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                      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, 2001

                                      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)

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

            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 1, 2001:
15,840,000 shares of Class B Common Stock; 160,000 shares of Class A Common
Stock.
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                                    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 is the result of a joint venture launched in 1995 by
Fox Broadcasting Company ("Fox Broadcasting"), a wholly owned subsidiary of Fox
Entertainment Group, Inc. ("FOX"), and Saban Entertainment, Inc. ("Saban"). 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 96% 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 34.5 million
households operating in approximately 73 countries and 16 languages worldwide.
The Company's production and distribution operations include Saban, whose
library of approximately 6,500 half-hours of completed and in-production
children's programming is among the largest in the world (the "Fox Family Kids
Library"). 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.

     Recent Developments. On July 23, 2001, The Walt Disney Company ("Disney")
entered into a Purchase Agreement with Fox Broadcasting, Fox Broadcasting Sub,
Inc. ("FBSI")(a wholly owned subsidiary of Fox Broadcasting), Haim Saban and the
other former stockholders of Saban and their transferees (together, the "Saban
Stockholders"), Allen & Company Incorporated, The News Corporation Limited
("News Corp."), and News America Incorporated (the "Disney Purchase Agreement"),
pursuant to which Disney agreed to purchase for cash from FBSI, the Saban
Stockholders and Allen & Company Incorporated all of the outstanding shares of
the Company's Class A Common Stock and Class B Common Stock (the "Disney
Acquisition") and subordinated debt. Upon the closing of the Disney Acquisition,
Disney will acquire control of the Company through its ownership of all the
Company's outstanding shares of common stock. Immediately following the closing
under the Disney Purchase Agreement the Company will cease to broadcast the Fox
Kids Network, which will be operated by Fox Broadcasting following the Disney
Acquisition. The Company will provide certain programming to Fox Broadcasting
for the 2001-2002 broadcast season for broadcast on the Fox Kids Network. The
closing of the Disney Acquisition will occur following receipt of required U.S.
and foreign governmental or regulatory approvals, and satisfaction of other
customary closing conditions. The parties currently expect the Disney
Acquisition to close during the fourth quarter of the calendar year 2001.
Pursuant to the terms of the Disney Purchase Agreement, the Company will change
its name following the Disney Acquisition. Except as specifically described in
this Report, this Report does not purport to be a complete description of the
terms of the Disney Acquisition or to describe the effect of the Disney
Acquisition on the business, operations or financial condition of the Company.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors That Could Impact Future Results - Risk that the
Disney Acquisition Will Not Be Consummated."

     The Fox Family Channel maintains a family image and general entertainment
format with a schedule, look, marketing campaign and on-air packaging designed
to appeal to the adult 18-49 and 25-54 demographics during primetime and
evenings and to children and tweens (early adolescents, approximately ages 9-14)
during the day. 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
25-54 and carries advertising sold on the basis of adult demographics.  The
channel's primetime strategy is to deliver adults ages 18-49 and 25-54 a
balanced mix of off-network series (such as Early Edition, Freaks and Geeks,
Step by Step and Providence), movies, specials and original programming (such as
the Fox Family original dramedy, State of Grace), all of which is suitable for
family viewing. From 7 a.m. to 6 p.m., the Fox Family Channel telecasts
programming targeted principally to children and tweens.

     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

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Broadcasting and most of Fox Broadcasting's affiliates to provide children's
programming weekdays and Saturday mornings.

     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 produced, financed or co-financed
approximately 370 half-hour episodes of children's television programming for
the year ended June 30, 2001 and had approximately 355 half-hour episodes in
production at June 30, 2001.

     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 supplies its children's programming
to more than 400 terrestrial, cable and satellite channels in over 100 countries
around 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 11 children's channel
feeds in 16 different languages via cable and satellite transmission to 54
countries, reaching approximately 24.9 million households.  In addition, FKE has
a network of 17 fully-localized online web sites.  The main television markets
are the United Kingdom, France, Italy, The Netherlands, Germany, 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 20 "active" properties through
approximately 208 agreements with approximately 167 licensees and home video
distributors.

     FKLA was launched in November 1996 and currently reaches approximately 9.6
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 approximately 34.5 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 1,600 hours
of completed family programming, made-for-television-movies and game shows. In
addition, the Fox Family Kids Library of approximately 6,500 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. The Fox Family Channel telecasts
programming intended to appeal to adults ages 18-49 and 25-54 and carries
advertising sold on the basis of adult demographics from 6 p.m. to 11 p.m. and
from midnight to 1 a.m. 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 Scariest Places on Earth and State of Grace and
movie events such as Les Miserables with Gerard Depardieu and John Malkovich.
The Fox Family Channel programs between 6 and 8 original movies per year, with
at least one original film such as Au Pair 2, Rockets Red Glare and Michael
Jordan: An American Hero airing every month. The current Fox Family Channel
daytime lineup features a variety of original, acquired and library product
targeted to children ages 2-11 and tweens ages 9-14, with animated series
including Braceface, The Kids from Room 402, Angela Anaconda, Flint the Time
Detective and Garfield and Friends, live action series such as Big Wolf on
Campus, Great Pretenders, S

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Club 7 and So Little Time, scheduled Monday through Friday from 7 a.m. - 6 p.m.,
and Saturday and Sunday from 7 a.m. - 4 p.m.

     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 2,800 half-hours) and (ii) children's programming
produced by others for which the Company has acquired various distribution
rights (approximately 3,700 half-hours). Of the Fox Family Kids Library,
including episodes in production as of June 30, 2001, approximately 1,600 half-
hours are original co-produced programming that meet applicable European content
requirements and are intended for initial broadcast in Europe.

  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 and Jason and the Heroes of Mt. Olympus) or create or acquire an
entirely new idea or character (such as Los Luchadores).

     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 500 half-hours of children's programming
since its inception in 1990 through June 30, 2001. 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 over 100 countries. These distribution
arrangements accounted for approximately $118.1 million, or 16% of the Company's
consolidated revenues, for the fiscal year ended June 30, 2001. 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 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 currently 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 96% of all
U.S. cable and satellite television households. The Company debuted the Fox
Family Channel in August 1998. The format includes evening programming targeting
adults, but which is suitable for family viewing and daytime programming for
children and tweens. Evening programming

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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 to 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. The Company targets an adult audience ages 18-49 and 25-54
from 6 p.m. to 11 p.m. weekdays, airing a mix of original and acquired series
and movies. During the weekdays 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 weekend schedule includes programming aimed at children and tweens from
7 a.m. to 2 p.m., and movies, series and specials aimed at adults ages 18-49 and
25-54 air between 2 p.m. and midnight.

     Transmission Facilities. Since August 1998, the Company has been
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, direct broadcast satellite
("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 the pacific time zones and all other
mountain 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 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. Upon the consummation of the Disney Acquisition (See "--Recent
Developments"), the Company will cease to broadcast the Fox Kids Network.
Immeadiately following the closing under the Disney Purchase Agreement, the
Company will provide certain programming to Fox Broadcasting for the 2001-2002
broadcast season for broadcast on the Fox Kids Network.

  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
11 children's channel feeds in 16 different languages via cable and satellite
transmission to 54 countries, reaching approximately 24.9 million households.
The main television markets are the United Kingdom, France, Italy, The
Netherlands, Germany, the Nordic region, Spain, Poland and several other
countries in Central and Eastern Europe. In addition to the operations of FKE,
FKLA reaches approximately 9.6 million households in 19 countries in 2 different
languages in Latin America. On a combined basis, the Fox Kids International
Networks reach in the aggregate approximately 34.5 million households throughout
the world.

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     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 internet resources developed by the U.S. and international
divisions of the Company. FKE currently operates 17 localized web sites
in the United Kingdom, The Netherlands, Germany, France, Sweden, Denmark,
Norway, Spain, Italy, Poland, Romania, Russia, Israel, Czech Republic, Slovakia,
Hungary and Turkey. The Company may launch further local web sites in additional
major markets.

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 51% of the Fox Family
Channel's revenues are derived from national advertising sales. For the year
ended June 30, 2001, the Company's domestic revenues from advertising were
approximately $230.6 million, or 32% 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, 2001, 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 its television
programs to the home video market throughout the world. 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. Since the acquisition of The Family Channel, the Company has
increased its acquisition of worldwide rights to telefilms. These films are
typically targeted at primetime 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.

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     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 geographic
segments, see Note 11 of the Notes to Fox Family Worldwide, Inc. Consolidated
Financial Statements included elsewhere in this filing.

The Strategic Alliance with Fox/News Corp.

     News Corp., along with its subsidiaries, including FOX, 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 owns 100% of Fox Broadcasting.  As of
June 30, 2001, Fox Broadcasting was affiliated with 197 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 2001 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.  See "--Effects of Disney
Acquisition."

     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 bearing the "Fox" name anywhere else in the world, 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 are
required to offer the Company the right to acquire and own that kids' service.
See "--Effects of Disney Acquisition."

     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 primetime or late night broadcast and
programming derived from properties (such as The Simpsons) not originally
launched on the Fox Kids Network. See "--Effects of Disney Acquisition."

     Effects of Disney Acquisition. Immediately following the consummation of
the Disney Acquisition, the Company will cease to broadcast the Fox Kids
Network, which will be operated by Fox Broadcasting following the Disney
Acquisition. Immediately following the closing under the Disney Purchase
Agreement, the Company will provide certain programming to Fox Broadcasting
for the 2001-2002 broadcast season for broadcast on the Fox Kids Network. In
addition, Disney will not acquire any ongoing rights to use the "Fox" name,
other than certain transitional rights set forth in the Disney Purchase
Agreement. Upon the closing of the Disney Acquisition, the clearance obligations
contained in the Asset Assignment Agreement will be terminated, and the Company
will transfer and assign all rights under carriage agreements with the
television stations affiliated with the Fox Kids Network (the "Fox Kids Network
Affiliates") and owned and operated by FOX Television to Fox Broadcasting, which
will assume all liabilities and obligations of the Company related thereto. See
Item 1, "Business--Recent Developments."

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  Option Agreements between Fox Broadcasting and the Saban Stockholders

     Under agreements between Haim Saban and the other Saban Stockholders and
FBSI, FBSI has the right and option, 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,
under certain circumstances, to cause Fox Broadcasting to purchase all of such
shares.  The purchase price formula under the options is based on the fair
market value of the Company.  On December 21, 2000, Mr. Saban exercised the
option to cause Fox Broadcasting to purchase all of the Class B Common Stock
held by the Saban Stockholders in accordance with the terms of the 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 the
Saban Stockholders (the "Amended and Restated Strategic Stockholders
Agreement").  On January 17, 2001, FBSI delivered notice to Mr. Saban, stating
that it had exercised the Call Option (as defined in the Stock Ownership
Agreement) under the Stock Ownership Agreement dated as of December 22, 1995, as
amended (the "Stock Ownership Agreement"), to purchase such shares pursuant to
the Stock Ownership Agreement.  Pursuant to an agreement between News Corp. and
its affiliates, on the one hand, and the Saban Stockholders, on the other hand,
sale of the Company shares held by the Saban Stockholders to Disney will be
effected pursuant to the Stock Ownership Agreement. See Item 1, "Business--
Recent Developments" and Item 13, "Certain Relationships and Related
Transactions."

Competition

     The Company engages in many highly competitive businesses. Each of the
Company's primary business segments competes with 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 currently competes with major motion picture studios,
such as Warner Bros. and Disney, 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 Disney Channel, 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 Disney, 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.

     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"), the Telecommunications Act of 1996 (the "1996 Act"), and
the Satellite Home Viewers Improvement Act of 1999 (the "SHVIA") 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").

                                       8
<PAGE>

     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 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. As a result of Liberty Media
Corporation'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.  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 SHVIA
similarly subjects satellite carriers to must carry requirements by granting
local stations the right to demand carriage, by January 1, 2002, if the
satellite operator retransmits at least one other station licensed to the
station's local market.

     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

                                       9
<PAGE>

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.

  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 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.

                                       10
<PAGE>

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, 2001, the Company had 859 full-time and 5 part-time
employees in the United States. Outside the United States, the Company had 360
full-time (329 of which were employees of FKE) and 15 part-time employees (all
of which were employees of FKE). 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 302,000 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 on December 31,
2001, subject to four additional annual one-year extensions. The Company's Paris
operations currently lease 1,848 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
20,000 square feet of office space for its European headquarters in London,
England, under a lease expiring September 29, 2007. This lease may be cancelled
after the fifth year with nine months advance notice. In 1997, the Company
acquired International Family Entertainment, Inc.'s ("IFE") 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.

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.

                                       11
<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, 2000 and 2001 and for the fiscal years ended June 30, 1998, 1999,
2000 and 2001 are derived from the Company's consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants, included
elsewhere in this Report (and in the Company's Annual Report on Form 10-K for
the year ended June 30, 2000). The selected financial data of the Company set
forth below for the fiscal year ended June 30, 1997 are derived from the
Company's combined financial statements audited by Ernst & Young LLP,
independent auditors.

     The consolidated 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.  In addition, the consolidated financial
statements of the Company as of and for the years ended June 30, 1999, 2000 and
2001 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.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Year Ended
                                                 ------------------------------------------------------------------------
                                                    June 30,       June 30,      June 30,       June 30,        June 30,
                                                      1997         1998 (1)        1999           2000            2001
                                                                ---------------------------------------------------------
                                                   (combined)                        (consolidated)
                                                 ------------------------------------------------------------------------
                                                                                 (in thousands)
<S>                                              <C>            <C>            <C>            <C>             <C>
Statements of Operations Data:
Revenues..................................       $  307,820     $  664,458     $   635,273    $   641,876     $   724,221
                                                 ----------     ----------     -----------    -----------     -----------
Costs and expenses:
  Production and programming..............          186,575        345,574         302,232        270,549         311,309
  Selling, general and administrative.....           61,263        152,484         173,245        209,477         216,566
  Depreciation............................            1,203          9,370          10,083         10,883          11,582
  Amortization of intangible assets.......               --         37,557          40,434         40,522          40,522
                                                 ----------     ----------     -----------    -----------     -----------
                                                    249,041        544,985         525,994        531,431         579,979
                                                 ----------     ----------     -----------    -----------     -----------

Operating income..........................           58,779        119,473         109,279        110,445         144,242
Equity in loss (earnings) of affiliates...            1,546          6,790           5,088          1,609          (1,559)
Minority interest share of earnings
  (losses)................................               --            140            (444)        (2,184)           (491)
Other income, net.........................               --           (132)            (62)            --              --
Interest expense, net.....................            2,226        134,002         169,107        168,415         172,018
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............................           55,007        (21,327)        (64,410)       138,544         (25,726)
Provision for income taxes................           14,567          3,446           1,989         77,159              --
                                                 ----------     ----------     -----------    -----------     -----------
Net income (loss).........................       $   40,440     $  (24,773)    $   (66,399)   $    61,385     $   (25,726)
                                                 ==========     ==========     ===========    ===========     ===========

Other Data:
Ratio of earnings to fixed charges........             11:1             --              --            2:1              --
Deficiency of earnings available to
  cover fixed charges.....................               --     $  (25,656)    $   (68,848)            --     $   (33,177)
</TABLE>


<TABLE>
<CAPTION>
                                                                                June 30,
                                                                  -------------------------------------
                                                                        2000                 2001
                                                                  ----------------     ----------------
                                                                               (in thousands)
<S>                                                                  <C>                  <C>
Consolidated Balance Sheets Data:
Cash and cash equivalents....................................         $     89,674        $     86,327
Programming costs, net.......................................              671,443             710,101
Total assets.................................................            2,554,262           2,621,896
Long-term obligations (including current maturities).........            1,765,377           1,891,219
Mandatorily redeemable preferred stock.......................              345,000             345,000
Stockholders' deficit........................................              (24,343)            (82,905)
</TABLE>

Notes to Selected Consolidated 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.

                                       13
<PAGE>

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, Fox
Children's Network, Inc. ("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 96% of all cable and satellite television households. FCN
operates the Fox Kids Network, one of the leading children's (ages 2-11)
oriented broadcast television networks in the United States.  Saban is currently
one of the largest suppliers of children's television programming in the world.
The Fox Kids International Networks have approximately 34.5 million subscribers
and operate in approximately 73 countries and in 16 languages worldwide.

     The consolidated financial statements as of and for the years ended June
30, 1999, 2000 and 2001 are not comparable to the year ended June 30, 1998 as
the prior period includes only eleven months of activity for IFE. The Company
acquired a controlling interest in IFE on August 1, 1997 and completed the
acquisition of IFE (the "IFE Acquisition") on September 4, 1997. Since then, 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, "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 25% of the Company's
consolidated revenues for the fiscal year ended June 30, 2001, as compared to
27% and 25% for the fiscal years ended June 30, 2000 and 1999, 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.

                                       14
<PAGE>

Results of Operations

   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,
                                                            ------------------------------------------------------------
                                                                  1999                  2000                   2001
                                                            ----------------      -----------------       --------------
                                                                                  (in thousands)
<S>                                                         <C>                   <C>                     <C>
Revenues:
  Broadcasting...........................................      $429,610                $434,392                $460,158
  Production and distribution............................       204,321                 202,086                 263,580
  Other..................................................         1,342                   5,398                     483
                                                           ------------            ------------            ------------
        Total revenues...................................       635,273                 641,876                 724,221
                                                           ------------            ------------            ------------
Costs and expenses:
  Production and programming.............................       302,232                 270,549                 311,309
  Selling, general and administrative....................       173,245                 209,477                 216,566
  Depreciation...........................................        10,083                  10,883                  11,582
  Amortization of intangibles............................        40,434                  40,522                  40,522
                                                           ------------            ------------            ------------
                                                                525,994                 531,431                 579,979
                                                           ------------            ------------            ------------

Operating income.........................................       109,279                 110,445                 144,242
Other expenses:
  Equity in loss (earnings) of affiliates................         5,088                   1,609                  (1,559)
  Minority interest share of losses......................          (444)                 (2,184)                   (491)
  Other income, net......................................           (62)                     --                      --
  Interest expense, net..................................       169,107                 168,415                 172,018
  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..........       (64,410)                138,544                 (25,726)
Provision for income taxes...............................         1,989                  77,159                      --
                                                           ------------            ------------            ------------
Net income (loss)........................................      $(66,399)               $ 61,385                $(25,726)
                                                           ============            ============            ============

              Costs and Expenses as a Percentage of Total Revenues

<CAPTION>
                                                                               Years Ended June 30,
                                                            ------------------------------------------------------------
                                                                  1999                  2000                   2001
                                                            ----------------      -----------------       --------------
                                                                                  (in thousands)
<S>                                                         <C>                   <C>                     <C>
Cost and expenses:
   Production and programming............................          47.6%                  42.2%                     43.0%
   Selling, general and administrative...................          27.3                   32.6                      29.9
   Depreciation..........................................           1.6                    1.7                       1.6
   Amortization of intangibles...........................           6.3                    6.3                       5.6
                                                           ------------            -----------             -------------
      Total costs and expenses...........................          82.8                   82.8                      80.1
Operating income.........................................          17.2%                  17.2%                     19.9%
                                                           ============            ===========             =============
</TABLE>

                                       15
<PAGE>

   Year ended June 30, 2001 compared with the year ended June 30, 2000

     Revenues for the year ended June 30, 2001 were $724.2 million as compared
to $641.9 million for the year ended June 30, 2000, an increase of 12.8%.
Revenues for the Company's production and distribution segment increased $61.5
million as compared to the prior year. The increase was due to the exercise of
an option by an affiliate of the Company to acquire a portion of the film
library acquired in the IFE Acquisition (which generated revenues of $80.8
million) and higher merchandising and licensing revenues. This increase was
offset by lower foreign syndication revenues due to the timing of deliveries of
new programming. The Company's broadcast segment revenues increased $25.8
million due to higher subscription fees and international ad sales revenues,
offset by lower domestic cable and network advertising revenues. 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 in Europe.

     Production and programming costs for the year ended June 30, 2001 increased
15.1% to $311.3 million as compared to $270.5 million for the prior year,
reflecting the revenue increase noted above. Such costs include amortization
related to the revenue recognized in connection with the exercise of an option
by an affiliate of the Company to acquire a portion of the film library acquired
in connection with the IFE Acquisition described above. Production and
programming costs as a percentage of total revenues increased to 43.0% for the
year ended June 30, 2001 from 42.2% for the prior year. The increase is due
primarily to the Company's mix of domestic and foreign revenues as compared to
the prior year and higher programming costs at the Fox Family Channel due to
acquisition of off-network programming during the current period.

     Selling, general and administrative expenses for the year ended June 30,
2001 increased $7.1 million or 3.4% as compared to the prior year. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 29.9% in the current year from 32.6% in the prior year. The
increase of $7.1 million is attributable to several factors, including increased
marketing expenses for the Fox Family Channel ($5.1 million) due to rebranding
activities during the period and the expansion of the Company's international
channels in Europe and worldwide internet activities.

     Depreciation expense for the year ended June 30, 2001 increased $0.7
million or 6.4% as compared to the year ended June 30, 2000. As a percentage of
total revenues, depreciation expense decreased to 1.6% in the current year from
1.7% in the prior year. The increase in depreciation expense is due to fixed
asset 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 (earnings) of unconsolidated affiliates represents the
Company's portion of the loss (earnings) generated by the Company's
international channels in The Netherlands ("TV10 BV") through November 2000 and
in Spain.  Both of the channels generated earnings in the current year as
opposed to a combined loss in the prior year. In December 2000, the day part
operations of TV10 BV were transferred through a series of transactions to a
subsidiary of the Company and the operations of the day part of the channel are
now consolidated with the results of the Company.  A subsidiary of News Corp.
performed a similar reorganization of the evening part operations of TV10 BV and
sold its 50% interest in TV10 BV to SBS Broadcasting BV.  TV10 BV now acts as a
service company for the day part and evening part of the channel.

     Interest expense increased by $3.6 million for the year ended June 30, 2001
as compared to the year ended June 30, 2000.  The increase is due to higher
levels of the Company's subordinated debt offset by lower imputed interest on
long-term film contracts assumed in connection with the acquisition of IFE.

     In November 1999, FKE issued 12,519,307 previously unissued shares, or
15.2% of its ordinary shares, for net proceeds of approximately $153 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.

                                       16
<PAGE>

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 during the fiscal year
ended June 30, 2000.

   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.  As the Company is in a loss position for the twelve months
ended June 30, 2001, no U.S. or state taxes have been provided for and there
were no material foreign withholding taxes for the twelve months ended June 30,
2001.

  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 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 year ended June
30, 2000 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.  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 year ended June 30, 2000 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 year ended June 30, 2000
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 TV10 BV in The Netherlands and the Company's
international channel in 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 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.

                                       17
<PAGE>

   In November 1999, FKE issued 12,519,307 previously unissued shares, or 15.2%
of its ordinary shares, for net proceeds of approximately $153 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 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
the fiscal year ended June 30, 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.

 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 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, 1999, 2000
and 2001:

<TABLE>
<CAPTION>
                                                                        Years Ended June 30,
                                                        -------------------------------------------------
                                                            1999              2000               2001
                                                        -------------    --------------      ------------
                                                                         (in thousands)
<S>                                                     <C>              <C>                 <C>
Revenues:
   Broadcasting....................................     $  429,610         $    434,392        $  460,158
   Production and distribution.....................        204,321              202,086           263,580
   Other...........................................          1,342                5,398               483
                                                        ----------        -------------       -----------
     Total revenues................................        635,273              641,876           724,221
                                                        ----------        -------------       -----------
EBITDA:
   Broadcasting....................................        112,921              109,109           104,621
   Production and distribution.....................         54,314               61,871            97,109
   Other...........................................        (12,021)             187,384 (1)        (3,334)
                                                        ----------        -------------       -----------
                                                           155,214              358,364           198,396
                                                        ----------        -------------       -----------
Other expenses
   Interest expense, net...........................        169,107              168,415           172,018
   Depreciation....................................         10,083               10,883            11,582
   Amortization of intangibles.....................         40,434               40,522            40,522
                                                        ----------        -------------       -----------
                                                           219,624              219,820           224,122
                                                        ----------        -------------       -----------

Income (loss) before provision for income taxes....        (64,410)             138,544           (25,726)
Provision for income taxes.........................          1,989               77,159                --
                                                        ----------        -------------       -----------
Net income (loss)..................................     $  (66,399)        $     61,385        $  (25,726)
                                                        ==========        =============       ===========
</TABLE>

(1) Includes Staff Accounting Bulletin No. 51 gain and gain on issuance of
    subsidiary stock.


                                       18
<PAGE>

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 9 1/4% Senior Notes and 10
1/4% Senior Discount Notes (collectively, 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 $145.9 million (including accreted
interest) was outstanding under the NAI Bridge Note at June 30, 2001; however,
no payments are due under the NAI Bridge Note until March 2008.   If the Disney
Acquisition is consummated, the terms of the Disney Purchase Agreement provide
that Disney will purchase the NAI Bridge Note from News America Incorporated
(See Item 1, "Business--Recent Developments").

   In October 1997, as part of the Offering, the Company amended the Old Credit
Facility to 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") 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 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, 2001, no additional borrowings
were available under the Amended Credit Facility. The Company will pay the
obligations owed under the Amended Credit Facility immediately upon closing of
the Disney Acquisition (See Item 1, "Business--Recent Developments").

   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 million of which $100 million was utilized to pay down the
Company's Amended Credit Facility and the remaining amount of which 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. Also, the Company encounters 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 became 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, 2001 was $308.6 million as compared to $339.1 million for the year
ended June 30, 2000.  The decrease is due primarily to the timing of production,
programming and other payments and accounts receivable collections.

   Net cash used in investing activities of the Company during the years ended
June 30, 2000 and 2001 was  $362.7 million and $312.7 million, respectively. The
investing activities for the years ended June 30, 2000 and 2001 primarily
consisted of additions to production and programming costs and purchases of
property and equipment.  The year ended June 30, 2000 reflects higher than
normal production and programming costs associated with the acquisition of
several off-network series and production of several television movies during
the year.  Payments of the license fees for the acquired series are being made
in installments over the respective license periods (generally three to five
years).  Under Statement of Accounting Position 00-2 "Accounting by Producers
and Distributors of Films" ("SOP 00-2"), the Company will be required, effective
July 1, 2001, to classify film additions as operating activities in the
statements of cash flow as opposed to the Company's current policy of including
these as investing activities.

                                       19
<PAGE>

   Net cash provided by financing activities of the Company during the years
ended June 30, 2000 and 2001 was $66.4 million and $0.8 million, respectively.
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 financing activities for the year
ended June 30, 2001 consisted primarily of proceeds from bank borrowings,
advances from related parties and payments of dividends on the Company's Series
A Mandatorily Redeemable Preferred Stock.

   The Company's total unrestricted cash balances at June 30, 2001 were $86.3
million.

   The Company believes that cash flow from operations, 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 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 resulted 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 does not result in
any changes to net income.  The Company adopted SAB 101 during the first quarter
of fiscal 2001.  Adoption of SAB 101 has had no  material effect on the
Company's 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 has had no material impact on the financial position or
operating results of the Company.

   In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued by the
Financial Accounting Standards Board ("FASB").  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 adopted SFAS No.
133 and 138 as of July 1, 2000, which had no material effect on the consolidated
financial statements.

   In June 2000, the FASB issued SFAS No. 139, which, effective for financial
statements for fiscal years beginning after December 15, 2000, rescinds FASB No.
53.  The companies that were previously subject to the requirements of SFAS No.
53 are now required to follow the guidance of Statement of Position 00-2,
"Accounting by Producers and Distributors of Films" ("SOP 00-2"), issued by the
American Institute of Certified Public Accountants.  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 costs 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. The
Company plans to adopt SOP 00-2 during the first quarter of fiscal 2002. Based
on the Company's estimates at this time, the effect of adopting SOP 00-2 will
result in a one-time, non-cash, pre-tax charge as a cumulative effect of
accounting change in the range of approximately $55 million to $60 million.

   In June 2001, the FASB issued SFAS No. 141, "Business Combinations."  This
statement has eliminated the flexibility to account for some mergers and
acquisitions as pooling of interests, and effective as of July 1, 2001, all
business combinations are to be accounted for using the purchase method. The
Company will adopt SFAS No. 141

                                       20
<PAGE>

as of July 1, 2001, and the impact of such adoption is not anticipated to have a
material impact on the Company's financial statements.

   In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets."  Under this statement goodwill and intangible assets with indefinite
lives are no longer subject to amortization, but rather an annual assessment of
impairment by applying a fair-value-based test.  The Company will implement SFAS
No. 142 on July 1, 2002.  The impact of such adoption has not been determined.

Factors That Could Impact Future Results

 Cautionary Statement Regarding Forward-Looking Statements

   This Report contains statements which constitute forward-looking statements.
These statements appear in a number of places in this Report and include
statements regarding the intent, belief or current expectations of the Company
with respect to (i) the Fox Family Channel, (ii) trends affecting the Company's
financial condition or results of operations, (iii) the impact of competition,
(iv) the expansion of the Company's international channels and certain other
operations and (v) the expected closing of the Disney Acquisition.  Such
forward-looking statements may be identified by the use of words such as
"believe," "anticipate," "intend," and "expect." Readers are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward-looking statements as a result of various factors. The
accompanying information contained in this Report, including, without
limitation, the information set forth in this Item 7, "Management's Discussion
and Analysis of Results of Operations and Financial Condition-Factors That Could
Impact Future Results" identifies important factors that could cause such
differences. The Company does not ordinarily make projections of its future
operating results and undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

 Risk that the Disney Acquisition Will Not Be Consummated

   Upon the closing of the Disney Acquisition, Disney will acquire control of
the Company. Immediately following closing of the Disney Acquisition, the
Company will provide certain programming to Fox Broadcasting for the 2001-2002
broadcast season for broadcast on the Fox Kids Network. Disney will not
generally acquire ongoing rights to use the "Fox" name, other than with respect
to certain transitional rights.

   Pursuant to the terms of the Disney Purchase Agreement, the closing of the
Disney Acquisition remains subject to certain conditions, including, but not
limited to, receipt of certain U.S. and foreign governmental or regulatory
approvals and consents from third parties which are required to consummate the
transactions contemplated by the Disney Purchase Agreement. While conditions to
the completion of the Disney Acquisition are limited, there can be no assurance
that the transaction will be consummated. No other transaction is currently
being considered by the Company and its stockholders as an alternative to the
Disney Acquisition. If, for any reason, the Disney Acquisition is not
consummated, there can be no assurance that any other transaction acceptable to
the Company will be offered or that the Company's operations will not be
adversely impacted.

   On December 21, 2000, Mr. Saban exercised the option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders in accordance with the terms of the Amended and Restated Strategic
Stockholders Agreement.  On January 17, 2001, FBSI delivered notice to Mr.
Saban, stating that it had exercised the Call Option (as defined in the Stock
Ownership Agreement), to purchase such shares pursuant to the Stock Ownership
Agreement.  If the Disney Acquisition is not consummated and an alternative sale
transaction is not consummated, these option agreements would require FBSI to
purchase such Company shares from the Saban Stockholders at a price to be
determined using the fair market value of the Company.

 Substantial Leverage; Ability to Service Indebtedness

   As of June 30, 2001, the Company's total amount of consolidated debt
(including amounts payable to related parties) outstanding was approximately
$1.89 billion, or 87.8% of total capitalization.  The Company is a holding
company and its ability to obtain funds from its subsidiaries and affiliates
could be limited.

                                       21
<PAGE>

   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 relating to the Company
Notes, each dated as of October 28, 1997 between the Company and the Bank of New
York, as Trustee (collectively, 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 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. In
addition, unless the Indentures are amended or the underlying Notes paid, the
closing of the Disney Acquisition will result in a "Change of Control" under the
Indentures. As a result, the Company may be required to offer to purchase all of
the then outstanding Company Notes.

   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 July
31, 2001, cable television reached 82.7% of the United States' television
households (70.4% via wired cable and 12.3% through other sources, primarily DTH
satellite television) compared to 98.2% for broadcast television. Cable
television reaches approximately 31.7 million U.S. children between the ages of
2-11 and 18.7 million U.S. teens between the ages of 12-17. In the cable
television market, the Company is subject to competition from other cable
television companies which, in many

                                       22
<PAGE>

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 full day household
rating for the Fox Family Channel has dropped 37% since the reformatting, and in
the adults 18-49 demographic the rating decrease has been 13%.  In the
children's 2-11 demographic ratings have increased 382%, tweens 9-14 demographic
ratings have increased 431% and the teens 12-17 demographic ratings have
increased 200% since the relaunch.  The Company has experienced improved ratings
over the past season due to programming changes, including the acquisition of
off-network programming, and increased viewership of its original series and
movies.  The Company acquired IFE with the expectation 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 currently 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, 2001, revenues from these sources represented
approximately 42% 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 with approximately 450 affiliates covering approximately
12,900 systems. The top 10 affiliates account for 96% of the total subscribers.
Pursuant to these agreements, the Fox Family Channel reached 81 million
households out of a potential cable audience reach of approximately 84 million
households at June 30, 2001. Certain of these agreements are operating on a
month to month basis pending completion of the Disney Acquisition. Under certain
of 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.

                                       23
<PAGE>

  Dependence Upon Key Personnel

     The Company's success has depended to a significant extent upon the
expertise and services of certain key executives, including Haim Saban, the
Company's Chairman of the Board of Directors 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 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. Upon
the closing of the Disney Acquisition, Haim Saban's employment agreement will be
terminated. The Disney Purchase Agreement provides that the Company will enter
into a consulting agreement with Mr. Saban, which agreement will have a term
extending until June 30, 2002.

  Competition

     The Company engages in many highly competitive businesses. 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 currently competes with major motion picture studios,
such as Disney and Warner Bros., 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 entities 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 and New Accounting
Pronouncement

     The Company currently follows FASB 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 television and film 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 FASB 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.

                                       24
<PAGE>

     In June 2000, the FASB issued SFAS No. 139, which, effective for financial
statements for fiscal years beginning after December 15, 2000, rescinds FASB
No. 53. The companies that were previously subject to the requirements of SFAS
No. 53 are now required to follow the guidance of SOP 00-2. SOP 00-2, which the
Company will adopt during the first quarter of fiscal 2002, 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 that development costs for abandoned projects after
three years and certain indirect overhead costs be charged directly to expense,
instead of those costs being capitalized to programming costs, which currently
is required under the existing accounting standard.

  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, 2001, the Company derived approximately
25% 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

                                       25
<PAGE>

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.

  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 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.  See Item 1, "Business--Recent Developments."

  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. See Item 1,
"Business--Recent Developments."

  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. 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.

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 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, 2001.

     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, 2001.

                                       26
<PAGE>

     The Company maintains a mix of fixed and floating debt to mitigate its
exposure to interest rate fluctuations.  At June 30, 2001, approximately 74% of
the Company's bank and other debt was at fixed interest rates.

     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.

                                       27
<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, 2001, are as follows:

<TABLE>
<CAPTION>
                Name                   Age                              Position
                ----                   ---                              --------
  <S>                                  <C>    <C>
  Haim Saban.........................  56     Chairman of the Board of Directors and Chief Executive Officer

  Mel Woods..........................  49     President, Chief Operating Officer, Chief Financial Officer and
                                              Director

  K. Rupert Murdoch..................  70     Director

  Chase Carey........................  47     Director

  Jeff Shell.........................  35     Director

  Matt Krane.........................  47     Director and Executive Vice President

  Stacy Lifton.......................  36     Senior Vice President Business and Legal Affairs of Fox Family Management, LLC

  Mark Ittner........................  49     Senior Vice President of Finance and Chief Accounting Officer
</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 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 STAR since 1993 and as a director of British
Sky Broadcasting Group, plc. since 1990 and Chairman since 1999. Mr. Murdoch is
also a member of the board of directors of Philip Morris Companies, Inc. and
China Netcom Corporation (Hong Kong) Limited.

     Haim Saban, the founder of Saban, has served as the Chairman of the Board
of Directors 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, 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.

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

                                       28
<PAGE>

and satellite networks in which FOX 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 Speedvision Network LLC, Outdoor Life
Network LLC, the Cablevision MSG partnership and National Geograhic Channel and
National Geograhic Channel International.

     Matt Krane has served as a director of the Company since January 2000 and
as Executive Vice President of the Company since July 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.

     Stacy Lifton has served as Senior Vice President Business and Legal Affairs
of the Company since January 2000.  From October 1997 through December 1999, Ms.
Lifton was Vice President Business and Legal Affairs for the Company and from
February 1997 to October 1997 she served as Director Business and Legal Affairs.
Prior to joining the Company, Ms. Lifton was Legal Counsel at Fox, Inc. from
June 1993 until January 1997.

     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 1984 to
1988, Mr. Ittner was Vice President and Controller, of Hanna-Barbera
Productions, Inc. and its parent company, The Taft Entertainment Company.

  Election of Directors; Change in Control

     Pursuant to the terms of 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, 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 Amended and Restated Strategic
Stockholders Agreement, Mr. Saban has the right and option, under certain
circumstances, to cause Fox Broadcasting to purchase all of these shares. On
December 21, 2000, Mr. Saban exercised the option to cause Fox Broadcasting to
purchase all of the Class B Common Stock held by the Saban Stockholders in
accordance with the terms of the Amended and Restated Strategic Stockholders
Agreement.  On January 17, 2001, FBSI delivered notice to Mr. Saban, stating
that it

                                       29
<PAGE>

had exercised the Call Option (as defined in the Stock Ownership Agreement)
under the Stock Ownership Agreement, to purchase such shares pursuant to the
Stock Ownership Agreement. See Item 13, "Certain Relationships and Related
Transactions."

     On July 23, 2001, Disney entered into the Disney Purchase Agreement,
pursuant to which Disney agreed to purchase for cash from FBSI, the Saban
Stockholders and Allen & Company Incorporated all the outstanding shares of the
Company's Class A Common Stock and Class B Common Stock. Upon the closing of the
Disney Acquisition, Disney will acquire control of the Company and have the
right to elect all members of the Company's Board of Directors. See Item 1,
"Business--Recent Developments."

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
three most highly compensated executive officers ("Named Executive Officers")
compensated in excess of $100,000 for the fiscal year ended June 30, 2001.
Compensation decisions are currently made by the President and the Chief
Executive Officer.

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                               Other
           Name and Principal Position                          Annual Compensation            Annual
           ---------------------------                          -------------------         Compensation
                                                  Year        Salary             Bonus      ------------
                                                  ----        ------             -----
<S>                                               <C>     <C>             <C>               <C>
Haim Saban.....................................   2001    $  1,000,000    $         --           (1)
 Chairman of the Board and                        2000       1,000,000              --           (1)
 Chief Executive Officer                          1999       1,000,000              --           (1)

Mel Woods......................................   2001    $    662,500    $    675,000           (1)
 President, Chief Operating                       2000         616,200       1,350,000 (2)       (1)
 Officer and Chief Financial Officer              1999         506,700       2,028,400 (2)       (1)

Stacy Lifton...................................   2001    $    415,000    $     10,000           (1)
 Senior Vice President Business and Legal         2000         185,192          10,000           (1)
 Affairs of Fox Family Management, LLC            1999         144,038           7,500           (1)

Mark Ittner....................................   2001    $    282,900    $    100,000           (1)
 Senior Vice President of Finance                 2000         234,600          35,000           (1)
 and Chief Accounting Officer                     1999         227,200          25,000           (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."

     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.

                                       30
<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, 2001.

                   Aggregated Fiscal Year-End Option Values

                                         Number of Securities
                                        Underlying Unexercised
                                      Options at Fiscal Year End

            Name                    Exercisable      Unexercisable
            ----                    -----------      -------------

Mel Woods...................         161,637(1)            --

________________
(1)  The value of unexercised in-the-money options at fiscal year end is 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, at June 30, 2001 there was
     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. In
     addition to the options held by Mr. Woods, two other employees of the
     Company hold vested options for an aggregate of 323,274 shares. Based on
     the per share purchase price to be paid in the Disney Acquisition, the
     value of the options held by these three employees will be approximately
     $78 million.

        Under the terms of the options, 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 of these option holders must sell to
the Company, and the Company must purchase, 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 less the exercise price of such Option
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 Saban Entities
have agreed, pursuant to the Disney Purchase Agreement, to sell all their shares
of Class B Common Stock of the Company to Disney (See Item 1, "Business__Recent
Developments"). Pursuant to the Disney Purchase Agreement and in accordance with
the terms of their respective employment agreements, the Company will make cash
payments to the option holders with respect to the Option Shares based on the
same per share purchase price as the Saban Company Shares, and the number of
Option Shares shall be reduced to zero.

Employment Agreements

        Haim Saban has an employment agreement which extends through June 30,
2002. Pursuant to the terms of the agreement, Mr. Saban receives 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 agreement, Mr. Saban may engage in certain activities for his own account,
including music composing and publishing, investments and charity. Upon the
closing of the Disney Acquisition, Mr. Saban's employment agreement will
terminate. The Disney Purchase Agreement provides that the Company will enter
into a consulting agreement with Mr. Saban, which agreement will have a term
extending until June 30, 2002.

        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. According to the terms of the agreement,

                                       31
<PAGE>

Mr. Woods is to receive an annual base salary of $675,000 for the 2001-2002
period, and an annual contingent bonus which is limited to $700,000 for the
2001-2002 period. 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 the 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 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. See "--Stock Options."

        The Company has an employment agreement, as amended, with Stacy Lifton
to serve as Senior Vice President Business and Legal Affairs. The term of the
employment extends through December 31, 2002. This agreement provides for Ms.
Lifton to receive an annual base salary of $425,000 for the period from July 1,
2001 through December 31, 2001, and $445,000 for the period from January 1, 2002
through December 31, 2002. The employment agreement provides that the Company
may terminate Ms. Lifton's employment for cause or upon her death.

        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. In the event the employment agreement is
not extended, the agreement provides for a severance payment to Mr. Ittner equal
to six months of his annual compensation. The employment agreement provides for
Mr. Ittner to receive an annual base salary of $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. 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.

                                       32
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information as of September 1,
2001 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      Percent of        Number       Percent of
                                                               of           Class            of            Class
                                                             Shares         Owned          Shares          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                --          --
       Matt Krane........................................          --           --                --          --
       Jeff Shell........................................          --           --                --          --
       Mark Ittner.......................................          --           --                --          --
       Stacy Lifton......................................          --           --                --          --
       All of the Company's executive
          officers and directors as a group (eight
          persons)..........................                  161,637         50.3%       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, 2001.

(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."  Upon the
    closing of the Disney Acquisition, the Voting Agreement will be terminated.

                                       33
<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 Haim Saban and the other Saban Stockholders and
    FBSI, FBSI has the right and option, 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 under
    certain circumstances. The purchase price formula under the options is based
    on the fair market value of the Company. On December 21, 2000, Mr. Saban
    exercised the option to cause Fox Broadcasting to purchase all of the Class
    B Common Stock held by the Saban Stockholders in accordance with the terms
    of the Amended and Restated Strategic Stockholders Agreement. On January 17,
    2001, FBSI delivered notice to Mr. Saban, stating that it had exercised the
    Call Option (as defined in the Stock Ownership Agreement) under the Stock
    Ownership Agreement, to purchase such shares pursuant thereto. See Item 1,
    "Business--Recent Developments" and Item 13, "Certain Relationships and
    Related Transactions."

    As of September 1, 2001, 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>
                                                                 Number        Aggregate
                                                                   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.

Changes of Control

        On July 23, 2001, Disney entered into the Disney Purchase Agreement with
Fox Broadcasting, FBSI, Haim Saban and the other Saban Stockholders, Allen &
Company Incorporated, News America Incorporated, and News Corp., pursuant to
which Disney agreed to purchase for cash from FBSI, the Saban Stockholders and
Allen & Company Incorporated all the outstanding shares of the Company's Class A
Common Stock and Class B Common Stock. Upon the closing of the Disney
Acquisition, Disney will acquire control of the Company through its ownership of
all the Company's outstanding shares of common stock. The consummation of the
Disney Acquisition is subject to certain conditions to closing set forth in the
Disney Purchase Agreement. See Item 1, "Business--Recent Developments."

                                       34
<PAGE>

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 Fox Kids Worldwide,
LLC ("the LLC") and its $50 million contingent note receivable from the LLC for
a new subordinated pay-in-kind note (the "Fox Subordinated Note"), 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 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 $145.9 million (including accreted
interest) was outstanding under the NAI Bridge Note at June 30, 2001; 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, Inc. ("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
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

                                       35
<PAGE>

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 the Stock
Ownership Agreement, 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.  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, exercisable upon the
occurrence of certain events.  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, does not
constitute a "Change of Control."

        On December 21, 2000, Mr. Saban exercised the option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders in accordance with the terms of the Amended and Restated Strategic
Stockholders Agreement.  On January 17, 2001, FBSI delivered notice to Mr.
Saban, stating that it had exercised the Call Option (as defined in the Stock
Ownership Agreement) under the Stock Ownership Agreement, to purchase such
shares pursuant thereto.  See Item 1, "Business--Recent Developments."

        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
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 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

                                       36
<PAGE>

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 the fiscal year ended June 30, 2000.

        Effective as of January 1, 2001, the Company entered into a transponder
lease agreement with a subsidiary of News Corp. The agreement calls for the
subsidiary of News Corp. to pay a monthly lease payment to the Company through
the end-of-life (as defined in the agreement) of the satellite.

     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 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 purchase of or licensing of certain library
programming; agreements with Fox Broadcasting for barter advertising sales;
agreements with certain of the Fox Parties with respect to programming on the
Fox Family Channel; 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, on the one hand, and Liberty Media Corporation and its
subsidiaries and affiliates, on the other hand, 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 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, 2001, the Company paid Matt Krane,
a director and Executive Vice President of the Company, approximately $145,000
in exchange for legal services provided to the Company by Mr. Krane, a sole
practitioner.

                                       37
<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, 2001.

   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.

Exhibit No.                                 Description
----------                                  -----------

 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. (12)

10.3            Form of Indemnification Agreement and Schedule of Indemnified
                  Parties. (12)

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

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

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

10.8            Amendment No. 2 to Employment Agreement dated as of January 1,
                  2000 between Fox Family Worldwide, Inc. and Mark Ittner. (12)
                  +

10.9            Employment Agreement dated as of February 3, 1997 between Fox
                  Family Worldwide, Inc. and Stacy Lifton, as amended on January
                  1, 1998, September 9, 1998, May 24, 1999, June 4, 2000, June
                  19, 2000, and May 16, 2001. +

10.10           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)

10.11           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)

                                       38
<PAGE>

Exhibit No.                                 Description
----------                                  -----------

10.12           Amendment No. 2 to Operating Agreement dated as of July 31, 1997
                  by and among Saban Entertainment, Inc., FCN Holding, Inc., Fox
                  Broadcasting Company and Fox Kids Worldwide, Inc. (2)

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) (8)

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. (12)

10.24           Third Amendment to 10960 Wilshire Boulevard Lease dated as of
                  November 1, 1999.

10.25           Fourth Amendment to 10960 Wilshire Boulevard Lease dated as of
                  December 18, 2000.

10.26           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)

10.27           Second Amendment to Guarantee 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. (12)

10.28           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)

10.29           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. (12)

10.30           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.
                  (12)

10.31           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)

10.32           Letter Amendment No. 1 to the Second Amended and Restated Credit
                  Agreement dated as of November 18, 1997. (3)

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

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

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

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

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

10.38           Letter Amendment No. 7 to the Second Amended and Restated Credit
                  Agreement dated as of July 20, 2001.

                                       39
<PAGE>

Exhibit No.                                 Description
----------                                  -----------

10.39           Letter Amendment and Consent No. 8 to the Second Amended and
                  Restated Credit Agreement dated as of August 15, 2001.

10.40           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)

10.41           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)

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

10.43           Subordinated Note dated as of September 27, 1999 between Fox
                  Family Worldwide, Inc., as borrower, and Fox Broadcasting
                  Company, as Subordinated Lender. (12)

10.44           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)

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

10.46           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) (8)

10.47           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) (8)

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

10.49           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)

10.50           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) (8)

10.51           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) (8)

10.52           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)

10.53           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) (8)

10.54           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)

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

10.56           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) (8)

10.57           GE C-3/C-4 Satellite Transponder Sales Agreement dated 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) (8)

                                       40
<PAGE>

Exhibit No.                                 Description
----------                                  -----------

10.58           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)

10.59           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)

10.60           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)

10.61           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)

10.62           Transponder Lease Agreement dated as of March 19, 2001 by and
                  between International Family Entertainment, Inc. and ARC
                  Holdings, Ltd. (Portions of exhibit deleted and filed
                  separately with the Securities and Exchange Commission
                  pursuant to a request for confidentiality.)

12.1            Ratio of Earnings (Deficiency) to Fixed Charges.

21.1            Subsidiaries of the Registrant.

______________
    (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.
   (12)     Previously filed as an exhibit to the Registrant's Annual Report on
            Form 10-K for the year ended June 30, 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, 2001.

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.

                                       41
<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 28, 2001

                                        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 Chief           September 28, 2001
------------------------
  HAIM SABAN                         Executive Officer (Principal
                                        Executive Officer)


  /s/ Mel Woods                      President, Chief Operating                September 28, 2001
------------------------
  MEL WOODS                          Officer, Chief Financial Officer
                                        and Director (Principal Financial
                                        Officer)


  /s/ Mark Ittner                    Senior Vice President of Finance          September 28, 2001
------------------------
  MARK ITTNER                           and Chief Accounting Officer
                                        (Principal Accounting Officer)


  /s/ Matt Krane                     Director and Executive                    September 28, 2001
------------------------
  MATT KRANE                            Vice President


  /s/ K. Rupert Murdoch              Director                                  September 28, 2001
------------------------
  K. RUPERT MURDOCH


  /s/ Chase Carey                    Director                                  September 28, 2001
------------------------
  CHASE CAREY


  /s/ Jeff Shell                     Director                                  September 28, 2001
------------------------
  JEFF SHELL
</TABLE>

                                       42
<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, 2000 and 2001..........................................  F-3
     Consolidated Statements of Operations for each of the three years
          in the period ended June 30, 2001............................................................  F-4
     Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss)
          for each of the three years in the period ended June 30, 2001................................  F-5
     Consolidated Statements of Cash Flows for each of the three years
          in the period ended June 30, 2001............................................................  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. (a Delaware corporation) and subsidiaries (the "Company") as of
June 30, 2000 and 2001, and the related consolidated statements of operations,
stockholders' equity (deficit) and comprehensive income (loss), and cash flows
for each of the three years in the period ended June 30, 2001. 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 the Company
as of June 30, 2000 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2001 in
conformity with accounting principles generally accepted in the United States.

Arthur Andersen LLP

Los Angeles, California
September 17, 2001

                                      F-2
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

                          CONSOLIDATED BALANCE SHEETS

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                    June 30, 2000    June 30, 2001
                                                                                                  ---------------   --------------
<S>                                                                                               <C>                 <C>
Assets:
Cash and cash equivalents.......................................................................     $   89,674        $   86,327
Restricted cash.................................................................................          8,215             8,225
Accounts receivable, net of allowance for doubtful accounts of $4,688 and $5,321 at
     June 30, 2000 and 2001, respectively.......................................................        143,817           149,540
Amounts receivable from related parties, net....................................................         56,753           140,039
Programming costs, net..........................................................................        671,443           710,101
Property and equipment, net.....................................................................         51,874            48,693
Deferred income taxes...........................................................................             --             3,228
Intangible assets, net..........................................................................      1,481,189         1,440,667
Other assets, net...............................................................................         51,297            35,076
                                                                                                   ------------------------------
  Total assets..................................................................................     $2,554,262        $2,621,896
                                                                                                   ==============================

Liabilities and stockholders' deficit:
Accounts payable................................................................................     $   57,773        $   59,402
Accrued liabilities.............................................................................         96,959            94,367
Accrued programming costs.......................................................................        153,765           151,495
Deferred revenues...............................................................................         36,534            36,105
Accrued participations..........................................................................         54,073            55,878
Deferred income taxes...........................................................................         14,888            17,591
Bank and other debt.............................................................................      1,744,134         1,868,547
Amounts payable to related parties, net.........................................................         21,243            22,672
                                                                                                   ------------------------------
  Total liabilities.............................................................................      2,179,369         2,306,057
                                                                                                   ------------------------------

Commitments and contingencies
Series A Mandatorily Redeemable Preferred Stock, $0.001 par value; 500,000 shares authorized;
  345,000 shares issued and outstanding ($1,000 per share liquidation value)....................        345,000           345,000
                                                                                                   ------------------------------
Minority interest...............................................................................         54,236            53,744
                                                                                                   ------------------------------

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, 2000 and 2001, respectively..............................             --                --
  Class B Common Stock, $0.001 par value; 16,000,000 shares authorized, 15,840,000 shares
    issued and outstanding at June 30, 2000 and 2001, respectively..............................             16                16
  Contributed capital...........................................................................         78,671            78,671
  Accumulated other comprehensive loss..........................................................         (6,683)           (8,468)
  Deficit.......................................................................................        (96,347)         (153,124)
                                                                                                   ------------------------------
  Total stockholders' deficit...................................................................        (24,343)          (82,905)
                                                                                                   ------------------------------
  Total liabilities and stockholders' deficit...................................................     $2,554,262        $2,621,896
                                                                                                   ==============================
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                (in thousands)

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                     ----------------------------------------------------
                                                        1999               2000                 2001
                                                     ------------     --------------       --------------
<S>                                                  <C>              <C>                  <C>
Revenues...........................................      $635,273           $641,876            $ 724,221
                                                     ------------     --------------       --------------

Costs and expenses:
  Production and programming.......................       302,232            270,549              311,309
  Selling, general and administrative..............       173,245            209,477              216,566
  Depreciation.....................................        10,083             10,883               11,582
  Amortization of intangibles......................        40,434             40,522               40,522
                                                     ------------     --------------       --------------
                                                          525,994            531,431              579,979
                                                     ------------     --------------       --------------

                                                          109,279            110,445              144,242
Operating income...................................

Equity in loss (earnings) of affiliates............         5,088              1,609               (1,559)
Minority interest share of losses..................          (444)            (2,184)                (491)
Other income, net..................................           (62)                --                   --
Interest expense, net..............................       169,107            168,415              172,018
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....       (64,410)           138,544              (25,726)
Provision for income taxes.........................         1,989             77,159                   --
                                                     ------------     --------------       --------------
Net income (loss)..................................      $(66,399)          $ 61,385            $ (25,726)
                                                     ============     ==============       ==============
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

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

<TABLE>
<CAPTION>
                                 Series A      Class A and Class B               Accumulated
                             Preferred Stock      Common Stock                      Other
                             ----------------     ------------      Contributed Comprehensive                         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, 1998         --    $   --    16,000    $     16 $    60,731 $      (1,201) $  (29,150) $  30,396
 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
                                                                                                                      =============
 Dividends on Series A
  Mandatorily Redeemable
  Preferred Stock...........     --        --        --          --          --            --     (31,051)   (31,051)
 Exchange loss on
  translation of foreign
  subsidiaries' financial
  statements................     --        --        --          --          --        (1,785)         --     (1,785) $      (1,785)
 Net loss...................     --        --        --          --          --            --     (25,726)   (25,726)       (25,726)
                             ------    ------  --------    -------- ----------- -------------  ----------  ---------  -------------
Balance at June 30, 2001         --    $   --    16,000    $     16 $    78,671 $      (8,468) $ (153,124) $ (82,905) $     (27,511)
                             ======    ======  ========    ======== =========== =============  ==========  =========  =============
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                     Years Ended June 30,
                                                                                            -------------------------------------
                                                                                               1999          2000         2001
                                                                                            ----------    ----------   ----------
<S>                                                                                         <C>           <C>          <C>
Operating activities:
Net income (loss)........................................................................   $  (66,399)   $   61,385   $  (25,726)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
  Amortization of programming costs......................................................      277,808       223,060      266,219
  Depreciation...........................................................................       10,083        10,883       11,582
  Amortization of intangibles............................................................       40,434        40,522       40,522
  Amortization of debt issuance costs....................................................        3,253         3,250        3,269
  Reduction of goodwill due to realization of tax benefits...............................           --        18,141           --
  Equity in loss (earnings) of affiliates................................................        5,088         1,609       (1,559)
  Minority interest in share of losses...................................................         (444)       (2,184)        (491)
  Non-cash interest expense..............................................................       66,746        79,983       94,002
  Gain on issuance of subsidiary stock...................................................           --      (195,939)          --
  Changes in operating assets and liabilities:
   Restricted cash.......................................................................         (204)          (11)         (10)
   Accounts receivable...................................................................      (12,997)        1,233       (5,723)
   Amounts receivable from related parties...............................................       44,043       (22,753)     (83,286)
   Other assets..........................................................................        5,143        16,425       12,161
   Accounts payable and accrued liabilities..............................................      (42,500)       11,931         (963)
   Accrued programming costs.............................................................       29,076        66,124       (2,270)
   Deferred revenue......................................................................      (15,204)      (22,780)        (429)
   Accrued participations................................................................      (13,741)       15,213        1,805
   Deferred income taxes, net............................................................           --        32,969         (525)
                                                                                            ----------    ----------   ----------
          Net cash provided by operating activities......................................      330,185       339,061      308,578
                                                                                            ----------    ----------   ----------
Investing activities:
Purchase of property and equipment.......................................................      (11,394)       (8,256)     (11,449)
Additions to production and programming costs............................................     (358,399)     (352,689)    (301,829)
Intangible assets........................................................................       14,000            --           --
Other....................................................................................       (4,279)       (1,747)         564
                                                                                            ----------    ----------   ----------
          Net cash used in investing activities..........................................     (360,072)     (362,692)    (312,714)
                                                                                            ----------    ----------   ----------
Financing activities:
Proceeds from bank borrowings............................................................       25,622        36,073       31,734
Payments on bank borrowings..............................................................     (137,296)     (112,969)      (1,054)
Dividends on Preferred Stock.............................................................      (31,048)      (31,135)     (31,051)
Proceeds on Fox Kids Europe N.V. public offering, net....................................           --       152,963           --
Cost accrued for Fox Kids Europe N.V. public offering....................................           --           915           --
Paydown on NAI Bridge loan...............................................................         (267)         (268)        (269)
Proceeds from Fox Subordinated Debt......................................................       25,000        15,000           --
Advances from related parties............................................................      112,421         5,868        1,429
                                                                                            ----------    ----------   ----------
          Net cash provided by (used in) financing activities............................       (5,568)       66,447          789
                                                                                            ----------    ----------   ----------
Increase (decrease) in cash and cash equivalents.........................................      (35,455)       42,816       (3,347)
Cash and cash equivalents at beginning of year...........................................       82,313        46,858       89,674
                                                                                            ----------    ----------   ----------
Cash and cash equivalents at end of year.................................................   $   46,858    $   89,674   $   86,327
                                                                                            ==========    ==========   ==========
Supplemental disclosure of cash flow information
  Cash paid during the year for:
   Interest (net of amounts capitalized).................................................   $   86,874    $   80,646   $   73,037
                                                                                            ==========    ==========   ==========
   Income taxes..........................................................................   $    2,296    $    2,178   $    3,628
                                                                                            ==========    ==========   ==========
</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, 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, 2001

1. Basis of Financial Statement Presentation and Organization

     Fox Family Worldwide, Inc. ("Fox Family Worldwide" or 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 96% 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 34.5
million households operating in approximately 73 countries and 16 languages
worldwide.  The Company's production and distribution operations include Saban
Entertainment, Inc. ("Saban"), whose library of approximately 6,500 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 financial statements of the Company as of and for the years ended June
30, 1999, 2000 and 2001 reflect the consolidated financial statements of Fox
Family Worldwide and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

     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.

  The Reorganization

     The Company was incorporated in August 1996 under Delaware law as a holding
company of FCN Holding, Inc. ("FCN Holding") and Saban.  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 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 Fox Kids Worldwide, L.L.C. (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%.

                                      F-8
<PAGE>

     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 The News Corporation Limited ("News
Corp."), or (iii) under the Funding Agreement among 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 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, as amended (the "Stock Ownership
Agreement") 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 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 upon the occurrence of
certain events. In connection with the "Change of Control" provisions of the
Indentures that govern the 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."

     On December 21, 2000, Mr. Saban exercised the option to cause Fox
Broadcasting to purchase all of the Class B Common Stock held by the Saban
Stockholders in accordance with the terms of the Amended and Restated Strategic
Stockholders Agreement. On January 17, 2001, FBSI delivered notice to Mr. Saban,
stating that it had exercised the Call

                                      F-9
<PAGE>

Option (as defined in the Stock Ownership Agreement) under the Stock Ownership
Agreement, to purchase such shares pursuant thereto. (See Note 14 - Subsequent
Event.)

     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, 1999,
2000 and 2001 include the accounts of the Company and all of its majority-owned
and controlled subsidiaries.  The accounts of certain foreign subsidiaries were
consolidated as of May 31 due to the time needed to consolidate these
subsidiaries.  No events occurred related to these foreign subsidiaries in June
1999, 2000 and 2001 that materially affected the Company's consolidated
financial position or results of operations. 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 transactions and balances have been
eliminated.

 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. 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.

 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 cost inventories are amortized.

     For programs in which the Company acquires only broadcast rights, the
Company amortizes such program 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.

                                      F-10
<PAGE>

     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 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,
2000 and June 30, 2001, 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 with maturities when purchased of three
months or less to be cash equivalents.

 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 less accumulated depreciation and
amortization. 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 or amortization is removed from the accounts, and any
resulting gain or loss is included in operating income (loss). 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

                                      F-11
<PAGE>

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, 2001, there are no
indications of impairment as it relates to the intangible assets.

     Accumulated amortization of intangibles as of June 30, 2000 and 2001 was
$118,513,000 and $159,035,000, respectively. 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.

 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, which approximates the effective interest method.  Accumulated
amortization of debt issuance costs and deferred loan fees was $8,956,000 and
$12,225,000 as of June 30, 2000 and 2001, respectively.

 Foreign Currency Translation and Cumulative Adjustment

     Saban International N.V. (SINV), which 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, 1999, 2000 and 2001, were $1,596,000, $5,575,000
and $4,584,000, respectively, and are generally netted against the related
revenues.

     The cumulative translation adjustment included in accumulated other
comprehensive loss in stockholders' 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 such periodic adjustments in
amortization.

 Stock-Based Compensation

     The Company accounts for its stock compensation arrangements with employees
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.

                                      F-12
<PAGE>

     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 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 2001 presentation.

 New Accounting Pronouncements

     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 resulted 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 does not result in
any changes to net income.  The Company adopted SAB 101 during the first quarter
of fiscal 2001.  SAB 101 has had no material effect on the Company's
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 has had no material impact on the financial position or
operating results of the Company.

     In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the Financial Accounting Standards Board
("FASB"). 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 adopted SFAS No. 133 and 138 as of July 1, 2000, which had no material
effect on the consolidated financial statements.

     In June 2000, the FASB issued SFAS No. 139, which, effective for financial
statements for fiscal years beginning after December 15, 2000, rescinds FASB No.
53. The companies that were previously subject to the requirements of SFAS No.
53 are now required to follow the guidance of Statement of Position 00-2,
"Accounting by Producers and Distributors of Films" ("SOP 00-2"), issued by the
American Institute of Certified Public Accountants. 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 costs 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. The Company will also be
required to classify film additions to operating activities in the statements of
cash flow as opposed to the Company's current policy of including these as
investing activities.  SOP 00-2 is effective for financial statements for fiscal
years beginning after December 15, 2000.  The Company plans to adopt SOP 00-2
during the first quarter of fiscal 2002.  Based on the Company's estimates at
this time, the effect of adopting SOP 00-2 will result in a one-time, non-cash,
pre-tax charge as a cumulative effect of accounting change in the range of
approximately $55 million to $60 million.

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement has eliminated the flexibility to account for some mergers and
acquisitions as pooling of interests, and effective as of July 1, 2001, all
business combinations are to be accounted for using the purchase method. The
Company will adopt SFAS No. 141 as
                                      F-13
<PAGE>

of July 1, 2001, and the impact of such adoption is not anticipated to have a
material impact on the Company's financial statements.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Under this statement goodwill and intangible assets with indefinite
lives are no longer subject to amortization, but rather an annual assessment of
impairment by applying a fair-value-based test. The Company will implement SFAS
No. 142 on July 1, 2002. The impact of such adoption has not been determined.

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 Liberty IFE exchanged 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 $3,147,000, payable to former IFE
employees, remains as of June 30, 2001. The Company made severance and related
payments of $8,873,000 for the year ended June 30, 1999, $2,713,000 for the year
ended June 30, 2000 and $1,917,000 for the year ended June 30, 2001. 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 $2,444,000 remains as of June 30, 2001. The Company made
litigation and other related payments of $1,139,000 and $331,000 in the years
ended June 30, 2000 and 2001, respectively. Legal matters pertaining to IFE
which existed prior to the acquisition are being charged against the accrual
until resolution of such matters.

4.  Programming Costs, net

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

<TABLE>
<CAPTION>
                                                                                             2000
                                                                -----------------------------------------------------------------
                                                                                           Accumulated            Net 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.............             805,078                 454,809                  350,269
     Projects in production.................................              44,818                      --                   44,818
     Development............................................               7,718                      --                    7,718
                                                                ----------------         ---------------            -------------
                                                                $      2,303,843         $     1,632,400            $     671,443
                                                                ================         ===============            =============
</TABLE>

                                      F-14
<PAGE>

<TABLE>
<CAPTION>
                                                                                              2000
                                                                 -----------------------------------------------------------------
                                                                                            Accumulated            Net Programming
                                                                      Cost                  Amortization                Costs
                                                                 ----------------         ---------------          ---------------
<S>                                                              <C>                      <C>                      <C>
     Children's programming..................................    $      1,710,678         $     1,314,171          $      $396,507
     Family programming, movies and mini-series..............             840,846                 584,448                  256,398
     Projects in production..................................              41,325                      --                   41,325
     Development.............................................              15,871                      --                   15,871
                                                                 ----------------         ---------------          ---------------
                                                                 $      2,608,720         $     1,898,619          $      $710,101
                                                                 ================         ===============          ===============
</TABLE>

     Future minimum program commitments as of June 30, 2001 are approximately
$303 million.

     As of June 30, 2001 the Company estimates that approximately 71% of
released unamortized programming costs will be amortized within the next three
years. Interest amounting to $3,128,000, $2,253,000 and $5,759,000 was
capitalized to programming costs for the years ended June 30, 1999, 2000 and
2001, respectively.  Capitalized depreciation expense for the years ended June
30, 1999, 2000 and 2001 amounted to $4,020,000, $3,595,000 and $3,048,000,
respectively.

5.  Property and Equipment, net

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

<TABLE>
<CAPTION>
                                                                                            2000               2001
                                                                                       --------------     --------------
<S>                                                                                    <C>                <C>
     Studio and other equipment........................................                $       28,595     $       35,463
     Satellite transponders............................................                        39,596             39,596
     Office furniture and fixtures.....................................                        18,474             20,368
     Leasehold improvements............................................                         9,536              9,439
     Other.............................................................                         2,460              2,399
                                                                                       --------------     --------------
                                                                                               98,661            107,265
     Less accumulated depreciation and amortization....................                       (46,787)           (58,572)
                                                                                       --------------     --------------
                                                                                       $       51,874     $       48,693
                                                                                       ==============     ==============
</TABLE>

6.  Bank and Other Debt

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

<TABLE>
<CAPTION>
                                                                                                  2000              2001
                                                                                             --------------    --------------
     <S>                                                                                     <C>               <C>
     Senior Notes.........................................................................   $      475,000    $      475,000
     Senior Discount Notes, net of unamortized discount of $130,242 and $77,049 at
      June 30, 2000 and 2001, respectively................................................          488,428           541,621
     NAI Bridge Note......................................................................          131,784           145,884
     Fox Subordinated Notes...............................................................          194,693           221,133
     Citicorp USA, secured revolving line of credit; interest at prime rate (9.5% and
      6.75% at June 30, 2000 and 2001, respectively) or six month LIBOR (6.94% and
      3.71% at June 30, 2000 and 2001, respectively) plus 0.75%; maximum borrowings of
      $355,000............................................................................          325,000           355,000
     Citicorp USA; secured term loan facility; interest at prime rate (9.5% and 6.75%
      at June 30, 2000 and 2001, respectively) or six month LIBOR (6.94% and 3.71% at
      June 30, 2000 and 2001, respectively) plus 0.75%; maximum borrowings of $120,000....          120,000           120,000
     Secured lines of credit with varying due dates between December 12, 2001 and
      November 30, 2002; maximum borrowing availability $10,578 at June 30, 2001;
      varying interest rates between 4.25% and 5.5%.......................................            9,229             9,909
                                                                                             --------------    --------------
                                                                                             $    1,744,134    $    1,868,547
                                                                                             ==============    ==============
</TABLE>

                                      F-15
<PAGE>

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

     Year ending June 30,
     --------------------
     2002...............................................        $   74,386
     2003...............................................            98,710
     2004...............................................           239,688
     2005...............................................            72,124
     Thereafter.........................................         1,383,639
                                                              ------------
                                                                $1,868,547
                                                              ============

     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, 2001, 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 remained borrowers) and guarantee the Amended Credit Facility.
Subsequently, two additional subsidiaries of Fox Kids Holdings, LLC were formed,
Fox Family Properties, Inc. and Fox Family Management, LLC, which are also
borrowers under the Amended Credit Facility.

     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 began 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 plus an applicable
interest rate margin or the base rate. 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. (See Note 14 - Subsequent Event.)

     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.

                                      F-16
<PAGE>

     Cash interest on the Senior Notes is 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.

     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:


                                                             Redemption
     Year                                                       Price
     ----                                                    -----------
     2002............................................          104.63%
     2003............................................          103.08%
     2004............................................          101.54%
     2005 and thereafter.............................          100.00%

     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:

                                                             Redemption
     Year                                                       Price
     ----                                                    ------------
     2002............................................          105.13%
     2003............................................          103.42%
     2004............................................          101.71%
     2005 and thereafter.............................          100.00%

     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 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 closing of
the Disney Acquisition would result in a "Change of Control" under the
Indentures that govern the Notes (See Note 14 - Subsequent Event).

     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 Company was in compliance with these covenants at June 30, 1999,
2000 and 2001.

                                      F-17
<PAGE>

     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 million and $15 million 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 is
subordinated in right to the obligations of the Company and its subsidiaries
under the Amended Credit Facility and the Indentures. (See Note 14 - Subsequent
Event.)

     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 million paydown was
made to the NAI Bridge Note in connection with the issuance of the Senior Notes
and Senior Discount Notes.  (See Note 14 - Subsequent Event.)


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):


                                                          2000          2001
                                                       ----------    ----------

     Deferred tax liabilities:
         Accounts receivable........................    $     127     $     477
         Property and equipment.....................        5,108         6,723
         Contract discount..........................        1,042           407
         Other......................................        8,611         9,984
                                                       ----------    ----------
     Total deferred tax liabilities.................       14,888        17,591
                                                       ----------    ----------

     Deferred tax assets:
         Deferred revenues..........................        1,550           264
         Programming costs..........................       10,160         5,081
         Accrued liabilities........................       19,487        19,057
         Loss carryforwards.........................      123,467       174,090
         Other......................................        2,483         3,212
                                                       ----------    ----------

     Total deferred tax assets......................      157,147       201,704
     Valuation allowance for deferred tax assets....     (157,147)     (198,476)
                                                       ----------    ----------
     Deferred tax assets............................           --         3,228
                                                       ----------    ----------
     Net deferred tax (liabilities).................    $ (14,888)    $ (14,363)
                                                       ==========    ==========

     The Company currently has approximately $354,000,000 of operating loss
carryforwards which will expire at various dates through June 30, 2021.
Approximately $63,600,000 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, 2001, $198,476,000 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 $56,658,000 of the prior year valuation allowance relates to
deferred tax assets acquired in the IFE acquisition. (See Note 3).   For the
year ended June 30, 2000, 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, 2001, approximately $38,518,000 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.



                                      F-18
<PAGE>

     Income before income taxes includes the following components (in
thousands):

<TABLE>
<CAPTION>
                                                                                         Years Ended June 30,
                                                                          ---------------------------------------------------
                                                                               1999               2000               2001
                                                                          -------------     --------------    ---------------
     <S>                                                                  <C>               <C>               <C>
     Pretax income (loss):
      United States..................................................          $(86,202)          $121,879           $(33,674)
      Foreign........................................................            21,792             16,665              7,948
                                                                          -------------     --------------    ---------------
                                                                               $(64,410)          $138,544           $(25,726)
                                                                          =============     ==============    ===============
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                              Years Ended June 30,
                                                                          --------------------------------------------------------
                                                                                 1999               2000                2001
                                                                          --------------      --------------      ----------------
     <S>                                                                  <C>                 <C>                <C>
     Current:
      Federal........................................................       $         --        $     21,281            $       --
      State..........................................................                500               2,090                    --
      Foreign........................................................              1,489               2,678                   525
                                                                          --------------      --------------      ----------------
                                                                                   1,989              26,049                   525
     Deferred:
      Federal........................................................                 --              48,284                    --
      State..........................................................                 --               2,826                    --
      Foreign........................................................                 --                  --                  (525)
                                                                          --------------      --------------     -----------------
                                                                                      --              51,110                  (525)
                                                                          --------------      --------------     -----------------
                                                                            $      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,
                                                                          --------------------------------------------------
                                                                               1999               2000              2001
                                                                          -------------      -------------      ------------
      <S>                                                                 <C>                <C>                <C>
      Tax at U.S. statutory rates.....................................              (35)%               35%              (35)%
      State taxes, net of federal benefit.............................               (4)                 2                --
      Foreign income/transactions.....................................              (10)                (8)                4
      Subsidiary disposition..........................................               --                 --              (222)
      U.S. operating loss for which no federal and state benefit was                 26                 --               197
       derived........................................................
      Change in valuation allowance...................................               --                 16                --
      Non-deductible amortization of intangibles......................               24                 10                55
      Other...........................................................                2                  1                 1
                                                                          -------------      -------------      ------------
                                                                                      3%                56%               --%
                                                                          =============      =============      ============
</TABLE>

     Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $399,263,000 at June 30, 2001. 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.

                                      F-19
<PAGE>

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 termination at the end of
the eighth year 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):

     Years ending June 30,
     ---------------------
     2002.................................................           $13,531
     2003.................................................            12,472
     2004.................................................            11,376
     2005.................................................            11,306
     2006.................................................             8,983
     Thereafter...........................................             5,411
                                                                  ----------
                                                                     $63,079
                                                                  ==========

     Rent expense for the years ended June 30, 1999, 2000 and 2001, net of
amounts capitalized, was approximately  $6,392,000, $7,119,000 and $7,667,000,
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 $41,365,000, of which $30,278,000 is
due in 2002, $9,489,000 is due in 2003 and $1,598,000 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, 1999, 2000 and 2001, was
approximately $448,000, $343,000 and $384,000, 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 the Company's Board of Directors. As of January 1, 1999, the 401(k) Plan was
terminated and the participating employee contributions were transferred to the
Company's Plan.

                                      F-20
<PAGE>

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,
                                                                          ------------------------------------------------------
                                                                               1999                2000               2001
                                                                          ---------------     ---------------    ---------------
     <S>                                                                  <C>                 <C>                <C>
     Consolidated Statements of Operations
     Revenues.............................................................       $106,205            $104,373           $193,670
     Production and programming costs(1)..................................          7,179              10,588              7,297
     Selling, general and administrative expenses.........................          9,090               6,052              5,012
     Interest expense, net................................................         24,642              39,263             42,237

     <CAPTION>
                                                                                                   As of June 30,
                                                                                       ------------------------------------
                                                                                              2000                2001
                                                                                       ----------------    ----------------
     <S>                                                                               <C>                 <C>
     Consolidated Balance Sheets
     Amounts receivable from related parties, net......................................        $ 56,753            $140,039
     Accounts payable..................................................................           3,664                 548
     Accrued liabilities...............................................................              --                 583
     Deferred revenues.................................................................           2,218                 672
     NAI Bridge Note...................................................................         131,784             145,884
     Fox Subordinated Notes............................................................         194,693             221,133
     Amounts payable to related parties, net...........................................          21,243              22,672
</TABLE>
     ____________
     (1)  Includes satellite transponder, engineering and technical support
     costs.


     Amounts receivable from related parties include advances of $5,631,000 and
$5,578,000 at June 30, 2000 and 2001, respectively, to certain non-stockholder
officers and directors of the Company.

     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 $70,724,000 at June 30, 2001.  Amounts due from
related companies of Fox Broadcasting totaled $98,662,000 at June 30, 2001.

     The Company broadcasts Fox Kids U.K., a cable and satellite channel via a
digital transponder. The channel is distributed as part of British Sky
Broadcasting Group, plc's ("BSkyB") Sky Multichannels DTH package.  News Corp.
holds an approximately 36% interest in BSkyB, a public company, as of June 30,
2001. 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 which expired February 1, 2001, requiring a financial commitment of
approximately $28,000,000.  A five-year digital transponder and uplink sublease
agreement, commenced in late 1998 and expires October 19, 2004, requiring a
future financial commitment of approximately $3,300,000, 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.

     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 owned and operated by Telstra, the Australian
telephone company; News Corp.; and Publishing and Broadcasting Limited.

                                      F-21
<PAGE>

     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,
1999, 2000 and 2001, the Company has paid approximately $722,000, $552,000 and
$862,000, 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 rights for the territory of Israel in programming produced or acquired
by the Company are transferred to Duveen Trading Ltd. (Distributor), a
corporation affiliated with Haim Saban's brother. The term of the agreement has
been orally extended through December 31, 2001.

     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 $301,000, $397,000 and $285,000,
respectively, for the years ended June 30, 1999, 2000 and 2001.  At June 30,
2000 and 2001, approximately $316,000 and $2,000, 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 $145,000 for such
services for the year ended June 30, 2001.

     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 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, 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 $14.1 million.

     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.  In February 2001, Twentieth Century Fox exercised an
option to acquire a portion of the film library covered by the long-term license
agreement.  In June 2001, Twentieth Century Fox acquired the remaining portion.
The Company recognized revenue on the sale in the amount of $80,800,000 for the
fiscal year ended June 30, 2001.  Included in amounts receivable from related
parties at June 30, 2001 are two promissory notes totaling $59,672,000
(including interest).  These promissory notes earn interest at 10.31% and are
payable in annual installments.

                                      F-22
<PAGE>

     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 $13,002,000 through June 30, 2001.

     Pursuant to an arrangement with Fox Broadcasting, the Fox Family Channel
has aired one regular season Major League Baseball game per week during the 2001
baseball season and expects to broadcast between eight and eleven playoff games
during October.  Such programs are supplied to the Company by Fox Broadcasting
in exchange for advertising time during the airing of the program.

     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 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.  In
December 2000, TV10 BV through a series of transactions transferred the day part
operations of the TV10 channel to a subsidiary of the Company and the evening
part of the TV10 channel to a subsidiary of News Corp.   The subsidiary of News
Corp. then sold its 50% interest in TV10 LLC to SBS Broadcasting BV.  TV10 BV
now acts as a service company for the day part and evening part of the TV10
channel.  At June 30, 2001, amounts receivable from related parties included
approximately $24,148,000 owed to the Company by TV10 LLC, and amounts payable
to related parties included approximately $22,672,000 owed by the Company to
TV10 LLC.

     In June 1999, a subsidiary of the Company, Fox Kids Europe Holdings, Inc.
("FKEH") 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

                                      F-23
<PAGE>

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 million 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.

     Effective as of January 1, 2001, the Company entered into a transponder
lease agreement with a subsidiary of News Corp.  The agreement calls for the
subsidiary of News Corp. to pay a monthly lease payment to the Company through
the end-of-life (as defined in the agreement) of the satellite.

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.

     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, 2001:
     Revenues............................. $        460,158   $        263,580   $            483   $        724,221
     Equity in earnings of affiliates.....            1,559                 --                 --              1,559
     Income (loss) before income taxes,
      interest, depreciation and
      amortization of intangibles.........          104,621             97,109             (3,334)           198,396
     Identifiable assets..................          590,549            565,280             25,400          1,181,229
     Intangible assets, net...............        1,440,667                 --                 --          1,440,667
     Capital expenditures.................           10,405                490                554             11,449
     Depreciation expense.................           10,786                768                 28             11,582
</TABLE>

                                      F-24
<PAGE>

<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
     Equity in loss of affiliates.........           (1,609)                --                 --             (1,609)
     Income before income taxes,
      interest, depreciation and
      amortization of intangibles.........          109,109             61,871            187,384            358,364
     Identifiable assets..................          593,706            453,889             25,478          1,073,073
     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
     Equity in loss of affiliates.........           (5,088)                --                 --             (5,088)
     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
</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,
                                                         --------------------------------------------
                                                             1999            2000            2001
                                                         ------------    ------------    ------------
   <S>                                                   <C>             <C>             <C>
   Income before income taxes, interest,
       depreciation and amortization of intangibles...   $    155,214    $    358,364    $    198,396
   Amortization of intangibles........................        (40,434)        (40,522)        (40,522)
   Interest expense, net..............................       (169,107)       (168,415)       (172,018)
   Depreciation.......................................        (10,083)        (10,883)        (11,582)
   Provision for income taxes.........................         (1,989)        (77,159)             --
                                                         ------------    ------------    ------------
   Net income (loss)..................................   $    (66,399)   $     61,385    $    (25,726)
                                                         ============    ============    ============
</TABLE>

   Geographic Segments

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

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                         --------------------------------------------
                                                             1999            2000            2001
                                                         ------------    ------------    ------------
                                                                         (in thousands)
   <S>                                                   <C>             <C>             <C>
   Revenues
     United States....................................   $    474,629    $    466,293    $    540,273
     Europe...........................................        151,995         163,666         170,604
     Central and South America........................          8,649          11,917          13,344
                                                         ------------    ------------    ------------
                                                         $    635,273    $    641,876    $    724,221
                                                         ============    ============    ============
</TABLE>

                                      F-25
<PAGE>

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                         --------------------------------------------
   Identifiable and Intangible Assets                        1999            2000            2001
                                                         ------------    ------------    ------------
                                                                         (in thousands)
   <S>                                                   <C>             <C>             <C>
     United States....................................   $  2,071,161    $  2,100,050    $  2,137,834
     Europe...........................................        394,696         453,461         482,539
     Central and South America........................            935             751           1,523
                                                         ------------    ------------    ------------
                                                         $  2,466,792    $  2,554,262    $  2,621,896
                                                         ============    ============    ============
</TABLE>

     For the years ended June 30, 1999, 2000 and 2001, the Company's production
and development segment earned revenues from one customer, a related party, of
approximately $37,949,000 (6% of consolidated revenues), $37,815,000 (6% of
consolidated revenues) and $109,205,000 (15% of consolidated revenues),
respectively. The Company had no significant properties for the years ended June
30, 1999, 2000 and 2001.

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, 2000 and 2001, 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.

     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.

                                      F-26
<PAGE>

  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, 1999, 2000 and 2001.  These options are
exercisable at prices ranging from $12.37 (161,637 shares) to $34.02 (323,274
shares) per share. No options have been exercised at June 30, 2001. 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 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 of these option holders must sell to the Company,
and the Company must purchase, the "applicable percentage" of his or her options
for the same per share consideration paid by the third party for the Saban
Company Shares less the exercise price of such options.  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. (See Note 14 - Subsequent Event.)

     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, 2000 and 2001 is $13,040,000
related to compensation recorded in connection with these options. (See Note 14
- Subsequent Event.)

     As of June 30, 2001, 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, 2001 totaled 5,276,901.

     The following table summarizes information about FKE stock options
outstanding and transactions as of and for the years ended June 30, 2000 and
2001:

<TABLE>
<CAPTION>
                                                                              Weighted average
                                                   Shares                    exercise price ($)
                                        ----------------------------    ----------------------------
                                            2000            2001            2000            2001
                                        ------------    ------------    ------------    ------------
     <S>                                <C>             <C>             <C>             <C>
     Outstanding at beginning of year             --       2,950,780              --           12.71
     Awards granted                        2,975,030         269,889           12.71           12.67
     Awards cancelled                        (24,250)       (261,103)          12.60           12.47
                                        ------------    ------------    ------------    ------------
     Outstanding at end of year            2,950,780       2,959,566           12.71           12.17
                                        ============    ============    ============    ============

     Exercisable options                          --         712,231              --           12.11
                                        ============    ============    ============    ============
</TABLE>

                                      F-27
<PAGE>

     The following table summarizes information about stock options outstanding
at June 30, 2001:

<TABLE>
<CAPTION>
                                            Outstanding                                  Exercisable
                        ----------------------------------------------------    ----------------------------
                                         Weighted average        Weighted                        Weighted
     Range of             Number            remaining            average           Number        average
     Exercise               of              years of             exercise            of          exercise
     Prices ($)           Options        contractual life        price ($)        Options        price ($)
   -----------------    -----------    --------------------    -------------    -----------    -------------
   <S>                  <C>            <C>                     <C>              <C>            <C>
      9.10 - 12.04       2,774,069              8.56                  11.64        703,228            12.04
     14.71 - 18.02         185,497              8.93                  17.09          9,003            17.50
</TABLE>

     Exercise prices for the above tables have been translated from Euros to
U.S. dollars based on average exchange rates during the year.

  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
(the "Funding Agreement"), 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 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.

     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 FAS No. 123,
"Accounting for Stock-Based Compensation," has been determined as if the Company
and FKE had accounted for their employee stock options

                                      F-28
<PAGE>

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 5.5 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 an expected life of the options of 2 years.
The weighted average fair value of options at their date of grant during the
year ended June 30, 2001, where the exercise price exercise price equaled the
market price on the grant date, was $1,223,000. The estimated fair value of each
option granted was calculated using the following weighted average assumptions,
respectively: risk free interest rate of 4.25%; dividend yield of 0%; expected
stock volatility of 60%; and 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  $(66,924,000), $58,387,000 and $(30,958,000) for the years
ended June 30, 1999, 2000 and 2001, 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 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.

14. Subsequent Event

     On July 23, 2001, The Walt Disney Company ("Disney") entered into a
Purchase Agreement with Fox Broadcasting, FBSI, Haim Saban and the other Saban
Stockholders, Allen & Company Incorporated, News America Incorporated ("NAI"),
and News Corp. (the "Disney Purchase Agreement"), pursuant to which Disney
agreed to purchase for cash from FBSI, the Saban Stockholders and Allen &
Company Incorporated all the outstanding shares of the Company's Class A Common
Stock and Class B Common Stock (the "Disney Acquisition") and subordinated debt.
Upon the closing of the Disney Acquisition, Disney would acquire control of the
Company by virtue of holding all of the Company's outstanding shares of common
stock.

                                      F-29
<PAGE>

Immediately following the closing under the Disney Purchase Agreement, the
Company will cease to broadcast the Fox Kids Network, which will be operated by
Fox Broadcasting following the Disney Acquisition. The Company will provide
certain programming to Fox Broadcasting for the 2001-2002 broadcast season for
broadcast on the Fox Kids Network. The closing of the Disney Acquisition will
occur following receipt of required U.S. and foreign governmental or regulatory
approvals, among other customary conditions to closing. The parties currently
expect the Disney Acquisition to close in the fourth quarter of the 2001
calendar year. The Company will change its name following the Disney
Acquisition.

     In connection with the Disney Acquisition, the Company will pay the
obligations owed under the Amended Credit Facility. In addition, according to
the terms of the Disney Purchase Agreement, Disney will purchase the Fox
Subordinated Notes and the NAI Bridge Note from Fox Broadcasting and NAI,
respectively.

     Pursuant to the Disney Purchase Agreement and in accordance with the terms
of their respective employment agreements, the Company will make certain cash
payments to the Company stock option holders with respect to the option shares
held by each of such option holders, and the number of such option shares
outstanding shall be reduced to zero.  The closing of the Disney Acquisition
will result in a compensation charge in the amount of approximately $78,000,000,
representing the difference between the net sales proceeds (as defined in the
Disney Purchase Agreement) and the stock option exercise price which ranges from
$12.37 to $34.02 per share.

                                      F-30
<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. (a Delaware corporation) and subsidiaries (the "Company") as of
June 30, 2000 and 2001 and each of the three years ended June 30, 2001 included
in this Report on Form 10-K and have issued our report thereon dated September
17, 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 Commission's 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 17, 2001

                                      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, 2000           June 30, 2001
                                                                                             ---------------       -----------------
<S>                                                                                          <C>                   <C>
Assets:
Cash and cash equivalents.................................................................   $         1,207       $          3,223
Amounts receivable from related parties, net..............................................             1,215                    845
Investments in and advances to subsidiaries...............................................         1,614,627              1,661,750
Other assets, net.........................................................................            23,909                 18,371
                                                                                             ---------------       ----------------
   Total assets...........................................................................   $     1,640,958       $      1,684,189
                                                                                             ===============       ================

Liabilities and stockholders' deficit:
Accounts payable..........................................................................   $           154       $             31
Accrued liabilities.......................................................................             8,999                 15,753
NAI Bridge Note...........................................................................           131,784                145,884
Fox Subordinated Notes....................................................................           194,693                221,133
Senior Notes..............................................................................           475,000                475,000
Senior Discount Notes, net of unamortized discount of $130,242 and $77,049
 at June 30, 2000 and 2001, respectively..................................................           488,428                541,621
Amounts payable to related parties........................................................            21,243                 22,672
                                                                                             ---------------       ----------------
  Total liabilities.......................................................................         1,320,301              1,422,094
                                                                                             ---------------       ----------------

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

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, 2000 and 2001, respectively............                --                     --
Class B Common Stock, $0.001 par value; 16,000,000 shares authorized,
 15,840,000 shares issued and outstanding at June 30, 2000 and 2001, respectively.........                16                     16
Contributed capital.......................................................................            78,671                 78,671
Accumulated other comprehensive loss......................................................            (6,683)                (8,468)
Deficit...................................................................................           (96,347)              (153,124)
                                                                                             ---------------       ----------------
  Total stockholders' deficit.............................................................           (24,343)               (82,905)
                                                                                             ---------------       ----------------
  Total liabilities and stockholders' deficit.............................................   $     1,640,958       $      1,684,189
                                                                                             ===============       ================
</TABLE>

                            See accompanying notes.

                                      S-2
<PAGE>

                          FOX FAMILY WORLDWIDE, INC.
                                 (PARENT ONLY)

                           STATEMENTS OF OPERATIONS

                                (in thousands)

<TABLE>
<CAPTION>
                                                                                           Years Ended June 30,
                                                                                 --------------------------------------
                                                                                      1999         2000         2001
                                                                                 ------------  ------------  ----------
<S>                                                                             <C>            <C>          <C>
Revenues:
  Equity in income of subsidiaries..........................................     $  55,700     $ 277,366     $ 116,887
  Other.....................................................................           135           103           262
                                                                                 ---------     ---------     ---------
     Total revenue..........................................................        55,835       277,469       117,149
Costs and expenses:
  Selling, general and administrative.......................................         6,172         9,755         3,906
  Depreciation..............................................................           133            24            20
  Interest expense, net.....................................................       113,940       129,146       138,949
                                                                                 ---------     ---------     ---------
Income (loss) before provision for income taxes.............................       (64,410)      138,544       (25,726)
Provision for income taxes..................................................         1,989        77,159            --
                                                                                 ---------     ---------     ---------
Net income (loss)...........................................................     $ (66,399)    $  61,385     $ (25,726)
                                                                                 =========     =========     =========
</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,
                                                                                             -------------------------------------
                                                                                                1999         2000          2001
                                                                                             -----------  ----------   -----------
<S>                                                                                          <C>           <C>          <C>
Operating activities:
Net income (loss)..........................................................................   $(66,399)    $  61,385    $ (25,726)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
  Equity gains on investments, net of taxes................................................    (55,700)     (277,366)    (116,887)
  Amortization of debt issuance costs......................................................      3,253         3,250        3,269
  Depreciation expense.....................................................................        133            24           20
  Non-cash interest expense................................................................     66,746        79,983       94,002
  Decrease (increase) in amounts receivable from related parties, net......................         --        (1,215)         370
  Decrease (increase) in other assets......................................................     (1,069)       (1,845)         464
  Increase (decrease) in accounts payable and accrued liabilities..........................     (2,656)          773        6,631
  Increase in amounts payable to related parties...........................................         --            --        1,429
                                                                                              --------     ---------    ---------
   Net cash used in operating activities                                                       (55,692)     (135,011)     (36,428)
                                                                                              --------     ---------    ---------

Investing activities:
  Purchase of property and equipment.......................................................       (410)           --           --
                                                                                              --------     ---------    ---------
   Net cash used in investing activities...................................................       (410)           --           --
                                                                                              --------     ---------    ---------

Financing activities:
  Paydown of NAHI Bridge Note..............................................................       (267)         (268)        (269)
  Proceeds from Fox Subordinated Note......................................................     25,000        15,000           --
  Dividends on Preferred Stock.............................................................    (31,048)      (31,135)     (31,051)
  Net intercompany advances................................................................     55,515       152,584       69,764
                                                                                              --------     ---------    ---------
    Net cash provided by financing activities..............................................     49,200       136,181       38,444
                                                                                              --------     ---------    ---------
Increase (decrease) in cash and cash equivalents...........................................     (6,902)        1,170        2,016
Cash and cash equivalents, beginning of year...............................................      6,939            37        1,207
                                                                                              --------     ---------    ---------
Cash and cash equivalents, end of year.....................................................   $     37     $   1,207    $   3,223
                                                                                              ========     =========    =========
</TABLE>

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

 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 CONDENSED FINANCIAL STATEMENTS

1.   Basis of Presentation

     The accompanying condensed 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
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 recorded for the year ended
June 30, 2000, is contained in Note 13 to the Consolidated Financial Statements.

4.   Subsequent Event

     On July 23, 2001, Disney entered into the Disney Purchase Agreement with
Fox Broadcasting, FBSI, Haim Saban and the other Saban Stockholders, Allen &
Company Incorporated, News America Incorporated, and News Corp., pursuant to
which Disney agreed to purchase for cash from FBSI, the Saban Stockholders and
Allen & Company Incorporated all the outstanding shares of the Company's Class A
Common Stock and Class B Common Stock. Upon the closing of the Disney
Acquisition, Disney would acquire control of the Company by virtue of holding
all of the Company's outstanding shares of common stock. Immediately following
the closing under the Disney Purchase Agreement, the Company will cease to
broadcast the Fox Kids Network, which will be operated by Fox Broadcasting
following the Disney Acquisition. The Company will provide certain programming
to Fox Broadcasting for the 2001-2002 broadcast season for broadcast on the Fox
Kids Network. The closing of the Disney Acquisition will occur following receipt
of required U.S. and foreign governmental or regulatory approvals, among other
customary conditions to closing. The parties currently expect the Disney
Acquisition to close in the fourth quarter of the 2001 calendar year. The
Company will change its name following the Disney Acquisition.

     According to the terms of the Disney Purchase Agreement, Disney will
purchase the Fox Subordinated Notes and the NAI Bridge Note from Fox
Broadcasting and NAI, respectively, upon closing of the Disney Acquisition.

                                      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 of         Costs and              Other                                at end of
      Description                             Year              Expenses            Accounts          Deductions              Year
      -----------                         ------------         ----------          -----------        ----------           ---------
                                                                                  (in thousands)
<S>                                       <C>                  <C>                <C>                 <C>                  <C>
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
Year ended June 30, 2001
 Allowance for doubtful accounts.......          4,688              1,593                     --           (960)               5,321
 Reserve for severance and related
  costs under acquisition..............          5,064                 --                     --         (1,917)               3,147
 Accruals for litigation and other
  related costs under acquisition......          2,775                 --                     --           (331)               2,444
</TABLE>

                                      S-6