plus foreign withholding taxes. The Company's
effective tax rate in the year ended June 30, 2000 of 56% is greater than the
federal statutory rate principally due to non-deductible goodwill amortization
and an increase in the deferred tax valuation allowance related to certain
timing differences not currently deductible.

Year ended June 30, 1999 compared with the year ended June 30, 1998

   Revenues for the year ended June 30, 1999 were $635.3 million as compared
to $664.5 million for the year ended June 30, 1998, a decrease of 4.4%. On a
pro forma basis, giving effect to the IFE Acquisition as if it had occurred on
July 1, 1997, revenues decreased $53.7 million, or 7.8%. The actual revenue
decrease of $29.2 million results primarily from lower direct-to-video
revenues of $26.4 million and lower domestic revenues associated with the
production and distribution segment of the Company. The market for direct-to-
video features is highly competitive, primarily due to an oversupply of
product in the marketplace. These decreases were offset, in part, by two
factors. Revenues for the Company's broadcast segment increased as a result of
subscriber revenue growth for the Fox Family Channel (the Company acquired a
controlling interest in IFE on August 1, 1997, and only eleven months of
activity were included for the Fox Family Channel for the twelve-month period
ended June 30, 1998) while the international cable channels posted higher
revenues as a result of increased penetration in the marketplace and the
launch of additional channels. The channels were broadcast in approximately 39
countries as of June 30, 1999, as compared to only approximately 28 countries
in the prior year. These increases were partially offset by lower domestic
cable and network ad sale revenues due to lower overall ratings as compared to
the prior year.

   On August 15, 1998, The Family Channel was reformatted as the Fox Family
Channel to the cable households of America with new programming and a new
schedule, which included children's programming, followed by evening and late-
night programming for the entire family. The Company utilizes its library
product along with other third party acquired and original programming during
the daytime children's block. Primetime programming, on the other hand,
consists principally of original series, specials, and movies produced for or
licensed by the Fox Family Channel. The process of reformatting a channel is
challenging and takes time to accomplish. The industry response to the
reformatting has generally been positive. The Company has not lost any cable
or direct broadcast system subscribers as a result of the reformatting and the
distribution of the Fox

                                      21
<PAGE>

Family Channel increased by over 3 million homes from the time of the
reformatting through June 30, 1999. From the August 15, 1998 reformat through
June 30, 1999 overall ratings compared to the previous year were lower.
However, the Company introduced various programming changes which had a
positive impact on ratings and have improved important demographics. The
Company continues to pursue its long-term objective of attracting a broader
audience with improved advertiser demographics.

   Production and programming costs for the year ended June 30, 1999 decreased
12.6% to $302.2 million as compared to $345.6 million for the prior year.
Production and programming costs as a percentage of total revenues decreased
to 47.6% for the year ended June 30, 1999 from 52.0% for the prior year. The
decreases in production and programming costs are attributable to a number of
factors in the Company's production and distribution segment, including the
decrease in direct-to-video distribution revenues described above, which have
high amortization rates, and lower amortization expense associated with the
Company's distribution of domestic syndicated product. In addition, production
and programming costs associated with the Company's broadcast segment also
decreased principally as a result of lower production and programming expense
for the Fox Kids Network, including an approximately $15.9 million one-time
reduction in expense related to the Company's new affiliation agreement.

   Selling, general and administrative expenses for the year ended June 30,
1999 increased $20.8 million or 13.6% as compared to the prior year. As a
percentage of total revenues, selling, general and administrative expenses
increased to 27.3% in the year ended June 30, 1999, from 23.0% in the prior
year. This increase is due to a number of factors in the Company's broadcast
segment including one additional month of activity of IFE and various costs
($11.6 million) incurred with the reformatting of the Fox Family Channel and
higher international channel expenses ($8.1 million) as a result of the growth
described above.

   Depreciation expense for the year ended June 30, 1999 increased $0.7
million or 7.6% as compared to the year ended June 30, 1998. As a percentage
of total revenues, depreciation expense increased to 1.6% in 1999 from 1.4% in
the prior year. The increase is due to depreciation on property and equipment
additions.

   Amortization of intangible assets results from the acquisition of IFE in
August 1997. Twelve months of amortization was taken for the year ended June
30, 1999 as compared to only eleven months in the prior year.

   The equity in loss of unconsolidated affiliate represents the Company's
portion of the loss generated by TV10 BV, a cable network based in The
Netherlands. The Company acquired its initial interest in TV10 BV in March
1997. Effective August 1998, as part of a joint venture with a subsidiary of
News Corp., a subsidiary of the Company, FKEH, contributed its interest in
TV10 BV to TV10 LLC in exchange for a 50% equity interest in TV10 LLC. The
other 50% equity interest is owned by a subsidiary of News Corp.

   Interest expense increased by $35.1 million for the year ended June 30,
1999 as compared to the year ended June 30, 1998. The increase is due to
increased interest expense on the Company's subordinated debt and imputed
interest on long-term Fox Family Channel film contracts partially offset by
lower interest rates on the bank facility.

   The Company's provision for income taxes for the twelve months ended June
30, 1999 reflects foreign withholding taxes and state income taxes related to
normal recurring business activity. The decrease from the prior year is
largely due to U.S. federal and state income taxes related to IFE for the
period before IFE became part of the Company's U.S. consolidated tax return.

 Use of EBITDA

   While many in the financial community consider earnings before interest
expense, taxes, depreciation and amortization of intangible assets ("EBITDA")
to be an important measure of comparative operating performance, it should be
considered in addition to, but not as a substitute for or superior to,
operating income, net income (loss), cash flow and other measures of financial
performance prepared in accordance with generally

                                      22
<PAGE>

accepted accounting principles. EBITDA does not reflect cash available to fund
cash requirements, and the items excluded from EBITDA, such as depreciation
and non-film amortization, are significant components in assessing the
Company's financial performance. Other significant uses of cash flows are
required before cash will be available to the Company, including debt service,
taxes and expenditures for production, distribution and broadcast assets.
EBITDA eliminates the uneven effect across business segments of depreciation
and amortization primarily resulting from the value of intangible assets
acquired in business combinations accounted for by the purchase method of
accounting, including the Company's August 1997 acquisition of IFE. The
Company's calculation of EBITDA may be different from the calculation used by
other companies and, therefore, comparability may be limited.

   The following table sets forth EBITDA for the years ended June 30, 1998,
1999 and 2000:

<TABLE>
<CAPTION>
                                                     Years Ended June 30,
                                                  ----------------------------
                                                    1998      1999      2000
                                                  --------  --------  --------
                                                        (in thousands)
   <S>                                            <C>       <C>       <C>
   Revenues:
     Broadcasting................................ $423,060  $429,610  $434,392
     Production and distribution.................  240,538   204,321   202,086
     Other.......................................      860     1,342     5,398
                                                  --------  --------  --------
       Total revenues............................  664,458   635,273   641,876
                                                  --------  --------  --------
   EBITDA:
     Broadcasting................................  117,825   112,921   109,109
     Production and distribution.................   57,737    54,314    61,871
     Other.......................................  (15,960)  (12,021)  187,384
                                                  --------  --------  --------
                                                   159,602   155,214   358,364
                                                  --------  --------  --------
   Other Expenses
     Interest expense............................  134,002   169,107   168,415
     Depreciation................................    9,370    10,083    10,883
     Amortization of intangibles.................   37,557    40,434    40,522
                                                  --------  --------  --------
                                                   180,929   219,624   219,820
                                                  --------  --------  --------
   Income (loss) before provision for income
    taxes........................................  (21,327)  (64,410)  138,544
   Provision for income taxes....................    3,446     1,989    77,159
                                                  --------  --------  --------
   Net income (loss)............................. $(24,773) $(66,399) $ 61,385
                                                  ========  ========  ========
</TABLE>

Liquidity and Capital Resources

   In September 1997, the Company completed the IFE Acquisition. The total
consideration for the IFE Acquisition was approximately $1.9 billion,
including assumption of debt, and was financed by (i) the borrowing of $1.25
billion under a credit facility (the "Old Credit Facility"), (ii) the issuance
of approximately $345 million of Series A Preferred Stock to Liberty IFE, Inc.
("Liberty IFE") and (iii) the issuance of a note to News America Incorporated
in the amount of $345.5 million (the "NAI Bridge Note"). In October 1997, the
Company completed an offering (the "Offering") of the Company Notes,
generating net proceeds to the Company of approximately $830 million. Of the
net proceeds from the Offering, $215 million was used to repay a portion of
the NAI Bridge Note and the balance of $615 million was used to repay
indebtedness under the Company's Old Credit Facility. Approximately $132
million (including accreted interest) was outstanding under the NAI Bridge
Note at June 30, 2000; however, no payments are due under the NAI Bridge Note
until March 2008.

   In October 1997, as part of the Offering, the Company amended the Old
Credit Facility to the Amended Credit Facility which includes a $710 million
facility, comprised of a seven-year amortizing term loan and a seven-year
reducing revolving credit facility. The Amended Credit Facility is scheduled
to terminate

                                      23
<PAGE>

September 29, 2004. Borrowings under the Amended Credit Facility bear interest
at the Company's option at a rate per annum equal to either LIBOR plus a .75%
interest rate margin or the base prime rate. As of June 30, 2000, $30 million
was available under the Amended Credit Facility for additional borrowings.

   In November 1999, FKE, completed an initial public offering of its ordinary
shares in The Netherlands, as described above, generating net cash proceeds of
approximately $153.0 million of which $100.0 million was utilized to pay down
the Company's Amended Credit Facility and the remaining amount was made
available for working capital purposes.

   As a result of the IFE Acquisition and the financing transactions described
above, the Company's principal liquidity requirements arise from interest
payments. The Company further anticipates certain seasonal working capital
needs related to the development, production and acquisition of programming,
the financing of accounts receivable and other related operating costs. The
Company on a regular basis has had, and intends to continue to engage in,
exploratory discussions concerning programming and other acquisition
opportunities, and any such acquisition could result in additional capital
requirements. Commencing July 1, 1998 the Company is obligated to pay to its
affiliates an aggregate of approximately $15 million per year for five years
in exchange for (i) guaranteed clearance of Fox Kids programming in its
current time period for ten years, (ii) relinquishment of any participation in
the current or future profits of the Fox Kids Network, and (iii) additional
allocation of promotional spots for the next three and one-half years.

   Net cash provided by operating activities of the Company for the year ended
June 30, 2000 was $326.3 million as compared to $330.2 million for the year
ended June 30, 1999. The decrease is due to expansion of the Company's
international operations and timing of production, programming and other
payments.

   Net cash used in investing activities of the Company during the years ended
June 30, 1999 and 2000 was $360.1 million and $350.0 million, respectively.
The investing activities for the years ended June 30, 1999 and 2000 primarily
consisted of additions to production and programming costs and purchases of
property and equipment, while the year ended June 30, 1999 reflected higher
than normal production and programming costs associated with the completely
revamped program schedule of the Fox Family Channel.

   Net cash provided by (used in) financing activities of the Company during
the years ended June 30, 1999 and 2000 was ($5.6 million) and $66.4 million,
respectively. The financing activities for the year ended June 30, 1999
consisted primarily of proceeds from bank and other borrowings offset by
dividends related to the Company's Series A Mandatorily Redeemable Preferred
Stock and bank loan paydowns. The activities for the year ended June 30, 2000
consisted primarily of proceeds from the initial public offering of the
ordinary shares of FKE, the issuance of additional Fox subordinated debt,
proceeds from bank borrowings, and advances from related parties, offset by
payments of dividends on the Company's preferred stock and paydowns of bank
borrowings.

   The Company's total unrestricted cash balances at June 30, 2000 were $89.7
million.

   The Company believes that the $30 million of available borrowings under the
Amended Credit Facility, together with cash flow from operations and cash on
hand and funding from the Company's stockholders, will be sufficient to fund
its operations and service its debt for the foreseeable future.

New Accounting Pronouncements

   In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued.
SFAS No. 133 was subsequently amended by SFAS No. 137, which had the effect of
deferring the date of its effectiveness. In March 2000, SFAS No. 133 was also
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Hedging Activities--An Amendment to FASB Statement No. 133," which amends the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. SFAS No. 133 and 138 establish accounting
and reporting

                                      24
<PAGE>

standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 and 138
are effective for fiscal periods beginning after June 15, 2000. The Company is
currently evaluating the possible effects of SFAS No. 133 and 138 on its
consolidated financial statements. This statement could increase volatility in
earnings and other comprehensive income.

   In June 2000, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of
Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-
2"), which established new accounting standards for producers and distributors
of films and supersedes SFAS No. 53. SOP 00-2 requires that advertising and
other exploitation costs for theatrical and television product be expensed as
incurred. This compares to the Company's existing policy of capitalizing and
then expensing advertising cost for theatrical and television product over the
related revenue streams, as prescribed under SFAS No. 53. In addition, SOP 00-
2 requires development cost for abandoned projects after three years and
certain indirect overhead costs to be charged directly to expense, instead of
those costs being capitalized to programming costs, which currently is
required under the existing accounting standard. SOP 00-2 is effective for
financial statements for fiscal years beginning after December 15, 2000,
however, earlier application is encouraged. The Company plans to adopt SOP 00-
2 during the first quarter of fiscal 2002, at which time it expects to record
a one-time, non-cash, pre-tax charge as a cumulative effect of a change in
accounting principles, the amount of which has not yet been determined.

   In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenues in financial statements. The new
rules are expected to result in some changes as to how the filmed
entertainment industry classifies its revenue, particularly relating to
distribution arrangements for third-party and co-financed joint ventures
product, but it is not expected to result in any changes to net income. The
Company is required to adopt SAB 101 during the first quarter of fiscal 2001.
As a result, the Company is in the process of evaluating the overall impact of
SAB 101 on its consolidated financial statements.

   In January 2000, EITF 99-17, "Accounting for Advertising Barter
Transactions" was issued. EITF 99-17 requires that revenues and expenses
related to advertising barter transactions be recognized at fair value only if
the fair value of the advertising surrendered in the transaction is
determinable based on the entity's own historical practice of receiving cash,
marketable securities, or other consideration that is readily convertible to a
known amount of cash for similar advertising from buyers unrelated to the
counterparty in the barter transaction. This EITF is not expected to result in
any change to the financial position or operating results of the Company.

Factors That Could Impact Future Results

 Substantial Leverage; Ability to Service Indebtedness

   As of June 30, 2000, the Company's total amount of consolidated debt
(including amounts payable to related parties) outstanding was approximately
$1.77 billion, or 83.7% of total capitalization. The Company is a holding
company and its ability to obtain funds from its subsidiaries and affiliates
could be limited.

   The degree to which the Company is leveraged could have important
consequences, including, but not limited to, the following: (i) the Company's
ability to obtain financing in the future for working capital, capital
expenditures or general corporate purposes may be impaired; (ii) a substantial
portion of cash flows from the operation of the Company's subsidiaries will be
dedicated to the payment of the principal of and interest on its debt and will
not be available for other purposes; and (iii) certain of the Company's
borrowings are at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates. Further, the
Company's Amended Credit Facility and the Indentures contain certain
restrictive financial and operating covenants which affect, and in many
respects significantly limit or prohibit, among other things, the ability of
the Company and its subsidiaries to incur indebtedness, make prepayments of
certain indebtedness, pay dividends, make investments, engage in transactions
with affiliates, create liens, engage in change of control

                                      25
<PAGE>

transactions, sell assets and engage in mergers and consolidations. These
covenants may significantly limit the operating and financial flexibility of
the Company and may limit its ability to respond to changes in its business or
competitive activities. The failure by the Company to comply with such
covenants could result in an event of default under the applicable instrument,
which could permit acceleration of the debt under the instrument and in some
cases acceleration of debt under other instruments containing cross-default or
cross-acceleration provisions.

   The Company's ability to make scheduled payments of principal or to pay
interest on or to refinance its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Although management believes that cash from operations, together with
available borrowings pursuant to the Company's Amended Credit Facility and
funding from the Company's stockholders, will be adequate to meet the
Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of interest on its debt for the
foreseeable future, this is a forward-looking statement and there can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future working capital borrowings will be available in an
amount sufficient to enable the Company to service its debt or to make
necessary capital expenditures or other expenditures. Furthermore, there can
be no assurance that the Company will be able to raise additional capital for
any required refinancing in the future. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

 Risks Associated with Holding Company Structure

   The Company is a holding company and its assets consist solely of
investments in its subsidiaries. As a holding company, the Company's ability
to meet its financial obligations and its funding and other commitments to its
subsidiaries is dependent upon the earnings of the subsidiaries and the
distribution or other payment of such earnings to the Company in the form of
dividend distributions, loans or other advances, payment or reimbursement for
management fees and expenses and repayment of loans and advances from the
Company. Accordingly, the Company's ability to pay interest on its debt and
otherwise to meet its liquidity requirements may be limited as a result of its
dependence upon the distribution of earnings and advances of funds by its
subsidiaries. The payment of dividends or the making of loans or advances to
the Company by its subsidiaries may be subject to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations. Certain of
the Company's subsidiaries may in the future be subject to loan or other
agreements prohibiting or limiting the transfer of funds to the Company, or
requiring that any indebtedness of such subsidiaries or affiliates to the
Company be subordinate to the indebtedness under such agreements.

 Acquisition of IFE

   Limited Cable Television Operations History. The IFE Acquisition expanded
the Company's operations into the cable television business, a business in
which it had never before operated. The cable television business is highly
competitive, subject to government regulation and at risk to technological
change. As of August 15, 2000, cable television reached 77.5% of the United
States' television households compared to 98% for broadcast television and
9.4% for DTH satellite television. Cable television reaches approximately 30.4
million of U.S. children between the ages of 2-11. In the cable television
market, the Company is subject to competition from other cable television
companies which, in many instances, have greater production, distribution and
capital resources than the cable television operations of the Company.

   Programming Changes at The Family Channel. The Company reformatted The
Family Channel as the Fox Family Channel in August 1998. The household rating
for the Fox Family Channel has dropped 27% since the reformatting, and in the
adults ages 18-49 demographic the rating decrease has been 28%. In the
children's ages 2-11 demographic, ratings have increased 300% from the prior
year. The Company has experienced improved ratings over the past few months
due to programming changes, including the acquisition of off-network
programming, and increased viewership of its original movies. The Company
acquired IFE with the expectation

                                      26
<PAGE>

that the acquisition would result in synergies for the combined business.
These include the potential to realize a greater return on its children's
programming library through distribution on the Fox Family Channel and
operational synergies through the sale of "packaged advertising," cross-
promotional opportunities with the Fox Kids Network, consolidation of
duplicative functions and the elimination of excess overhead.

 Competition Among International Channels

   The Company competes for viewers and ratings and related advertising
revenues in each of the territories where it broadcasts its channels. The
Company currently competes with children-focused terrestrial television
satellite channels for market acceptance of its programming, for viewership
ratings and for related advertising. For example, the Company competes with
The Disney Channel, The Cartoon Network and Nickelodeon in many of its markets
and in each of its markets it often also has local competition such as Trouble
in the United Kingdom, Teleton in France and Panda and Super Tres in Spain. In
some countries, popular terrestrial channels have indicated they have plans to
launch digital children's channels.

 Possible Decline in Popularity of Current Programs and Uncertainty of
 Acceptance of New Programs

   A significant portion of the Company's revenues are derived from the
creation, development, production, acquisition, international distribution,
merchandising and other exploitation of children's television properties. For
the fiscal year ended June 30, 2000, revenues from these sources represented
approximately 46% of the Company's consolidated revenues. The success of any
series depends upon unpredictable and volatile factors beyond the Company's
control, such as children's preferences, competing programming and the
availability of other entertainment activities for children. A shift in
children's interests could cause the Company's current television programming
to decline in popularity, which could materially and adversely affect the
Company's results of operations and financial condition. The ability of the
Company to continue successfully to exploit the merchandising opportunities
afforded by its programs will also be dependent on the favorable ratings of
the programs and the ability of the Company's characters to continue to
provide attractive merchandising opportunities for its licensees. There can be
no assurance as to the continuing commercial success of any of the Company's
currently distributed properties, or that the Company will be successful in
generating sufficient demand and market acceptance for its new properties.

 Possible Reduction in Distribution or Non-Renewal of the Fox Family Channel
 by Cable Operators

   The Company distributes the Fox Family Channel to cable operators pursuant
to affiliation agreements whereby the cable operator agrees to provide
carriage for a specified per subscriber fee. Currently, the Fox Family Channel
has affiliation agreements covering approximately 13,700 affiliates. Pursuant
to these agreements, the Fox Family Channel reached 75 million viewers out of
a potential audience reach of approximately 79 million households at August
15, 2000. Under these agreements, cable operators and other distributors may
discontinue carriage of the Fox Family Channel or move the Fox Family Channel
to a more narrowly distributed level of service or tier. Such discontinuance
or movement, if it involved a significant number of subscribers, could limit
the Fox Family Channel's ability to generate national advertising revenues, as
these depend on broad distribution, particularly by cable operators.
Subsequent to the debut of the new programming on the Fox Family Channel, no
cable operators have discontinued carriage of the Fox Family Channel service.
The Company currently expects to continue to be able to renew its affiliation
agreements as they mature or to maintain its carriage on an "expanded basic,"
the most widely distributed level of service. However, there can be no
assurance that these affiliation agreements will be renewed or that they will
be renewed on the same or more favorable terms.

 Dependence Upon Key Personnel

   The Company's success depends to a significant extent upon the expertise
and services of certain key executives, including Haim Saban, the Company's
Chairman and Chief Executive Officer and the founder of Saban. The Company has
entered into employment agreements with Mr. Saban and certain of its other key

                                      27
<PAGE>

executives. The Company does not maintain "key person" life insurance policies
on any of its executives. The loss of the services of Mr. Saban or any of the
key personnel could have a material adverse effect on the results of
operations and financial condition of the Company.

 Competition

   The businesses in which the Company engages are highly competitive. Each of
the Company's primary business operations is subject to competition from
companies which, in some instances, have greater production, distribution and
capital resources than the Company.

   Programming. The Company competes on the basis of relationships and pricing
for access to a limited supply of facilities and creative personnel to produce
its programs. The Company competes with major motion picture studios, such as
Warner Bros. and The Walt Disney Company, and animation production companies,
including Hanna Barbera, Film Roman and Klasky Cuspo, for the services of
writers, producers, animators, actors and other creative personnel and
specialized production facilities.

   Distribution Outlets. In the United States, the Company competes for
ratings and related advertising revenues. The Company currently competes
through its Fox Kids Network and the Fox Family Channel with the other
broadcast television networks, public television and cable television
channels, such as USA Cable Network, TNT, The Cartoon Network and Nickelodeon,
for market acceptance of its programming, viewership ratings and related
advertising revenues. To the extent that the Company produces original
programming for distribution outlets it does not own, it competes with other
producers of children's programming. Internationally, the Company contends
with a large number of U.S.-based and international distributors of children's
programming in the development or acquisition of programming expected to
appeal to international audiences, including The Disney Channel, The Cartoon
Network and Nickelodeon in many of its markets and in each of its markets the
Company often also has local competition such as Trouble in the United
Kingdom, Teleton in France and Panda and Super Tres in Spain. Such programming
often must comply with foreign broadcast rules and regulations which may
stipulate certain local content requirements.

   Internet. Advertising and e-commerce on the internet are highly
competitive. In addition, barriers to entry into the internet market are low
and may result in increased competition over time. Current and prospective
competitors include many large competitors that have substantially greater
market presence than the Company, as well as greater financial, technical,
marketing and other resources than the Company has. More generally, the
Company competes with various other leisure-time activities such as home
videos, movie theaters, personal computers and other alternative sources of
entertainment and information.

 Overestimation of Revenues or Underestimation of Costs

   The Company currently follows Financial Accounting Standards Board
Statement No. 53, "Financial Reporting by Producers and Distributors of Motion
Picture Films," regarding revenue recognition and amortization of production
costs for programs and films in which the Company owns or controls all
applicable rights. All costs incurred in connection with an individual program
or film, including acquisition, development, production and allocable
production overhead costs and interest, are capitalized as programming costs.
These costs are stated at the lower of unamortized cost or estimated net
realizable value. Estimated total production costs for an individual program
or film are amortized in the proportion that revenue realized relates to
management's estimate of the total revenues expected to be received from such
program or film. For programs in which the Company acquires only network or
basic cable broadcast rights, the Company amortizes such program costs over
the estimated number of broadcasts in accordance with Financial Accounting
Standards Board Statement No. 63, "Financial Reporting by Broadcasters." If
revenue or cost estimates change with respect to a program or film, the
Company may be required to write down all or a portion of the unamortized
costs for such program or film. No assurance can be given that such write-
downs, if they occur, will not have a material adverse effect on the Company's
results of operations or financial condition.


                                      28
<PAGE>

 Seasonality

   All of the Company's television programming revenues are recognized either
when the program is available for broadcast or when advertising spots are
broadcast during a program. For this reason, significant fluctuations in the
Company's total revenues and net income can occur from period to period
depending upon availability dates of programs and advertising revenues. In the
United States, for example, revenues from advertising are concentrated in the
fourth calendar quarter of each year. Due, in part, to these seasonality
factors, the results of any one quarter are not necessarily indicative of
results for future periods, and cash flows may not correlate with revenue
recognition.

 Dependence Upon Satellite Transponders

   Distribution of the Fox Family Channel depends upon the operation of
satellites by third parties. Since August 15, 1998, the Company has been
transmitting all programming for the Fox Family Channel from the FOX
Television Broadcast Center in Los Angeles, California. Satellites are subject
to significant risks that may prevent or impair proper commercial operations,
including satellite defects, launch failure, destruction and damage and
incorrect orbital placement. Currently, there are a limited number of domestic
communications satellites available for the transmission of cable television
programming to cable system operators. If satellite transmission is
interrupted or terminated due to the failure or unavailability of a
transponder, the termination or interruption could have a material adverse
effect on the Company. The availability of additional transponders in the
future is dependent on a number of factors over which the Company has no
control. These factors include the future authorization of additional domestic
satellites, future competition among prospective users for available
transponder space, the uncertain status of the United States' Space Shuttle
Program (including priority allocations of future shuttle cargo space to
military rather than commercial payloads) and the uncertain availability of
satellite launching by private entities in the United States and by private or
governmental entities in other countries.

 International Sales

   For the fiscal year ended June 30, 2000, the Company derived approximately
27% of its consolidated revenues from international operations. As part of its
business strategy, the Company intends to expand its international program
production and distribution activities, as well as its worldwide
merchandising, licensing and ancillary activities, including the launch of
children's channels on DTH satellite and cable platforms throughout the world.
The Company is subject to the special risks inherent in international business
activities, including (i) general economic, social and political conditions in
each country, (ii) currency fluctuations, (iii) double taxation, (iv)
unexpected changes in applicable regulatory requirements and (v) compliance
with a variety of international laws and regulations. The operations of the
Company's international entities are measured in part in local currencies. For
reporting purposes, assets and liabilities are translated into U.S. dollars
using exchange rates in effect at the end of each reporting period. Revenues
and expenses are translated into U.S. dollars at the average exchange rates
prevailing during the period. As a result, the Company can expect to record
foreign exchange losses and gains in the future.

 Potential Adverse Impact of Regulation

   The United States Congress and the FCC currently have under consideration,
and may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that may affect, directly or indirectly,
the operation, ownership and profitability of the Company's business. These
proposed changes include, for example, expansion of program access
requirements and potential must-carry rights for digital television broadcast
stations (which could limit the capacity of multi-channel video programming
distributors available for the Company's programming). It is impossible to
predict the outcome of federal legislation or administrative action currently
under consideration or the potential effect thereof on the Company's business.
In addition, certain aspects of the Company's cable operations are subject,
directly or indirectly, to regulation at the state and/or local level. State
and/or local authorities could adopt laws or regulations in this area that
could further restrict the operations of the Company.

                                      29
<PAGE>

 Potential for Deadlocks

   The holders of the Class B Common Stock of the Company have agreed, so long
as neither Fox Broadcasting nor Haim Saban and the other former stockholders
of Saban as a group have disposed of more than one-third of their respective
initial Class B Common Stock beneficial holdings, to vote their shares
together on all matters presented to the stockholders, and if they cannot
agree as to how to vote on a matter, to abstain from voting with respect
thereto. There is no mechanism for breaking a deadlock among the holders of
Class B Common Stock. With respect to the election of directors, the holders
of the Class B Common Stock have agreed to vote their shares for three
directors selected by Haim Saban and three directors selected by Fox
Broadcasting. Because the charter documents provide that no Board action may
be taken without a vote of at least three-quarters of the directors, the
possibility exists that, as a result of differences which may in the future
arise between Fox Broadcasting and Mr. Saban, the Company may experience
difficulties in defining and meeting its business objectives, or in effecting
a transaction which would be in the best interests of the Company, which could
materially adversely affect the results of operations and financial condition
of the Company.

 Strategic Relationships with News Corp. and Fox

   The Company has had, and continues to have, a close strategic relationship
with News Corp. and its affiliated entities, including Fox Broadcasting, and
believes that this relationship is materially important to its business and
business strategies. However, except as may be provided in the agreements
between them which are discussed elsewhere in this Form 10-K, neither News
Corp. or its affiliated companies nor the Company are obligated to engage in
any business transactions or jointly participate in any opportunities with the
other, and the possibility exists that the current strategic relationships
between the parties could materially change in the future.

 Transactions With Stockholders and their Affiliates

   The Company has in the past entered into transactions and agreements, some
of which are ongoing, with Haim Saban and with Fox Broadcasting and News Corp.
and their affiliated companies. In addition, the Company may in the future
enter into additional agreements and other transactions with certain of these
affiliates. Although the Company has adopted a policy that future transactions
between the Company and any of these affiliates or family members must be
approved by a disinterested majority of the Board of Directors of the Company,
there can be no assurance that any such future transactions will prove to be
favorable to the Company. In addition, the Indentures provide, with certain
exceptions, that the Company may not enter into any transactions with
affiliates except on terms that are no less favorable to the Company than the
Company would obtain in a comparable arm's-length transaction.

 Option Agreements between Fox Broadcasting and the Saban Stockholders

   Under agreements between Haim Saban, the other Saban Stockholders and FBSI,
FBSI has the right and option, commencing in December 2002 or earlier in
certain circumstances, to acquire all of the shares of Class B Common Stock of
the Company held by Mr. Saban and the other Saban Stockholders. In addition,
Mr. Saban has the right and option to cause Fox Broadcasting to purchase all
of such shares either (i) in January 2001 if notice is given by December 31,
2000, (ii) between December 22, 2002 and December 22, 2012, or (iii) earlier
in the event of a change in control of Fox Broadcasting or in the event of the
death of Mr. Saban. In the event that either Fox Broadcasting or Haim Saban
exercises this option, Fox Broadcasting would hold nearly all of the Company's
outstanding capital stock. The purchase price formula under the options is
based on the fair market value of the Company. See Item 13. "Certain
Relationships and Related Transactions."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company's primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR
spreads) and exchange rate variability. The Company manages these market

                                      30
<PAGE>

risks by using derivative financial instruments in accordance with established
policies and procedures. The Company does not use derivative financial
instruments for trading purposes.

   The Company had no interest rate swaps outstanding at June 30, 2000.

   When the Company licenses its programming outside the United States, the
majority of transactions are denominated in U.S. dollars. Channel subscription
fees are denominated in local currencies. For those transactions denominated
in foreign currencies, to the extent possible, sales and purchases in specific
currencies are offset against each other. The foreign currencies in which the
Company has the most significant exchange rate exposure are the British pound,
French franc, German mark and Canadian dollar. To manage these exposures, the
Company periodically initiates hedging activities by entering into currency
exchange agreements, consisting primarily of currency forward contracts, to
minimize cost variations which could result from fluctuations in currency
exchange rates. The currency exchange agreements that provide hedge coverage
typically mature within one year of origination, consistent with the
underlying purchase or sales commitment.

   The Company had no outstanding foreign exchange contracts at June 30, 2000.

   The Company maintains a mix of fixed and floating debt to mitigate its
exposure to interest rate fluctuations.

   The Company's management believes that fluctuations in interest rates and
currency exchange rates in the near term would not materially affect the
Company's consolidated operating results, financial position or cash flows as
the Company has limited risks related to interest rate and currency exchange
rate fluctuations.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Index to Financial Statements, Reports of Independent Public
Accountants, Financial Statements and Notes to the Financial Statements appear
in a separate section of this Form 10-K (beginning on page F-1) following Part
IV.

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

   None.

                                      31
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

   The directors and executive officers of the Company, and their ages at
September 1, 2000, are as follows:

<TABLE>
<CAPTION>
           Name           Age                      Position
           ----           ---                      --------
 <C>                      <C> <S>
 Haim Saban.............. 55  Chairman of the Board and Chief Executive Officer
                               of the Company

 Mel Woods............... 48  President, Chief Operating Officer, Chief
                               Financial Officer and Director of the Company

 Mark Ittner............. 48  Senior Vice President of Finance and Chief
                               Accounting Officer of the Company

 K. Rupert Murdoch....... 69  Director

 Chase Carey............. 46  Director

 Matt Krane.............. 46  Director

 Jeff Shell.............. 34  Director
</TABLE>

   K. Rupert Murdoch has served as a director of the Company since August
1996. Mr. Murdoch is an Executive Director and has been the Chief Executive of
News Corp. since its formation in 1979 and has served as its Chairman since
1991. Mr. Murdoch has been a director of Fox Entertainment Group since 1985,
Chairman since 1992 and Chief Executive Officer since 1995. Mr. Murdoch has
served as a director of News International plc, News Corp.'s principal
operating subsidiary in the United Kingdom since 1969, a director of News
Limited, News Corp.'s principal operating subsidiary in Australia since 1953,
and a director of News America Incorporated, News Corp's principal operating
subsidiary in the United States, since 1973. Mr. Murdoch has served as
director of the STAR TV since 1993, as a director of Sky Global Networks, Inc.
since June 2000, and as a director of BSkyB since 1990 and Chairman since
1999. Mr. Murdoch is also a member of the board of directors of Philip Morris
Companies, Inc.

   Haim Saban, the founder of Saban, has served as the Chairman of the Board
and Chief Executive Officer of the Company since its inception in August 1996.
Mr. Saban served as Chairman and Chief Executive Officer of Saban from the
establishment of Saban in 1983 through August 1996. Mr. Saban is a creator and
executive producer of the Company's live-action series, Power Rangers.

   Mel Woods has served as President, Chief Operating Officer, Chief Financial
Officer and a director of the Company since its inception in August 1996. Mr.
Woods was also the President and Chief Operating Officer and a director of
Saban from 1991 until August 1996. From 1987 to 1991, Mr. Woods served as
Senior Vice President and Chief Financial Officer of DIC Enterprises ("DIC"),
an animation production company. Prior to joining DIC, Mr. Woods was Senior
Vice President, Chief Financial Officer and Treasurer of Orion Pictures Corp.
and served as a member of its board of directors. Mr. Woods is a member of the
board of directors of On Stage Entertainment, Inc., a producer of live
entertainment shows.

   Mark Ittner has served as Senior Vice President of Finance and Chief
Accounting Officer of the Company since September 1997, and as Senior Vice
President of Finance of Saban since March 1995 and as Vice President of
Finance from February 1993 to March 1995. From 1990 to 1993, Mr. Ittner served
as Vice President and Controller of Imagine Films, a motion picture and
television production company. Prior to joining Imagine Films, Mr. Ittner was
the acting Co-Chief Financial Officer of Weintraub Entertainment Group, after
joining Weintraub as a Vice President and Controller in January 1988. From
1979 to 1984, Mr. Ittner was first Assistant Controller and then in 1984, Vice
President and Controller, of Hanna-Barbera Productions, Inc. and its parent
company, The Taft Entertainment Company.

                                      32
<PAGE>

   Chase Carey has served as a director of the Company since August 1996. Mr.
Carey is an Executive Director and has been the Co-Chief Operating Officer of
News Corp., and a Director and Executive Vice President of News America
Incorporated since October 1996. Mr. Carey has been a director of Fox
Entertainment Group since 1992 and Co-Chief Operating Officer since August
1998. Mr. Carey has served as the Chairman and Chief Executive Officer of FOX
Television since July 1994. Mr. Carey is a member of the boards of directors
of GemStar-TV Guide International, Inc., STAR TV, NDS Group, plc, Sky Global
Networks, Inc., Gateway 2000 and Colgate University.

   Jeff Shell has served as a director of the Company since January 2000. Mr.
Shell has been President and Chief Executive Officer of Fox Cable Networks
since January 2000, and oversees more than twenty major domestic cable and
satellite networks in which Fox Entertainment Group and News Corp. hold
interests. Mr. Shell joined Fox Television in 1994. From 1996 through 1999,
Mr. Shell served as Chief Executive Officer of Fox/Liberty Networks, and was
named President of Fox Sports Networks in 1999. Mr. Shell serves on the board
of directors of several other Fox related television entities, including The
Golf Channel, Speedvision, Outdoor Life and the Cablevision MSG partnership.

   Matt Krane has served as a director of the Company since January 2000. For
the last five years, Mr. Krane has been an attorney practicing law as a sole
practitioner, representing various corporations and individuals, primarily in
the area of taxation.

 Election of Directors; Change in Control

   Pursuant to the terms of an Amended and Restated Strategic Stockholders
Agreement dated as of August 1, 1997, as amended as of June 26, 2000, between,
among others, Fox Broadcasting and Haim Saban and the other Saban Stockholders
(the "Amended and Restated Strategic Stockholders Agreement"), Fox
Broadcasting and Mr. Saban have agreed to vote all of the shares of Class B
Common Stock beneficially owned by each of them to the election of three
directors designated by Fox Broadcasting and three directors designated by Mr.
Saban. If in the future the Company becomes subject to any requirement that
the Company's Board of Directors include independent directors, Fox
Broadcasting and Mr. Saban are each to include among their respective slates
of nominees the number of independent directors necessary to satisfy such
requirement. Fox Broadcasting and Mr. Saban will mutually agree on two
independent directors. If they are unable to mutually agree, Fox Broadcasting
will nominate one independent director and Mr. Saban will nominate the other
and they will each vote for both nominees.

   If either Haim Saban or Fox Broadcasting transfers more than one-third of
its initial holdings of Class B Common Stock (Mr. Saban's holdings to include
the shares of the former Saban Stockholders), then Fox Broadcasting or Mr.
Saban, as the case may be, has the right to designate the remaining two-thirds
of the authorized number of directors.

   As part of the voting provisions of the Amended and Restated Strategic
Stockholders Agreement, both Mr. Saban and Fox Broadcasting have agreed to a
standstill whereby neither of them will, without the consent of the other,
among other things, (i) purchase, acquire, offer or agree to purchase or
acquire any shares of capital stock or other voting securities of the Company,
(ii) solicit stockholders for the approval of stockholder proposals or (iii)
otherwise act, alone or in concert with others, to assert or encourage any
other person or entity in seeking to control the management, board of
directors or policies of the Company or to propose or effect a business
combination, restructuring, recapitalization, liquidation, dissolution or
similar transaction.

   Fox Broadcasting's designees are currently K. Rupert Murdoch, Chase Carey
and Jeff Shell. Haim Saban, Mel Woods and Matt Krane are the designees of Haim
Saban.

   Under an agreement among FBSI, Haim Saban and the other Saban Stockholders,
FBSI has the right and option, commencing in December 2002 or earlier in
certain circumstances, to acquire all of the shares of Class B Common Stock of
the Company then held by Mr. Saban and the other Saban Stockholders, and
pursuant to the

                                      33
<PAGE>

Amended and Restated Strategic Stockholders Agreement, Mr. Saban has the right
and option, commencing in January 2001, or earlier in the event of a change in
control of Fox Broadcasting or in the event of the death of Mr. Saban, to
cause Fox Broadcasting to purchase all of these shares. See Item 13, "Certain
Relationships and Related Transactions."

Compliance with Section 16(a) of the Exchange Act.

   Not Applicable.

ITEM 11. EXECUTIVE COMPENSATION

   The following table sets forth the aggregate cash and non-cash compensation
paid or accrued by the Company to the Chief Executive Officer and the other
four most highly compensated executive officers ("Named Executive Officers")
compensated in excess of $100,000 for the fiscal year ended June 30, 2000.
Compensation decisions are currently made by the President and the Chief
Executive Officer.

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                     Annual Compensation
                                  -----------------------------    Other Annual
Name and Principal Position       Year   Salary        Bonus       Compensation
---------------------------       ----   ------      ----------    ------------
<S>                               <C>  <C>           <C>           <C>
Haim Saban....................... 1998 $1,000,000    $      --          (1)
 Chairman of the Board and        1999  1,000,000           --          (1)
 Chief Executive Officer          2000  1,000,000           --          (1)

Mel Woods........................ 1998 $  476,500    $2,528,700(2)      (1)
 President, Chief Operating       1999    506,700     2,028,400(2)      (1)
 Officer and Chief Financial      2000    616,200     1,350,000(2)      (1)
 Officer

Shuki Levy....................... 1998 $  500,000    $      --          (1)
 Executive Vice President         1999    500,000           --          (1)
                                  2000    698,400(3)        --          (1)

Donna Cunningham................. 1998 $  246,200    $  130,000         (1)
 Executive Vice President,        1999    300,000           --          (1)
 Business and Legal Affairs       2000    445,800(4)        --          (1)
 and General Counsel

Mark Ittner...................... 1998 $  222,900    $   27,500         (1)
 Senior Vice President of Finance 1999    227,200        25,000         (1)
 and Chief Accounting Officer     2000    234,600        35,000         (1)
</TABLE>
--------
(1) Less than the lesser of either $50,000 or 10% of total annual salary and
    bonus.

(2) See Item 13, "Certain Relationships and Related Transactions--Transactions
    between Haim Saban, other Executive Officers and Saban."

(3) Mr. Levy resigned as of January 7, 2000.

(4) Ms. Cunningham resigned as of June 23, 2000. Includes payment for vacation
    accrued.

   See Item 13, "Certain Relationships and Related Transactions--Transactions
between Haim Saban, other Executive Officers and Saban" for information with
respect to certain loans, forgiveness of loans and other transactions for the
benefit of certain of the Named Executive Officers.

                                      34
<PAGE>

Stock Options

   The following table summarizes information with respect to the number of
shares of Class A Common Stock underlying stock options held by each of the
Named Executive Officers at June 30, 2000.

                   Aggregated Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                        Number of Securities
                                                       Underlying Unexercised
                                                               Options
                                                         at Fiscal Year End
                                                      --------------------------
   Name                                               Exercisable  Unexercisable
   ----                                               -----------  -------------
   <S>                                                <C>          <C>
   Haim Saban........................................       --          --
   Mel Woods.........................................   161,637(1)      --
   Shuki Levy........................................   161,637(2)      --
   Donna Cunningham..................................       --          --
   Mark Ittner.......................................       --          --
</TABLE>
--------
(1) The value of unexercised in-the-money options at fiscal year end is to be
    based on the difference between the Company's estimate of the fair market
    value of the Class A Common Stock and the exercise price of $34.02 for the
    options. See "--Employment Agreements". However, there is currently no
    public market for the Company's stock and therefore no readily
    ascertainable market value for its stock. Since the Company's Class A
    Common Stock has a negative book value, any calculation of value based
    upon book value would not be meaningful and for this reason has been
    omitted.

(2) The value of unexercised in-the-money options at fiscal year end is to be
    based on the difference between the Company's estimate of the fair market
    value of the Class A Common Stock and the exercise price of $12.37 for the
    options. However, there is currently no public market for the Company's
    stock and therefore no readily ascertainable market value for its stock.
    Since the Company's Class A Common Stock has a negative book value, any
    calculation of value based upon book value would not be meaningful and for
    this reason has been omitted.

   Under the terms of the option agreements, an executive whose employment is
terminated must sell his or her stock options (together with any shares
acquired pursuant to the exercise of such options, the "Option Shares") to the
Company for an amount equal to the fair market value of such Option Shares
plus the fair market value of the shares with respect to which the executive's
option has vested but has not been exercised, less the executive's purchase
price. Such amount is to be paid to the executive in cash.

   In addition, in the event Haim Saban, any member of his immediate family or
any of his affiliated entities (Haim Saban and such family members, the "Saban
Entities") sells to a third party any shares of common stock of the Company
(the "Saban Company Shares"), each executive must sell the "applicable
percentage" of his or her Option Shares for the same per share consideration
paid by the third party for the Saban Company Shares. The "applicable
percentage" is equal to the percentage of the Saban Company Shares sold to the
third party out of the total shares of the Company owned by the Saban Entities
immediately prior to the sale. The Company must purchase such shares for
consideration equal to the applicable percentage of the per share
consideration paid by the third party for the Saban Company Shares multiplied
by the number of Option Shares with respect to which such executives' options
have vested but have not been exercised, less the purchase price.

Employment Agreements

   Haim Saban has an employment agreement with the Company which extends
through June 30, 2002. Pursuant to the terms of the agreement, Mr. Saban is to
be paid an annual salary of $1 million. Mr. Saban may not be removed or
replaced with or without cause until he and the other stockholders of the
Company whose shares he controls collectively transfer more than one-third of
the number of shares of Class B Common Stock they currently beneficially own.
If Mr. Saban is terminated following such an event, he will be entitled to
receive an amount equal to his annual base salary from the date of his
termination through June 30, 2002. Under the

                                      35
<PAGE>

agreement, Mr. Saban may engage in certain activities for his own account,
including music composing and publishing, investments and charity. The
agreement generally provides that Mr. Saban will not, during the term of his
employment and for a period of five years thereafter, compete with the
Company.

   The Company has an employment agreement with Mel Woods dated April 1, 1999.
The term of Mr. Woods' employment agreement with the Company extends through
May 31, 2002. Mr. Woods will receive an annual base salary of $625,000,
$650,000 and $675,000 for each of the 1999-2000, 2000-2001 and 2001-2002
periods, respectively, and an annual contingent bonus which is limited to
$650,000, $675,000 and $700,000 for each of the 1999-2000, 2000-2001 and 2001-
2002 periods, respectively. At the option of the Company, the Company may
extend Mr. Woods' term of employment for two years. The Company may terminate
Mr. Woods' employment only for cause or upon his death or disability, and Mr.
Woods may terminate his employment upon the Company's material breach of the
employment agreement. If Mr. Woods' employment is terminated by the Company
for cause, he will be entitled to receive (i) his annual base salary for the
period in which the date of termination falls, pro-rated to the date of such
termination, (ii) his bonus compensation for the period in which the date of
the termination falls, pro-rated to date of termination, and (iii) vested
rights with respect to certain stock options granted in connection with the
employment agreement. All of Mr. Woods' options are vested. Should Mr. Woods
terminate his employment as a result of a material breach by the Company, he
will be entitled to receive (i) his annual base salary for the period in which
the date of termination falls, pro-rated to the date of such termination, (ii)
severance pay for the balance of the term of the employment agreement, (iii)
bonus compensation for the period in which the date of termination falls, pro-
rated to the date of such termination and (iv) vested rights with respect to
certain stock options granted in connection with the employment agreement. If
the Company decides not to renew Mr. Woods' employment at the end of the
initial three-year term, Mr. Woods will be entitled to receive as severance
his base salary for the third term year and his actual bonus. On May 20, 1998,
the Company amended Mr. Woods' original employment agreement and paid Mr.
Woods compensation of $2,000,000 in the form of an advance against amounts to
be paid to Mr. Woods upon termination of his employment. In connection with
Mr. Woods' new employment agreement with the Company, Mr. Woods received a
second advance of $1,500,000 against amounts to be paid to Mr. Woods upon
termination of his employment. These advances do not bear interest and were
included in Mr. Woods' compensation during the fiscal years in which they were
made. Further, if Mr. Woods exercises any stock options to acquire shares of
the Company's Class A Common Stock, Mr. Woods shall concurrently repay the
advances through an increase in the purchase price in connection with the
exercise.

   The Company has an employment agreement, as amended, with Mark Ittner to
serve as Senior Vice President of Finance. The term of the employment
agreement extends through December 31, 2002 and may be extended, at the
Company's option, to extend through December 31, 2004. Mr. Ittner will receive
an annual base salary of $275,000 for the period from July 1, 2000 though
December 31, 2000; $290,000 for the period from January 1, 2001 through
December 31, 2001; and $310,000 for the period January 1, 2002 to December 31,
2002. The employment agreement provides that the Company may terminate Mr.
Ittner's employment only for cause or upon his death.

Compensation Committee Interlocks and Insider Participation

   Currently, the Company's Board of Directors does not maintain a
compensation committee. Consequently, the entire Board of Directors
participates in deliberations concerning executive compensation. Mr. Saban is
a member of the Board of Directors and the Company's Chief Executive Officer.
Mr. Woods serves on the Board of Directors and is the Company's President,
Chief Operating Officer and Chief Financial Officer. None of the Company's
executive officers served as a member of the compensation committee or other
similar committee or the board of directors of any other entity, other than
the Company's subsidiaries, of which an executive officer served on the
Company's Board of Directors.

                                      36
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table sets forth certain information as of September 1, 2000
with respect to the shares of Class A Common Stock and Class B Common Stock
beneficially owned by (i) each director of the Company; (ii) each person known
to the Company to be the beneficial owner of more than 5% of either class of
Common Stock; (iii) each Named Executive Officer; and (iv) all directors and
executive officers of the Company as a group. Except as may be indicated in
the footnotes to the table, each of such persons has sole voting and
investment power with respect to the shares owned, subject to applicable
community property laws. The address of each person listed is in care of the
Company, 10960 Wilshire Boulevard, Los Angeles, California 90024.

<TABLE>
<CAPTION>
                                           Class A               Class B
                                       Common Stock(1)       Common Stock(1)
                                    --------------------- ----------------------
                                    Number of Percent of  Number of  Percent of
                                     Shares   Class Owned   Shares   Class Owned
                                    --------- ----------- ---------- -----------
<S>                                 <C>       <C>         <C>        <C>
Haim Saban(2)(3)..................       --        --     15,840,000    100.0%
Fox Broadcasting(2)(3)............       --        --     15,840,000    100.0
K. Rupert Murdoch(4)..............       --        --     15,840,000    100.0
Chase Carey(4)....................       --        --     15,840,000    100.0
Silverlight Enterprises,
 L.P.(2)(3).......................       --        --      4,165,425     26.3
Allen & Co. Incorporated..........   160,000     100.0%          --       --
Mel Woods(5)......................   161,637      50.3           --       --
Shuki Levy(5).....................   161,637      50.3           --       --
Matt Krane........................       --        --            --       --
Jeff Shell........................       --        --            --       --
Mark Ittner.......................       --        --            --       --
All of the Company's executive
 officers and directors as a group
 (eight persons)..................   323,274      66.9%   15,840,000    100.0%
</TABLE>
--------
(1) Under Rule 13d-3 of the Exchange Act, certain shares may be deemed to be
    beneficially owned by more than one person (if, for example, persons share
    the power to vote or the power to dispose of the shares). In addition,
    shares are deemed to be beneficially owned by a person if the person has
    the right to acquire the shares (for example, upon exercise of an option)
    within 60 days of the date as of which the information is provided. In
    computing the percentage ownership of any person, the amount of shares
    outstanding is deemed to include the amount of shares beneficially owned
    by that person (and only that person) by reason of these acquisition
    rights. As a result, the percentage of outstanding shares of any person as
    shown in this table does not necessarily reflect the person's actual
    ownership or voting power with respect to the number of shares of Common
    Stock actually outstanding at September 1, 2000.

(2) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban and Fox
    Broadcasting may be deemed to beneficially own all shares of Class B
    Common Stock held by each of them, and by the other stockholders
    identified in the table, as the result of an agreement (the "Voting
    Agreement") pursuant to which Mr. Saban and Fox Broadcasting have the
    right to direct the voting of such shares with respect to all matters
    submitted to a vote of stockholders, including the election of directors
    of the Company. With regard to the election of directors, Fox Broadcasting
    has agreed to vote in favor of three nominees designated by Haim Saban and
    Haim Saban has agreed to vote in favor of three nominees designated by Fox
    Broadcasting. If either Haim Saban, together with the entities he
    controls, or Fox Broadcasting owns less than 2,640,000 shares of Class B
    Common Stock, then, at the option of the other, the Voting Agreement will
    terminate. As part of the Voting Agreement, both Mr. Saban and Fox
    Broadcasting have agreed to a standstill whereby neither of them will,
    without the consent of the other, among other things, (i) purchase,
    acquire, offer or agree to purchase or acquire any shares of capital stock
    or other voting securities of the Company; (ii) solicit stockholders for
    the approval of stockholder proposals; or (iii) otherwise act, alone or in
    concert with others, to assert or encourage any other person or entity in
    seeking to control the management, board of directors or policies of the
    Company or to propose or effect a business combination, restructuring,
    recapitalization, liquidation, dissolution or similar transaction. See "--
    Election of Directors; Change in Control."

                                      37
<PAGE>

(3) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban may be deemed to
    beneficially own all shares of Class B Common Stock held by Silverlight
    Enterprises, L.P. as the result of the Voting Agreement pursuant to which
    Mr. Saban has the right to direct the voting of these shares with respect
    to all matters submitted to a vote of the stockholders, including the
    election of directors of the Company.

    Under agreements between Mr. Saban, the other Saban Stockholders and Fox
    Broadcasting, Fox Broadcasting has the right and option, commencing in
    December 2002 or earlier in certain circumstances, to acquire all of the
    shares of Class B Common Stock of the Company held by Mr. Saban and the
    other Saban Stockholders and Mr. Saban has the right and option,
    commencing in January 2001, or earlier in the event of a change in control
    of Fox Broadcasting or certain limited circumstances, to cause Fox
    Broadcasting to purchase all of such shares. See Item 13, "Certain
    Relationships and Related Transactions."

    As of September 1, 2000, the total number of shares of Class B Common
    Stock and the percentage of Class B Common Stock beneficially owned by Mr.
    Saban, the entities which he controls, and Fox Broadcasting over which
    each had sole investment power was as follows:

<TABLE>
<CAPTION>
                                                                    Aggregate
                                                          Number of  Voting
                                                           Shares     Power
                                                          --------- ---------
   <S>                                                    <C>       <C>
   Haim Saban (through Alpha Family Trust, U/D/T dated
    May 5, 1999)......................................... 3,737,844   23.6%
   Haim Saban............................................    15,058     *
   Cheryl Saban..........................................     1,673     *
   Silverlight Enterprises, L.P. ........................ 4,165,425   26.3
   Fox Broadcasting...................................... 7,920,000   50.0%
</TABLE>
  --------
  * Less than 0.1%.

(4) Because of their positions with Fox Broadcasting, each of Messrs. Murdoch
    and Carey may be deemed to beneficially own all of the shares of Class B
    Common Stock owned or controlled by Fox Broadcasting. Each of Messrs.
    Murdoch and Carey disclaims any pecuniary interest in such securities.

(5) Represents shares reserved for issuance upon exercise of stock options
    which are currently exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Reorganization

   The Company was incorporated in August 1996 under Delaware law. Between
August 1996 and August 1997, the Company conducted no business or operations.
On August 1, 1997, in connection with the Company's acquisition of a
controlling interest in IFE, (i) FBSI exchanged its capital stock in FCN
Holding, which indirectly owns FCN, for 7,920,000 shares of Class B Common
Stock of the Company, (ii) the other stockholder of FCN Holding exchanged its
capital stock in FCN Holding for an aggregate of 160,000 shares of Class A
Common Stock of the Company, (iii) Haim Saban and the Saban Stockholders
exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of
Class B Common Stock of the Company, and (iv) all outstanding management
options to purchase Saban capital stock became options to purchase an
aggregate of 646,548 shares of Class A Common Stock of the Company (together,
the "Reorganization"). In addition, Fox Broadcasting exchanged its preferred,
non-voting interest in the LLC and its $50 million contingent note receivable
from the LLC for the Fox Subordinated Note from the Company, which accrues
interest at the rate of 10.427%. The payment of principal and interest under
the Fox Subordinated Note are subordinated in right to the obligations of the
Company and its subsidiaries under the Amended Credit Facility and the
Indentures.

   On August 29, 1997, in connection with the acquisition of IFE, the Company
issued the NAI Bridge Note to News America Incorporated upon substantially the
same terms and conditions as the Fox Subordinated Note, except that the NAI
Bridge Note had a principal amount of $345.5 million. The NAI Bridge Note was
restated on May 19, 1998 to reflect a change in the interest rate, effective
as of the date of issuance. As restated, the NAI Bridge Note accretes interest
at a rate of approximately 10.427% per annum. In connection with the Offering,
$215 million of the net proceeds was used to repay a portion of the NAI Bridge
Note. The Company may repay

                                      38
<PAGE>

the NAI Bridge Note in whole or in part, subject to the terms of the Amended
Credit Facility and the Indentures. The payment of principal and interest
under the NAI Bridge Note will be subordinated in right to the obligations of
the Company under the Amended Credit Facility and the Indentures.
Approximately $138 million (including accreted interest) was outstanding under
the NAI Bridge Note at June 30, 2000; however, no payments are due under the
NAI Bridge Note until March 2008.

   As part of the formation of the LLC, Saban, the Saban Stockholders, Fox
Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic
Stockholders Agreement dated December 22, 1995, which provided, among other
things, for restrictions on transfer of the stock held by the parties, certain
voting rights between them, as well as the terms of the Reorganization. The
parties to the Strategic Stockholders Agreement also agreed to provide Haim
Saban and the Saban Stockholders and Fox Broadcasting certain registration
rights. On August 1, 1997, the Strategic Stockholders Agreement was amended
and restated (the "Amended and Restated Strategic Stockholders Agreement") to
add provisions regarding voting between Fox Broadcasting and the former Saban
Stockholders. On June 26, 2000, the Amended and Restated Strategic
Stockholders Agreement was amended as described below. See Item 10, "Directors
and Executive Officers of the Registrant--Election of Directors; Change in
Control."

   As part of the Amended and Restated Strategic Stockholders Agreement, Haim
Saban agreed with FBSI as follows: if the Company is unable to meet its
obligations (i) to pay any dividend under the terms of the Series A Preferred
Stock or to redeem the Series A Preferred Stock, (ii) under its lease of 10960
Wilshire Boulevard, Los Angeles, California, or any obligation guaranteed by
News Corp., or (iii) under the Funding Agreement among News Corp., News
Publishing Australia Limited ("NPAL") and the Company (the "Funding
Agreement"), and either News Corp. or NPAL provides funds to the Company, the
advance will be treated as a loan, or if Citibank, in its sole discretion as
administrative agent under the Amended Credit Facility, determines it is
unacceptable to treat the advance as a loan, the advance will be treated as
preferred stock. To the extent the advance is treated as a loan and the amount
exceeds $50 million, if the advance is not repaid after 18 months (or 12
months for all advances after the third anniversary of the agreement), all or
any portion of the advance in excess of $50 million may be converted into
shares of Class B Common Stock. If FBSI elects to convert any portion of the
advance into Class B Common Stock, Haim Saban will have the right to purchase
from FBSI up to 50% of the number of shares of Class B Common Stock issued
pursuant to the conversion. If instead, the advance is treated as preferred
stock, the first $50 million of the advance shall be applied to the issuance
of shares of Series B Preferred Stock, and the remainder of the advance shall
be applied to the issuance of Series C Convertible Preferred Stock, which is
convertible into Class B Common Stock at the election of the holder. Each of
the Series B and Series C Preferred Stock will have a liquidation preference
equal to its issue price of $100,000 per share. The Series B and Series C
Preferred Stock will be entitled to dividends at an annual rate of 11.7% of
its liquidation value. If FBSI elects to convert the Series C Convertible
Preferred Stock into Class B Common Stock, Haim Saban will have the right to
purchase up to 50% of the number of shares of Class B Common Stock issued
pursuant to the conversion. Notwithstanding the agreements, News Corp. has no
obligation to make any advances, and the Company has no obligation to accept
any amounts from News Corp.

   In connection with the formation of the LLC and pursuant to a Stock
Ownership Agreement dated December 22, 1995, the LLC was granted an option to
purchase, upon the occurrence of certain events, all of the Class B Common
Stock held by the Saban Stockholders, and any of their transferees. In
September 1996 the LLC distributed the Stock Ownership Agreement to FCN
Holding, which immediately transferred the agreement to FBSI. Accordingly, the
option may be exercised by FBSI as follows: (i) for a period of one year
following the death of Haim Saban, if he dies prior to December 22, 2012; (ii)
upon receipt by FBSI of written notice from Haim Saban of his desire to cause
FBSI to purchase all of the shares of Class B Common Stock held by the Saban
Stockholders; or (iii) upon delivery of written notice by FBSI at any time on
or after December 22, 2002, or before December 22, 2012. The purchase price
formula under the option is based on the fair market value of the Company. In
addition, under the terms of the original Amended and Restated Strategic
Stockholders Agreement, Haim Saban has the right and option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders, which option may be exercised by Haim Saban as follows: (i) for
a period of one year following the death of Haim Saban, if he dies prior to
December 22, 2012; (ii) upon

                                      39
<PAGE>

a change in control of Fox Broadcasting; (iii) on December 22, 2000 provided
that Haim Saban gives notice to Fox Broadcasting no later than 180 calendar
days before December 22, 2000; and (iv) upon delivery of written notice by
Haim Saban at any time on or after December 22, 2002 and on or before December
22, 2012. As of June 26, 2000, subsection (iii) of the preceding sentence was
amended to change December 22, 2000 to January 31, 2001 and to provide that
notice must be given not later than December 31, 2000. In connection with the
"Change of Control" provisions of the Indentures that govern the Company
Notes, and the "Change of Control" provisions of the Amended Credit Facility,
the exercise of FBSI's option to purchase the Class B Common Stock held by the
Saban Stockholders, or the exercise by Haim Saban of his option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders, would not constitute a "Change of Control."

   In connection with the acquisition of IFE, the Company issued to Liberty
IFE, Inc. $345 million of Series A Preferred Stock which receives cash
dividends of 9% per annum, in arrears, paid quarterly. If the Company fails to
declare and pay in full any quarterly dividend, the accrued and unpaid
dividends are added to the liquidation price and until such accrued and unpaid
dividends are paid in full, the dividend rate increases to 11.5%. The Series A
Preferred Stock will be redeemed by the Company in 2027 at a price equal to
the liquidation price as of the date of redemption, payable in cash. Holders
of the Series A Preferred Stock can require the Company to redeem the Series A
Preferred Stock in years 2017 and 2022 and the Company has an option to
repurchase the Series A Preferred Stock at any time following August 1, 2007.

   Pursuant to the Funding Agreement, each of News Corp. and NPAL, jointly and
severally, agreed to provide the Company with the funds necessary to redeem in
full or pay the liquidation distribution on all other amounts owing in respect
of the Series A Preferred Stock in the event of an event of default under the
provisions governing the Series A Preferred Stock contained in the Company's
Certificate of Incorporation or a liquidation, dissolution or similar event of
the Company. In addition, pursuant to an Exchange Agreement among NPAL,
Liberty Media Corporation and Liberty IFE, Inc., each holder of the Series A
Preferred Stock has the right, in the event of an event of default under the
provisions governing the Series A Preferred Stock contained in the Company's
Certificate of Incorporation or a liquidation, dissolution or similar event of
the Company, to exchange its shares for an equivalent number of shares of
preferred stock of NPAL.

   In June 1999, the Company issued a deeply subordinated note in the
principal amount of $25 million to Fox Broadcasting payable on June 28, 2009
with interest accreting at a rate of 20% per annum. In September 1999, an
additional deeply subordinated note of $15 million was issued to Fox
Broadcasting payable on September 27, 2009 with interest accreting at a rate
of 20% per annum.

   In November 1999, FKE issued 12,519,307 previously unissued shares (15.2%)
for net proceeds of approximately $153.0 million in an initial public offering
of its ordinary shares on the Official Market of Amsterdam Exchanges. The
Company has accounted for the proceeds of the offering in accordance with
Staff Accounting Bulletin ("SAB") 51, "Accounting by the parent in
consolidation for sale of stock in subsidiary." Accordingly, a pre-tax gain of
$117.3 million was recorded in Fiscal 2000. The gain recorded represents the
Company's portion of the excess net offering price per share of FKE's ordinary
shares compared to the book carrying amount per share. Additionally, a
subsidiary of the Company caused to be transferred 7,507,591 shares of FKE, or
9.1% of its ordinary shares, to Fox Broadcasting as settlement of the $100.0
million subscription agreement with Fox Broadcasting pursuant to the terms of
which Fox Broadcasting paid $100.0 million in exchange for subscription rights
for shares of non-voting Class B Common Stock. These shares were issued to the
public on behalf of Fox Broadcasting, as a selling stockholder, in the initial
public offering and the net proceeds from these shares were retained by Fox
Broadcasting. A pre-tax gain of $78.6 million was recorded on the stock
issuance to Fox Broadcasting in Fiscal 2000.

 Certain Transactions Between the Company and the Fox Parties

   The Company, on the one hand, and News Corp. and the Fox Parties, on the
other hand, are engaged in a broad range of transactions in the ordinary
course of business, including agreements with Fox Video to produce

                                      40
<PAGE>

and/or distribute live action feature films and other family and children's
programming for the home video market, both domestic and international;
agreements with Twentieth Century Fox Film Corporation for the licensing of
certain library programming; agreements with Fox Broadcasting for barter
advertising sales; and agreements with certain of the Fox Parties with respect
to owning and operating the Company's international channels. Although the
terms of these agreements were determined by negotiation and not by third
parties or by competitive bid, the Company believes that the terms and
conditions of these transactions are comparable to that which could have been
obtained in transactions with unaffiliated parties. For a description of these
transactions, see Note 10 of the Notes to Fox Family Worldwide, Inc.
Consolidated Financial Statements.

   The Company and Tele-Communications, Inc. ("TCI"), and its subsidiaries and
affiliates, are engaged in a broad range of transactions in the ordinary
course of business, including agreements with Encore Media for the sale of air
time and agreements with TCI, Liberty Communications, Inc. and Netlink
International for subscriber fees. Although the terms of these agreements were
determined by negotiation and not by third parties or by competitive bid, the
Company believes that the terms and conditions of these transactions are
comparable to that which could have been obtained in transactions with
unaffiliated parties. For a description of these transactions, see Note 10 of
the Notes to Fox Family Worldwide, Inc. Consolidated Financial Statements.

 Transactions between Haim Saban, other Executive Officers and Saban

   From time to time, the Company has loaned and advanced funds and entered
into certain agreements with its executive officers and directors. For a
description of these loans, advances and agreements, see Note 10 of the Notes
to Fox Family Worldwide, Inc. Consolidated Financial Statements.

 Certain Business Relationships

   During the fiscal year ended June 30, 2000, the Company paid Matt Krane, a
director of the Company, approximately $268,000 in exchange for legal services
provided to the Company by Mr. Krane, a sole practitioner.

                                      41
<PAGE>

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

   (a) The following documents are filed as part of this Annual Report on Form
10-K for the fiscal year ended June 30, 2000.

     1. Financial Statements:

       Financial Statements are listed in the "Index to Consolidated
     Financial Statements and Schedules" at page F-1.

     2. Schedules:

       Financial Statements schedules are listed in the "Index to
     Consolidated Financial Statements and Schedules" at page F-1 herein.

     3. Exhibits (numbered in accordance with Item 601 of Regulation S-K):

       (a) The Exhibits listed below are filed or incorporated by reference
     as part of this Report.

<TABLE>
<CAPTION>
 Exhibit
   No.                                Description
 -------                              -----------
 <C>     <S>
   2.1   Agreement and Plan of Merger dated as of June 11, 1997 by and among
          Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and
          International Family Entertainment, Inc.(2)

   2.2   Amended and Restated Agreement dated as of August 1, 1997 by and
          among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox
          Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban
          and certain entities listed on Schedule A thereto.(2)

   3.1   Corrected Restated Certificate of Incorporation of the Registrant,
          as amended.(2)

   3.2   Amended and Restated Bylaws of the Registrant.(2)

   3.3   Certificate of Amendment of Corrected Restated Certificate of
          Incorporation of the Registrant.(11)

   4.1   Senior Notes Indenture dated as of October 28, 1997 between Fox Kids
          Worldwide, Inc., as obligor, and The Bank of New York, as trustee,
          and form of Notes.(2)

   4.2   Senior Discount Notes Indenture dated as of October 28, 1997 between
          Fox Kids Worldwide, Inc., as obligor, and The Bank of New York, as
          trustee, and form of Notes.(2)

  10.1   Amended and Restated Strategic Stockholders Agreement dated as of
          August 1, 1997 by and among Haim Saban, certain entities listed on
          Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting Sub,
          Inc., and Allen & Company Incorporated.(2)

  10.2   Amendment to Amended and Restated Strategic Stockholders Agreement,
          dated as of June 26, 2000.

  10.3   Form of Indemnification Agreement and Schedule of Indemnified
          Parties.

  10.4   Employment Agreement dated as of December 22, 1995 between Fox Kids
          Worldwide, L.L.C. and Haim Saban.(1)+

  10.5   Employment Agreement dated as of September 1, 1996 between Fox Kids
          Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated as of
          June 1, 1994 between Saban Entertainment, Inc. and Shuki Levy, as
          amended by Amendment No. 1.(2)+

  10.6   Amendment No. 1 to Employment Contract for Shuki Levy dated as of
          April 7, 2000.+

  10.7   Employment Agreement dates as of April 1, 1999 by and among Fox
          Family Management, L.L.C., Fox Family Worldwide, Inc. and Mel
          Woods.(7)+

  10.8   Employment Agreement dated as of April 1, 1997 between Saban
          Entertainment, Inc. and Mark Ittner.(6)+

  10.9   Amendment No. 1 to Employment Agreement dated as of April 1, 1999
          between Fox Family Worldwide, Inc. and Mark Ittner.(7)+
</TABLE>

                                       42
<PAGE>


<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  10.10  Amendment No. 2 to Employment Agreement dated as of January 1, 2000
          between Fox Family Worldwide, Inc. and Mark Ittner.+

  10.11  Operating Agreement for Fox Kids Worldwide, L.L.C., dated as of
          December 22, 1995, by and among Saban Entertainment, Inc., FCN
          Holding, Inc. and Fox Broadcasting Company.(1)

  10.12  Amendment No. 1 to Operating Agreement dated as of September 26, 1996,
          by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox
          Broadcasting Company.(1)

  10.13  Management Agreement dated as of December 22, 1995 by and among Fox
          Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH Sub,
          Inc.(1)

  10.14  Stock Ownership Agreement dated as of December 22, 1995 by and among
          Haim Saban, certain entities listed on Schedule 1.1(a) thereto and
          Fox Kids Worldwide, L.L.C.(2)

  10.15  Amendment No. 1 to Stock Ownership Agreement dated as of September 26,
          1996 by and among Haim Saban, certain entities listed on Schedule "A"
          thereto, Fox Broadcasting Sub, Inc., and Fox Broadcasting Company.(2)

  10.16  Home Video Rights Acquisition Agreement dated as of August 8, 1996
          among Saban Entertainment, Inc., Ventura Film Distributors, B.V. and
          Twentieth Century Fox Home Entertainment.(3)

  10.17  Form of Fox Broadcasting Company Station Affiliate Agreement.(2)

  10.18  Registration Agreement (the "Saban/Fox Registration Agreement") dated
          as of December 22, 1995 among Saban Entertainment, Inc., Haim Saban,
          certain entities listed on Schedule A thereto, Fox Broadcasting
          Company, Inc., and FCN Holding, Inc.(2)

  10.19  Amendment No. 1 to Saban/Fox Registration Agreement dated as of
          September 27, 1996.(2)

  10.20  Guarantee dated as of December 22, 1995 by The News Corporation
          Limited.(2)

  10.21  10960 Wilshire Boulevard Office Lease dated as of July 17, 1995
          between 10960 Property Corporation and Saban Entertainment, Inc.(2)

  10.22  First Amendment to 10960 Wilshire Boulevard Lease dated as of August
          1, 1997.(2)

  10.23  Second Amendment to 10960 Wilshire Boulevard Lease dated as of
          December 21, 1997.

  10.24  Guaranty of Lease by The News Corporation Limited and News Publishing
          Australia Limited in favor of Beacon Properties, L.P., dated as of
          August 1, 1997.(2)

  10.25  Second Amendment to Guaranty of Lease by The News Corporation Limited
          and News Publishing Australia Limited in favor of EOP-10960 Wilshire,
          LLC (successor in interest to Beacon Properties, L.P.), dated as of
          July 26, 2000.

  10.26  Production Facility Agreements dated as of June 7, 1994 and January 5,
          1994 between Magic Movie Studios of Valencia, Ltd. And Saban
          Entertainment, Inc.(2)

  10.27  Letter Amendment dated June 10, 1998 between Valencia Studios West
          (successor in interest to Magic Movie Studios of Valencia) and Saban
          Entertainment, Inc., to the Production Facility Agreement dated
          January 5, 1994.

  10.28  Second Addendum to Production Facility Agreement dated January 5, 1994
          by and between Magic Movie Studios of Valencia, Ltd. and Saban
          Entertainment, Inc., executed on December 2, 1999.

  10.29  Second Amended and Restated Credit Agreement dated as of October 28,
          1997 among FCN Holding, Inc., International Family Entertainment,
          Inc. and Saban Entertainment, Inc. as Borrowers, and Fox Kids
          Holdings, LLC, as Guarantor, and the initial lenders named therein,
          as Initial Lenders, and Citicorp U.S.A., Inc. as Administrative
          Agent, and Citicorp Securities, Inc. and Bank Boston, N.A., as Co-
          Arrangers.(3)
</TABLE>

                                       43
<PAGE>


<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  10.30  Letter Amendment No. 1 to the Second Amended and Restated Credit
          Agreement dated as of November 18, 1997.(3)

  10.31  Letter Amendment No. 2 to the Second Amended and Restated Credit
          Agreement dated as of April 16, 1998.(5)

  10.32  Letter Amendment and Waiver No. 3 to the Loan Documents dated as of
          June 29, 1998.(6)

  10.33  Letter Amendment and Waiver No. 4 to the Second Amended and Restated
          Credit Agreement dated as of May 26, 1999.(9)

  10.34  Amendment and Waiver No. 5 to the Second Amended and Restated Credit
          Agreement dated as of October 26, 1999.(10)

  10.35  Letter Amendment No. 6 to the Second Amended and Restated Credit
          Agreement dated as of October 26, 1999.(10)

  10.36  Amended and Restated Subordinated Note Agreement dated as of May 19,
          1998 by and among Fox Broadcasting Company, as lender, Fox Family
          Worldwide, Inc., f/k/a Fox Kids Worldwide, Inc., as borrower, and
          Citicorp USA, Inc., as the Senior Representative for the Senior
          Creditors.(6)

  10.37  Amended and Restated Subordinated Note Agreement dated as of May 19,
          1998 by and among Fox Family Worldwide, Inc. f/k/a Fox Kids
          Worldwide, Inc., as borrower, News America Incorporated f/k/a News
          American Holdings Incorporated, as lender, and Citicorp USA, Inc., as
          the Senior Representative for the Senior Creditors.(6)

  10.38  Subordinated Note dated as of June 28, 1999 between Fox Family
          Worldwide, Inc., as borrower, and Fox Broadcasting Company, as
          Subordinated Lender.(9)

  10.39  Subordinated Note dated as of September 27, 1999 between Fox Family
          Worldwide, Inc., as borrower, and Fox Broadcasting Company, as
          Subordinated Lender.

  10.40  Funding Agreement dated as of June 11, 1997 by and among The News
          Corporation Limited, News Publishing Australia Limited and Fox Kids
          Worldwide, Inc.(2)

  10.41  Guaranty dated as of June 11, 1997 by The News Corporation Limited in
          favor of International Family Entertainment, Inc.(2)

  10.42  Distribution Agreement dated as of August 21, 1992, as amended,
          between Saban International N.V. and Saban International Services,
          Inc. on the one hand and Toei Company Ltd.(2)

  10.43  Memorandum of Agreement dated as of January 19, 1996 between Saban
          Merchandising, Inc. and Ventura Film Distributors, B.V. on the one
          hand and Bandai America Incorporated, on the other hand.(2)

  10.44  Letter Agreement dated as of January 1, 1995 between Saban
          International, N.V. and Duveen Trading Ltd.(2)

  10.45  Agreement Re Registration Rights dated as of August 1, 1997 by and
          among Saban Entertainment, Inc., Haim Saban, certain entities listed
          on Schedule A to the Saban/Fox Registration Agreement, Fox
          Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide, Inc.,
          Liberty Media Corporation and Liberty IFE, Inc.(2)

  10.46  Amendment to Affiliation Agreement dated June 11, 1997, between
          International Family Entertainment, Inc. and Satellite Services, Inc.
          (Filed as exhibit 99.4.1 to International Family Entertainment's
          Report on Form 8-K, dated June 11, 1997, and incorporated herein by
          reference).(3)
</TABLE>

                                       44
<PAGE>


<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  10.47  Letter of Amendment dated as of May 16, 1996, amending the
          International Family Entertainment, Inc. Family Channel Affiliation
          Agreement dated as of December 28, 1989, between Satellite Services,
          Inc. and International Family Entertainment, Inc. (Filed as Exhibit
          10.28 to International Family Entertainment's Annual Report of Form
          10-K/A for the year ended December 31, 1996, and incorporated herein
          by reference).(3)

  10.48  Program Time Agreement dated as of January 5, 1990, between The
          Christian Broadcasting Network, Inc. and International Family
          Entertainment, Inc. and Amendment No. 1 to Program Time Agreement
          dated as of June 11, 1997.(3)

  10.49  International Family Entertainment, Inc. Family Channel Affiliation
          Agreement, dated as of December 28, 1989, between Satellite Services,
          Inc. and International Family Entertainment, Inc. (Filed as Exhibit
          10.8 to International Family Entertainment's Registration Statement
          on Form S-1 (No. 33-45967), and incorporated herein by reference).(3)

  10.50  Amendment, dated as of January 1, 1994, amending the International
          Family Entertainment, Inc. Family Channel Affiliation Agreement,
          dated as of December 28, 1989, between Satellite Services, Inc. and
          International Family Entertainment Inc.(3)

  10.51  Registration Rights Agreement dated August 1, 1997 by and among Fox
          Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE,
          Inc.(2)

  10.52  Galaxy V Transponder Purchase Agreement, dated as of January 23, 1992,
          between Hughes Communications Galaxy, Inc. and International Family
          Entertainment, Inc. (Filed as Exhibit 10.8 to International Family
          Entertainment's Annual Report on Form 10-K for the year ended
          December 31, 1994, and incorporated herein by reference).(3)

  10.53  GE C-3/C-4 Satellite Transponder Sales Agreement dates as of July 7,
          1989 between GE American Communications and The Christian
          Broadcasting Network Inc. (Filed as an exhibit to International
          Family Entertainment's Registration Statement on Form S-1 (No. 33-
          45967), and incorporated herein by reference).(3)

  10.54  C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One
          dated as of December 15, 1989, between GE American Communications,
          Inc. and the Christian Broadcasting Network, Inc.(3)

  10.55  C-3/C-4 Satellite Transponder Sales Agreement Amendment Number Two
          dated as of December 15, 1989, between GE American Communications,
          Inc. and the Christian Broadcasting Network, Inc.(3)

  10.56  Letter of Amendment dated September 30, 1991, re: C-3/C-4 Satellite
          Transponder Sales Agreement by and between GE American
          Communications, Inc. and The Christian Broadcasting Network, Inc. as
          predecessor in interest to International Family Entertainment, Inc.(3)

  10.57  C-3/C-4 Satellite Transponder Sales Agreement Amendment Number Four
          dated as of November 24, 1992 by and between GE American
          Communications, Inc. and International Family Entertainment, Inc.
          License Agreement dated as of June 26, 1998 among Twentieth Century
          Fox Film Corporation and MTM Holding Company, Inc., MTM Enterprises,
          Inc. and certain of their respective subsidiaries.(3)

  10.58  Subscription Agreement between Fox Kids Europe Holdings, Inc. and Fox
          Broadcasting Company, dated as of June 28, 1999.(9)

  10.59  First Amendment to Subscription Agreement dated as of November 23,
          1999, by and among Fox Broadcasting Company and Fox Kids Europe
          Holdings, Inc.(10)

  10.60  Exchange Agreement by and among Fox Broadcasting Company, Fox Family
          Worldwide and Fox Kids Europe Holdings, Inc., dated as of June 28,
          1999.(9)

  12.1   Ratio of Earnings (Deficiency) to Fixed Charges.
</TABLE>

                                       45
<PAGE>


<TABLE>
<CAPTION>
 Exhibit
   No.             Description
 -------           -----------
 <C>     <S>
  21.1   Subsidiaries of the Registrant.

  27.1   Financial Data Schedule.
</TABLE>
--------
 (1)  Previously filed as an exhibit to the Registrant's Form S-1 on September
      27, 1996.

 (2)  Previously filed as an exhibit to the Registrant's Amendment No. 1 to
      Form S-1 on January 26, 1998.

 (3)  Previously filed as an exhibit to the Registrant's Amendment No. 2 to
      Form S-1 on February 20, 1998.

 (4)  Previously filed as an exhibit to the Registrant's Amendment No. 4 to
      Form S-4 on March 25, 1998.

 (5)  Previously filed as an exhibit to the Registrant's Quarterly Report on
      Form 10-Q for the quarter ended March 31, 1998.

 (6)  Previously filed as an exhibit to the Registrant's Annual Report on Form
      10-K for the year ended June 30, 1998.

 (7)  Previously filed as an exhibit to the Registrant's Quarterly Report on
      Form 10-Q for the quarter ended March 31, 1999.

 (8)  Portions of exhibits deleted and granted confidential treatment by the
      Securities and Exchange Commission pursuant to a request for
      confidentiality.

 (9)  Previously filed as an exhibit to the Registrant's Annual Report on form
      10-K for the year ended June 30, 1999.

(10)  Previously filed as an exhibit to the Registrant's Quarterly Report on
      Form 10-Q for the quarter ended December 31, 1999.

(11)  Previously filed as an exhibit to the Registrant's Quarterly Report on
      Form 10-Q for the quarter ended March 31, 2000.

  + Denotes employment contract.

   (b) Reports on Form 8-K

   No current Reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2000.

   Supplemental Information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act: No annual report or proxy material has been
sent to security holders. A copy of this Report will be sent to security
holders of the Registrant.

                                      46
<PAGE>

                                  SIGNATURES

   Pursuant to the requirement 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, thereunder duly authorized.

Dated: September 22, 2000
                                          FOX FAMILY WORLDWIDE, INC.

                                                     /s/ Mel Woods
                                           ____________________________________
                                                         Mel Woods
                                                 President, Chief Operating
                                                Officer and Chief Financial
                                                          Officer

   Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated:

<TABLE>
<CAPTION>
             Signature                          Title                    Date
             ---------                          -----                    ----

<S>                                  <C>                          <C>
         /s/ Haim Saban              Chairman of the Board and    September 22, 2000
____________________________________  Chief Executive Officer
             Haim Saban               (Principal Executive
                                      Officer)

         /s/ Mel Woods               President, Chief Operating   September 22, 2000
____________________________________  Officer, Chief Financial
             Mel Woods                Officer and Director
                                      (Principal Financial
                                      Officer)

        /s/ Mark Ittner              Senior Vice President of     September 22, 2000
____________________________________  Finance and Chief
            Mark Ittner               Accounting Officer
                                      (Principal Accounting
                                      Officer)

         /s/ Matt Krane              Director                     September 22, 2000
____________________________________
             Matt Krane

     /s/ K. Rupert Murdoch           Director                     September 27, 2000
____________________________________
         K. Rupert Murdoch

        /s/ Chase Carey              Director                     September 26, 2000
____________________________________
            Chase Carey

         /s/ Jeff Shell              Director                     September 15, 2000
____________________________________
             Jeff Shell
</TABLE>

                                      47
<PAGE>

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<S>                                                                         <C>
Fox Family Worldwide, Inc.

  Report of Independent Public Accountants................................. F-2

  Consolidated Balance Sheets as of June 30, 1999 and 2000................. F-3

  Consolidated Statements of Operations for each of the three years in the
   period ended June 30, 2000.............................................. F-4

  Consolidated Statements of Stockholders' Equity (Deficit) and
   Comprehensive Income (Loss) for each of the three years in the period
   ended June 30, 2000..................................................... F-5

  Consolidated Statements of Cash Flows for each of the three years in the
   period ended June 30, 2000.............................................. F-6

  Notes to Consolidated Financial Statements............................... F-8

Financial Statement Schedules:

  Report of Independent Public Accountants................................. S-1

  Schedule I: Condensed Financial Information of the Registrant............ S-2

  Schedule II: Valuation and Qualifying Accounts and Reserves.............. S-6
</TABLE>

                                      F-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Fox Family Worldwide, Inc.:

   We have audited the accompanying consolidated balance sheets of Fox Family
Worldwide, Inc. and its subsidiaries as of June 30, 1999 and 2000, and the
related consolidated statements of operations, stockholders' equity (deficit)
and comprehensive income (loss), and cash flows for each of the three years in
period ended June 30, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Fox Family
Worldwide, Inc. and its subsidiaries as of June 30, 1999 and 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 2000 in conformity with accounting principles
generally accepted in the United States.

Arthur Andersen LLP

Los Angeles, California
September 18, 2000

                                      F-2
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.

                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                          June 30,    June 30,
                                                            1999        2000
                                                         ----------  ----------
<S>                                                      <C>         <C>
Assets:

Cash and cash equivalents..............................  $   46,858  $   89,674
Restricted cash........................................       8,204       8,215
Accounts receivable, net of allowance for doubtful
 accounts of $2,493 and $4,688 at June 30, 1999 and
 2000, respectively....................................     145,050     146,103
Amounts receivable from related parties, net...........      14,000      56,753
Programming costs, net.................................     538,219     658,712
Property and equipment, net............................      58,096      51,874
Deferred income taxes..................................      38,829          --
Intangible assets, net.................................   1,539,852   1,481,189
Other assets, net......................................      77,684      51,297
                                                         ----------  ----------
 Total assets..........................................  $2,466,792  $2,543,817
                                                         ==========  ==========

Liabilities and stockholders' deficit:

Accounts payable.......................................  $   43,034  $   65,023
Accrued liabilities....................................     185,889     236,324
Deferred revenues......................................      59,314      40,811
Accrued participations.................................      38,860      46,501
Deferred income taxes..................................      20,748      14,888
Bank and other debt....................................   1,726,315   1,744,134
Amounts payable to related parties, net................     115,375      21,243
                                                         ----------  ----------
 Total liabilities.....................................   2,189,535   2,168,924
                                                         ----------  ----------
Series A Mandatorily Redeemable Preferred Stock, $0.001
 par value; 500,000 shares authorized; 345,000 shares
 issued and outstanding at June 30, 1999 and 2000,
 respectively ($1,000 per share liquidation value).....     345,000     345,000
                                                         ----------  ----------
Minority interest......................................          --      54,236
                                                         ----------  ----------
Commitments and contingencies

Stockholders' deficit:
 Preferred stock, $0.001 par value; 2,000,000 shares
  authorized, of which 500,000 shares are designated as
  Series A Preferred Stock; no shares issued or
  outstanding..........................................          --          --
 Class A Common Stock, $0.001 par value; 2,000,000
  shares authorized, 160,000 shares issued and
  outstanding at June 30, 1999 and 2000, respectively..          --          --
 Class B Common Stock, $0.001 par value; 16,000,000
  shares authorized, 15,840,000 shares issued and
  outstanding at June 30, 1999 and 2000, respectively..          16          16
 Contributed capital...................................      60,731      78,671
 Accumulated other comprehensive loss..................      (1,893)     (6,683)
 Accumulated deficit...................................    (126,597)    (96,347)
                                                         ----------  ----------
 Total stockholders' deficit...........................     (67,743)    (24,343)
                                                         ----------  ----------
 Total liabilities and stockholders' deficit...........  $2,466,792  $2,543,817
                                                         ==========  ==========
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                               Years Ended June 30,
                            ----------------------------
                              1998      1999      2000
                            --------  --------  --------
<S>                         <C>       <C>       <C>
Revenues..................  $664,458  $635,273  $641,876
                            --------  --------  --------
Costs and expenses:
  Production and
   programming............   345,574   302,232   270,549
  Selling, general and
   administrative.........   152,484   173,245   209,477
  Depreciation............     9,370    10,083    10,883
  Amortization of
   intangibles............    37,557    40,434    40,522
                            --------  --------  --------
                             544,985   525,994   531,431
                            --------  --------  --------
Operating income..........   119,473   109,279   110,445
Equity in loss of
 affiliates...............     6,790     5,088     1,609
Minority interest share of
 earnings (losses)........       140      (444)   (2,184)
Other income, net.........      (132)      (62)      --
Interest expense, net.....   134,002   169,107   168,415
Gain on issuance of
 subsidiary stock:
  Staff Accounting
   Bulletin No. 51 gain...       --        --    117,316
  Gain on issuance of
   subsidiary stock.......       --        --     78,623
                            --------  --------  --------
Income (loss) before
 provision for income
 taxes....................   (21,327)  (64,410)  138,544
Provision for income
 taxes....................     3,446     1,989    77,159
                            --------  --------  --------
Net income (loss).........  $(24,773) $(66,399) $ 61,385
                            ========  ========  ========
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                        AND COMPREHENSIVE INCOME (LOSS)
                                 (in thousands)

<TABLE>
<CAPTION>
                          Preferred Class A                                 Accumulated
                          Members Interest      Common Stock                   Other     Retained
                          --------------------  -------------- Contributed Comprehensive Earnings             Comprehensive
                          Shares    Amount      Shares  Amount   Capital       Loss      (Deficit)   Total    Income (Loss)
                          -------- -----------  ------  ------ ----------- ------------- ---------  --------  -------------
<S>                       <C>      <C>          <C>     <C>    <C>         <C>           <C>        <C>       <C>
Balance at June 30,
 1997...................      --   $    50,000       2   $ 1     $59,454      $  (803)   $  24,035  $132,687
Transactions related to
 reorganization:
 Exchange of Preferred
  Class A Members
  Interest..............      --       (50,000)    --     --         --           --           --    (50,000)
 Issuance of Class A
  Common Stock..........      --           --      160    --         --           --           --        --
 Issuance of Class B
  Common Stock..........      --           --   15,840    16          (5)         --           --         11
 Exchange of Common
  Stock.................      --           --       (2)   (1)        --           --           --         (1)
Capital contributions...      --           --      --     --       1,282          --           --      1,282
Dividends on Series A
 Mandatorily Redeemable
 Preferred Stock........      --           --      --     --         --           --       (28,412)  (28,412)
Exchange loss on
 translation of foreign
 subsidiaries' financial
 statements.............      --           --      --     --         --          (398)         --       (398)   $   (398)
Net loss................      --           --      --     --         --           --       (24,773)  (24,773)    (24,773)
                           ------  -----------  ------   ---     -------      -------    ---------  --------    --------
Balance at June 30,
 1998...................      --           --   16,000    16      60,731       (1,201)     (29,150)   30,396    $(25,171)
                                                                                                                ========
Dividends on Series A
 Mandatorily Redeemable
 Preferred Stock........      --           --      --     --         --           --       (31,048)  (31,048)
Exchange loss on
 translation of foreign
 subsidiaries' financial
 statements.............      --           --      --     --         --          (692)         --       (692)   $   (692)
Net loss................      --           --      --     --         --           --       (66,399)  (66,399)    (66,399)
                           ------  -----------  ------   ---     -------      -------    ---------  --------    --------
Balance at June 30,
 1999...................      --           --   16,000    16      60,731       (1,893)    (126,597)  (67,743)   $(67,091)
                                                                                                                ========
Dividends on Series A
 Mandatorily Redeemable
 Preferred Stock........      --           --      --     --         --           --       (31,135)  (31,135)
Capital contribution by
 related party in
 formation of an
 unconsolidated
 affiliate..............      --           --      --     --      17,940          --           --     17,940
Exchange loss on
 translation of foreign
 subsidiaries' financial
 statements.............      --           --      --     --         --        (4,790)         --     (4,790)   $ (4,790)
Net income..............      --           --      --     --         --           --        61,385    61,385      61,385
                           ------  -----------  ------   ---     -------      -------    ---------  --------    --------
Balance at June 30,
 2000...................      --   $       --   16,000   $16     $78,671      $(6,683)   $ (96,347) $(24,343)   $ 56,595
                           ======  ===========  ======   ===     =======      =======    =========  ========    ========
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                 Years Ended June 30,
                                            ---------------------------------
                                               1998        1999       2000
                                            -----------  ---------  ---------
<S>                                         <C>          <C>        <C>
Operating activities:
Net income (loss).......................... $   (24,773) $ (66,399) $  61,385
Adjustments to reconcile net income (loss)
 to net cash provided by operating
 activities:
 Amortization of programming costs.........     291,878    277,808    223,060
 Depreciation..............................       9,370     10,083     10,883
 Amortization of intangibles...............      37,557     40,434     40,522
 Amortization of debt issuance costs.......       2,453      3,253      3,250
 Reduction in goodwill due to realization
  of tax benefits..........................         --         --      18,141
 Equity in loss of unconsolidated
  affiliates...............................       6,790      5,088      1,609
 Minority interest in share of earnings
  (losses).................................         140       (444)    (2,184)
 Non-cash interest expense.................      50,410     66,746     79,983
 Gain on issuance of subsidiary stock......         --         --    (195,939)
 Changes in operating assets and
  liabilities:
   Restricted cash.........................         --        (204)       (11)
   Accounts receivable.....................      61,957    (12,997)    (1,053)
   Amounts receivable from related
    parties................................     (29,836)    44,043    (22,753)
   Other assets............................     (59,144)     5,143     16,425
   Accounts payable and accrued
    liabilities............................     (40,807)   (13,424)    70,905
   Accrued participations..................     (11,442)   (13,741)     7,641
   Deferred revenues.......................      13,309    (15,204)   (18,503)
   Deferred income taxes...................       7,977        --      32,969
                                            -----------  ---------  ---------
     Net cash provided by operating
      activities...........................     315,839    330,185    326,330
                                            -----------  ---------  ---------
Investing activities:
Purchase of property and equipment.........     (10,515)   (11,394)    (8,256)
Proceeds from sale of property and
 equipment and assets held for sale, net...       3,376        --         --
Additions to production and programming
 costs.....................................    (326,092)  (358,399)  (339,958)
Acquisition of International Family
 Entertainment, Inc........................  (1,370,076)       --         --
Intangible assets..........................         --      14,000        --
Cash acquired in acquisitions..............      19,296        --         --
Sale of marketable securities..............      61,396        --         --
Other......................................      (4,390)    (4,279)    (1,747)
                                            -----------  ---------  ---------
     Net cash used in investing
      activities...........................  (1,627,005)  (360,072)  (349,961)
                                            -----------  ---------  ---------
Financing activities:
Proceeds from bank borrowings..............   1,282,063     25,622     36,073
Payments on bank borrowings................    (837,924)  (137,296)  (112,969)
Dividends on Preferred Stock...............     (28,412)   (31,048)   (31,135)
Proceeds on Fox Kids Europe N.V. public
 offering, net.............................         --         --     152,963
Cost accrued for Fox Kids Europe N.V.
 public offering...........................         --         --         915
Proceeds from NAI Bridge loan..............     345,514        --         --
Paydown on NAI Bridge loan.................    (250,886)      (267)      (268)
Proceeds from Fox Subordinated Debt........         --      25,000     15,000
Issuance of Senior Notes...................     475,000        --         --
Issuance of Senior Discount Notes..........     375,001        --         --
Issuance of Common Stock...................          10        --         --
Advances from related parties..............       4,236    112,421      5,868
                                            -----------  ---------  ---------
     Net cash provided by (used in)
      financing activities.................   1,364,602     (5,568)    66,447
                                            -----------  ---------  ---------
Increase (decrease) in cash and cash
 equivalents...............................      53,436    (35,455)    42,816
Cash and cash equivalents at beginning of
 year......................................      28,877     82,313     46,858
                                            -----------  ---------  ---------
Cash and cash equivalents at end of year... $    82,313  $  46,858  $  89,674
                                            ===========  =========  =========
Supplemental disclosure of cash flow
 information:
Cash paid during the year for:
 Interest (net of amounts capitalized)..... $    65,860  $  86,874  $  80,646
                                            ===========  =========  =========
 Income taxes.............................. $     2,202  $   2,296  $   2,178
                                            ===========  =========  =========
</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

Supplemental disclosure of non-cash investing and financing activities

 Year ended June 30, 1998

   Amounts payable to a related party of $1,282,000 were forgiven and recorded
to contributed capital.

   The Company issued a subordinated note to the Fox Broadcasting Company in
the amount of $108,672,000 in exchange for the Fox Broadcasting Company's
$50,000,000 Preferred Class A Members Interest in Fox Kids Worldwide, L.L.C.,
its $50,000,000 contingent note receivable and certain other Company
obligations.

   Preferred Stock in the amount of $345,000,000 was issued in connection with
the acquisition of International Family Entertainment, Inc.

   Certain assets held for sale were sold by the Company. In connection with
the sales, the Company agreed to assume a $10,000,000 bank loan, the Company's
$6,720,000 note payable to an outside party was forgiven and marketable
securities of $1,737,000 were transferred to the Company.

 Year ended June 30, 2000

   A related party contributed non-cash capital in the amount of $17,940,000
in connection with the formation of an unconsolidated affiliate. Additionally,
the unconsolidated affiliate assumed payables of $20,000,000.

   Shares of subsidiary ordinary shares were issued as settlement of a
$100,000,000 subscription advance.




                            See accompanying notes.

                                      F-7
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 June 30, 2000

1. Basis of Financial Statement Presentation and Organization

   On November 1, 1995 (the "Effective Date"), FCN Holding, Inc. ("FCN
Holding") and Saban Entertainment, Inc. ("Saban") formed a joint venture, Fox
Kids Worldwide, L.L.C. (the "LLC"), a limited liability company, for the
purpose of jointly expanding the worldwide children's businesses of FCN
Holding and Saban. On August 1, 1997, a reorganization referred to below was
effected pursuant to which Saban, FCN Holding and the LLC became wholly-owned
subsidiaries of Fox Family Worldwide, Inc. (formerly Fox Kids Worldwide, Inc.)
("Fox Family Worldwide" or the "Company"). As a result of the formation of the
joint venture and the common management of the joint venture businesses, the
respective assets, liabilities and operations of Saban, FCN Holding and the
LLC have been combined at historical cost from and after the Effective Date.

   The Company is an integrated global family and children's entertainment
company that produces, broadcasts and distributes live-action and animated
family and children's television programming. The Company's principal
operations comprise (i) International Family Entertainment, Inc. ("IFE"),
which operates the Fox Family Channel, one of the top 10 most widely
distributed cable television networks in the United States and one which
provides family-oriented entertainment programming reaching approximately 95%
of all cable and satellite television households, (ii) the Fox Kids Network,
one of the leading children's (ages 2-11) oriented broadcast television
networks in the United States, and (iii) the Fox Kids International Networks,
including Fox Kids Europe, N.V. ("FKE") and Fox Kids Latin America, Inc.
("FKLA"), a growing portfolio of Fox Kids branded cable and direct-to-home
("DTH") satellite channels reaching approximately 31 million households
operating in approximately 57 countries and 13 languages worldwide. The
Company's production and distribution operations include Saban and
subsidiaries, whose library of approximately 6,200 half-hours of completed and
in-production children's programming is among the largest in the world (the
"Fox Family Kids Library"), and certain other subsidiaries. By combining a
widely distributed cable platform, a top-rated broadcast network, one of the
world's largest children's programming libraries, and the Fox Kids branded
international channels, the Company has the ability to manage family and
children's properties and brands from their creation through production,
distribution and the merchandising of related consumer products.

   Television production, distribution and broadcast are speculative and
inherently risky. There can be no assurance of the economic success of
television programming since the revenues derived from the production,
distribution and broadcast (which do not necessarily bear a direct correlation
to the production or distribution costs incurred) depend primarily upon its
acceptance by the public, which cannot be predicted. The commercial success of
programming also depends upon the quality and acceptance of other competing
programming released into the marketplace at or near the same time, the
availability of alternative forms of entertainment and leisure time
activities, general economic conditions and other tangible and intangible
factors, all of which can change and cannot be predicted with certainty. The
success of the Company's television programming also may be impacted by
prevailing advertising rates, which are subject to fluctuation. Therefore,
there is a risk that not all of the Company's television projects will be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized.

   The consolidated financial statements of the Company as of and for the
years ended June 30, 1998, 1999 and 2000 reflect the consolidated financial
statements of Fox Family Worldwide and subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

 The Reorganization

   The Company was incorporated in August 1996 under Delaware law. Between
August 1996 and August 1997, the Company conducted no business or operations.
On August 1, 1997, in connection with the Company's

                                      F-8
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisition of IFE (see Note 3), (i) a wholly owned indirect subsidiary of Fox
Broadcasting Company ("Fox Broadcasting"), exchanged its capital stock in FCN
Holding, which indirectly owns Fox Children's Network, Inc. ("FCN") for
7,920,000 shares of Class B Common Stock of the Company, (ii) the other
stockholder of FCN Holding exchanged its capital stock in FCN Holding for an
aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim
Saban and the other former stockholders of Saban (together, the "Saban
Stockholders") exchanged their capital stock of Saban for an aggregate of
7,920,000 shares of Class B Common Stock of the Company, and (iv) all
outstanding management options to purchase Saban capital stock became options
to purchase an aggregate of 646,548 shares of Class A Common Stock of the
Company (together, the "Reorganization"). In addition, Fox Broadcasting
exchanged its preferred, non-voting interest in the LLC and its $50 million
contingent note receivable from the LLC for a new subordinated pay-in-kind
note (the "Fox Subordinated Note") from the Company, which accrues interest at
the rate of 10.427%.

   In connection with the acquisition of IFE, the Company issued the NAI
Bridge Note to News America Incorporated ("NAI") upon substantially the same
terms and conditions as the Fox Subordinated Note. In addition, the Company
issued to Liberty IFE, Inc. ("Liberty IFE") $345,000,000 of Series A
Mandatorily Redeemable Preferred Stock.

   As part of the formation of the LLC, Saban, the Saban Stockholders, Fox
Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic
Stockholders Agreement dated December 22, 1995, which provided, among other
things, for restrictions on transfer of the stock held by the parties, certain
voting rights between them, as well as the terms of the Reorganization. The
parties to the Strategic Stockholders Agreement also agreed to provide Haim
Saban and the Saban Stockholders and Fox Broadcasting certain registration
rights. On August 1, 1997, the Strategic Stockholders Agreement was amended
and restated (the "Amended and Restated Strategic Stockholders Agreement") to
add provisions regarding voting between Fox Broadcasting and the former Saban
Stockholders.

   As part of the Amended and Restated Strategic Stockholders Agreement, Haim
Saban agreed with Fox Broadcasting Sub, Inc. ("FBSI"), a wholly owned indirect
subsidiary of Fox Broadcasting, as follows: if the Company is unable to meet
its obligations (i) to pay any dividend under the terms of the Series A
Mandatorily Redeemable Preferred Stock or to redeem the Series A Mandatorily
Redeemable Preferred Stock, (ii) under its lease of 10960 Wilshire Boulevard,
Los Angeles, California, or any obligation guaranteed by News Corp., or (iii)
under the Funding Agreement among The News Corporation Limited ("News Corp"),
News Publishing Australia Limited ("NPAL"), a wholly owned subsidiary of News
Corp., and the Company (the "Funding Agreement"), and either News Corp. or
NPAL provides funds to the Company, the advance will be treated as a loan, or
if Citibank, in its sole discretion as administrative agent under the Amended
Credit Facility, determines it is unacceptable to treat the advance as a loan,
the advance will be treated as preferred stock. To the extent the advance is
treated as a loan and the amount exceeds $50,000,000, if the advance is not
repaid after 18 months (or 12 months for all advances after the third
anniversary of the agreement), all or any portion of the advance in excess of
$50,000,000 may be converted into shares of Class B Common Stock. If FBSI
elects to convert any portion of the advance into Class B Common Stock, Haim
Saban will have the right to purchase from Fox Broadcasting up to 50% of the
number of shares of Class B Common Stock issued pursuant to the conversion. If
instead, the advance is treated as preferred stock, the first $50,000,000 of
the advance shall be applied to the issuance of shares of Series B Preferred
Stock, and the remainder of the advance shall be applied to the issuance of
Series C Convertible Preferred Stock, which is convertible into Class B Common
Stock at the election of the holder. Each of the Series B and Series C
Preferred Stock will have a liquidation preference equal to its issue price of
$100,000 per share. The Series B and Series C Preferred Stock will be entitled
to dividends at an annual rate of 11.7% of its liquidation value. If Fox
Broadcasting elects to convert the Series C Convertible Preferred Stock into
Class B Common Stock, Haim Saban will have the right to purchase up to 50% of
the number of

                                      F-9
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shares of Class B Common Stock issued pursuant to the conversion.
Notwithstanding the agreements, News Corp. has no obligation to make any
advances, and the Company has no obligation to accept any amounts from News
Corp.

   In connection with the formation of the LLC and pursuant to a Stock
Ownership Agreement dated December 22, 1995, the LLC was granted an option to
purchase, upon the occurrence of certain events, all of the Class B Common
Stock held by the Saban Stockholders, and any of their transferees. The option
may be exercised as follows: (i) for a period of one year following the death
of Haim Saban, if he dies prior to December 22, 2012; (ii) upon delivery of
written notice by FBSI at any time on or after December 22, 2002, or before
December 22, 2012; or (iii) upon receipt by FBSI of written notice (but not
generally before January 31, 2001) from Haim Saban of his desire to cause FBSI
to purchase all of the shares of Class B Common Stock held by the Saban
Stockholders. The purchase price formula under the option is based on the fair
market value of the Company. In September 1996 the LLC distributed the Stock
Ownership Agreement to FCN Holding, which immediately distributed that
agreement to FBSI.

   In addition, under the terms of the original Amended and Restated Strategic
Stockholders Agreement, Haim Saban has the right and option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders, which option may be exercised by Haim Saban as follows: (i) for
a period of one year following the death of Haim Saban, if he dies prior to
December 22, 2012; (ii) upon a change in control of Fox Broadcasting; (iii) on
December 22, 2000 provided that Haim Saban gives notice to Fox Broadcasting no
later than 180 calendar days before December 22, 2000; and (iv) upon delivery
of written notice by Haim Saban at any time on or after December 22, 2002 and
on or before December 22, 2012. As of June 26, 2000, subsection (iii) of the
preceding sentence was amended to change December 22, 2000 to January 31, 2001
and to provide that notice must be given not later than December 31, 2000. In
connection with the "Change of Control" provisions of the Indentures that
govern the Company Notes, and the "Change of Control" provisions of the
Amended Credit Facility, the exercise of FBSI's option to purchase the Class B
Common Stock held by the Saban Stockholders, or the exercise by Haim Saban of
his option to cause Fox Broadcasting to purchase all of the Class B Common
Stock held by the Saban Stockholders, would not constitute a "Change of
Control."

   Pursuant to the Funding Agreement, each of News Corp. and NPAL, jointly and
severally, agreed to provide the Company with the funds necessary to redeem in
full or pay the liquidation distribution on all other amounts owing in respect
of the Series A Preferred Stock in the event of an event of default under the
provisions governing the Series A Preferred Stock contained in the Company's
Certificate of Incorporation or a liquidation, dissolution or similar event of
the Company. In addition, pursuant to an Exchange Agreement among NPAL,
Liberty Media Corporation and Liberty IFE, each holder of the Series A
Preferred Stock has the right, in the event of an event of default under the
provisions governing the Series A Preferred Stock contained in the Company's
Certificate of Incorporation or a liquidation, dissolution or similar event of
the Company, to exchange its shares for an equivalent number of shares of
preferred stock of NPAL.

2. Summary of Significant Accounting Policies

 Principles of Consolidation

   The consolidated financial statements for the years ended June 30, 1998,
1999 and 2000 include the accounts of FCN Holding, Fox Kids Worldwide LLC,
Saban, IFE and all of their majority-owned and controlled subsidiaries. The
Company's investments in related companies which represent a 20% to 50%
ownership interest over which the Company has significant influence but not
control are accounted for using the equity method. All significant
intercompany balances have been eliminated.

                                     F-10
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   As permitted by Statement of Financial Accounting Standards ("SFAS") No.
53, "Financial Reporting by Producers and Distributors of Motion Pictures,"
the Company has presented an unclassified consolidated balance sheet.

 Revenue Recognition

   Revenue from television, music, and merchandising lease agreements, which
provide for the receipt by the Company of nonrefundable guaranteed amounts, is
recognized when the lease period begins, collectibility is reasonably assured
and the product is available pursuant to the terms of the lease agreement.
Amounts in excess of minimum guarantees under these lease agreements are
recognized when earned. Amounts received in advance of recognition of revenue
are recorded as deferred revenues which are generally recognized within one
year. Advertising revenue is recognized as earned in the period in which the
advertising commercials are telecast. The Company generally provides
advertisers with guaranteed ratings in connection with its domestic network
broadcasts. Revenue is recorded net of estimated shortfalls, which are settled
either by additional advertising time ("make goods") or cash refunds to the
advertiser. Subscriber revenue is recognized based upon the reported level of
subscribers. Barter revenues, representing the exchange of programming for
advertising time on a television station, are recognized upon the airing of an
advertisement during such advertising time.

 Production and Programming Costs

   Programming costs, consisting of direct production costs, acquisition of
story rights, costs to acquire distribution rights, allocable production
overhead, interest and exploitation costs which are expected to benefit future
periods are capitalized as incurred. The individual film forecast method is
used to amortize programming costs in which the Company owns or controls
distribution rights. Under such method, costs accumulated in the production of
a program are amortized in the proportion that gross revenues realized bear to
management's estimate of the total gross revenues expected to be received.
Estimated liabilities for residuals and participations are accrued and
expensed in the same manner as programming costs are amortized.

   For programs in which the Company acquires only broadcast rights, the
Company amortizes such programming costs over the estimated number of
telecasts. The Company evaluates its programming rights for possible changes
in the estimated number of telecasts or the possibility of impairment.

   Revenue estimates on a program-by-program basis are reviewed periodically
by management and are revised, if warranted, based upon management's appraisal
of current market conditions. Based on this review, if estimated future gross
revenues from a program are not sufficient to recover the unamortized costs,
the unamortized programming cost will be written down to net realizable value.

   Production and programming costs also include the use of satellite
transponders and costs associated with engineering and technical support
services.

 Concentration of Credit Risk

   Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments
and accounts receivables. The Company places its temporary cash investments
with high credit quality financial institutions or in a mutual fund which
invests in government securities and therefore are subject to reduced risk.
The Company has not incurred any losses relating to these investments.

   The Company leases its product to distributors and broadcasters and sells
advertising time throughout the world. The Company performs periodic credit
evaluations of its customers' condition and generally does not

                                     F-11
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

require collateral. Generally, payment is received in full or in part prior to
the Company's release of product to such distributors and broadcasters. At
June 30, 1999 and June 30, 2000, substantially all of the Company's trade
receivables were from customers in the entertainment or broadcast industries
or from advertising agencies. Receivables generally are due within 30 days.
Credit losses relating to customers in the entertainment and broadcast
industries or advertising agencies consistently have been within management's
expectations.

 Cash and Cash Equivalents

   Cash and cash equivalents consist of all highly liquid investments that are
both readily convertible into cash and have maturities when purchased of three
months or less.

 Restricted Cash

   Restricted cash primarily represents amounts held by financial institutions
as collateral on outstanding debt.

 Financial Instruments

   Financial instruments are carried at historical cost which approximate fair
value.

 Property and Equipment, net

   Property and equipment are stated at cost. Property and equipment acquired
as part of the acquisition of IFE is stated at estimated fair market value at
the date of purchase. Depreciation of property and equipment is computed under
the straight-line method over the expected useful lives of applicable assets,
ranging from three to eight years. Leasehold improvements are amortized under
the straight-line method over the shorter of the estimated useful lives of the
assets or the terms of the related leases. When property is sold or otherwise
disposed of, the cost and related accumulated depreciation is removed from the
accounts, and any resulting gain or loss is included in income. The costs of
normal maintenance, repairs and minor replacements are charged to expense when
incurred.

 Intangible Assets, net

   The intangible assets resulting from the acquisition of IFE are amortized
over an estimated useful life of 40 years using the straight-line method.
Management continuously monitors and evaluates the realizability of existing
assets, to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of existing assets, their carrying
value is compared to management's best estimate of undiscounted future cash
flows expected to result from the use of the assets and their eventual
disposition. Management also considers events or changes in circumstances,
such as changes in the number of subscribers, which indicates that assets may
not be recoverable. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
value of the assets exceeds the estimated fair value of the assets. Estimated
fair value will be based on either reliably determined third-party valuations,
if available, or discounted cash flows. When discounting cash flows a discount
rate will be selected which will be commensurate with the risk involved as it
relates to IFE. As of June 30, 2000, there are no indications of impairment as
it relates to the intangible assets.

   Accumulated amortization of intangibles as of June 30, 1999 and 2000 was
$77,991,000 and $118,513,000, respectively. For the year ended June 30, 1999,
intangible assets related to the IFE acquisition were reduced by $14,000,000,
due to the favorable resolution of certain pre-acquisition tax contingencies.
For the year ended June 30, 2000, intangible assets related to the IFE
acquisition were reduced by $18,141,000 due to the utilization of certain tax
assets not benefited at the acquisition date.

                                     F-12
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Debt Issuance Costs

   Included within other assets, net are debt issuance costs and deferred loan
fees incurred in connection with the issuance of the Senior Notes, the Senior
Discount Notes and the Amended Credit Facility (see Note 6). Such costs and
fees are being amortized over the term of the debt using the straight-line
method. Accumulated amortization of debt issuance costs and deferred loan fees
was $5,706,000 and $8,956,000 as of June 30, 1999 and 2000, respectively.

 Foreign Currency Translation and Cumulative Adjustment

   Saban International N.V. (SINV), which after the Effective Date is deemed
to be a wholly-owned subsidiary of the Company, uses the U.S. dollar as its
functional currency. All other foreign subsidiaries of the Company use local
currency as their functional currency. Assets and liabilities are translated
into U.S. dollars at current exchange rates. Revenues and expenses are
translated into U.S. dollars based generally on the average rates prevailing
during the period.

   Gains and losses arising from foreign currency transactions are included in
determining net income (loss) for the period. The aggregate transaction losses
for the years ended June 30, 1998, 1999 and 2000, were $1,442,000, $1,596,000,
and $5,575,000, respectively.

   The cumulative translation adjustment included in accumulated other
comprehensive loss in stockholders' equity (deficit) represents the Company's
net unrealized exchange losses on the translation of foreign subsidiaries'
financial statements.

 Income Taxes

   In accordance with SFAS No. 109 "Accounting for Income Taxes," deferred tax
assets and liabilities are recognized with respect to the tax consequences
attributable to differences between the financial statement carrying values
and tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. Further, the effect on deferred tax assets and
liabilities of changes in tax rates is recognized in income in the period that
included the enactment date.

 Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes including amortization of programming costs.
Actual results could differ from those estimates. Management periodically
reviews and revises its estimates of future airings and revenues, as
necessary, which may result in revised amortization of its programming costs.
Results of operations may be significantly affected by the periodic
adjustments in such amortization.

 Stock-Based Compensation

   The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees." 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.

   SFAS No. 123, "Accounting for Stock-Based Compensation," requires entities
to recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant or allows entities to continue to

                                     F-13
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

apply the provisions of APB No. 25 and provide pro forma disclosures for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123 (see Note 12).

 Reclassifications

   Certain reclassifications have been made to prior years' financial
statements to conform with fiscal 2000 presentation.

 New Accounting Pronouncements

   In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 was subsequently amended by SFAS
No. 137, which had the effect of deferring the date of its effectiveness. In
March 2000, SFAS No. 133 was also amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Hedging Activities--An Amendment to FASB
Statement No. 133," which amends the accounting and reporting standards of
SFAS No. 133 for certain derivative instruments and hedging activities. SFAS
No. 133 and 138 establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 and 138 are effective for
fiscal periods beginning after June 15, 2000. The Company is currently
evaluating the possible effects of SFAS No. 133 and 138 on its consolidated
financial statements. This statement could increase volatility in earnings and
other comprehensive income.

   In June 2000, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of
Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-
2"), which established new accounting standards for producers and distributors
of films and supersedes SFAS No. 53. SOP 00-2 requires that advertising and
other exploitation costs for theatrical and television product be expensed as
incurred. This compares to the Company's existing policy of capitalizing and
then expensing advertising cost for theatrical and television product over the
related revenue streams, as prescribed under SFAS No. 53. In addition, SOP 00-
2 requires development cost for abandoned projects after three years and
certain indirect overhead costs to be charged directly to expense, instead of
those costs being capitalized to programming costs, which currently is
required under the existing accounting standard. SOP 00-2 is effective for
financial statements for fiscal years beginning after December 15, 2000,
however, earlier application is encouraged. The Company plans to adopt SOP 00-
2 during the first quarter of fiscal 2002, at which time it expects to record
a one-time, non-cash, pre-tax charge as a cumulative effect of a change in
accounting principles, the amount of which has not yet been determined.

   In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 clarifies certain existing accounting principles for the
recognition and classification of revenues in financial statements. The new
rules are expected to result in some changes as to how the filmed
entertainment industry classifies its revenue, particularly relating to
distribution arrangements for third-party and co-financed joint ventures
product, but it is not expected to result in any changes to net income. The
Company is required to adopt SAB 101 during the first quarter of fiscal 2001.
Earlier application is acceptable. As a result, the Company is in the process
of evaluating the overall impact of SAB 101 on its consolidated financial
statements.

   In January 2000, Emerging Issues Task Force ("EITF") 99-17, "Accounting for
Advertising Barter Transactions" was issued. EITF 99-17 requires that revenues
and expenses related to advertising barter transactions be recognized at fair
value only if the fair value of the advertising surrendered in the transaction
is

                                     F-14
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

determinable based on the entity's own historical practice of receiving cash,
marketable securities, or other consideration that is readily convertible to a
known amount of cash for similar advertising from buyers unrelated to the
counterparty in the barter transaction. This EITF is not expected to result in
any change to the financial position or operating results of the Company.

3. Acquisition of International Family Entertainment, Inc.

   On August 1, 1997, the Company acquired a 50.7% interest in IFE through the
purchase for $35 per share of the stock owned by M.G. "Pat" Robertson, Tim
Robertson and certain trusts of which they are trustees, The Christian
Broadcasting Network, Inc. ("CBN") and Regent University (together, the
"Privately Owned Shares") and the exchange by Liberty IFE of all of the IFE
stock owned by it and $23,000,000 principal amount of 6% Convertible Secured
Notes due 2004 of IFE (the "Convertible Notes") (which have since been
retired) for shares of Series A Mandatorily Redeemable Preferred Stock of the
Company (the "IFE Acquisition"). On September 4, 1997, the Company consummated
a merger to acquire the remaining shares of IFE from the public shareholders.
Total consideration for the IFE Acquisition was approximately $1.9 billion
including assumption of liabilities. The Company paid approximately
$545,000,000 for the Privately Owned Shares and issued $345,000,000 of its
Series A Mandatorily Redeemable Preferred Stock to Liberty IFE as payment for
the IFE stock and the Convertible Notes. The balance of the consideration was
paid to acquire the publicly traded shares through the merger, to cash out
existing options to acquire shares of IFE stock held by IFE senior executives
and employees, and to assume IFE's existing bank debt, which has since been
retired.

   When IFE was acquired, the Company had plans to relocate IFE to California
and consolidate certain other operations of IFE and therefore recorded
severance and related reserves of $36,500,000 of which $5,064,000 remains as
of June 30, 2000. The Company made severance and related payments of
$19,850,000 from the date of acquisition to June 30, 1998, $8,873,000 for the
year ended June 30, 1999 and $2,713,000 for the year ended June 30, 2000.
Severance amounts are being paid monthly to certain former employees of IFE
through fiscal 2006. The Company also recorded litigation and other related
accruals of $4,800,000, of which $2,775,000 remains as of June 30, 2000. The
Company made litigation and other related payments of $886,000 and $1,139,000
in the years ended June 30, 1999 and 2000, respectively.

   The results of operations of IFE since the purchase date of August 1, 1997
have been included with the Company's results of operations.

   The following unaudited pro forma information for the year ended June 30,
1998 reflects the results of the Company's consolidated operations as if the
acquisition and related financing occurred at the beginning of the period
presented. The unaudited pro forma consolidated financial results are not
necessarily indicative of the actual results that would have occurred had the
acquisition occurred at the beginning of the period presented (in thousands):

<TABLE>
<CAPTION>
                                                                      Year Ended
                                                                       June 30,
                                                                         1998
                                                                      ----------
   <S>                                                                <C>
   Revenues..........................................................  $688,943
   Operating income..................................................   123,798
   Net loss..........................................................   (45,610)
</TABLE>

                                     F-15
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4. Programming Costs, net

   Programming costs, net of accumulated amortization, are comprised of the
following as of June 30, (in thousands):

<TABLE>
<CAPTION>
                                                          1999
                                           -----------------------------------
                                                                       Net
                                                      Accumulated  Programming
                                              Cost    Amortization    Costs
                                           ---------- ------------ -----------
   <S>                                     <C>        <C>          <C>
   Children's programming................. $1,289,026  $1,064,308   $224,718
   Family programming, movies and mini-
    series................................    579,045     345,032    234,013
   Projects in production.................     72,172         --      72,172
   Development............................      7,316         --       7,316
                                           ----------  ----------   --------
                                           $1,947,559  $1,409,340   $538,219
                                           ==========  ==========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                          2000
                                           -----------------------------------
                                                                       Net
                                                      Accumulated  Programming
                                              Cost    Amortization    Costs
                                           ---------- ------------ -----------
   <S>                                     <C>        <C>          <C>
   Children's programming................. $1,446,229  $1,177,591   $268,638
   Family programming, movies and mini-
    series................................    792,347     454,809    337,538
   Projects in production.................     44,818         --      44,818
   Development............................      7,718         --       7,718
                                           ----------  ----------   --------
                                           $2,291,112  $1,632,400   $658,712
                                           ==========  ==========   ========
</TABLE>

   Future estimated program commitments at June 30, 2000 are approximately
$389,000,000.

   As of June 30, 2000 the Company estimates that approximately 73% of
released unamortized programming costs will be amortized within the next three
years. Interest amounting to $3,160,000, $3,128,000 and $2,253,000 was
capitalized to programming costs for the years ended June 30, 1998, 1999 and
2000, respectively. Capitalized depreciation expense for the years ended June
30, 1998, 1999 and 2000 amounted to $2,459,000, $4,020,000 and $3,595,000,
respectively.

5. Property and Equipment, net

   Property and equipment is comprised of the following as of June 30, (in
thousands):

<TABLE>
<CAPTION>
                                                               1999      2000
                                                             --------  --------
   <S>                                                       <C>       <C>
   Studio and other equipment............................... $ 25,424  $ 28,595
   Satellite transponders...................................   39,596    39,596
   Office furniture and fixtures............................   16,119    18,474
   Leasehold improvements...................................    7,869     9,536
   Other....................................................    2,478     2,460
                                                             --------  --------
                                                               91,486    98,661
   Less accumulated depreciation............................  (33,390)  (46,787)
                                                             --------  --------
                                                             $ 58,096  $ 51,874
                                                             ========  ========
</TABLE>

                                     F-16
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. Bank and Other Debt

   Bank and other debt is comprised of the following as of June 30, (in
thousands):

<TABLE>
<CAPTION>
                                                              1999       2000
                                                           ---------- ----------
<S>                                                        <C>        <C>
Senior Notes.............................................  $  475,000 $  475,000
Senior Discount Notes, net of unamortized discount of
 $174,935 and $130,242 at June 30, 1999 and 2000,
 respectively............................................     443,735    488,428
NAI Bridge Note..........................................     119,056    131,784
Fox Subordinated Notes...................................     157,399    194,693
Citicorp USA, secured revolving line of credit; interest
 at prime rate (9.5% at June 30, 2000) or six month LIBOR
 (6.94% at June 30, 2000) plus 0.75%; maximum borrowings
 of $355,000.............................................     305,000    325,000
Citicorp USA; secured term loan facility; interest at
 prime rate (9.5% at June 30, 2000) or six month LIBOR
 (6.94% at June 30, 2000) plus 0.75%; maximum borrowings
 of $120,000.............................................     215,000    120,000
Secured lines of credit with varying due dates between
 December 12, 2000 and April 18, 2002; maximum borrowing
 availability $10,844,000 at June 30, 2000; varying
 interest rates between 4.80% and 6.59%..................      10,249      9,229
Other....................................................         876        --
                                                           ---------- ----------
                                                           $1,726,315 $1,744,134
                                                           ========== ==========
</TABLE>

   Payments of bank and other debt in future periods are as follows (in
thousands):

<TABLE>
<CAPTION>
        Year ending June 30,
        --------------------
       <S>                                                            <C>
        2001......................................................... $   14,996
        2002.........................................................     62,763
        2003.........................................................     87,197
        2004.........................................................    215,565
        2005.........................................................     73,708
        Thereafter...................................................  1,289,905
                                                                      ----------
                                                                      $1,744,134
                                                                      ==========
</TABLE>

   In August 1997, the Company, FCN Holding, Saban and IFE entered into a
credit facility ("Old Credit Facility") with a group of banks led by Citicorp
in the amount of $1.25 billion. The Old Credit Facility comprised a
$602,000,000 seven-year secured reducing revolving credit facility, a
$298,000,000 seven-year secured reducing revolving credit facility and a
$350,000,000 nine-year secured term loan facility.

   The proceeds of the loans under the Old Credit Facility were used to
finance, in part, the IFE Acquisition and to repay certain obligations of
subsidiaries of the Company.

   In October 1997, upon consummation of the Company's Offering, the Old
Credit Facility was amended (the "Amended Credit Facility") to provide a
$355,000,000 seven-year term loan, subsequently reduced to $120,000,0000 as of
June 30, 2000, and a $355,000,000 seven-year reducing revolving credit
facility. The Company is not a borrower under the Amended Credit Facility but
is a guarantor. A wholly-owned subsidiary of the Company, Fox Kids Holdings,
LLC was created by the Company to hold the equity interests of FCN Holding,
Saban and IFE (which will remain borrowers) and guarantee the Amended Credit
Facility.

                                     F-17
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The collateral for the Amended Credit Facility is limited to the equity
interests of Fox Kids Holdings, LLC, the borrowers and their subsidiaries
(subject to certain limitations for foreign and less than wholly owned
subsidiaries) and certain intercompany indebtedness of subsidiaries of Fox
Kids Holdings, LLC. Scheduled payments on the term loan will begin December
30, 2000, with 10% of the term loan being reduced in year 3 of the loan, 20%
in each of years 4 and 5 and 25% in each of years 6 and 7. Scheduled quarterly
reductions to the revolving credit commitment will begin December 28, 2001,
with 15% of the commitment being reduced in each of years 5 and 6 and 70% in
year 7.

   The borrowings under the Amended Credit Facility bear interest at the
Company's option at a rate per annum equal to either LIBOR or a base rate
plus, in each case, an applicable interest rate margin. In addition, the
Company pays a commitment fee on the unused and available amounts under the
Amended Credit Facility.

   The Amended Credit Facility contains a number of significant covenants
that, among other things, limit the ability of the co-borrowers and their
respective subsidiaries to incur additional indebtedness, create liens and
other encumbrances, prepay indebtedness, sell assets, make certain payments
and investments, make distributions to owners and repurchase debt and equity.
In addition, the Amended Credit Facility requires the maintenance of certain
specified financial and operating covenants, including, without limitation,
capital expenditure limitations and ratios of earnings before interest
expense, taxes, depreciation and amortization of intangible assets ("EBITDA")
to fixed charges, total debt to EBITDA and EBITDA to interest expense. The
Amended Credit Facility also contains representations, warranties, covenants,
conditions and events of default customary for senior credit facilities of
similar size and nature.

   On October 28, 1997, the Company issued $475,000,000 aggregate principal
amount of 9 1/4% Senior Notes Due 2007 ("Senior Notes") and $618,670,000
aggregate principal amount at maturity of 10 1/4% Senior Discount Notes Due
2007 ("Senior Discount Notes" and collectively the "Notes") in a transaction
not registered under the Securities Act in reliance upon an exemption from the
registration requirements of the Securities Act. Gross proceeds from the
offering amounted to $850,000,000. The discount on the Senior Discount Notes
is being accreted under the effective interest method.

   Cash interest on the Senior Notes are payable semi-annually in arrears on
each May 1 and November 1, commencing May 1, 1998. Cash interest will not
accrue or be payable on the Senior Discount Notes prior to November 1, 2002.

   Thereafter, cash interest on the Senior Discount Notes will be payable
semi-annually in arrears on each May 1 and November 1, commencing on May 1,
2003. However, at any time prior to November 1, 2002, the Company may elect
(the "Cash Interest Election") on any interest payment date (the date of such
Cash Interest Election, the "Cash Interest Election Date") to commence the
accrual of cash interest from and after the Cash Interest Election Date, in
which case the principal amount at maturity of each Senior Discount Note will
on such interest payment date be reduced to the accreted value of such Senior
Discount Note as of such interest payment date, and cash interest (accruing at
a rate of 10 1/4% per annum from the Cash Interest Election Date) shall be
payable with respect to such Senior Discount Note on each interest payment
date thereafter.

                                     F-18
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after November 1, 2002, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued
and unpaid interest, if any, to the redemption date, if redeemed during the
12-month period beginning on November 1 of the years indicated below:

<TABLE>
<CAPTION>
                                                                      Redemption
       Year                                                             Price
       ----                                                           ----------
       <S>                                                            <C>
       2002..........................................................   104.63%
       2003..........................................................   103.08%
       2004..........................................................   101.54%
       2005 and thereafter...........................................   100.00%
</TABLE>

   In addition, at any time, or from time to time, on or prior to November 1,
2000, the Company may, at its option, use the net cash proceeds of (i) one or
more public equity offerings or (ii) sales of qualified equity interests to
strategic equity investors resulting in gross cash proceeds to the Company of
at least $100,000,000 to redeem, on a pro rata basis, up to an aggregate of
35% of the principal amount of the Senior Notes originally issued, at a
redemption price equal to 109.25% of the principal amount thereof plus accrued
and unpaid interest, if any, to the redemption date; provided that at least
65% of the originally issued principal amount of Senior Notes remains
outstanding immediately after the occurrence of such redemption.

   The Senior Discount Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after November 1, 2002, at the
redemption prices (expressed as a percentage of principal amount at maturity)
set forth below, plus accrued and unpaid interest thereon, if any, to the
redemption date, if redeemed during the 12-month period beginning on November
1 of the years indicated below:

<TABLE>
<CAPTION>
                                                                      Redemption
       Year                                                             Price
       ----                                                           ----------
       <S>                                                            <C>
       2002..........................................................   105.13%
       2003..........................................................   103.42%
       2004..........................................................   101.71%
       2005 and thereafter...........................................   100.00%
</TABLE>

   In addition, prior to November 1, 2000, the Company may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 110.25% of the accreted value of the
Senior Discount Notes so redeemed at the redemption date or, if a Cash
Interest Election has been made, 110.25% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of (i) one
or more public equity offerings or (ii) sales of qualified equity interests of
the Company to one or more strategic equity investors resulting in gross cash
proceeds to the Company of at least $100,000,000 in the aggregate; provided,
however, that at least 65% of the originally issued principal amount at
maturity of the Senior Discount Notes would remain outstanding immediately
after giving effect to any such redemption.

   Upon the occurrence of a change of control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the change of control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to (x) with respect to the Senior Notes, 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date and (y) with respect to the Senior Discount Notes, 101%
of the accreted value on the Change of Control Purchase Date, unless the
Change of Control Purchase Date is on or after the earlier to occur of
November 1, 2002 and the Cash Interest Election Date, in which case such
Change of Control Purchase Price

                                     F-19
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shall be equal to 101% of the aggregate principal amount at maturity thereof,
plus accrued and unpaid interest thereon, if any, to the Change of Control
Purchase Date. The Company shall be required to purchase all Notes tendered
into the Change of Control Offer and not withdrawn. The Change of Control
Offer is required to remain open for at least 20 business days and until the
close of business on the Change of Control Purchase Date.

   The Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all future subordinated indebtedness of the
Company. Claims of the holders of the Notes will effectively be subordinated
to the claims of creditors of the Company's subsidiaries, including the banks
under the Bank Facility.

   The Company is subject to certain covenants in connection with the issuance
of the Notes which include for example limitation on indebtedness, restricted
payments, liens, dividends, transactions with affiliates and disposition of
assets.

   The initial Fox Subordinated Note was restated on May 19, 1998 and accretes
interest at the rate of 10.427% and is due on May 1, 2008. Two additional Fox
Subordinated Notes in the amounts of $25,000,000 and $15,000,000 were issued
in June 1999 and September 1999, respectively, and accrete interest at the
rate of 20% and are due on June 28, 2009 and September 27, 2009, respectively.
The payment of principal and interest under the Fox Subordinated Notes are
subordinated in right to the obligations of the Company and its subsidiaries
under the Amended Credit Facility and the Indentures.

   On August 29, 1997, in connection with the acquisition of IFE, the Company
issued the NAI Bridge Note to NAI upon substantially the same terms and
conditions as the Fox Subordinated Note, except that the NAI Bridge Note has a
principal amount of $345,500,000. The NAI Bridge Note was restated on May 19,
1998 to reflect a change in the interest rate, effective as of the date of
issuance. As restated, the NAI Bridge Note accretes interest at a rate of
approximately 10.427% per annum. The Company may repay the NAI Bridge Note in
whole or in part, subject to the terms of the Amended Credit Facility and the
Indentures. The payment of principal and interest under the NAI Bridge Note
will be subordinated in right to the obligations of the Company under the
Amended Credit Facility and the Indentures. In October 1997, a $215,000,000
paydown was made to the NAI Bridge Note in connection with the issuance of the
Senior Notes and Senior Discount Notes.

                                     F-20
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. Income Taxes

   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows as of June
30, (in thousands):

<TABLE>
<CAPTION>
                                                             1999      2000
                                                           --------  ---------
   <S>                                                     <C>       <C>
   Deferred tax liabilities:
     Accounts receivable.................................. $    927  $     127
     Property and equipment...............................    9,497      5,108
     Contract discount....................................    2,184      1,042
     State taxes..........................................      103        --
     Other................................................    8,037      8,611
                                                           --------  ---------
   Total deferred tax liabilities.........................   20,748     14,888
                                                           --------  ---------
   Deferred tax assets:
     Deferred revenues....................................    1,926      1,550
     Programming costs....................................   20,362     10,160
     Accrued liabilities..................................   20,693     19,487
     Loss carryforwards...................................   75,329    123,467
     Other................................................    4,688      2,483
                                                           --------  ---------
   Total deferred tax assets..............................  122,998    157,147
   Valuation allowance for deferred tax assets............  (84,169)  (157,147)
                                                           --------  ---------
   Deferred tax assets....................................   38,829        --
                                                           --------  ---------
   Net deferred tax assets (liabilities).................. $ 18,081  $ (14,888)
                                                           ========  =========
</TABLE>

   The Company currently has approximately $181,000,000 of operating loss
carryforwards which will expire at various dates through June 30, 2020.
Approximately $2,100,000 of the operating loss carryforwards are separate
return year losses. As such federal and state income tax law and regulations
might limit utilization.

   Management has determined that as of June 30, 2000, $157,147,000 of
deferred tax assets do not satisfy the recognition criteria set forth in SFAS
No. 109. Accordingly, a valuation allowance has been recorded for this amount.
Approximately $35,000,000 of the prior year valuation allowance relates to
deferred tax assets acquired in the IFE acquisition. (See Note 3). In the
current year, the Company realized the benefit of $18,140,000 of these
deferred tax assets for which the benefit was recorded as a reduction to
goodwill. As of June 30, 2000, approximately $16,860,000 of the valuation
allowance relates to the remaining deferred tax assets acquired in the IFE
transaction. Accordingly, goodwill will be reduced at such time as these
deferred tax assets are realized.

   For financial reporting purposes, income before income taxes includes the
following components (in thousands):

<TABLE>
<CAPTION>
                                                       Years Ended June 30,
                                                    ----------------------------
                                                      1998      1999      2000
                                                    --------  --------  --------
   <S>                                              <C>       <C>       <C>
   Pretax income (loss):
     United States................................. $(45,733) $(86,202) $121,879
     Foreign.......................................   24,406    21,792    16,665
                                                    --------  --------  --------
                                                    $(21,327) $(64,410) $138,544
                                                    ========  ========  ========
</TABLE>

                                     F-21
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Significant components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           Years Ended June 30,
                                                           ---------------------
                                                            1998   1999   2000
                                                           ------ ------ -------
   <S>                                                     <C>    <C>    <C>
   Current:
     Federal.............................................. $  --  $  --  $21,281
     State................................................    --     500   2,090
     Foreign..............................................  1,766  1,489   2,678
                                                           ------ ------ -------
                                                            1,766  1,989  26,049
   Deferred:
     Federal..............................................  1,470    --   48,284
     State................................................    210    --    2,826
     Foreign..............................................    --     --      --
                                                           ------ ------ -------
                                                            1,680    --   51,110
                                                           ------ ------ -------
                                                           $3,446 $1,989 $77,159
                                                           ====== ====== =======
</TABLE>

   The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the provision for income taxes:

<TABLE>
<CAPTION>
                                               Years Ended June 30,
                                               --------------------------
                                                1998      1999      2000
                                               ------    ------    ------
   <S>                                         <C>       <C>       <C>
   Tax at U.S. statutory rates................    (35)%     (35)%      35 %
   State taxes, net of federal benefit........     (5)       (4)        2
   Foreign income/transactions................    (38)      (10)       (8)
   U.S. operating loss for which no federal
    and state benefit was derived.............     23        26        --
   Change in valuation allowance..............     --        --        16
   Non-deductible amortization of
    intangibles...............................     71        24        10
   Other......................................     --         2         1
                                               ------    ------    ------
                                                   16 %       3 %      56 %
                                               ======    ======    ======
</TABLE>

   Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $159,652,000 at June 30, 2000. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes (subject to an adjustment for foreign tax credits)
and withholding taxes payable to the various foreign countries. Determination
of the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with its hypothetical
calculation; however, unrecognized foreign tax credit carryforwards would be
available to reduce some portion of the U.S. liability. It is possible that
the Internal Revenue Service could under certain theories attempt to tax the
foreign subsidiaries' income. Currently, management of the Company believe
that any such theories would be without merit.

8. Commitments and Contingencies

 Leases

   In July 1995, the Company entered into a ten-year lease commencing on April
1, 1996 for office space in Los Angeles, California subject to two separate
five year extension options. The lease provides for early

                                     F-22
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

termination at the end of the sixth and eighth years upon payment of a
termination fee. The lease calls for monthly payments plus maintenance and
property tax payments. The Company also leases other facilities throughout the
world on an as needed basis expiring at various dates.

   Noncancellable future minimum payments for the remainder of the initial,
noncancellable lease periods are as follows (in thousands):

<TABLE>
<CAPTION>
       Years ending June 30,
       ---------------------
       <S>                                                               <C>
       2001............................................................. $11,339
       2002.............................................................  11,347
       2003.............................................................  10,214
       2004.............................................................   9,633
       2005.............................................................   9,689
       Thereafter.......................................................  12,670
                                                                         -------
                                                                         $64,892
                                                                         =======
</TABLE>

   Rent expense for the years ended June 30, 1998, 1999 and 2000, net of
amounts capitalized, was approximately $5,098,000, $6,392,000 and $7,119,000,
respectively.

 Legal Matters

   The Company is involved in various lawsuits, both as a plaintiff and
defendant, in the ordinary course of its business. Based on an evaluation
which included consultation with counsel concerning legal and factual issues
involved, management is of the opinion that the foregoing claims and lawsuits
will not have a material adverse effect on the Company's consolidated
financial position or results of operations.

 Employment Agreements

   The Company has entered into employment agreements with certain key members
of management. Such agreements are for terms originally ranging from one to
six and one-half years and generally include bonus provisions. Future minimum
payments under these agreements approximate $49,510,000, of which $27,176,000
is due in 2001, $16,122,000 is due in 2002, $4,969,000 is due in 2003 and
$1,243,000 is due in 2004.

9. Profit Sharing Plan

   The Company has a qualified tax deferred profit sharing plan (the "Plan")
for all of its eligible employees. Under the Plan, employees become eligible
on the first January 1 following such employees' completion of six months of
service with the Company. Each participant is permitted to make voluntary
contributions, not to exceed 15% of his or her respective compensation and the
applicable statutory limitations, which are immediately vested. The Company,
at the discretion of the Board of Directors, may make matching contributions
to the Plan. Related expense for the years ended June 30, 1998, 1999 and 2000,
was approximately $122,000, $448,000 and $343,000, respectively.

   IFE had a 401(k) retirement savings plan (the "401(k) Plan") which covered
the majority of its employees. Subject to certain limitations, employees were
permitted to contribute up to 15% of their compensation to the 401(k) Plan.
IFE's contribution to the 401(k) Plan was discretionary as determined annually
by IFE's Board of Directors. IFE contributed $349,000 to the 401(k) Plan for
the year ended June 30, 1998. As of January 1, 1999, the 401(k) Plan was
terminated and the participating employee contributions were transferred to
the Company's Plan.

                                     F-23
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


10. Other Related Party Transactions

   The following amounts are included within the consolidated statements of
operations and balance sheets in relation to related party transactions (in
thousands):

<TABLE>
<CAPTION>
                                                        Years Ended June 30,
                                                     --------------------------
                                                       1998     1999     2000
                                                     -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Consolidated Statements of Operations
   Revenues......................................... $131,980 $106,205 $104,373
   Production and programming costs(1)..............    6,456    7,179   10,588
   Selling, general and administrative expenses.....    5,328    9,090   12,632
   Interest expense, net............................   23,871   24,642   39,263
</TABLE>

<TABLE>
<CAPTION>
                                                                 At June 30,
                                                              -----------------
                                                                1999     2000
                                                              -------- --------
   <S>                                                        <C>      <C>
   Consolidated Balance Sheets
   Amounts receivable from related parties, net.............. $ 14,000 $ 56,753
   Accounts payable..........................................    1,833    3,664
   Deferred revenues.........................................    6,185    2,218
   NAI Bridge Note...........................................  119,056  131,784
   Fox Subordinated Notes....................................  157,399  194,693
   Amounts payable to related parties, net...................  115,375   21,243
</TABLE>
--------
(1) Includes satellite transponder, engineering and technical support costs.

   Amounts receivable from related parties include advances of $4,023,000 and
$5,631,000 at June 30, 1999 and 2000, respectively, to certain non-stockholder
officers and directors of the Company.

   The Company and Fox Broadcasting were parties to a Barter Syndication
Agreement dated as of January 5, 1996, pursuant to which the Company engaged
Fox Broadcasting to provide barter advertising sales for the 1997-1998
broadcast season for the Company's syndicated programming. In consideration
for the services rendered by Fox Broadcasting to the Company, the Company
agreed to pay Fox Broadcasting a barter advertising sales fee of $840,000 for
the 1997-1998 broadcast season.

   Related companies of Fox Broadcasting have funded certain of the operations
of the Company from its inception through loans to the Company and have
collected funds related to the Company's advertising sales receivables.
Amounts due to the related companies of Fox Broadcasting in connection
therewith, including interest, totaled $15,375,000 at June 30, 1999. Amounts
due from related companies of Fox Broadcasting totaled $17,038,000 at June 30,
2000.

   The Company broadcasts Fox Kids U.K., a cable and satellite channel via
analogue and digital transponders. The channel is distributed as part of
British Sky Broadcasting, Group plc's ("BSkyB") Sky Multichannels DTH package.
News Corp. holds an approximately 37% interest in BSkyB, a public company. As
part of its agreement with BSkyB, the Company acquired for approximately
$3,100,000, certain of BSkyB's United Kingdom license rights to children's
programming which had been previously acquired by BSkyB. Additionally, the
Company entered into an analog transponder sublease agreement with BSkyB
through February 1, 2001 subject to extension in certain circumstances
requiring a financial commitment of approximately $28,000,000 and a five-year
digital transponder and uplink sublease agreement, commencing in late 1998,
requiring a financial commitment of approximately $5,400,000, subject to
annual cost of living increases. In addition, BSkyB provides support services
for the Company for a fee equal to 15% of net revenue, as defined in the
agreement.

                                     F-24
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company broadcasts FKLA, a Fox Kids branded pan-regional Latin American
channel. The Company has entered into a cost sharing arrangement for employees
and service support in connection with the operation of the channel with Canal
Fox, a related party. The Company believes that such arrangement for employees
and service support are at rates which approximate fair market value.

   Foxtel, an Australian-based cable and satellite television service, has
carried a Fox Kids Network children's channel segment since 1994 under a
license agreement between Foxtel and an affiliate of Fox Broadcasting. This
license was assigned to the Company. Foxtel is is owned and operated by News
Corp.; Telstra, the Australian telephone company; and Publishing and
Broadcasting Limited.

   In connection with Haim Saban's employment agreement, the Company agreed to
reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and
international travel, including private air charter which may include aircraft
owned directly or indirectly by Haim Saban. The Company has entered into a
contract with 5161 Corporation ("5161"), a corporation wholly owned by Haim
Saban, the Chief Executive Officer of the Company, for a minimum of fifty
charter hours during a twelve month period. For the twelve months ended
June 30, 1998, 1999 and 2000, the Company has paid approximately $730,000,
$722,000 and $552,000, respectively, for such costs.

   The Company is party to a music services agreement (the "Music Agreement")
with 5161. Under the terms of the Music Agreement, the Company acquires
substantially all of the original theme music, underscores, cues and songs it
uses in programming produced by the Company from 5161. In addition, the
Company has the royalty-free right to use the compositions in articles of
merchandise such as home video units, video games and interactive toys and has
been granted the non-exclusive, worldwide, and perpetual license to use the
music to (i) synchronize and perform compositions in theatrical motion
pictures and (ii) synchronize compositions in all other forms of programming.

   The Company leases its entertainment properties (e.g., motion pictures,
television programs, merchandising and licensing rights) in Israel through
Duveen Trading Ltd. (Distributor), a corporation wholly-owned by Haim Saban's
brother. The term of the agreement extends through December 31, 2000. At June
30, 1999 and 2000, the Company was due $500,000 under this agreement.

   The Company creates and owns all rights, titles and interests in master
recordings of compositions for use in the Company's programming, and the
Company owns the proceeds derived from all forms of exploitation thereof. In
consideration for providing the compositions to the Company, 5161 is entitled
to receive all publishing income derived from the exploitation of all music
compositions. 5161 reimburses the Company for certain costs associated with
the creation of the compositions, which amounted to $451,000, $301,000 and
$397,000, respectively, for the years ended June 30, 1998, 1999 and 2000. At
June 30, 1999 and 2000, approximately $126,000 and $316,000, respectively, was
owed to 5161 by the Company in connection with royalties collected by the
Company on behalf of 5161.

   The Company utilizes the legal services of Matthew Krane, a director of the
Company since January 2000. Mr. Krane was paid approximately $268,000 for such
services for the year ended June 30, 2000.

   The Company is party to a distribution agreement with Fox Family Films,
Inc. ("Distributor") for "Turbo: A Power Rangers Movie," which was released
theatrically in the United States in Spring 1997 and in home video in late
Summer 1997. Distributor holds in perpetuity worldwide theatrical, non-
theatrical, home video, and television rights in the movie (except for the
territories of Japan and certain Asian territories and Israel). The Company
holds the copyright as well as certain rights including merchandising,
television series, stage, publication, radio, theme park and touring, music
publishing and soundtrack. Commercial tie-in rights are

                                     F-25
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

mutually controlled by the Company and Distributor. The Company will receive
100% of gross receipts after certain distribution fees and expenses are
deducted, based upon a formula set forth in the agreement.

   In April 1998, the Company sold its ownership interest in Fit TV and
certain other assets to Fox/Liberty Networks, LLC, a joint venture between
News Corp. and Liberty Media Corporation, a wholly owned subsidiary of Tele-
Communications, Inc. for $15,000,000. The Company acquired Fit TV in August
1997 as part of the IFE Acquisition.

   In January 1997, the Company obtained from Fox Television ("Fox
Television"), a division of Fox, Inc., distribution rights to the New World
Communications Group, Inc. ("New World") animation library of children's
programming, which Fox Television acquired as part of its purchase of New
World. In July 1998, the Company acquired the New World animation library from
Fox Television for approximately $14,100,000.

   The Company entered into a long-term license agreement effective October 1,
1997 with Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant
to which Twentieth Century Fox will distribute certain products in the
Company's programming library.

   Pursuant to a Guaranty of Lease entered into on August 1, 1997 and amended
as of July 26, 2000 (the "Guaranty"), News Corp. and NPAL have guaranteed
certain of the Company's obligations under the lease of its corporate
headquarters. Under the Guaranty, News Corp. and NPAL are liable, jointly and
severally, for any amounts not paid by the Company. News Corp.'s and NPAL's
aggregate liability under the Guaranty is limited to approximately $6.6
million, to be reduced annually over two years on a straight-line basis.

   In May 1996, the Company entered into an agreement with Fox Video (the "Fox
Video Agreement") for the production and distribution of a live-action feature
film for the home video market based upon the animated character of Casper
(the "Film") which was released by Fox Video in the United States on September
9, 1997. The Company and Fox Video each contributed one-half of the production
costs of the Film subject to the rights of both parties to recoup certain of
these costs. The Company and Fox Video will share the television net income
55% and 45%, respectively, and the home video net income 45% and 55%,
respectively, subject to the participation rights of the Harvey Entertainment
Company ("Harvey"), which holds the copyright to Casper.

   The Company entered into an agreement in principle with Fox Video for the
production and distribution of, a second live-action feature film (Casper
Meets Wendy) for the home video market released in fiscal 1999. Saban and Fox
Video each contributed one-half of the production costs subject to the rights
of both parties to recoup certain of these costs. The Company and Fox Video
will share the combined television, non-theatrical, airline, and home video
receipts equally, subject to the participation rights of Harvey.

   In August 1996, Fox Video and the Company entered into a Home Video Rights
Acquisition Agreement pursuant to which the Company granted to Fox Video the
exclusive home video rights to distribute English and Spanish language
versions throughout the United States and to distribute English language
versions throughout Canada of certain of its programs, all television programs
produced for children and owned or controlled by the Company or FCN, all
television programs produced or to be produced pursuant to an agreement with
Marvel and all television programs which are owned or controlled first by
Marvel and subsequently by the Company. In consideration for the grant of the
distribution rights, Fox Video has agreed to pay the Company 50% of gross
receipts from these home videos, after deduction of certain expenses. In
connection with this Agreement the Company has received $8,273,000 through
June 30, 2000.

   Effective August 1, 1998, as part of a joint venture with a subsidiary of
News Corp., a subsidiary of the Company, Fox Kids Europe Holdings, Inc.
("FKEH"), contributed its 100% interest in a cable network in The Netherlands,
TV10 BV, to a U.S. limited liability company (the "TV10 LLC") in exchange for
a 50% equity

                                     F-26
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

interest in the TV10 LLC. The subsidiary of News Corp. contributed $20,000,000
in cash to the TV10 LLC in exchange for its 50% equity interest in the TV10
LLC. In accordance with the operating agreement between the parties, an
affiliate of the Company is responsible for procuring the supply of
programming during the hours of 6:00a.m. and 6:00p.m. and an affiliate of News
Corp. is responsible for the hours of 6:00p.m. to 1:00a.m. The parties retain
the revenues and are responsible for costs and expenses related to their
respective programming hours (or "day parts"). Costs that are not directly
related to specific day parts are shared on the basis of a formula that
ensures that News Corp.'s share will not exceed two-thirds of total indirect
costs. No gain or loss was recorded by the Company related to this
transaction. At June 30, 2000, amounts receivable from related parties
included approximately $22,719,000 owed to the Company by TV10 LLC, and
amounts payable to related parties included approximately $21,243,000 owed by
the Company to TV10 LLC.

   In June 1999, FKEH, a subsidiary of the Company, entered into a
subscription agreement (the "Subscription Agreement") with Fox Broadcasting
pursuant to the terms of which Fox Broadcasting paid FKEH $100,000,000 in
exchange for a subscription (the "Subscription Rights") for shares of FKEH's
non-voting Class B Common Stock (the "Stock"). In addition, in June 1999, Fox
entered into an exchange agreement with the Company pursuant to which Fox
Broadcasting was granted the right, but not the obligation, to require the
Company to acquire its Subscription Rights in exchange for a deeply
subordinated note with an interest rate of 20% per annum to be issued by the
Company. Upon exercise of the conversion rights, interest begins to accrete as
of the earlier of the exercise date or January 1, 2000. At June 30, 1999, the
amount paid by Fox Broadcasting was included in amounts payable to related
parties. In November 1999, a subsidiary of the Company caused to be
transferred 7,507,591 shares of FKE to Fox Broadcasting as settlement of the
$100,000,000 Subscription Agreement.

   In June 1999, the Company issued a deeply subordinated note in the
principal amount of $25,000,000 to Fox Broadcasting payable on June 28, 2009
with interest accreting at a rate of 20% per annum. In September 1999, the
Company issued an additional deeply subordinated note in the principal amount
of $15,000,000 to Fox Broadcasting payable September 27, 2009 with interest
accreting at a rate of 20% per annum.

11. Business Segment Reporting

   The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended June 30, 1999,
which changed the way the Company reports information about its operating
segments. The Company's business units have been aggregated into two
reportable operating segments: production and distribution and broadcasting.
The "other" column includes corporate related items and income (including SAB
No. 51 and subsidiary stock gains) and expenses not allocated to reportable
segments. The Company's reportable operating segments have been determined in
accordance with the Company's internal management structure, which is
organized based on operating activities. The accounting policies of the
operating segments are the same as those described in the summary of
significant accounting policies (see Note 2). The Company evaluates
performance based upon several factors, of which the primary financial measure
is segment income (loss) before income taxes, interest, depreciation and
amortization of intangibles.

                                     F-27
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Summarized financial information concerning the Company's reportable
segments is shown in the following tables (in thousands):

<TABLE>
<CAPTION>
                                               Production
                                                  and
                                 Broadcasting Distribution  Other      Total
                                 ------------ ------------ --------  ----------
<S>                              <C>          <C>          <C>       <C>
Year Ended June 30, 2000:
  Revenues......................  $  434,392    $202,086   $  5,398  $  641,876
  Income before income taxes,
   interest, depreciation and
   amortization of intangibles..     109,109      61,871    187,384     358,364
  Identifiable assets...........     583,261     385,946     93,421   1,062,628
  Intangible assets, net........   1,481,189         --         --    1,481,189
  Capital expenditures..........       7,266         844        146       8,256
  Depreciation expense..........      10,104         726         53      10,883
Year Ended June 30, 1999:
  Revenues......................  $  429,610    $204,321   $  1,342  $  635,273
  Income (loss) before income
   taxes, interest, depreciation
   and amortization of
   intangibles..................     112,921      54,314    (12,021)    155,214
  Identifiable assets...........     299,598     587,672     39,670     926,940
  Intangible assets, net........   1,539,852         --         --    1,539,852
  Capital expenditures..........       2,790       7,957        647      11,394
  Depreciation expense..........       8,432       1,491        160      10,083
Year Ended June 30, 1998:
  Revenues......................  $  423,060    $240,538   $    860  $  664,458
  Income (loss) before income
   taxes, interest, depreciation
   and amortization of
   intangibles..................     117,825      57,737    (15,960)    159,602
  Identifiable assets...........     293,117     573,143     55,478     921,738
  Intangible assets, net........   1,594,286         --         --    1,594,286
  Capital expenditures..........       1,782       7,667      1,066      10,515
  Depreciation expense..........       8,234       1,047         89       9,370
</TABLE>

   The following table reconciles segment income (loss) before income taxes,
interest, depreciation and amortization of intangibles to the Company's
consolidated net income (loss) (in thousands):

<TABLE>
<CAPTION>
                                                 Years Ended June 30,
                                             -------------------------------
                                               1998       1999       2000
                                             ---------  ---------  ---------
   <S>                                       <C>        <C>        <C>
   Income before income taxes, interest,
    depreciation and amortization of
    intangibles............................. $ 159,602  $ 155,214  $ 358,364
   Amortization of intangibles..............   (37,557)   (40,434)   (40,522)
   Interest expense, net....................  (134,002)  (169,107)  (168,415)
   Depreciation.............................    (9,370)   (10,083)   (10,883)
   Provision for income taxes...............    (3,446)    (1,989)   (77,159)
                                             ---------  ---------  ---------
   Net income (loss)........................ $ (24,773) $ (66,399) $  61,385
                                             =========  =========  =========
</TABLE>

                                     F-28
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Geographic Segments

   Revenues are attributed to geographic segments based upon origin of sale.

<TABLE>
<CAPTION>
                                                        Years Ended June 30,
                                                     --------------------------
                                                       1998     1999     2000
                                                     -------- -------- --------
                                                           (in thousands)
   <S>                                               <C>      <C>      <C>
   Revenues
   United States.................................... $524,076 $474,629 $466,293
   Europe...........................................  131,145  151,995  163,666
   Central and South America........................    9,237    8,649   11,917
                                                     -------- -------- --------
                                                     $664,458 $635,273 $641,876
                                                     ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
                                                     Years Ended June 30,
                                               --------------------------------
                                                  1998       1999       2000
                                               ---------- ---------- ----------
                                                        (in thousands)
   <S>                                         <C>        <C>        <C>
   Identifiable and Intangible Assets
   United States.............................. $2,213,103 $2,071,161 $2,088,337
   Europe.....................................    301,288    394,696    454,729
   Central and South America..................      1,633        935        751
                                               ---------- ---------- ----------
                                               $2,516,024 $2,466,792 $2,543,817
                                               ========== ========== ==========
</TABLE>

   The Company had no significant customers or significant properties for the
years ended June 30, 1998, 1999 and 2000.

12. Capital Stock

 Common Stock

   The authorized capital stock of the Company consists of 2,000,000 shares of
Class A Common Stock, 16,000,000 shares of Class B Common Stock and 2,000,000
shares of Preferred Stock, of which 500,000 shares have been designated as
Series A Preferred Stock. As of June 30, 1999 and 2000, 160,000 shares of
Class A Common Stock and 15,840,000 shares of Class B Common Stock were
outstanding.

   The holders of Class A Common Stock (the "Class A Stockholders") are
entitled to one vote per share and the holders of Class B Common Stock (the
"Class B Stockholders") are entitled to ten votes per share. Both classes vote
together as a single class. A majority vote (or any other greater percentage)
for stockholder action requires a majority of the aggregate number of votes
entitled to be cast as such vote. The Company's Corrected Restated Certificate
of Incorporation does not provide for cumulative voting rights.

   Subject to the rights of the holders of shares of any series of Preferred
Stock, the Class A and Class B Stockholders are to receive like dividends and
other similar distributions of the Company. In the case of any split,
subdivision, combination or reclassification of shares of Class A or Class B
Common Stock, an equivalent split, subdivision, combination or
reclassification must be made to the shares of Class B or Class A Common
Stock, as the case may be.

   The Class A and Class B Stockholders have equivalent rights to
distributions in the event of any liquidation, dissolution or winding up
(either voluntary or involuntary) of the Company, in proportion to the number
of shares held by them without regard to class.


                                     F-29
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   In the event of any corporate merger, consolidating purchase or
acquisition, the Class A and Class B Stockholders are to receive the same
consideration on a per share basis, and if the consideration in such
transaction consists in any part of voting securities, the Class B
Stockholders are to receive, on a per share basis, voting securities with ten
times the number of votes per share as those voting securities to be received
by the Class A Stockholders.

   The shares of Class A Common Stock are freely transferable, but the shares
of Class B Common Stock are subject to transfer restrictions as set forth more
fully in the Company's charter and in the Amended and Restated Strategic
Stockholders Agreement. The Class B Stockholders may only transfer their
shares to a "Permitted Transferee" and any unauthorized transfer will cause an
automatic conversion of such shares into shares of Class A Common Stock.
Regardless of the transfer restriction on the Class B Common Stock, any Class
B Stockholder may pledge its shares as collateral security for any
indebtedness or other obligation.

   Each share of Class B Common Stock is convertible, at the option of its
holder, at any time into one validly issued, fully paid and non-assessable
share of Class A Common Stock.

 Stock Options

   Effective June 1994, the Company issued stock options to three employees.
In connection with the Reorganization as described in Note 1, the options
became options to purchase an aggregate of 484,911 shares of Class A Common
Stock, all of which were exercisable at June 30, 2000. These options are
exercisable at prices ranging from $12.37 to $34.02 per share. No options have
been exercised at June 30, 2000. With respect to termination for any reason,
so long as the Company is not public, the Company will purchase from the
employee and the employee will sell to the Company any and all option shares
owned by the employee and the option granted to the employee for an amount
equal to the fair market value of the option shares owned by the employee plus
the fair market value of the option shares with respect to which the
employee's option has vested but not exercised less the exercise price.

   In May 1998, the Company provided two employees compensation of $2,000,000
each and in April 1999, the Company provided the two employees additional
compensation of $1,500,000 each in the form of an advance (together the
"Advances"). The Advances were included in the employees' taxable income and
bear no interest. Further, if the two employees exercise any stock options to
acquire shares of the Company's Class A Common Stock, the two employees shall
concurrently repay the Advances through an increase in the purchase price in
connection with the exercise.

   Included in accrued liabilities at June 30, 1999, and 2000 is $13,040,000
related to compensation recorded in connection with these options.

   As of June 30, 2000, 646,548 shares of Class A Common Stock are reserved
for future issuance related to options.

   In connection with FKE's initial public offering (see Note 13), FKE
approved a stock incentive plan under which FKE may grant options to personnel
at exercise prices equal to or exceeding the market price at the date of
grant. Options become exercisable over a four year period from the date of
grant and expire ten years after the date of grant. Shares available for
future option grants at June 30, 2000 totaled 5,276,901.

                                     F-30
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following tables summarize information about FKE stock options
outstanding and transactions as of and for the year ended June 30, 2000:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        average
                                                                        exercise
                                                              Shares     price
                                                             ---------  --------
     <S>                                                     <C>        <C>
     Outstanding at beginning of year.......................       --    $  --
     Awards granted......................................... 2,975,030    12.71
     Awards cancelled.......................................   (24,250)   12.60
                                                             ---------   ------
     Outstanding at June 30, 2000........................... 2,950,780   $12.71
                                                             =========   ======
</TABLE>

<TABLE>
<CAPTION>
                                      Outstanding                Exercisable
                          ----------------------------------- ------------------
                                                     Weighted           Weighted
                                    Weighted average average            average
           Range of                    remaining     exercise           exercise
           Exercise       Number of     years of      price   Number of  price
          Prices ($)       Options  contractual life   ($)     Options    ($)
          ----------      --------- ---------------- -------- --------- --------
     <S>                  <C>       <C>              <C>      <C>       <C>
     12.60..............  2,891,365       9.5         12.60       --       --
     17.73..............     15,983       9.5         17.73       --       --
     18.48..............     43,432       9.5         18.48       --       --
</TABLE>

 Mandatorily Redeemable Preferred Stock

   In connection with the acquisition of IFE, the Company issued 345,000
shares of Series A Mandatorily Redeemable Preferred Stock to Liberty IFE. The
holders of the Series A Mandatorily Redeemable Preferred Stock will receive
cash dividends of 9% per annum in arrears, paid quarterly. Any accrued or
unpaid dividends will be added to the liquidation price and until such accrued
and unpaid dividends are paid in full, the dividend rate will increase to
11.5% of the liquidation price. The liquidation price is $1,000 per share plus
any accrued and unpaid dividends.

   Pursuant to the Funding Agreement among News Corp., NPAL, and the Company,
each of News Corp. and NPAL has unconditionally agreed that, upon the
occurrence and during the continuation of an event of default under the
provisions governing the Series A Mandatorily Redeemable Preferred Stock in
the Company's Corrected Restated Certificate of Incorporation or liquidation,
dissolution, winding up or other similar event of the Company, News Corp. or
NPAL, as the case may be, will provide the Company with the funds necessary to
redeem in full, or pay the liquidation distribution on all of the outstanding
Series A Mandatorily Redeemable Preferred Stock and to pay any other amounts
owing in respect of such shares. Pursuant to the Amended and Restated
Strategic Stockholders Agreement (as defined), such funds will be, except
under certain circumstances, in the form of an advance or loan to the Company.
The following constitute events of default with respect to the Series A
Mandatorily Redeemable Preferred Stock under the Corrected Restated
Certificate of Incorporation: (i) the failure of the Company to mandatorily
redeem Series A Mandatorily Redeemable Preferred Stock at the redemption dates
indicated below; (ii) a breach for thirty days of any of the covenants
contained in the provisions governing the Series A Mandatorily Redeemable
Preferred Stock; and (iii) an event of default under the terms of the
preferred stock of NPAL, if any shares of which are outstanding. In addition,
pursuant to the Exchange Agreement among NPAL, Liberty Media Corporation
("Liberty Media") and Liberty IFE (the "Exchange Agreement"), each of the
holders of the Series A Mandatorily Redeemable Preferred Stock has the right,
upon the occurrence and during the continuation of an event of default under
the Corrected Restated Certificate of Incorporation or the liquidation,
winding up or other similar event of the Company, to exchange their shares for
an equivalent number of shares of preferred stock of NPAL.

                                     F-31
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Series A Mandatorily Redeemable Preferred Stock issued to Liberty IFE
will rank senior as to dividend, redemption and liquidation rights to all
other classes and series of capital stock of the Company authorized on the
date of issuance, or to any other class or series of capital stock issued
while any shares of the Series A Mandatorily Redeemable Preferred Stock remain
outstanding. The Series A Mandatorily Redeemable Preferred Stock does not
generally have voting rights, except for certain approval rights set forth in
the Corrected Restated Certificate of Incorporation and as required by law.
Stockholders of Series A Mandatorily Redeemable Preferred Stock do not have
preemptive rights over any stock or securities that may be issued by the
Company.

 Stock Based Compensation

   The Company and its subsidiary, FKE, have elected to follow APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations in
accounting for their employee stock options.

   Pro forma information regarding net income as required by SFAS No. 123,
"Accounting for Stock-Based Compensation," has been determined as if the
Company and FKE had accounted for their employee stock options under the fair
value method of that statement. The fair value for options issued by the
Company was estimated at the date of grant in January 1996 to be $2,623,000
using the minimum value method with the following weighted-average
assumptions, respectively: risk-free interest rate of 5.86%; dividend yields
of 0%; and a weighted-average expected life of the option of 5 years. The
remaining contractual life of options granted by the Company is 6.5 years. The
fair value for options issued by FKE was estimated at the date of grant in
November 1999 to be $13,827,000 using the fair value method with the following
weighted-average assumptions, respectively: risk-free interest rate 5.5%;
dividend yield of 0%; expected stock volatility 60%; and a weighted average
expected life of the options of 2 years.

   The minimum value valuation method used by the Company was developed for
use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of employee stock options
issued by the Company.

   The pro forma net income (loss) determined as if the Company and its
subsidiaries had accounted for its employee stock options under the fair value
method would be $(25,298,000), $(66,924,000) and $58,387,000 for the years
ended June 30, 1998, 1999 and 2000, respectively.

   These pro forma valuations may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.

13. Issuance of Subsidiary Ordinary Shares

   In November 1999, net assets of certain direct and indirect subsidiaries of
the Company were contributed to FKE, a wholly owned indirect subsidiary of the
Company at the time the assets were contributed. Net assets contributed mainly
represent the Fox Kids cable channels broadcasting in the European markets and
the distribution rights of children's programming in those markets owned by
SINV, a wholly owned indirect subsidiary of the Company. In November 1999, FKE
issued 12,519,307 previously unissued ordinary shares (or 15.2 percent) for
gross proceeds of $175,518,000 ($14.02 per share) in an initial public
offering ("IPO") on the Official Market for Amsterdam Exchanges. Offering
costs for the IPO totaled $22,550,000 and consisted mainly

                                     F-32
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of underwriter and professional fees plus certain capital taxes. The Company
has accounted for the offering in accordance with Staff Accounting Bulletin
("SAB") No. 51, "Accounting by the parent in consolidation for sale of stock
by subsidiary." Accordingly, a pre-tax gain of $117,316,000 was recorded in
the year ended June 30, 2000. The gain recorded represents the Company's
portion of the excess net offering price per share of FKE's ordinary shares
compared to the book carrying amount per share.

   In November 1999, in connection with the IPO, a subsidiary of the Company
caused to be transferred 7,507,591 ordinary shares of FKE (or 9.1 percent), to
Fox Broadcasting as settlement of a $100,000,000 subscription advance payable.
These shares were issued to the public on behalf of Fox Broadcasting in the
IPO for gross proceeds of $105,256,000 ($14.02 per share). The gross proceeds
from these shares, less underwriter fees and capital taxes of $5,256,000, were
retained by Fox Broadcasting. A pre-tax gain of $78,623,000 was recorded on
this transaction in the year ended June 30, 2000.

                                     F-33
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Fox Family Worldwide, Inc.:

   We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Fox Family
Worldwide, Inc. and its subsidiaries as of and for the years ended June 30,
1998, 1999 and 2000 included in this Report on Form 10-K and have issued our
report thereon dated September 18, 2000. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the index at F-1 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commissions rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Arthur Andersen LLP

Los Angeles, California
September 18, 2000

                                      S-1
<PAGE>

        SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

                           FOX FAMILY WORLDWIDE, INC.
                                 (PARENT ONLY)

                                 BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                    June 30, 1999 June 30, 2000
                                                    ------------- -------------
<S>                                                 <C>           <C>
Assets:

Cash and cash equivalents.........................   $       37    $    1,207
Investments in and advances to subsidiaries.......    1,455,476     1,615,842
Other assets, net.................................       25,314        23,909
                                                     ----------    ----------
 Total assets.....................................   $1,480,827    $1,640,958
                                                     ==========    ==========
Liabilities and stockholders' deficit:

Accounts payable..................................   $      443    $      154
Accrued liabilities...............................        7,937         8,999
NAI Bridge Note...................................      119,056       131,784
Fox Subordinated Notes............................      157,399       194,693
Senior Notes......................................      475,000       475,000
Senior Discount Notes, net of unamortized discount
 of $174,935 and $130,242 at June 30, 1999 and
 2000, respectively...............................      443,735       488,428
Amounts payable to related parties................          --         21,243
                                                     ----------    ----------
 Total liabilities................................    1,203,570     1,320,301
                                                     ----------    ----------


Series A Mandatorily Redeemable Preferred Stock,
 $0.001 par value; 500,000 shares authorized;
 345,000 shares issued and outstanding at June 30,
 1999 and 2000, respectively ($1,000 per share
 liquidation value)...............................      345,000       345,000
                                                     ----------    ----------
Commitments and contingencies

Stockholders' deficit:
Preferred stock, $0.001 par value; 2,000,000
 shares authorized, of which 500,000 shares are
 designated as Series A Preferred Stock; no shares
 issued and outstanding...........................          --            --
Class A Common Stock, $0.001 par value; 2,000,000
 shares authorized, 160,000 shares issued and
 outstanding at June 30, 1999 and 2000,
 respectively.....................................          --            --
Class B Common Stock, $0.001 par value; 16,000,000
 shares authorized, 15,840,000 shares issued and
 outstanding at June 30, 1999 and 2000,
 respectively.....................................           16            16
Contributed capital...............................       60,731        78,671
Accumulated other comprehensive loss..............       (1,893)       (6,683)
Accumulated deficit...............................     (126,597)      (96,347)
                                                     ----------    ----------
 Total stockholders' deficit......................      (67,743)      (24,343)
                                                     ----------    ----------
 Total liabilities and stockholders' deficit......   $1,480,827    $1,640,958
                                                     ==========    ==========
</TABLE>

                            See accompanying notes.

                                      S-2
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.
                                 (PARENT ONLY)

                            STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      Years Ended June 30,
                                                   ----------------------------
                                                     1998      1999      2000
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Revenues:
  Equity in income of subsidiaries................ $ 86,382  $ 55,700  $277,366
  Other...........................................      861       135       103
                                                   --------  --------  --------
    Total revenue.................................   87,243    55,835   277,469
Costs and expenses:
  Selling, general and administrative.............    8,470     6,172     9,755
  Depreciation....................................      157       133        24
  Interest expense, net...........................   99,943   113,940   129,146
                                                   --------  --------  --------
Income (loss) before provision for income taxes...  (21,327)  (64,410)  138,544
Provision for income taxes........................    3,446     1,989    77,159
                                                   --------  --------  --------
Net income (loss)................................. $(24,773) $(66,399) $ 61,385
                                                   ========  ========  ========
</TABLE>




                            See accompanying notes.

                                      S-3
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.
                                 (PARENT ONLY)

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                  Years Ended June 30,
                                             --------------------------------
                                                1998        1999      2000
                                             -----------  --------  ---------
<S>                                          <C>          <C>       <C>
Operating activities:
Net income (loss)........................... $   (24,773) $(66,399) $  61,385
Adjustments to reconcile net income (loss)
 to net cash used in operating activities:
  Equity gains on investments...............     (86,382)  (55,700)  (277,366)
  Amortization of debt issuance costs.......       2,453     3,253      3,250
  Depreciation expense......................         157       133         24
  Non-cash interest expense.................      50,410    66,746     79,983
  Increase in other assets..................     (30,691)   (1,069)    (1,845)
  Increase (decrease) in accounts payable
   and accrued liabilities..................      11,036    (2,656)       773
                                             -----------  --------  ---------
    Net cash used in operating activities...     (77,790)  (55,692)  (133,796)
                                             -----------  --------  ---------
Investing activities:
Purchase of property and equipment..........        (868)     (410)       --
Acquisition of International Family
 Entertainment, Inc. .......................  (1,370,076)      --         --
Cash acquired in acquisition................      19,296       --         --
                                             -----------  --------  ---------
    Net cash used in investing activities...  (1,351,648)     (410)       --
                                             -----------  --------  ---------
Financing activities:
Proceeds from NAI Bridge Loan...............     345,514       --         --
Paydown of NAI Bridge Loan..................    (250,886)     (267)      (268)
Issuance of Senior Notes....................     475,000       --         --
Issuance of Senior Discount Notes...........     375,001       --         --
Proceeds from Fox Subordinated Note.........         --     25,000     15,000
Issuance of Common Stock....................          10       --         --
Dividends on Preferred Stock................     (28,412)  (31,048)   (31,135)
Net intercompany advances...................     520,150    55,515    151,369
                                             -----------  --------  ---------
    Net cash provided by financing
     activities.............................   1,436,377    49,200    134,966
                                             -----------  --------  ---------
Increase (decrease) in cash and cash
 equivalents................................       6,939    (6,902)     1,170
Cash and cash equivalents, beginning of
 year.......................................         --      6,939         37
                                             -----------  --------  ---------
Cash and cash equivalents, end of year...... $     6,939  $     37  $   1,207
                                             ===========  ========  =========
</TABLE>

Supplemental disclosure of non-cash flow investment activities (in thousands):

 Year ended June 30, 1998

   The Company issued a subordinated note to Fox Broadcasting Company in the
amount of $108,672 in exchange for Fox Broadcasting Company's $50,000 Preferred
Class A Members Interest in the LLC, its $50,000 contingent note receivable and
certain other Company obligations. Preferred Stock in the amount of $345,000
was issued in connection with the acquisition of International Family
Entertainment, Inc.

 Year ended June 30, 1999

   Property and equipment with a book value of $638 was transferred to a
subsidiary.

 Year ended June 30, 2000

   Property and equipment with a book value of $350 was transferred to a
subsidiary.

                            See accompanying notes.

                                      S-4
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.
                                 (PARENT ONLY)

                         NOTES TO FINANCIAL STATEMENTS

1. Basis of Presentation

   The accompanying financial statements include the accounts of Fox Family
Worldwide, Inc. (the "Company") presented on a separate company (parent only)
basis. The Company is a Delaware corporation formed in August 1996 as a
holding company. Between August 1996 and August 1997, the Company conducted no
business or operations. On August 1, 1997 the Company underwent a
reorganization in connection with its acquisition of International Family
Entertainment, Inc. This reorganization is more fully explained in Note 1 to
the Consolidated Financial Statements.

2. Debt

   Information relating to the NAI Bridge Note, Fox Subordinated Notes, Senior
Notes and Senior Discount Notes is contained in Note 6 to the Consolidated
Financial Statements. Payments of principal in future periods are all due
subsequent to June 30, 2003. The Company is a guarantor under the Amended
Credit Facility, as described in Note 6 to the Consolidated Financial
Statements.

3. Issuance of Subsidiary Ordinary Shares

   Information relating to the issuance of ordinary shares of FKE, a wholly
owned indirect subsidiary of the company, in an initial public offering of its
shares and the resulting SAB No. 51 pre-tax gain of $117,316,000 and pre-tax
gain on issuance of subsidiary stock of $78,623,000 is contained in Note 13 to
the Consolidated Financial Statements.

                                      S-5
<PAGE>

                           FOX FAMILY WORLDWIDE, INC.

                                  CONSOLIDATED

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            Additions
                                      ----------------------
                                                 Acquired or
                           Balance at Charged to Charged to             Balance
                           Beginning  Costs and     Other               at end
       Description          of Year    Expenses   Accounts   Deductions of Year
       -----------         ---------- ---------- ----------- ---------- -------
                                              (in thousands)
<S>                        <C>        <C>        <C>         <C>        <C>
Year ended June 30, 1998
  Allowance for doubtful
   accounts...............  $ 1,410     $  (27)    $   211    $    --   $ 1,594
  Reserve for severance
   and related costs under
   acquisition............      --         --       36,500     (19,850)  16,650
  Accruals for litigation
   and other related costs
   under acquisition......      --         --        4,800         --     4,800
Year ended June 30, 1999
  Allowance for doubtful
   accounts...............    1,594        990         --          (91)   2,493
  Reserve for severance
   and related costs under
   acquisition............   16,650        --          --       (8,873)   7,777
  Accruals for litigation
   and other related costs
   under acquisition......    4,800        --          --         (886)   3,914
Year ended June 30, 2000
  Allowance for doubtful
   accounts...............    2,493      2,011         436        (252)   4,688
  Reserve for severance
   and related costs under
   acquisition............    7,777        --          --       (2,713)   5,064
  Accruals for litigation
   and other related costs
   under acquisition......    3,914        --          --       (1,139)   2,775
</TABLE>

                                      S-6