AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 2002

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

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

                          HOME SHOPPING NETWORK, INC.

             (Exact name of registrant as specified in its charter)

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

                        COMMISSION FILE NO. 333-71305-01

                                
            DELAWARE                     59-2649518
  (State or other jurisdiction        (I.R.S. Employer
of incorporation or organization)   Identification No.)



                152 WEST 57TH STREET, NEW YORK, NEW YORK, 10019

             (Address of Registrant's principal executive offices)
                                 (212) 314-7300

             (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/

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 15, 2002: Not applicable; all of the voting stock of
the Registrant is held by affiliates.

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                                     INDEX



                                                                          PAGE
                                                                        --------
                                                                  
                                     PART I

Item 1.   Business....................................................      3

Item 2.   Properties..................................................     24

Item 3.   Legal Proceedings...........................................     25

                                    PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................     30

Item 6.   Not required under reduced disclosure format as contemplated
          by General Instruction I to Form 10-K.

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................     30

Item 7a.  Quantitative and Qualitative Disclosures about Market
          Risk........................................................     39

Item 8.   Consolidated Financial Statements and Supplementary Data....     41

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosures...................................     67

                                    PART III

          Not required under reduced disclosure format as contemplated
          by General Instruction I to Form 10-K.

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................     67


                                       2

                                     PART I

ITEM 1. BUSINESS

                                    GENERAL

    On December 17, 2001, USA Networks, Inc. ("USA") and Vivendi Universal, S.A.
("Vivendi") announced a transaction (the "Vivendi Transaction") in which USA's
Entertainment Group, consisting of USA Cable, Studios USA, and USA Films, would
be contributed to Vivendi Universal Entertainment LLLP, a new joint venture to
be controlled by Vivendi ("VUE").

    Upon closing of the Vivendi Transaction, USA will be renamed USA Interactive
and will be focused on integrating interactive assets across multiple lines of
business. Home Shopping Network, Inc. ("Holdco" or the "Company"), through its
subsidiary, USANi LLC, is organized into two groups, the Interactive Group and
the Entertainment Group. The Interactive Group consists of Home Shopping Network
(including HSN International and HSN.com); Electronic Commerce Solutions; and
Styleclick (OTC: IBUY). The Entertainment Group, which will be contributed to
VUE, consists of USA Cable, including USA Network and Sci Fi Channel and
Emerging networks TRIO, Newsworld International, and Crime; and Studios USA,
which produces and distributes television programming.

CORPORATE STRUCTURE AND CONTROLLING SHAREHOLDERS

    HOLDCO.  As of February 15, 2002, Liberty owned a 19.9% equity interest
(9.2% of the voting power) in Holdco and USA owned the remaining equity and
voting interests. Holdco's only asset is its 35.3% interest in USANi LLC. Holdco
has a dual-class common stock structure similar to USA's. USA has the
contractual right to require the exchange of the Holdco shares held by Liberty
for shares of USA. Upon completion of the exchange of Liberty's Holdco shares,
Holdco will become a wholly owned subsidiary of USA.

    USANI LLC.  As of February 15, 2002, USA owned 9.6% and indirectly through
Holdco 35.3% of the outstanding USANi LLC shares, Universal owned 47.4% of the
outstanding USANi LLC shares and Liberty owned 7.7% of the outstanding USANi LLC
shares. In connection with the Vivendi Transaction, all USANi LLC shares held by
Universal and Liberty will either be exchanged for USA shares or cancelled and
USANi LLC will become a wholly owned subsidiary of USA. See "Corporate
History--Vivendi Transaction."

CORPORATE HISTORY

    Holdco, a Delaware corporation, is a subsidiary of USA. USA's common stock
is quoted on the Nasdaq Stock Market under the symbol "USAI".

    UNIVERSAL TRANSACTION

    On February 12, 1998, USA completed the Universal transaction, in which USA
acquired USA Networks, a New York partnership (which consisted of USA Network
and Sci Fi Channel cable television networks), and the domestic television
production and distribution business ("Studios USA") of Universal from
Universal. USA paid Universal approximately $1.6 billion in cash ($300 million
of which was deferred with interest) and an effective 45.8% interest in USA
through shares of USA common stock, USA Class B common stock and shares of USANi
LLC, a Delaware limited liability company. The USANi LLC shares, exchangeable
for shares of USA's common stock and Class B common stock on a one-for-one
basis, are among the shares being cancelled in connection with the Vivendi
Transaction described below. Universal is controlled by Vivendi as a result of
the combination of Vivendi S.A., The Seagram Company Ltd. ("Seagram") and Canal
Plus completed in December 2000. As part of the Universal transaction, USA
changed its name to USA Networks, Inc.

                                       3

    VIVENDI TRANSACTION

    On December 17, 2001, USA announced the Vivendi Transaction, pursuant to
which USA would contribute USA's Entertainment Group to VUE, a joint venture
with Vivendi, which joint venture would also hold the film, television and theme
park businesses of Universal, a subsidiary of Vivendi. Upon consummation of the
Vivendi Transaction, the joint venture will be controlled by Vivendi and its
subsidiaries, with the common interests owned 93.06% by Vivendi and its
subsidiaries, 5.44% by USA and its subsidiaries and 1.5% by Mr. Diller.

    In connection with the Vivendi Transaction, USA and its subsidiaries will
receive the following at the closing of the transactions: (i) approximately
$1.62 billion in cash, debt-financed by the joint venture, subject to
tax-deferred treatment for a 15-year period; (ii) a $750 million face value
Class A preferred interest in the joint venture, with a 5% annual paid-in-kind
dividend and a 20-year term, to be settled in cash at its then face value at
maturity; (iii) a $1.75 billion face value Class B preferred interest in the
joint venture, with a 1.4% annual paid-in-kind dividend, a 3.6% annual cash
dividend, callable and puttable after 20 years, to be settled by Vivendi at its
then face value with a maximum of approximately 43.2 million shares of USA
common stock and 13.4 million shares of USA Class B common stock (for a total of
56.6 million USA common shares), provided that Vivendi may substitute cash in
lieu of shares of USA common stock (but not USA Class B common stock), at its
election; (iv) a 5.44% common interest in VUE, generally callable by Universal
after five years and puttable by USA after eight years, which may be settled in
either Vivendi stock or cash, at Universal's election; and (v) cancellation of
all of Vivendi's USANi LLC interests currently exchangeable into USA common
shares, including USANi LLC interests obtained from Liberty in a related
transaction (see immediately below).

    In the aforementioned related transaction, Liberty will exchange 7,079,726
shares of USANi LLC for shares of USA common stock, and subsequently transfer to
Universal 25,000,000 shares of USA common stock, entities holding its remaining
38,694,982 shares of USANi LLC, as well as the assets and liabilities of Liberty
Programming France (which consist primarily of 4,921,250 shares of
multiThematiques S.A., a French entity), in exchange for 37,386,436 Vivendi
ordinary shares.

    In addition, USA will issue to Universal ten-year warrants to acquire shares
of USA common stock as follows: 24,187,094 shares at $27.50 per share;
24,187,094 shares at $32.50 per share; and 12,093,547 shares at $37.50 per
share. Barry Diller, USA's chairman and chief executive officer, will receive a
common interest in VUE with a 1.5% profit sharing percentage in return for his
agreeing to specified non-competition provisions and agreeing to serve as
chairman and chief executive officer of the joint venture. USA and Mr. Diller
have agreed that they will not compete with Vivendi's television and filmed
entertainment businesses (including the joint venture) for a minimum of
18 months. In February 2002, Mr. Diller assigned to three executive officers of
USA the right to receive ecomonic interests in a portion of the common interests
in VUE that Mr. Diller will receive upon closing of the Vivendi Transaction.

    STYLECLICK TRANSACTION

    On July 27, 2000, USA and Styleclick.com Inc., an enabler of e-commerce for
manufacturers and retailers, completed the combination of USA's Internet
Shopping Network ("ISN") and Styleclick.com Inc. The new company, which is named
Styleclick, Inc. ("Styleclick"), owns and operates the combined properties of
Styleclick.com Inc. and ISN. As of December 31, 2001, USA beneficially owned
100% of the outstanding Styleclick Class B common stock, representing 72% of the
total common stock of Styleclick and 96% of the total voting power of Styleclick
outstanding common stock. On January 25, 2002, Styleclick was delisted from
NASDAQ and currently trades over the counter. It continues to incur significant
losses that raise substantial doubts about its ability to continue as a going
concern.

                                       4

FORWARD LOOKING STATEMENTS

    THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES LAWS. WE HAVE BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT
EXPECTATIONS AND PROJECTIONS ABOUT FUTURE EVENTS, BASED ON THE INFORMATION
CURRENTLY AVAILABLE TO US. SUCH FORWARD-LOOKING STATEMENTS ARE PRINCIPALLY
CONTAINED IN THE SECTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." THE FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHER THINGS, STATEMENTS RELATING TO OUR ANTICIPATED
FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW MERCHANDISING
STRATEGIES AND SIMILAR MATTERS.

    THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS, THAT MAY AFFECT THE OPERATIONS, PERFORMANCE, DEVELOPMENT AND
RESULTS OF OUR BUSINESS AND INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:

    - MATERIAL ADVERSE CHANGES IN ECONOMIC CONDITIONS GENERALLY OR IN OUR
      MARKETS;

    - FUTURE REGULATORY AND LEGISLATIVE ACTIONS AND CONDITIONS IN OUR OPERATING
      AREAS;

    - COMPETITION FROM OTHERS;

    - SUCCESSFUL INTEGRATION OF OUR DIVISIONS' MANAGEMENT STRUCTURES;

    - PRODUCT DEMAND AND MARKET ACCEPTANCE; THE ABILITY TO PROTECT PROPRIETARY
      INFORMATION AND TECHNOLOGY OR TO OBTAIN NECESSARY LICENSES ON COMMERCIALLY
      REASONABLE TERMS;

    - THE ABILITY TO EXPAND INTO AND SUCCESSFULLY OPERATE IN FOREIGN MARKETS;

    - OBTAINING AND RETAINING KEY EXECUTIVES AND EMPLOYEES; AND

    - OTHER RISKS AND UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN OUR
      PUBLIC ANNOUNCEMENTS AND FILINGS WITH THE SECURITIES AND EXCHANGE
      COMMISSION.

    We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or any other
reason. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report may not occur.

                           DESCRIPTION OF BUSINESSES

USA INTERACTIVE GROUP

HOME SHOPPING NETWORK

    Home Shopping Network sells a variety of consumer goods and services by
means of live, customer-interactive electronic retail sales programs that are
transmitted via satellite to cable television systems, affiliated broadcast
television stations and satellite dish receivers. Home Shopping Network operates
three retail sales programs in the United States, each 24 hours a day, seven
days a week: HSN and America's Store, in English; and HSE (Home Shopping en
Espanol), in Spanish.

    Home Shopping Network's retail sales and programming are intended to promote
sales and customer loyalty through a combination of product quality, price and
value, coupled with product information and entertainment. HSN and America's
Store programs are carried primarily by cable television systems and also by
broadcast television stations throughout the country. HSE is carried primarily
in markets with significant Spanish speaking populations. All three programs are
divided into segments that are televised with a host who presents the
merchandise, sometimes with the assistance of a guest representing the product
vendor, and conveys information relating to the product. Viewers purchase
products by calling a toll-free telephone number. According to Nielsen Media
Research, as of December 31, 2001, HSN was available in approximately
82.7 million unduplicated households, including approximately 73.1 million cable
households. These numbers were reduced, as shown in the table below, as of
January 14, 2002, as a result of the last of the USA stations sold to Univision
converting from HSN programming to Univision programming. See "Broadcast
Television Distribution" below.

                                       5

    The following table highlights the changes in the estimated unduplicated
television household reach of HSN, by category of access for the year ended
December 31, 2001 and through January 14, 2002:



                                                       CABLE(1)(2)   BROADCAST(1)(3)    OTHER      TOTAL
                                                       -----------   ---------------   --------   --------
                                                                  (IN THOUSANDS OF HOUSEHOLDS)
                                                                                      
Households -- December 31, 2000......................     65,580          9,860         1,296      76,736
Net additions/(deletions)............................      7,554         (1,208)         (425)      5,921
Households -- December 31, 2001......................     73,134          8,652           871      82,657
(Deletions) after year end due to Disengagement
  (4)................................................     (1,880)        (7,253)            0      (9,133)
Households January 14, 2002..........................     71,254          1,399           871      73,524


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

(1) Households capable of receiving both broadcast and cable transmissions are
    included under cable and therefore are excluded from broadcast to present
    unduplicated household reach.

(2) Cable households included 14.7 million and 11.6 million direct broadcast
    satellite households at December 31, 2001 and 2000, respectively, and
    therefore are excluded from other.

(3) See "Broadcast Television Distribution" below for a discussion of the
    disaffiliation of certain stations from HSN in 2001 and 2002.

(4) Households lost as a result of the conversion of the majority owned stations
    sold to Univision by USA, from HSN programming to Univision programming. HSN
    believes that the majority of the lost cable households will be recaptured
    over the next 12 to 18 months. See "Broadcast Television Distribution"
    below.

    According to industry sources, as of December 31, 2001, there were
105.4 million homes in the United States with a television set, 73.2 million
basic cable television subscribers and 871,000 homes with satellite dish
receivers, excluding direct broadcast satellite.

    As of December 31, 2001, America's Store reached approximately 8.5 million
cable television households, of which 1.2 million were on a part time basis. Of
the total cable television households receiving America's Store, 8.2 million
also receive HSN.

    As of December 31, 2001, HSE reached approximately 5.8 million Hispanic
broadcast television households. This total includes 2.9 million Hispanic
households that receive HSE pursuant to an agreement with Mun2 (a national
network) that became effective April 1, 2001. For more information, see
"--International Home Shopping Network Ventures--SPANISH LANGUAGE NETWORKS."

CUSTOMER SERVICE AND RETURN POLICY

    Home Shopping Network believes that satisfied customers will be loyal and
will purchase merchandise on a regular basis. Accordingly, Home Shopping Network
has customer service personnel and/or computerized voice response units
available to handle calls relating to customer inquiries 24 hours a day, seven
days a week. Generally, any item purchased from Home Shopping Network may be
returned within 30 days for a full refund of the purchase price, including the
original shipping and handling charges.

DISTRIBUTION, DATA PROCESSING AND TELECOMMUNICATIONS

    Home Shopping Network's fulfillment subsidiaries store, service and ship
merchandise from warehouses located in Salem, Virginia, Waterloo, Iowa and in a
fulfillment facility in Fontana, California that was opened in 2001.

    Home Shopping Network currently operates multiple main frame and distributed
computing platforms and has extensive computer systems which track purchase
orders, inventory, sales, payments, credit authorization, and delivery of
merchandise to customers. During 2001, Home Shopping Network

                                       6

continued to make significant progress upgrading many of its computer systems.
These upgrades will continue in 2002 through enhancements to existing systems
and roll out of additional key operational systems.

    Home Shopping Network has digital telephone and switching systems and
utilizes voice response units, which allow callers to place their orders by
means of touch-tone input or to be transferred to an operator.

PRODUCT PURCHASING AND LIQUIDATION

    Home Shopping Network purchases merchandise made to its specifications,
merchandise from manufacturers' lines, merchandise offered under certain
exclusive rights and overstock inventories of wholesalers. The mix of products
and source of such merchandise depends upon a variety of factors including price
and availability. Home Shopping Network generally does not have long-term
commitments with its vendors, and there are various sources of supply available
for each category of merchandise sold.

    Home Shopping Network's product offerings include: homegoods, which include
consumer electronics, collectibles, housewares, consumables, entertainment,
sports and fitness; jewelry; apparel, which includes fashion and accessories;
and cosmetics, which consists primarily of cosmetics, skin care and nutritional
supplements. For 2001, homegoods, jewelry, apparel and cosmetics accounted for
approximately 51%, 25%, 13% and 11%, respectively, of Home Shopping Network's
net sales.

    Home Shopping Network liquidates excess inventory through its four outlet
stores located in the Tampa Bay and Orlando areas. Damaged merchandise is
liquidated by Home Shopping Network through traditional channels.

TRANSMISSION AND PROGRAMMING

    Home Shopping Network produces its programming in its studios located in St.
Petersburg, Florida. HSN, America's Store and HSE programs are distributed to
cable television systems, broadcast television stations, direct broadcast
satellite, and/or satellite antenna owners by means of Home Shopping Network's
satellite uplink facilities to satellite transponders leased by Home Shopping
Network. Any cable television system, broadcast television station or individual
satellite dish owner in the United States and the Caribbean Islands equipped
with standard satellite receiving facilities and the appropriate equipment is
capable of receiving HSN, America's Store and HSE.

    Home Shopping Network has lease agreements securing full-time use of two
transponders on two domestic communications satellites. Each of the transponder
lease agreements grants Home Shopping Network "protected" rights. When the
carrier provides services to a customer on a "protected" basis, replacement
transponders (I.E., spare or unassigned transponders) on the satellite may be
used in the event the "protected" transponder fails. Should there be no
replacement transponders available, the "protected" customer will displace a
"preemptible" transponder customer on the same satellite. The carrier also
maintains a protection satellite and should a satellite fail completely, all
"protected" transponders would be moved to the protection satellite that is
available on a "first fail, first served" basis.

    A transponder failure that would necessitate a move to another transponder
on the same satellite would not result in any significant interruption of
service to the cable systems and/or television stations which receive HSN,
America's Store or HSE. However, a failure that would necessitate a move to
another satellite may temporarily affect the number of cable systems and/or
television stations that receive HSN, America's Store or HSE, as well as all
other programming carried on the failed satellite, because of the need to
install equipment or to reorient earth stations.

                                       7

    The terms of two of the satellite transponder leases utilized by Home
Shopping Network are for the life of the satellites, which are projected through
November of 2004 for the satellite presently carrying HSN and through May of
2005 for the satellite carrying America's Store and HSE.

    Home Shopping Network's access to two transponders pursuant to long-term
agreements would enable it to continue transmission of Home Shopping Network
programming should either one of the satellites fail. Although Home Shopping
Network believes it is taking every reasonable measure to ensure its continued
satellite transmission capability, there can be no assurance that termination or
interruption of satellite transmissions will not occur. Such a termination or
interruption of service by one or both of these satellites could have a material
adverse effect on the operations and financial condition of USA.

    The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which Home Shopping
Network has no control, including competition among prospective users for
available transponders and the availability of satellite launching facilities
for replacement satellites.

    The FCC grants licenses to construct and operate satellite uplink facilities
that transmit signals to satellites. These licenses are generally issued without
a hearing if suitable frequencies are available. Home Shopping Network has been
granted one license for operation of C-band satellite transmission facilities
and one license for operation of KU-band satellite transmission facilities on a
permanent basis in Clearwater and St. Petersburg, Florida.

CABLE TELEVISION DISTRIBUTION

    Home Shopping Network has entered into affiliation agreements with cable
system operators to carry HSN, America's Store, HSE, and/or a combination of the
services. These agreements are multi-year arrangements, and obligate the cable
operator to assist with the promotional efforts of Home Shopping Network by
carrying commercials promoting HSN, America's Store and HSE and by distributing
Home Shopping Network's marketing materials to the cable operator's subscribers.
All cable operators receive significant compensation for carriage, including a
commission based on a percentage of the net merchandise sales within the cable
operator's franchise area and, generally, additional compensation consisting of
the purchase of advertising availabilities from cable operators on other
programming networks, commission guarantees for the operator, or upfront
payments to the operator in return for commitments to deliver a minimum number
of Home Shopping Network subscribers for a certain number of years. From time to
time, a cable network operated by HSN will be distributed on one or more cable
systems without a distribution agreement in effect while the parties negotiate a
new agreement, a process that may be protracted. While the cessation of carriage
by a major cable operator would have a negative impact on the financial results
of HSN, the Company has successfully managed the distribution agreement process
in the past, and believes it will continue to do so.

                                       8

BROADCAST TELEVISION DISTRIBUTION

    Home Shopping Network has entered into affiliation agreements with
television stations to carry HSN, America's Store or HSE programs. As of
December 31, 2001, Home Shopping Network had affiliation agreements with 7
full-time, full-power television stations, 33 part-time, full-power television
stations and 95 low-power television stations for the carriage of HSN, America's
Store or HSE programs. The affiliation agreements have terms ranging from
several weeks to several years. All television station affiliates receive an
hourly or monthly fixed rate for airing HSN, America's Store or HSE programs. A
full-power television station is generally carried by cable operators within the
station's coverage area. For more information, see "Regulation--Communications
Industry--Must-Carry/Retransmission Consent." Low-power stations are rarely
carried by cable systems and may be displaced by broadcast digital television
transmissions.

    In addition to these affiliation agreements with independently owned
television stations, USA formerly carried HSN on a full-time basis on 10 of its
13 owned and operated full-power television stations (three of the 10 stations
did not carry HSN during all of 2001) and 27 low-power television stations. On
December 7, 2000, USA entered into an agreement to transfer its 13 full-power
television stations and its minority interest in 4 other full-power television
stations (three of which carried HSN) to Univision in a series of closings in
2001, with the final payment made in January 2002 and on January 14, 2002, the
last of the USA stations converted to Univision programming. Two of the
full-power television stations in which USA had a minority interest continue to
carry HSN pursuant to affiliation agreements with Home Shopping Network. USA
also sold the 27 low-power television stations to Ventana Television, Inc.,
subject to long-term affiliation agreements with Home Shopping Network, with USA
retaining a 25% interest in the low-power television stations.

    As noted in the Company's previous filings, the majority of the USA stations
sold to Univision are located in the largest markets in the country and aired
HSN on a 24-hour basis. Home Shopping Network entered into agreements with major
cable operators in the aforementioned markets under which those cable operators
will transition HSN from broadcast to satellite feed upon disaffiliation. Home
Shopping Network expects that it will successfully manage the process of
disaffiliation. A majority of HSN customers in these markets who receive HSN
only through over-the-air broadcast television will not be able to receive HSN
unless they subscribe to a cable or satellite service that offers HSN. As a
result of switching these markets directly to cable carriage, HSN lost
approximately 12 million homes and accordingly, HSN's operating results have
been and will be affected. Fortunately, sales from broadcast only homes are much
lower than sales from cable homes. As a result, HSN's losses attributable to
disengagement are expected to be limited. HSN anticipates losing sales, which
translates on a pro forma basis for 2001, of $108 million and Adjusted EBITDA
(as defined below in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and which USA previously referred to as
"EBITDA") of $15 million. These anticipated losses are consistent with previous
disclosures, in which it was stated that disengagement losses would equal
approximately 6% of HSN's sales and Adjusted EBITDA. In addition, in order to
effectively transfer HSN's distribution to cable (which has been accomplished),
USA will incur charges of approximately $100 million in the form of payments to
cable operators and related marketing expenses. In effect, this approximately
$100 million payment will reduce USA's pre-tax proceeds from the Univision
transaction from $1.1 billion to approximately $1 billion. These disengagement
costs are excluded from Adjusted EBITDA. Approximately $4.1 million of these
costs were incurred in 2001 and $35.9 million are expected to be incurred in
2002. USA believes that its disengagement costs increased to the higher end of
USA's anticipated range of costs, since USA was required to achieve a certain
portion of disengagement after the Univision announcement and with specified
end-dates for continuing broadcast distribution.

                                       9

DIRECT BROADCAST SATELLITE DISTRIBUTION

    Home Shopping Network has entered into affiliation agreements with the two
largest direct broadcast satellite operators to carry HSN. The agreements are
multi-year arrangements, and obligate the direct broadcast satellite operator to
deliver a minimum number of HSN subscribers throughout the term in consideration
for a distribution payment and a commission based on net merchandise sales to
such subscribers. The direct broadcast satellite operators are also obligated to
assist with the promotional efforts of Home Shopping Network by carrying
commercials promoting HSN and by distributing Home Shopping Network's marketing
materials to its subscribers.

INTERNATIONAL HOME SHOPPING NETWORK VENTURES

    GERMANY.  Home Shopping Network owns 41.9% of H. O. T. Home Order Television
AG ("HOT Germany"), a joint venture that operates a German language shopping
business that is broadcast 24 hours a day. HOT Germany has now been re-branded
as Home Shopping Europe--Germany. Home Shopping Network has entered into a
shareholders agreement with another shareholder of HOT Germany, Georg Kofler,
which, among other things, provides that Mr. Kofler will vote his shares in HOT
Germany, representing approximately 15% of HOT Germany, as directed by Home
Shopping Network on certain matters including the election of a majority of the
members of the Supervisory Board of HOT Germany. Mr. Kofler may not sell his
shares of HOT Germany until December 2003, after which time Home Shopping
Network has a right of first refusal with respect to such shares. The other
shareholders in HOT Germany are Thomas Kirch, owning approximately 33%, and
Quelle AG, owning approximately 10.1%. Home Shopping Network, Georg Kofler and
the other shareholders of HOT Germany are currently discussing alternative
arrangements with respect to their relationship. Home Shopping Network has
guaranteed certain bank loans to Mr. Kofler by agreeing to purchase, at a price
not to exceed $50 million, Mr. Kofler's shares in HOT Germany that have been
pledged to the banks providing the loans in the event of a default by
Mr. Kofler.

    EUROPE.  On December 17, 1999, USA entered into an agreement with Thomas and
Leo Kirch and Georg Kofler pursuant to which each agreed to cooperate with each
other to pursue live televised shopping and related e-commerce opportunities in
Europe. Pursuant to this agreement, the parties formed HOT Networks AG, a German
stock corporation owned 46.67% by Home Shopping Network ("HOT Networks"), which,
through its subsidiaries, operates (as described below) shopping and related
businesses in Italy, the UK, Belgium and France and has an interest in a German
broadcast station featuring transactional travel and gaming programming. There
is currently no voting arrangement in place between Home Shopping Network and
Georg Kofler with respect to HOT Networks as there is with respect to HOT
Germany, or with any other shareholder of HOT Networks, and, therefore, Home
Shopping Network does not control HOT Networks. HOT Networks has incurred net
losses in each of its past two fiscal years and will require additional funding
for its operations. In addition, HOT Networks has funding obligations with
respect to its investment in Euvia, which entity is described below. Each of the
international operations is at an early stage of development and the Company can
provide no assurance that these businesses will continue at their current levels
of operations. Home Shopping Network and the other shareholders of HOT Networks
are currently discussing alternative arrangements with respect to their
relationship.

        ITALY.  Home Shopping Europe S.p.A ("Home Shopping Europe--Italy")
    broadcasts Italian-language televised shopping programming via an Italian
    national broadcast network. H.O.T. Home Order Television Europe GmbH ("HOT
    Europe") owns 87.5% and, as of 2001, Convergenza, a Belgian company, owns
    12.5% of Home Shopping Europe-Italy. Home Shopping Network has a 37.2%
    non-voting equity interest in HOT Europe and HOT Networks, Georg Kofler and
    Thomas Kirch are also shareholders in that entity, but all voting rights in
    HOT Europe are held, and HOT Europe is controlled, by Messrs. Kofler and
    Kirch.

                                       10

        As of December 31, 2001, Home Shopping Europe--Italy owned 100% of the
    equity of an entity formerly known as Vallau Italia Promomarket ("VIP") and
    now called Home Shopping Europe Broadcasting S.p.A. that operates an Italian
    national broadcast network. VIP had applied for a license to operate a
    national broadcast network in Italy that was denied by the Italian
    authorities in May 2000. However, an appeal has been filed and a stay of the
    government's order issued until the decision to deny the license is
    reviewed. The stay of the order denying the license allows Home Shopping
    Europe Broadcasting S.p.A. to continue broadcasting until the appeal is
    heard and a decision rendered or the stay is dismissed or vacated. There can
    still be no assurance that Home Shopping Europe Broadcasting S.p.A. will be
    granted a license in Italy. As of the end of 2001, Home Shopping
    Europe--Italy was broadcasting 24 hours a day, seven days a week with
    11 hours of live programming each day. In the event a national broadcast
    license or authorization is not granted after the above-mentioned
    litigation, Home Shopping Europe--Italy would be required to seek
    alternative means of distributing its programming. Currently, there are
    limited available means of distributing television programming on a
    nationwide basis and there can be no assurance that alternative means of
    distribution can be secured.

        UNITED KINGDOM.  In October 2001, HOT Networks started broadcasting
    English-language televised shopping business called Home Shopping Europe--UK
    in St. Albans outside London and which is broadcast 24 hours a day, seven
    days a week in the United Kingdom.

        EUVIA.  In 2001, HOT Networks purchased 48.6% of Euvia Media AG & Co. KG
    ("Euvia"), the primary asset of which is a German broadcast station called
    Neun Live. Euvia programming includes transactional travel programming under
    the name "sonnenklar" and other interactive programming. The other two
    shareholders in Euvia are ProSiebenSat.1 Media (a company controlled by
    Thomas Kirch) and Christiane zu Salm, CEO of Euvia, with whom HOT Networks
    has entered into a voting agreement, giving HOT Networks control of Euvia.

        BELGIUM/FRANCE.  In 2000, HOT Networks began a French-language televised
    shopping business that was formerly called "HOT Le Grand Magasin" (now
    called Home Shopping Europe en Francais) from a facility in Brussels,
    Belgium and which is broadcast 24 hours a day, seven days a week in Belgium
    and France.

        BELGIUM/NETHERLANDS.  In 2001, HOT Networks also began a Dutch-language
    televised shopping business that is called Home Shopping Europe en het
    Nederlands that is produced and broadcast from the same facilities in
    Brussels, Belgium as Home Shopping Europe en Francais.

    CHINA.  In June 2000, Home Shopping Network purchased a 21% take in TVSN
(China) Holdings Ltd. and will also have the ability to purchase a larger stake
in that company over the next several years. TVSN, through its Chinese partners,
broadcasts a televised shopping business 18 hours a day in Mandarin Chinese from
facilities in Shanghai, People's Republic of China. TVSN currently reaches over
16 million full-time equivalents households in China.

    JAPAN.  In 1997, Home Shopping Network acquired a 30% interest in Jupiter
Shop Channel Co. Ltd., a venture based in Tokyo. Jupiter Shop Channel broadcasts
televised shopping 24 hours a day, of which 60 hours per week are devoted to
live shopping. Jupiter Shop Channel has reached agreements to be available in
approximately 3.37 million full-time equivalent households as of December 31,
1999. Liberty Media International, Inc., a subsidiary of Liberty, owns a 50%
interest in Jupiter Programming Co. Ltd. that is the 70% shareholder in the
venture.

    SPANISH LANGUAGE NETWORKS.  During 2001, Home Shopping Network continuedto
operate Home Shopping en Espanol (also known as Home Shopping Espanol). At the
end of 2001, Home Shopping Espanol was producing nine hours of live programming
a day that was aired 24 hours a day, seven days a week in the United States.
Puerto Rico: The Company entered an agreement in December 2000 to purchase three
television stations in Puerto Rico: WAVB-TV, San Juan, Puerto Rico; WVEO-TV,
Aguadilla, Puerto Rico; and WVOZ-TV, Ponce, Puerto Rico. Pursuant to a separate
affiliation

                                       11

agreement, the owner of these stations broadcast Home Shopping Espanol's
programming from February 1, 2001 through January 7, 2002. On December 14, 2001,
prior to closing, the Company terminated the purchase agreement by and in
accordance with its terms. The Company has now sued the owner of the stations
for the return of the Company's $1.8 million deposit currently held in escrow.
The owner of the stations has filed an answer and counterclaim, opposing the
Company's right to the return of its deposit and claiming that the Company
improperly terminated the purchase agreement. Home Shopping Espanol programming
is no longer broadcast on those three stations in Puerto Rico, but is still
distributed in approximately 37,000 cable households on the island. Mexico: Home
Shopping Espanol began distribution of its programming in Mexico as of the end
of May 2001 24 hours a day, seven days a week. Three hours are broadcast live
each day from Home Shopping Espanol's studios in St. Petersburg, FL to the
Mexican audience. The Company is reviewing its strategic plans for its Spanish
Language Networks.

HSN.COM

    Home Shopping Network operates HSN.com as a transactional e-commerce site.
HSN.com serves as an alternative store front that allows consumers to shop for
merchandise from Home Shopping Network's inventory, rather than just viewing the
current product offering on Home Shopping Network's television programming.

    HSN.com offers specialized product shopping areas based on product
categories, key brands, guest personalities and other areas of interest. HSN.com
also offers editorial and informational content, such as photographs and
information about Home Shopping Network show hosts and guest personalities, tips
for consumers on improving their lives, customer service and television
programming information. HSN.com also offers special features such as streaming
video of Home Shopping Network's television programming, and live chats with
celebrity guests.

    HSN.com provides Home Shopping Network with a means of reaching additional
consumers who may not watch or purchase from its television shopping
programming, and to increase total purchases by its existing customers.

    HSN.com was profitable on an operating basis within three months of its
launch in 1999, and has grown to become an important selling platform for Home
Shopping Network, generating approximately 10% of U.S. sales by the end of 2001,
and greater revenue in the final quarter of 2001 than in all of 2000.

USA ELECTRONIC COMMERCE SOLUTIONS

    USA Electronic Commerce Solutions ("ECS") was formed in October 1999 as a
wholly owned subsidiary of USA. ECS operates and manages online stores by
partnering with third parties with strong brands that are committed to using the
Internet as a means of providing content and information to further enhance
these brands. Within the context of these brand extensions, ECS creates direct
selling experiences online and offline by developing, operating and managing the
direct selling environment and infrastructure. ECS' services include
fulfillment, customer service and customer care, website e-commerce enablement,
merchandising, marketing, catalog distribution and direct sales via television.

    ECS has obtained exclusive electronic commerce rights from the National
Hockey League for its NHL.com site; the National Basketball Association for its
NBA.com site; Turner Sports Interactive, Inc., a subsidiary of AOL Time Warner,
for its NASCAR.com website; SportsLine, Inc. for its CBS SportsLine.com and
mvp.com sites; and the PGA Tour for all of its Tour-branded websites, including
PGATour.com. Pursuant to multi-year agreements with these partners, ECS
(directly and through its relationships with other USA affiliates) provides
their respective sites with electronic commerce capability, integrated media and
marketing services, database-driven offers and promotion, and, in some cases,
catalog production and distribution, in addition to fulfillment, customer
service and merchandising services.

                                       12

STYLECLICK

    Styleclick, a majority owned subsidiary of USA, provides e-commerce
technology and services to companies in search of effective and profitable
out-sourced online strategies. Styleclick offers such business clients a range
of services and products, including website design, product imaging, online
sales, and merchandising technologies. Clients' websites are hosted on servers
owned or leased by Styleclick and rely on a combination of third party and
Styleclick proprietary technology to operate. Styleclick generates revenue from
clients via service fees charged for such design, construction, operations and
maintenance services.

    In March 2001, Styleclick announced certain changes including a new company
organization designed to advance its offering of scalable commerce services. At
that time, Styleclick announced that its Board of Directors had elected Lisa
Brown to the office of Chief Executive Officer of Styleclick and Robert Halper
to the office of President and Chief Operating Officer of Styleclick. Ms. Brown
also serves as Chief Executive Officer and President of ECS, and Mr. Halper also
serves as Executive Vice President, Operations and Finance, of ECS.

    Styleclick entered into a services agreement with ECS that became effective
March 20, 2001. Pursuant to the services agreement, ECS provides certain
business operations and financial services to Styleclick at cost. Also pursuant
to the services agreement, ECS has agreed to use its reasonable efforts, as
determined by ECS, to engage Styleclick to provide ECS's non-affiliated
customers with technological services of the type provided by Styleclick to
third parties to the extent that Styleclick has the capacity to provide such
services itself in a timely manner.

    ECS was Styleclick's largest customer during 2001. During the three months
ended December 31, 2001, 98%, of Styleclick's revenues came from ECS as a
customer of Styleclick with respect to Styleclick's provision of services to
four of ECS' customers: Turner Sports Interactive, Inc., SportsLine.com, Inc.,
the PGA Tour and the NHL. ECS-related business accounted for 40% of Styleclick's
2001 revenues, and 80% of Styleclick's 2001 revenues exclusive of revenues
attributable to FirstJewelry.com and FirstAuction.com, websites which Styleclick
shut down in 2001. Styleclick expects that ECS will continue to represent
substantially all of Styleclick's revenue in 2002. Accordingly, Styleclick is
dependent upon ECS's ability to sell services, including the services provided
by Styleclick, to its existing and future customers. However, Styleclick cannot
be certain that ECS will use Styleclick's services in any particular instance or
at all. ECS's inability to attract new clients, or its decision not to utilize
the services of Styleclick, would have a material adverse effect on Styleclick's
business, financial condition and results of operations.

    In 2001, Styleclick began to focus on e-commerce services and technology
while eliminating its online retail business. During this transition, Styleclick
continued to incur significant net losses from continuing operations and has a
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. Styleclick is considering its options with respect
to the situation.

                            USA ENTERTAINMENT GROUP

CABLE AND STUDIOS

    USA CABLE

    USA Cable operates four domestic advertiser-supported 24-hour cable
television networks, USA Network, Sci Fi Channel, Trio and NewsWorld
International ("NWI"). Since its inception in 1977, USA Network has grown into
one of the nation's most widely distributed and viewed satellite-delivered
television networks. According to Nielsen Media Research, as of December 2001,
USA Network was available in approximately 85.2 million U.S. households (81% of
the total U.S. households with televisions). For the 2001 year, USA Network tied
for the second highest primetime rating of any

                                       13

domestic basic cable network, with an average rating of 1.7 in primetime for the
12-month period (Source: Nielsen Media Research). USA Network is a general
entertainment network featuring original series and movies, theatrical movies,
off-network television series and major sporting events, designed to appeal to
the available audiences during particular viewing hours. In general, USA
Network's programming is targeted at viewers between the ages of 25 to 54.

    Sci Fi Channel was launched in 1992. It has been one of the fastest-growing
satellite-delivered networks since its inception. According to Nielsen Media
Research, as of December 2001, Sci Fi Channel was available in approximately
77 million U.S. households (73% of the total U.S. households with
televisions)--making it almost a fully-distributed network. Sci Fi Channel
features science fiction, horror, fantasy and paranormal programming. In
general, Sci Fi Channel's programming is designed to appeal to viewers between
the ages of 25 to 54. According to Nielsen Media Research, Sci Fi Channel
averaged a primetime 0.8 rating for calendar year 2001, making it a top ten
network in its targeted demographic. The Channel has just entered its second
year as the largest provider of original, dramatic series in primetime on cable.

    In addition to the services described above, Sci Fi Channel has its own
website, SCIFI.COM, which was launched in 1995. SCIFI.COM is an online science
fiction resource, featuring original entertainment, daily news, feature stories,
games and special events that focus on science fiction, science fact, fantasy,
horror, the paranormal and the unknown.

    Trio and NWI were acquired by USA Cable from the Canadian Broadcasting
Corporation ("CBC") and Power Broadcasting Inc. in May 2000. TRIO relaunched in
June 2001 as "popular arts television" featuring the best in film, fashion,
music, stage and popular culture. NWI is a 24-hour international news channel
that presents hourly newscasts every hour as well as long-form contemporary
magazine shows. As of December 31, 2001, Trio was available in over 14 million
U.S. households and NWI was available in 10 million U.S. households.

    USA Cable's four networks derive virtually all of their revenues from two
sources. The first is the per-subscriber fees paid by the cable operators and
other distributors. The second is from the sale of advertising time within the
programming carried on each of the networks.

    PROGRAMMING AND TRANSMISSION.  USA Network's program line-up features
original series, produced exclusively for it (E.G., COMBAT MISSIONS, DEAD ZONE)
and approximately 10-15 movies also produced exclusively for it each year. USA
Network's programming also includes off-network series such as JAG, NASH
BRIDGES, WALKER, TEXAS RANGER, LAW& ORDER: SPECIAL VICTIMS UNIT and LAW & ORDER:
CRIMINAL INTENT, and major theatrically-released feature films. USA Network is
home to the AFI LIFE ACHIEVEMENT AWARDS, ECO-CHALLENGE, exclusive midweek
coverage of the U.S. OPEN TENNIS CHAMPIONSHIPS, THE WESTMINSTER KENNEL CLUB DOG
SHOW, and early round coverage of THE MASTERS, the RYDER CUP and major PGA Tour
golf events.

    Sci Fi Channel's program lineup includes original programs, such as CROSSING
OVER WITH JOHN EDWARD, FARSCAPE, STARGATE: SG-1, and RIVERWORLD. Additionally,
Sci Fi features the best of futures past, with popular vintage series ranging
from THE TWILIGHT ZONE to LOST IN SPACE to digitally-remastered episodes of the
original STAR TREK series. The Channel continuously updates its library with
popular sci-fi fare such as the new STRANGE WORLD, THE OUTER LIMITS, TALES FROM
THE CRYPT, EARTH: FINAL CONFLICT, and BABYLON 5.

    USA Network and Sci Fi Channel typically enter into long-term agreements for
their major off-network series programming. Their original series commitments
usually start with less than a full year's commitment (generally, a pilot
episode), but contain options for further production over several years. These
original productions will include specials, series, and made-for-television
movies. USA Network (and to a lesser extent, Sci Fi Channel) acquires theatrical
films in both their "network" windows and "pre-syndication" windows. Under these
arrangements, the acquisition of such rights is

                                       14

often concluded many years before the actual exhibition of the films begins on
the network. Each network's original films start production less than a year
prior to their initial exhibition. Both networks typically obtain the right to
exhibit both their acquired theatrical films and original films numerous times
over multiple year periods.

    TRIO's programming includes exclusive original series and specials as well
as acquired series. In 2002, TRIO plans to introduce its first original series,
THE SCORE, from legendary producers Phil Ramone and Norman Lear. It also plans
several original specials as well as the exclusive national coverage of the 2002
New Orleans Jazz and Heritage Festival. Acquired programs include acclaimed
films, classic concerts, pop culture magazines "Media TV," "Hot Type" and "The
Designers" as well as iconic, one-of-a-kind series like ROWAN & MARTIN'S
LAUGH-IN and the award-winning SESSIONS AT WEST 54TH ST.

    NWI's line-up is anchored at the top of every hour by the newscast,
INTERNATIONAL NEWSFIRST, covering the latest news from around the world,
including business, sports, weather and entertainment. Throughout the day NWI
also features daily world newscasts presently licensed from broadcasters in
Mexico, Russia, China, Germany, Japan and Canada, which are presented both in
the original language and with an English translation. Under a long-term supply
agreement, NWI's programming is produced by CBC in Canada.

    USA Cable's four networks distribute their programming service on a 24-hour
per day, seven-day per week basis. All four networks are distributed in all 50
states and Puerto Rico via satellite for distribution by cable television
systems and direct broadcast satellite systems and for satellite antenna owners
by means of satellite transponders owned or leased by USA Cable. Any cable
television system or individual satellite dish owner in the United States and
its territories and possessions equipped with standard satellite receiving
facilities is capable of receiving USA Cable's services.

    USA Cable has the full-time use of four transponders on two domestic
communications satellites. USA Cable has protection in the event of the failure
of its transponders. When the carrier provides services to a customer on a
"protected" basis, replacement transponders (I.E., spare or unassigned
transponders) on the satellite may be used in the event the "protected"
transponder fails. Should there be no replacement transponders available, the
"protected" customer will displace a "preemptible" transponder customer on the
same satellite. The carrier also maintains a protection satellite and should a
satellite fail completely, all "protected" transponders would be moved to the
protection satellite that is available on a "first fail, first served" basis.

    A transponder failure that would necessitate a move to another transponder
on the same satellite would not result in any significant interruption of
service to those that receive USA Cable's programs. However, a failure that
would necessitate a move to another satellite temporarily may affect the number
of cable systems that receive USA Cable programs as well as other programming
carried on the failed satellite, because of the need to install equipment or to
reorient earth stations. The projected ends of life of the two satellites
utilized by USA Cable are January 2005 and March 2006, respectively.

    USA Cable's control of two different transponders on each of two different
satellites would enable it to continue transmission of USA Network and Sci Fi
Channel should either one of the satellites fail. USA Cable does not have this
capability for Trio and NWI. Although USA Cable believes it is taking reasonable
measures to ensure its continued satellite transmission capability, there can be
no assurance that termination or interruption of satellite transmission will not
occur. Such a termination or interruption of service by one or both of these
satellites could have a material adverse effect on the operations and financial
condition of USA. The availability of replacement satellites and transponders
beyond current arrangements is dependent on a number of factors over which USA
Cable has no control, including competition among prospective users for
available transponders and the availability of satellite launching facilities
for replacement satellites.

                                       15

    Each of the networks enters into agreements with cable operators and other
distributors that agree to carry the programming service, generally as part of a
package with other advertiser-supported programming services. These agreements
are multi-year arrangements, and obligate the distributor to pay USA Cable a fee
for each subscriber to the particular programming service. From time to time, a
USA Cable network will be distributed on one or more cable systems without a
distribution agreement in effect while the parties negotiate a new agreement, a
process that may be protracted. While the cessation of carriage by a major cable
operator would have a negative impact on the financial results of USA Cable, the
Company has successfully managed the distribution agreement process in the past,
and believes it will continue to do so.

    STUDIOS USA

    USA, through Studios USA, produces and distributes television programs
intended for initial exhibition on television and home video in both domestic
and international markets. These productions include original programming for
network television and first-run syndication through local television stations.
Studios USA also is the exclusive domestic distributor of the Universal
television library. In addition to the activities of Studios USA, other USA
business units are also engaged in financing and distributing television
programs for exhibition on USA Network and Sci Fi Channel.

    Studios USA and its predecessor companies have produced programming for
network television since the early 1950s and Studios USA remains a major
supplier of network and first-run syndication programming today, including
LAW & ORDER, LAW & ORDER: SPECIAL VICTIMS UNIT, THE DISTRICT, THE JERRY SPRINGER
SHOW and MAURY (hosted by Maury Povich). For the 2001/02 broadcast season,
Studios USA launched a new series for CBS, THE AGENCY, and two new series for
NBC from LAW & ORDER creator, Dick Wolf, entitled LAW & ORDER: CRIMINAL INTENT
and CRIME & PUNISHMENT. LAW & ORDER:CRIMINAL INTENT and LAW & ORDER: SPECIAL
VICTIMS UNIT have both been renewed for the 2002/03 season, while LAW & ORDER
has been ordered through the 2004/05 season.

    Television production generally includes four steps: development,
pre-production, principal photography and post-production. The
production/distribution cycle represents the period of time from development of
the property through distribution and varies depending upon such factors as type
of product and primary form of exhibition. Development of television programs
and films begins with ideas and concepts of producers and writers, which form
the basis of a television series or film. Producers and writers are frequently
signed to term agreements generally providing Studios USA with exclusive use of
their services for a term ranging from one to five years in the case of
producers and one to two years in the case of writers. Term agreements are
signed with such talent to develop network comedy and drama and first-run
syndication programming. Term agreements are also signed with actors, binding
them to Studios USA for a period of time during which Studios USA attempts to
attach them to a series under development. These term agreements represent a
significant investment for Studios USA.

    In the case of network development, the ideas and concepts developed by
producers and writers are presented to broadcast networks to receive their
approval and financial participation in the development of a "pilot" that could
possibly become a commitment from the network to license a minimum number of
episodes based on the pilot. In general, the production cycle for network
programming begins with the presentation of pilot concepts to network
broadcasters in the fall of each year. Alternatively, Studios USA may elect to
self-finance a project, and then market the completed script or produced pilot
to the various networks. In any case, each May, networks release their fall
schedules, committing to the series production of pilots, renewing existing
programs and canceling others. Networks typically commit to seven to thirteen
episodes for such new series with options to acquire additional episodes for a
negotiated license fee and twenty-two episodes for a renewed series. Production
on these series begins in June and continues through March, depending upon the
network commitment. The network broadcast season runs from September through
May. Studios USA incurs

                                       16

production costs throughout the production cycle up through completion of an
episode while networks remit a portion of the license fees to Studios USA upon
the beginning of episodic production and a portion upon delivery of episodes.

    Several of Studios USA's subsidiary companies are individually and
separately engaged in the development and/or production of television programs.
Certain of these subsidiaries are also signatories to various collective
bargaining agreements within the entertainment industry. The most significant of
these are the agreements with the Writers Guild of America ("WGA"), the
Directors Guild of America ("DGA") and the Screen Actors Guild ("SAG") which
agreements typically have a term of several years and then require
re-negotiation. The current WGA agreement expires on May 1, 2004, the DGA
agreement expires on June 30, 2005 and the SAG agreement expires on June 30,
2004.

    TELEVISION PRODUCTION CUSTOMERS.  Studios USA produces television programs
for the U.S. broadcast networks for prime time television exhibition. Certain
television programs are initially licensed for network television exhibition in
the U.S. and are simultaneously syndicated outside the U.S. Historically,
Studios USA customers for network television product have been concentrated with
the three oldest major U.S. television networks:ABC, CBS and NBC. In recent
years, the Fox Broadcasting Company, UPN and the WB Network have created new
networks, decreasing to some extent Studios USA's dependence on ABC, CBS and NBC
and expanding the outlets for its network product. Programming consists of
various weekly series, including the returning productions LAW & ORDER, LAW &
ORDER: SPECIAL VICTIMS UNIT, THE DISTRICT, two new series from LAW & ORDER
creator Dick Wolf, entitled LAW & ORDER: CRIMINAL INTENT and CRIME & PUNISHMENT
on NBC and THE AGENCY on CBS. In the initial telecast season, the network
license provides for the production of a minimum number of episodes, with the
network having the option to order additional episodes for both the current and
future television seasons. The success of any one series may be influenced by
the time period in which the network airs the series, the strength of the
programs against which it competes, promotion of the series by the network and
the overall commitment of the network to the series.

    Generally, network licenses give the networks the exclusive right to
broadcast new episodes of a given series for a period of time, generally from
four to seven years and sometimes with further options thereafter. Recently,
series produced by Studios USA have been distributed on a "dual platform" basis.
In the case of LAW & ORDER: SPECIAL VICTIMS UNIT and LAW & ORDER: CRIMINAL
INTENT, for example, the USA Network shares the initial exhibition "window" with
NBC. Studios USA also produces television film product that is initially
syndicated directly to independent television stations for airing throughout the
broadcast day and to network affiliated stations for non-primetime airing.

    Studios USA has also been distributing programs on a "dual platform" basis
in cable and in syndication. For example, INVISIBLE MAN currently is distributed
on a dual platform basis on the Sci Fi Channel and in first-run syndication, and
commencing with the 2001-02 broadcast season, Sci Fi's CROSSING OVER WITH JOHN
EDWARD also has been dual platformed on Sci Fi Channel and in first-run
syndication.

    Studios USA licenses television film product to independent stations and
directly to network affiliated stations in return for either a cash license fee,
barter or part-barter and part-cash. Barter syndication is the process whereby
Studios USA obtains commitments from television stations to broadcast a program
in certain agreed upon time periods. Studios USA retains advertising time in the
program in lieu of receiving a cash license fee, and sells such retained
advertising time for its own account to national advertisers at rates based on
the projected number of viewers. By placing the program with television stations
throughout the United States, an "ad hoc" network of stations is created to
carry the program. The creation of this ad hoc network of stations, typically
representing a penetration of at least 80% of total U.S. television households,
enables Studios USA to sell the commercial advertising time through advertising
agencies for sponsors desiring national coverage. The rates charged for this
advertising time are typically lower than rates charged by U.S. broadcast
networks

                                       17

for similar demographics since the networks coverage of the markets is generally
greater. In order to create this ad hoc network of stations and reach 80% of
total U.S. television households, Studios USA must syndicate its programming
with stations that are owned and operated by the major broadcast networks and
station groups, which are essentially entities which own many stations in the
major broadcast markets across the United States. Without commitments from
broadcast network stations and station groups, the necessary market penetration
may not be achieved which may adversely affect the chances of success in the
first-run syndication market.

    Generally, television films produced for broadcast networks or barter
syndication (or those financed by USA Cable Entertainment LLC for cable
exhibition) provide license fees and/or advertising revenues that cover only a
portion of the anticipated production costs. The recoverability of the balance
of the production costs and the realization of profits, if any, is dependent
upon the success of other exploitation including international syndication
licenses, subsequent basic cable and domestic syndication licenses, releases in
the home video market, merchandising and other uses. Pursuant to an agreement
with Universal which will terminate upon consummation of the Vivendi
Transaction, Studios USA has the right to include eligible product in
Universal's international free television output and volume agreements with
television broadcasters in major international territories. These agreements
represent a substantial revenue source for Studios USA.

    DISTRIBUTION.  In general, during the initial production years of a
primetime series for the broadcast networks (E.G., seasons one to four),
domestic network and international revenues fall short of production costs. As a
result, the series will likely remain in a deficit position until sold in the
domestic syndication market. The series will be available for airing in the
off-network syndication market after a network's exclusivity period ends,
typically the September following the completion of the third or fourth network
season (or the subsequent season if the series were a mid-season order). For a
successful series, the syndication sales process generally begins during the
second or third network season. The price that a series will command in
syndication is a function of supply and demand. Studios USA syndicated series
are sold for cash and/or bartered services (I.E., advertising time), typically
for a period of at least five years. Barter transactions have played an
increasingly important role in the syndication process as they can represent a
majority of the distributor's syndication revenue.

    Studios USA distributes its current programming domestically. In addition,
Studios USA is the exclusive domestic distributor of Universal's large
television library, with programming dating back to the 1950s and including such
series as ALFRED HITCHCOCK PRESENTS; THE VIRGINIAN; MARCUS WELBY, M.D.; DRAGNET;
COLUMBO; KOJAK; THE ROCKFORD FILES; MURDER SHE WROTE; MAGNUM P.I.; MIAMI VICE;
COACH; and NORTHERN EXPOSURE.

    In addition, Universal currently has the exclusive right, with limited
exceptions, to distribute all Studios USA programming internationally. In that
regard, Universal has entered into several output and volume agreements with
international television broadcasters that include programming produced by
Studios USA, including agreements in Germany, France, Spain, Italy and the
United Kingdom. These agreements generally provide that the licensor in a given
territory shall have exclusive first-run free television rights to all Universal
or Studios USA product, or alternatively, provide mechanisms by which the
licensor generally commits to license a minimum number per year of first-run
series and first-run television movies during a specified term in the territory.
Pursuant to the terms of the current distribution arrangement between USA and
Universal, USA's eligible programming will have the first right to participate
in Universal's international output and volume agreements with international
television broadcasters. This agreement will be terminated upon consummation of
the Vivendi Transaction.

                                       18

'

                                   REGULATION

    USA and its subsidiaries are subject to various laws and regulations. The
following summary does not purport to be a complete discussion of all enacted or
pending regulations and policies that may affect USA's businesses. This summary
focuses primarily on the enacted federal and state legislation specific to USA's
businesses.

COMMUNICATIONS INDUSTRY

    The communications industry, including the operation of television broadcast
stations, cable television systems, satellite distribution systems and other
multichannel distribution systems and, in some respects, vertically integrated
cable programmers, is subject to substantial federal regulation, particularly
under the Communications Act of 1934, as amended (the "Communications Act"), and
the rules and regulations promulgated thereunder by the Federal Communications
Commission ("FCC").

    CABLE PROGRAMMING.  The Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Act") prohibits a cable operator from engaging in unfair
methods of competition that prevent or significantly hinder competing
multichannel video programming distributors from providing satellite-delivered
programming to their subscribers. The FCC has adopted regulations to
(1) prevent a cable operator that has an attributable interest, including voting
or non-voting stock ownership of at least 5%, in a programming vendor from
exercising improper influence over the programming vendor in the latter's
dealings with competitors to cable; and (2) to prevent a programmer in which a
cable operator has an attributable interest from discriminating among cable
operators and other multichannel video programming distributors, including other
cable operators.

    Cable television systems are also subject to regulation pursuant to
franchises granted by a municipality or other state or local governmental
entity.

    BROADCAST TELEVISION LICENSE GRANT AND RENEWAL.  The Communications Act
provides that a broadcast license, including the licenses controlled by USA
affiliates, may be granted to any applicant upon a finding that the public
interest, convenience and necessity would be served thereby, subject to
limitations. Television stations operate according to broadcasting licenses that
are usually granted by the FCC for a maximum permitted term of eight years,
subject to renewal upon application to the FCC.

    DIGITAL TELEVISION.  The FCC has taken a number of steps to implement
digital television service (including high-definition television) in the United
States, including the adoption of a final table of digital channel allotments
and rules for the implementation of digital television. The table of digital
allotments provides each existing television station licensee or permittee with
a second broadcast channel to be used during the transition to digital
television, conditioned upon the surrender of one of the channels at the end of
the digital television transition period. The FCC has set a target date of
May 2002 for completion of construction of digital television facilities and
2006 for expiration of the digital transition period, subject to biennial
reviews to evaluate the progress of digital television, including the rate of
consumer acceptance.

    Material developments in the DTV roll-out could have an impact on Home
Shopping Network's business. For example, in the future, low-power television
affiliates of Home Shopping Network may have to cease operations due to
irremediable interference to or from new digital television allocations.

    MUST-CARRY/RETRANSMISSION CONSENT.  Full-power television broadcasters are
required to make triennial elections to exercise either "must-carry" or
"retransmission consent" rights with respect to their carriage by cable systems
in each broadcaster's local market. By electing must-carry rights, a television
broadcaster demands carriage on a specified channel on cable systems within its
television

                                       19

market (defined by Nielsen as a Designated Market Area (DMA)). Alternatively, if
a television broadcaster chooses to exercise retransmission consent rights, it
can prohibit cable systems from carrying its signal or grant the appropriate
cable system the authority to retransmit the broadcast signal for a fee or other
consideration. Home Shopping Network is affected by the must-carry rules in that
cable systems have fewer channels available for cable programming services, such
as Home Shopping Network, because of mandatory carriage requirements. The FCC
currently is conducting a rulemaking proceeding to determine whether, in certain
circumstances, it should require carriage of a television station's digital and
analog signals.

    SHVIA.  The Satellite Home Viewer Improvement Act ("SHVIA"), which was
enacted on November 29, 1999 provides, among other things, for a statutory
copyright license to enable satellite carriers to retransmit local television
broadcast stations into the stations' respective local markets. SHVIA does not
require satellite carriers to deliver local stations into their local
market--so-called "local-into-local" service. However, as of January 1, 2002, a
satellite carrier that chooses to carry at least one local television broadcast
station signal pursuant to the statutory copyright must also carry any other
full power local television station in the market that requests carriage. In
certain instances, a satellite carrier is not required to carry duplicative
signals of commercial television stations serving the same local market.
Satellite carriers will be prohibited from providing local-into-local service
without the consent or must-carry election of a station, but stations will be
obligated to engage in good faith retransmission consent negotiations with the
carriers.

    COMMUNITY BROADCASTERS PROTECTION ACT.  The Community Broadcasters
Protection Act of 1999 (CBPA) established a new Class A television status that
offers certain protections to "qualifying" low power television (LPTV) stations
from full-power television service. In order to qualify for Class A status, an
LPTV station must meet specific criteria contained in the CBPA. Alternatively,
the CBPA allows the FCC to grant Class A status to any LPTV station if the FCC
finds that such a grant would serve the public interest, convenience and
necessity.

    REGULATIONS APPLICABLE TO BROADCAST STATIONS AND CABLE SYSTEMS.  Cable
television operators also are subject to regulations concerning the commercial
limits in children's programming, and closed captioning. The FCC's closed
captioning rules, which became effective January 1, 1998, provide for the phased
implementation, beginning in the year 2000, of a universal on-screen captioning
requirement with respect to the vast majority of video programming. The
captioning requirement applies to programming transmitted by broadcast
television stations and cable programming networks.

    The FCC has adopted rules that take effect as of April 1, 2002 requiring
certain cable networks, among others, to provide an oral description of the
video portion of certain programming to benefit the visually impaired. USA
Network is one of the cable networks that may need to comply with these
regulations.

    As part of a directive in the Telecommunications Act, the broadcast and
cable television industries have adopted, and the FCC has approved a voluntary
content ratings system which, when used in conjunction with so-called "V-Chip"
technology, would permit the blocking of programs with a common rating. The FCC
directed that all television receiver models with picture screens 13 inches or
greater be equipped with "V-Chip" technology under a phased implementation that
began on July 1, 1999. USA cannot predict how changes in the implementation of
the ratings system and "V-Chip" technology will affect its business.

OTHER REGULATORY CONSIDERATIONS

    USANi LLC and its subsidiaries are also subject to varying degrees of other
government regulation. Increasing concern over consumer privacy, including
regulations relating to the use of the Internet with customer care and service,
has led to the introduction from time to time of proposed legislation, including
at the federal level, that could impact the Company's businesses. The Company
cannot predict whether any of these types of legislation will be enacted and
what effect, if any, it would have on the Company and its subsidiaries.

                                       20

              TRADEMARKS, TRADENAMES, COPYRIGHTS AND DOMAIN NAMES

    Holdco regards its domain names and similar intellectual property as
critical to its success. Holdco relies on a combination of laws and contractual
restrictions with its employees, customers, suppliers, affiliates and others to
establish and protect its proprietary rights. Despite these precautions, it may
be possible for a third party to copy or otherwise obtain and use our
intellectual property without authorization. In addition, there can be no
assurance that others will not independently develop substantially similar
intellectual property. Holdco has registered and continues to register, when
appropriate, its trade and service marks as they are developed and used, and
Holdco vigorously protects its trade and service marks. However, effective
trademark protection may not be available or may not be sought by us in every
country in which our products and services are made available. Our failure to
protect our intellectual property in a meaningful manner could materially
adversely affect our business or result in erosion of our brand names.

    From time to time we may be subject to legal proceedings and claims in the
ordinary course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by our
company. In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation,
regardless of outcome or merit, could result in substantial costs and diversion
of management and technical resources, any of which could materially harm our
business.

                                  COMPETITION

USA INTERACTIVE GROUP

HOME SHOPPING NETWORK

    The Home Shopping Network business operates in a highly competitive
environment. It is in direct competition with traditional retail merchandisers
ranging from large department stores to specialty shops, other electronic
retailers, direct marketing retailers such as mail order companies, companies
that sell from catalogs, other discount retailers and companies that market
through computer technology.

    Home Shopping Network competes with certain other companies which have an
affiliation or common ownership with cable operators, which now market
merchandise by means of live television. QVC, a competitor of HSN, is controlled
by Comcast Corporation. Liberty, which holds a substantial equity interest in
USA and USANi LLC, currently owns 43% of QVC, and has entered into a
stockholders agreement with Comcast Corporation under which Comcast Corporation
controls the day-to-day operations of QVC. A number of other entities are
engaged in direct retail sales businesses that utilize television in some form
and which target the same markets in which Home Shopping Network operates. Some
competitors of the Home Shopping Network business are larger and more
diversified than USA.

    VIEWERSHIP.  The Home Shopping Network business also competes for access to
its customers and for audience share and revenue with broadcasters and
conventional forms of entertainment and information, such as programming for
network and independent broadcast television stations, basic and pay cable
television services, satellite master antenna systems, home satellite dishes and
home entertainment centers, newspapers, radio, magazines, outdoor advertising,
transit advertising and direct mail. In particular, the price and availability
of programming for cable television systems affect the availability of these
channels for HSN, America's Store and HSE programming and the compensation which
must be paid to cable operators for carriage of HSN, America's Store and HSE
programming.

    CHANNEL CAPACITY.  In addition, due to a number of factors, including the
development of cable operator owned programming, the competition for channel
capacity has substantially increased. With the advent of digital cable and new
compression technologies on the horizon, this competition for

                                       21

channel capacity may substantially decrease, although additional competitors may
have the opportunity to enter the marketplace. No prediction can be made with
respect to the viability of these technologies or the extent to which they will
ultimately impact the availability of channel capacity. A substantial portion of
USA's businesses, including HSN and USA Cable, are affected by changes in
channel capacity and competition among programming providers for available
channel capacity.

HSN INTERNATIONAL

    HSN competes internationally with traditional retailers, direct marketing
retailers and others electronic retailers. There are operators throughout the
world that either ofer 24-hour electronic retailing or are using infomercials
and small amount of live programming that compete with HSN's international
operations.

HSN.COM

    Home Shopping Network operates HSN.com, an Internet retailing service that
competes with numerous bricks-and-mortar retailers, other online and offline
retail operations, and catalog merchants. A number of the online competitors
have a larger user base and have expertise in developing online commerce. USA
believes that the principal competitive factors in this market are scale,
selection of goods, customer service, reliability of delivery, brand
recognition, convenience and accessibility, price, quality of search tools and
system reliability.

USA ELECTRONIC COMMERCE SOLUTIONS

    ECS competes with a number of companies in providing end-to-end commerce
solutions to third parties. ECS also competes with companies that provide
certain portions of its operations, including fulfillment and customer service
providers, transaction enablers and consulting firms. In addition, as demand for
electronic retailing grows, other service providers may increase their efforts
to develop services that compete with those offered by ECS. ECS believes that
the principal competitive factors in its business are scalability, depth of
e-commerce offering and ability to offer end-to-end solutions. There can be no
assurance that ECS will be able to compete successfully against current and
future competitors.

STYLECLICK

    Styleclick faces competition from companies that currently, or could
readily, provide e-commerce services similar to those offered by Styleclick.
Certain of Styleclick's competitors may be advantaged as compared to Styleclick
with respect to technology, client lists, scale and access to capital. In
addition, Styleclick potentially faces competition from companies that possess
the technology and expertise necessary to effectively operate large-scale
e-commerce businesses, but that may not currently offer such services to
third-parties. Styleclick's challenges in meeting its obligations to its
existing customers may make it difficult for Styleclick to attract or adequately
service new customers. Styleclick believes that the principal competitive
factors in this market are selection of goods, customer service, reliability of
delivery, brand recognition, website convenience and accessibility, price,
quality of search tools and system reliability. There can be no assurance that
Styleclick will be able to compete successfully against current and future
competitors.

USA ENTERTAINMENT

CABLE AND STUDIOS

    USA CABLE

    USA Cable competes for access to its customers and for audience share and
revenue with broadcasters and other forms of entertainment. Cable operators and
other distributors only contract to carry a limited number of the available
networks. Therefore, they may decide not to offer a particular

                                       22

network to their subscribers, or they may package a network with other networks
in a manner that only a portion of their subscribers will receive the service
(for example, by charging an additional fee). In addition, there has been
increased consolidation among cable operators, so that USA Cable's networks have
become increasingly subject to the carriage decisions made by a small number of
operators. This consolidation may reduce the per-subscriber fees received from
cable operators in the future. The consolidation also means that the loss by any
network of any one or more of its major distributors could have a material
adverse impact on that network. The competition for advertising revenues also
has become more intense as the number of television networks has increased.
While many factors affect advertising rates, ultimately they are dependent on
the numbers and types of viewers that a program attracts. As more networks
compete for viewers, it becomes increasingly difficult to increase or even
maintain a network's number of viewers. Moreover, to do so may require a network
to spend significantly greater amounts of money on programming. Therefore,
greater pressure may be placed on the networks' ability to maintain advertising
revenue levels and to try and generate increases. Both USA Cable and Studios USA
are affected by competition for advertising revenues. The competition for
third-party programming is likely to increase. Many networks, including USA
Cable's networks, are affiliated with companies that produce programming. This
programming is becoming increasingly difficult to acquire by third parties or
unaffiliated networks. As a result, there is likely to be strong competition to
acquire remaining programming.

    STUDIOS USA

    PROGRAMMING.  Studios USA operates in a highly competitive environment. The
production and distribution of television programming are highly competitive
businesses. Television programs produced by Studios USA compete with all other
forms of network and syndication programming, as well as other forms of
entertainment. Competition is also faced from other major television studios and
independent producers for creative talent, writers and producers. The
profitability of Studios USA is dependent upon factors such as public taste that
is volatile, shifts in demand, economic conditions and technological
developments.

    In 1995, the FCC repealed its financial interest and syndication rules
("fin-syn rules"). The fin-syn rules were adopted in 1970 to limit television
network control over television programming and to foster the development of
diverse programming sources. The rules had restricted the ability of the three
established, major U.S. televisions networks (I.E., ABC, CBS and NBC) to own and
syndicate television programming. The repeal of the rules has increased in-house
production of television programming for the networks' own use. As a result of
the repeal of the fin-syn rules, the industry has become increasingly vertically
integrated, with all of the major broadcast networks, with the exception of NBC,
being aligned with a major studio. In addition, the three major broadcast
networks have their own in-house or affiliated production units. There can be no
assurance that these changes will not have a negative impact on Studios USA's
business as its network customers are now able to choose between their own
product and Studios USA's product in making programming decisions. Nonetheless,
up through the current 2001/02 season, Studios USA has continued to remain one
of the primary independent suppliers of U.S. television programming.

                                   EMPLOYEES

    As of the close of business on December 31, 2001, Holdco and its
subsidiaries employed approximately 5,660 full-time employees, with
approximately 1,060 employees employed by USA Cable and Studios USA, 4,470
employees employed by Electronic Retailing, 60 employees employed by Styleclick,
and 70 employees employed by USA Electronic Commerce Solutions. Holdco believes
that it generally has good employee relationships, including with employees
represented by unions and guilds.

                                       23

ITEM 2. PROPERTIES

    Holdco's facilities for its management and operations are generally adequate
for its current and anticipated future needs. Holdco's facilities generally
consist of executive and administrative offices, fulfillment facilities,
warehouses, operations centers, call centers, television production and
distribution facilities, satellite transponder sites and sales offices.

    All of Holdco's leases are at prevailing market (or "most favorable") rates
and, except as noted, with unaffiliated parties. Holdco believes that the
duration of each lease is adequate. Holdco believes that its principal
properties, whether owned or leased, are adequate for the purposes for which
they are used and are suitably maintained for such purposes. Most of the
office/studio space is substantially utilized, and where significant excess
space exists, Holdco leases or subleases such space to the extent possible.
Holdco anticipates no future problems in renewing or obtaining suitable leases
for its principal properties.

CORPORATE

    Holdco maintains its principal executive offices at Carnegie Hall Tower, 152
West 57th Street, New York, New York that consists of approximately 29,850
square feet leased by USA through October 30, 2005 and an additional 6,100
square feet leased by USA through August 31, 2008.

USA INTERACTIVE GROUP

HOME SHOPPING NETWORK

    Home Shopping Network owns an approximately 480,000 square foot facility in
St. Petersburg, Florida, which houses its Home Shopping Network television
studios, broadcast facilities, administrative offices and training facilities.
Home Shopping Network also leases 40,000 square feet of modular buildings
located at this facility.

    Home Shopping Network owns two warehouse-type facilities totaling
approximately 84,000 square feet near Home Shopping Network's main campus in St.
Petersburg, Florida. These facilities have been used for returns processing,
retail distribution and general storage.

    Home Shopping Network leases a 41,000 square foot facility in Clearwater,
Florida for its video and post-production operations. Home Shopping Network
expects to terminate this lease and vacate the facility in 2002.

    Home Shopping Network owns and operates a warehouse consisting of 163,000
square feet located in Waterloo, Iowa, which is used as a fulfillment center. In
addition, Home Shopping Network rents additional space in Waterloo, Iowa
consisting of 50,000 square feet.

    Home Shopping Network owns and operates a warehouse located in Salem,
Virginia, consisting of approximately 780,000 square feet, which is used as a
fulfillment center. In addition, Home Shopping Network leases one additional
location in Salem, Virginia consisting of 194,750 square feet and two additional
locations in Roanoke, Virginia consisting of 70,000 square feet and 383,000
square feet. Home Shopping Network plans to terminate the lease for the 70,000
square foot location and vacate the space in 2002.

    Home Shopping Network leases 450,000 square feet of a 817,750 square foot
warehouse in Fontana, California, which it opened as an additional fulfillment
facility in 2001. The remainder of this facility is leased by other subsidiaries
of USA.

    Home Shopping Network's retail outlet subsidiary leases three retail stores
in the Tampa Bay area and one in the Orlando areas, totaling approximately
86,425 square feet.

                                       24

HSN INTERNATIONAL

    Home Shopping Europe--Germany owns no real estate in Germany, although it
leases approximately 3,200 square meters in Ismaning, Germany (outside Munich)
for offices and studios.

USA ELECTRONIC COMMERCIAL SOLUTION

    The executive offices of USA Electronic Commerce Solutions are located at
810 Seventh Avenue, 18th Floor, New York, New York. Approximately 15,500 square
feet are maintained under a lease expiring in 2010. ECS also maintains
approximately 6,000 square feet of additional space at the same address under a
sublease expiring in 2007.

STYLECLICK

    Styleclick's headquarters are in Chicago, where it leases 10,500 square feet
under a lease expiring 2005. Styleclick also leases a 23,000 square feet
facility in Culver City, California under a lease expiring in 2006, a 4,800
square foot facility in High Point, North Carolina under a lease that expires in
2004, and an additional 10,000 square feet in Los Angeles, under a lease
expiring in 2002, each of which it subleases to a third party.

USA ENTERTAINMENT

CABLE AND STUDIOS

    The executive offices of USA Cable are located at 1230 Avenue of the
Americas, New York, New York 10020. USA Cable leases approximately 168,000
square feet at this office space under a lease that continues until March 31,
2005, subject to two five-year options to continue the term. USA Cable also has
smaller offices in Chicago (affiliate relations and sales), Detroit (sales), and
Los Angeles (affiliate relations, sales and programming).

    USA Cable also leases approximately 55,000 square feet in a facility in
Jersey City, New Jersey, where USA Cable has its broadcast operations center.
This space is used to originate and transmit the USA Network, Sci Fi Channel,
Trio, and NWI signals. Post-production for USA Networks, Sci Fi Channel, and
Trio, including audio production, editing, graphics and duplication, also is
performed at this location. The lease for this space continues through
April 30, 2009, and there are options to continue the term beyond that time.

    Studios USA currently conducts its domestic television production and
distribution operations primarily from its executive and administrative offices
in West Hollywood, California (in a facility owned by USA, located at 8800
Sunset Boulevard, West Hollywood, California 90069) and in New York City (in
leased office space located at 1325 Avenue of the Americas, New York, New York
10019). Additionally, Studios USA has four domestic sales offices located in
Atlanta, Chicago, Dallas and New York City. Production facilities in Southern
California are leased primarily from Universal on its Universal City lot on an
as-needed basis depending upon production schedules. Studios USA also leases
production facilities in New York City for the production of LAW & ORDER, LAW &
ORDER: CRIMINAL INTENT, SALLY and MAURY, in New Jersey for LAW & ORDER: SPECIAL
VICTIMS UNIT and in Chicago for production of THE JERRY SPRINGER SHOW.

ITEM 3. LEGAL PROCEEDINGS

    In the ordinary course of business, USA and USANi LLC and their subsidiaries
are parties to litigation involving property, personal injury, contract and
other claims. The amounts that may be recovered in these matters may be subject
to insurance coverage. Although amount received in litigation are not expected
to be material to the financial position or operations of USA and USANi

                                       25

LLC, this litigation, regardless of outcome or merit, could result in
substantial costs and diversion of management and technical resources, any of
which could materially harm our business.

LITIGATION RELATING TO THE CONTRIBUTION OF USA ENTERTAINMENT ASSETS TO JOINT
VENTURE WITH VIVENDI UNIVERSAL S.A.

    USA and its directors, along with Vivendi Universal S.A. and Liberty Media
Corporation, have been named as defendants in purported stockholder class and
derivative actions filed in the Court of Chancery, County of New Castle, State
of Delaware. Each of these actions, which are substantially identical, are
brought on behalf of a purported class consisting of public stockholders of USA
not affiliated with any of the defendants and as a purported derivative action
in the right of USA. The complaints in the actions allege, among other things,
that "[t]he transfer of the USA Entertainment Group and its assets to the [VUE
Joint Venture] represents a break-up" of USA; that this transfer is "wrongful,
unfair and harmful" to the public stockholders of USA; that the transfer, and
related transactions, represent breaches of fiduciary duty by the individual
defendants; that the board of directors of USA has not fulfilled its alleged
duties in connection with the transaction because defendants were allegedly
under a duty to seek the highest price available for the USA Entertainment
Group; that specified defendants (i.e., Mr. Diller, Vivendi, Liberty and the
representatives of Vivendi and Liberty on the USA board of directors) are being
disproportionately "enriched" by the proposed transaction in relation to the
public stockholders; that the defendants have "failed to fully disclose the true
value of USA's Entertainment Group" and the alleged future financial benefits
which Vivendi, Liberty and Mr. Diller will obtain; and that the individual
defendants approved Mr. Diller's alleged usurpation of a corporate opportunity.
The complaints also allege that Vivendi and Liberty have aided and abetted the
individual defendants in their alleged breaches of fiduciary duty. As relief,
the complaints seek, among other things, a declaration that the proposed joint
venture is "unfair, unjust and inequitable"; an injunction against consummation
of the transactions; an award of damages in an unspecified amount; and an order
"[r]equiring defendants to conduct a proper process in the break up of [USA]."
On February 11, 2002, the Chancery Court issued an order consolidating the
actions under the caption, IN RE: USA NETWORKS, INC. SHAREHOLDERS LITIGATION,
Consolidated Civil Action No. 19236-NC. USA believes the allegations of the
complaints are entirely without merit and intends to vigorously defend the
actions.

HOME SHOPPING NETWORK CONSUMER CLASS ACTION

    On November 15, 1999, Home Shopping Network was named as a defendant in a
consumer class action lawsuit entitled BRUCE TOMPKINS, HENRIETTA BUCK AND JODI
HABEL HILL ON BEHALF OF THEMSELVES AND ALL OTHER SIMILARLY SITUATED INDIVIDUALS
V. PROTEVA, INC., HOME SHOPPING NETWORK, INC. D/B/A HOME SHOPPING NETWORK AND
THE HOME SHOPPING NETWORK, JOHN ROBERTS, VIVIAN ROBERTS MCKINLEY, KN CHAN,
WILLIAM LYNCH AND BRIAN JORDAN, filed in the Chancery Division of the Circuit
Court of Cook County, Illinois, Case No. 99 CH 12013. The action is purportedly
brought on behalf of consumers who were alleged to have purchased a Proteva
personal computer from one of the defendants and experienced one of the three
following conditions: (a) the computer was or became defective upon purchase or
soon thereafter, (b) a defendant refused or failed to honor the rebate offer
which was offered as part of the sale, or (c) a defendant refused or failed to
provide customer service as purportedly advertised. In the complaint, the
plaintiffs assert causes of action for consumer fraud, breach of implied
warranty of merchantability and unjust enrichment and seek compensatory and
punitive damages along with interest, costs and attorneys' fees. Home Shopping
Network filed an answer to the complaint.

    The plaintiffs filed an amended class action complaint that, among other
things: (i) added an additional named plaintiff, Susan Leff, (ii) added Home
Shopping Club LP, Warrantech Helpdesk, Inc., Banctech Service Corp. and
Timespace Internet, Inc. as named defendants, (iii) removed two individuals as
named defendants, Vivian Roberts McKinley and Kn Chan, and (iv) expanded the
existing warranty cause of action to also apply to breach of express warranty.
On May 9, 2000, Home

                                       26

Shopping Network, Inc. and Home Shopping Club LP (the "HSN Defendants") filed a
motion to dismiss the amended complaint. On May 23, 2000, the Cook County
Circuit Court addressed the HSN Defendants' motion to dismiss by entering an
Order that, in pertinent part, required the plaintiffs to file a second amended
complaint. On June 6, 2000, the plaintiffs filed a second amended class action
complaint that, among other things, added an additional named plaintiff,
Anastasia Kolias, and asserted two additional causes of action for negligent
misrepresentation and breach of contract. The HSN Defendants filed an answer and
affirmative defenses to the second amended complaint.

    On December 1, 2000, the plaintiffs filed a third amended class action
complaint that, among other things: (i) added an additional named plaintiff,
Wayne Varner, (ii) removed three corporate defendants, Warrantech
Helpdesk, Inc., Banctec Services Corp. and Timespace Internet, Inc., and
(iii) removed causes of actions for negligent misrepresentation and breach of
contract. The HSN Defendants filed an answer and affirmative defenses to the
third amended complaint. On February 27, 2001, the plaintiffs filed a motion for
class certification.

    On June 1, 2001, the Court entered an Order granting plaintiffs' motions to
voluntarily dismiss plaintiffs Henrietta Buck and Anastasia Kolias from the
lawsuit. On July 2, 2001, the HSN Defendants together with certain other
defendants filed a consolidated brief in opposition to plaintiffs' motions for
class certification. On or about July 23, 2001, the plaintiffs sought and were
granted leave to file a fourth amended class action complaint that added an
additional named plaintiff, Monetha Harris. The HSN Defendants have filed an
answer and affirmative defenses to the fourth amended complaint. In addition, on
September 6, 2001, the HSN Defendants filed a revised consolidated brief in
opposition to plaintiffs' motion for class certification to which the plaintiffs
replied. A hearing on the motion for class certification was held on
November 13, 2001. On December 14, 2001, the Court granted class certification
for an Illinois class only (plaintiffs were seeking nationwide class
certification). The parties are engaged in discovery and the HSN Defendants
continue to vigorously defend this action.

URBAN LITIGATION

    Beginning in October 1996, Home Shopping Club, Inc. ("HSC"), predecessor in
interest to HSN LP, withheld monthly payments under the Affiliation Agreement
with Urban Broadcasting Corporation due to breaches of the Affiliation Agreement
by Urban. Urban contested this action. In addition, on January 10, 1997, Urban
filed an Emergency Request for Declaratory Ruling with the FCC requesting an
order that the requirement in the Affiliation Agreement that Urban broadcast at
full-power violates the FCC's rules, or alternatively, requesting that the FCC
revise the terms of the Affiliation Agreement to bring it into compliance with
its Rules. Urban also requested that the FCC undertake an inquiry into USA's
actions of withholding payments to Urban to determine whether USA is fit to
remain an FCC licensee. On December 17, 1999, Urban filed a Supplement to
Emergency Request for Declaratory Relief requesting that the FCC (1) set a
deadline for reformation of several agreements between the parties, (2) rule
that the station's power authorized level is lower than the level set by current
authorizations and (3) agree not to pass on any applications for assignment or
transfer of the station. Certain entities controlled by USA filed an opposition
to this Request on January 10, 2000 to which Urban replied on January 27, 2000.
As of this date, no ruling has been issued by the FCC.

    On October 23, 1997, HSC filed suit against Urban in the Circuit Court for
Arlington County, Virginia seeking a judicial declaration that it was entitled
to withhold the payments in dispute because of Urban's breaches of the
Affiliation Agreement. Urban responded with counterclaims and began a related
action in the Circuit Court against HSC, HSN, Inc. (now USA) and Silver King
Broadcasting of Virginia, Inc. (now USA Station Group of Virginia, Inc.
("USA-SGV")). Urban asserted contract and tort claims related to HSC's decision
to withhold affiliation payments. A trial was held on April 5-7, 1999. At the
conclusion of Urban's case, the court ruled that Urban's evidence be struck and
that judgment be entered in favor of HSC, USA and USA-SGV on all counts of
Urban's First Amended Motion for Judgment. Further, the court ruled that the
related chancery action, which had been

                                       27

consolidated with the law action for trial, be severed for further proceedings
at some future date. A Final Order of Judgment concerning the above rulings was
entered by the court on May 5, 1999. On May 3, 1999, HSC, USA and USA-SGV filed
a Motion for Summary Judgment directed to all remaining counts in the chancery
action. Urban has appealed the judgment in the law action to the Virginia
Supreme Court. In addition, on June 11, 1999, judgment was entered in favor of
HSC, USA and USA-SGV on all Urban's counterclaims in the chancery suit, and the
trial court granted HSC's request for a declaratory judgment that HSC had not
breached the Affiliation Agreement. Urban failed to file a timely appeal of the
judgment in the chancery suit. Based on Urban's failure to appeal the chancery
suit, USA has moved to dismiss Urban's appeal in the related law action. A
hearing on the motion to dismiss was heard on February 16, 2000. On March 1,
2000, the Virginia Supreme Court granted the motion to dismiss and dismissed
Urban's petition for appeal related to the at-law action. On or about March 15,
2000, Urban filed a petition for rehearing which was denied by the Virginia
Supreme Court on April 21, 2000.

    On April 20, 2000, Urban filed a motion in the U.S. Bankruptcy Court for the
Eastern District of Virginia seeking to have that Court reopen Urban's prior
Chapter 11 case and clarify certain factual and legal matters contained within
the Court's September 30, 1996 confirmation order. In addition, Amresco Funding
Corporation, the entity that provided Urban with bankruptcy exit financing,
joined in Urban's motion. By Order dated May 3, 2000, the Court denied Urban's
motion. On May 15, 2000, Urban filed a motion requesting that the Court
reconsider its May 3, 2000 ruling, or, in the alternative, amend findings of
fact. By Memorandum Opinion and Order dated June 9, 2000, the Court denied
Urban's motion to reconsider, or, in the alternative, to amend findings of fact.

    On November 12, 1999, the Arlington County Circuit Court granted USA-SGV a
default judgment against Urban arising from Urban's defaults on the Loan
Agreement for $10,552,060.64, plus interest, plus $8,131 in attorneys fees and
costs. Urban has noted an appeal of this judgment. Urban's appeal of this
judgment was denied by the Virginia Supreme Court on June 2, 2000, and Urban's
petition for rehearing was denied on July 21, 2000.

    On August 1, 2000, Urban and Mr. Theodore M. White, President and owner of
all of the voting stock of Urban, filed voluntary petitions under Chapter 11 of
the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of
Columbia. USA-SGV filed motions on August 3, 2000 requesting the Court to:
(a) transfer venue of Urban's bankruptcy case from the U.S. Bankruptcy Court for
the District of Columbia to the U.S. Bankruptcy Court for the Eastern District
of Virginia, and (b) appoint a Chapter 11 trustee for Urban. The U.S. Bankruptcy
Court for the District of Columbia granted USA-SGV's motion to transfer venue.
An evidentiary hearing on USA-SGV's motion for entry of an order directing
appointment of a Chapter 11 trustee for Urban was scheduled to occur before the
Bankruptcy Court for the Eastern District of Virginia on November 29, 2000. On
November 29, 2000, the parties entered into a Stipulation and Consent Order Re
Motion to Appoint Chapter 11 Trustee.

    On or about June 27, 2001, USA-SGV transferred its claim against Urban to
USA Broadcasting, Inc. On April 6, 2001, the U.S. Bankruptcy Court for the
Eastern District of Virginia approved a sale of Urban Broadcasting Corporation's
("Urban") assets for the sum of $60,000,000. The closing of the sale of the
Urban assets occurred on August 20, 2001. Pursuant to an order of the Bankruptcy
Court, the purchaser paid the balance of the purchase price to counsel for Urban
to be held in trust. The Bankruptcy Court rejected Urban's amended plan of
reorganization and Univision of Virginia, Inc.'s plan of liquidation and the
Court directed the appointment of a Chapter 11 Trustee. The proceeds of the sale
are sufficient to pay all of Urban's creditors in full, including USA
Broadcasting, Inc.'s judgment claim, and leave substantial funds for
distribution to Urban's equity holders.

    On February 26, 2002, the Court entered an Order allowing and authorizing
the Trustee to pay USA's judgment claim against Urban in the approximate amount
of $15 million. USA has received this

                                       28

payment. USA also is asserting a claim against Urban for attorneys fees and
costs in the amount of approximately $1 million. That matter is set for hearing
before the Court on April 15, 2002.

RTL LITIGATION

    On August 25, 2000, RTL Plus Deutschland Fernsehen GMBH & Co. Betriebs-KG,
Companie Luxembourgeoise de Telediffusion S.A. and UFA Film-Und Fernseh-GMBH &
Co. KG (collectively "RTL") filed a complaint in the Netherlands against
Universal Studios International B.V. ("USI"). USI, the international
distribution entity of Universal Studios, Inc., has the rights, subject to
various exemptions, to distribute internationally certain television programs
owned by Studios USA and other USA entities. The complaint involves a 10-year
"output" agreement between RTL and USI, signed July 30, 1996, pursuant to which,
among other things, certain television programs owned by Studios USA and other
USA entities are distributed in Germany (the "RTL Output Agreement"). The RTL
Output Agreement also includes "co-production" provisions under which RTL
acquires an equity interest in certain programs. The complaint, based on
equitable doctrines of "mistake of fact" and "unforeseen circumstances,"
requests the court to modify or nullify RTL's licensing and "co-production"
obligations with respect to current television programs. Studios USA and its
affiliated companies are not parties to the RTL Output Agreement. On
November 22, 2000, USA moved to intervene or, alternatively, to join USI, in the
Netherlands proceeding.

    On July 18, 2001, the Court in The Netherlands permitted USA to join USI as
a co-defendant in the proceeding, but not to intervene as an independent party
capable of asserting rights on its own behalf. On November 20, 2001, a portion
of the dispute was settled. With respect to the remainder of the dispute, USA
filed its Statement of Defense on January 16, 2002. Studios USA and its
affiliated entities believe the RTL complaint to be without merit, and intend to
vigorously protect their interests.

ASCAP LITIGATION

    USA Cable's networks, USA Network, Sci Fi Channel, Trio and NWI, along with
most other satellite-delivered networks, are involved in continuing disputes
regarding the amounts to be paid by it for the performance of copyrighted music
in the repertories of the American Society of Composers, Authors and Publishers
("ASCAP") and by Broadcast Music, Inc. ("BMI"). The payments to be made to ASCAP
will be determined in a "rate court" proceeding under the jurisdiction of the
U.S. District Court for the Southern District of New York. In the initial phase
of this proceeding, it was determined that USA Network must pay ASCAP interim
license fees calculated at 0.3% of the gross revenues of USA Network. The same
interim fee subsequently has been agreed to for Sci Fi Channel, Trio and NWI.
This fee level is subject to upward or downward adjustment based on the ultimate
outcome of the rate court proceeding, or as the result of future negotiations.
The relevant time periods are subsequent to January 1, 1986 with respect to USA
Network and subsequent to launch with respect to Sci Fi Channel, Trio and NWI.
As to BMI, interim fees are being paid by USA Network, Sci Fi Channel, Trio and
NWI. These interim fees are subject to upward or downward adjustment, based on a
future negotiated resolution or submission of the issue to BMI's own federal
"rate court." USA Network's fees to BMI are final through June 30, 1992 and
interim thereafter. The fees of the remaining services are interim from their
dates of launch. USA cannot predict the final outcome of these disputes, but
does not believe that it will have a material impact on its financial results.

TRACY KEENAN WYNN, ET AL. V. NATIONAL BROADCASTING COMPANY, INC., ET AL.

    On October 20, 2000, plaintiffs, a group of television writers over the age
of forty, filed a purported class action in the United States District Court for
the Central District of California Western Division, against many talent
agencies, television networks and studios, including Studios USA LLC, alleging
that the defendants were discriminating against older writers by not hiring them
for writers positions. In November, 2000, plaintiffs filed an amended complaint
adding new plaintiffs, and alleging

                                       29

claims for relief against Studios USA LLC (and others) for: (1) Violation of
Federal and State Civil Rights Laws, including the Age Discrimination in
Employment Act, 29 U.S.C. Section 623, the California Fair Employment and
Housing Act, California Government Code Sections 12940 and 12941, and the New
York Human Rights Law, N.Y. Exec. Law Section 296; (2) Aiding and Abetting
Violations of Civil Rights Laws; (3) Conspiracy to Violate Civil Rights (with
other commonly owned or affiliated defendants); and (4) Breach of the Collective
Bargaining Agreement under the Labor Management Relations Act, 29 U.S.C.
Section 301.

    Studios USA LLC filed a motion to dismiss this action, or in the
alternative, to sever the claims against Studios USA LLC from the claims against
the other defendants, based on, among other things, the fact that plaintiffs
have alleged a twenty-year conspiracy against a company that was incorporated
only several years ago, and the fact that there are a lack of specific
allegations against Studios USA LLC. The hearing on the motion, originally set
for February 12, 2001, was taken off the calendar and the judge took the matter
under submission without oral argument. On January 24, 2002, the Court granted
Studios USA LLC's motion to dismiss as well as most of the defendants' joint
motions. Plaintiffs may amend their complaint. If they do amend, they would have
to sue Studios USA alone, not in a general action against other defendants. They
could not join other plaintiffs unless they established specific factual
similarities based on specific actions by Studios USA against the particular
plaintiff. As Studios USA successfully argued in its separate motion, a
plaintiff would need to allege specific behavior of Studios USA to state a claim
against Studios USA, and plaintiffs can not sue Studios USA, a three year old
company, for the purported twenty year conspiracy. Studios USA LLC believes it
is unlikely that this claim will present any material liability to the Company
and intends to vigorously defend against any potential future lawsuit.

                                    PART II

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

    The Holdco common stock is not quoted on any stock exchange and are not
traded. The Holdco common stock held by Liberty is exchangeable for shares of
USA common stock and Class B common stock on a one-for-one-basis. All
outstanding shares are held by USA and Liberty.

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

GENERAL

    Home Shopping Network, Inc. (the "Company" or "Home Shopping"), is a holding
company, whose subsidiary USANi LLC is engaged in diversified media and
electronic commerce businesses. In December 1996, the Company consummated a
merger with USA Networks, Inc. ("USA"), formerly known as HSN, Inc., and became
a subsidiary of USA (the "Home Shopping Merger").

    On February 12, 1998, the Company acquired USA Cable, a New York general
partnership, consisting of cable television networks, USA Network and Sci Fi
Channel ("USA Cable"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram") (the "Universal Transaction"). In connection with the Universal
Transaction, the Company formed a new subsidiary, USANi LLC, and contributed the
operating assets of the Home Shopping Network services ("HSN") to USANi LLC.
Furthermore, USA contributed USA Cable and Studios USA to USANi LLC on
February 12, 1998.

    The Company is organized into two groups, the Interactive Group and the
Entertainment Group. The Interactive Group consists of Home Shopping Network
(including HSN International and HSN.com; Electronic Commerce Solutions; and
Styleclick (OTC: IBUY). The Entertainment Group consists of USA Cable, including
USA Network and Sci Fi Channel and Emerging networks TRIO,

                                       30

Newsworld International, and Crime; and Studios USA, which produces and
distributes television programming.

    On December 17, 2001, USA and Vivendi Universal, S.A. ("Vivendi") announced
a transaction (the "Vivendi Transaction") in which USA's Entertainment Group,
consisting of USA Cable, Studios USA, and USA Films, would be contributed to
Vivendi Universal Entertainment, a new joint venture controlled by Vivendi. See
below for further discussion under "Subsequent Events".

SUBSEQUENT EVENTS

CONTRIBUTION OF THE USA ENTERTAINMENT GROUP TO THE VUE JOINT VENTURE

    On December 17, 2001, USA announced it had entered into an agreement with
Vivendi pursuant to which USA would contribute USA's Entertainment Group to a
limited liability entity (Vivendi Universal Entertainment, "VUE") to be
controlled by Vivendi, to which Vivendi would contribute the film, television
and theme park businesses of Universal Studios, Inc. ("Universal"). Upon
consummation of the Vivendi transaction, the joint venture will be controlled by
Vivendi and its subsidiaries, with the common interests owned 93.06% by Vivendi,
5.44% by USA and 1.5% by Mr. Diller, Chairman and CEO of USA.

    In connection with the Vivendi Transaction, USA and its subsidiaries will
receive the following at the closing of the transactions: (i) approximately
$1.62 billion in cash, debt-financed by VUE, subject to tax-deferred treatment
for a 15-year period, (ii) a $750 million face value Class A preferred interest
in VUE, with a 5% annual paid-in-kind dividend and a 20-year term, to be settled
in cash at its then face value at maturity; (iii) a $1.75 billion face value
Class B preferred interest in VUE, with a 1.4% annual paid-in-kind dividend, a
3.6% annual cash dividend, callable and puttable after 20 years, to be settled
by Universal at its then face value with a maximum of approximately
56.6 million USA common shares, provided that Universal may substitute cash in
lieu of shares of USA common stock (but not USA Class B common stock), at its
election; (iv) a 5.44% common interest in VUE, generally callable by Universal
after five years and puttable by USA after eight years, which may be settled in
either Vivendi stock or cash, at Universal's election, and (v) a cancellation of
Universal's USANi LLC interests currently exchangeable into USA common shares
including USANi LLC interests obtained from Liberty in connection with a related
transaction (see immediately below).

    Related to the transaction, Liberty will exchange 7,079,726 shares of USANi
LLC for shares of USA common stock, and subsequently transfer to Universal
25,000,000 shares of USA common stock, its remaining 38,694,982 shares of USANi
LLC, as well as the assets and liabilities of Liberty Programming France (which
consist primarily of 4,921,250 shares of multiThematiques S.A., a French
entity), in exchange for 37,386,436 Vivendi ordinary shares.

    In addition, USA will issue to Universal ten-year warrants to acquire shares
of USA common stock as follows: 24,187,094 shares at $27.50 per share;
24,187,094 shares at $32.50 per share; and 12,093,547 shares at $37.50 per
share. Barry Diller, USA's chairman and chief executive officer, will receive a
common interest in VUE with a 1.5% profit sharing percentage, with a minimum
value of $275.0 million, in return for his agreeing to specified non-competition
provisions and agreeing to serve as chairman and chief executive officer of VUE.
USA and Mr. Diller have agreed that they will not compete with Vivendi's
television and filmed entertainment businesses (including VUE) for a minimum of
18 months.

    The Vivendi Transaction is subject to USA shareholder vote, including the
approval of 66 2/3% of the outstanding USA common stock and USA preferred stock,
voting together as a single class, and excluding shares held by Vivendi,
Liberty, Mr. Diller and their respective affiliates, as well as other customary
regulatory approvals, and there can be no assurance that the transaction will be
completed.

                                       31

ADOPTION OF NEW ACCOUNTING RULES FOR GOODWILL

    Effective January 1, 2002, all calendar year companies will be required to
adopt Statement of Financial Accounting Standards No. 142, "Accounting for
Goodwill and Other Intangible Assets. "The new rules eliminate amortization of
goodwill and other intangible assets with indefinite lives and establish new
measurement criterion for these assets. Although it has not completed its
assessment, the Company does not anticipate a write-off upon adoption. The rules
are expected to reduce Holdco's annual amortization by approximately
$145.4 million.

ADJUSTED EBITDA

    Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") is defined as operating profit plus
(1) depreciation and amortization, (2) amortization of cable distribution fees
(3) amortization of non-cash distribution and marketing expense and
(4) disengagement expenses. Adjusted EBITDA is presented here as a management
tool and as a valuation methodology. Adjusted EBITDA does not purport to
represent cash provided by operating activities. Adjusted EBITDA should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles. Adjusted EBITDA may
not be comparable to calculations of similarly titled measures presented by
other companies.

    The following is a reconciliation of Operating Income to Adjusted EBITDA for
2001, 2000 and 1999.



                                                                   TWELVE MONTHS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                           
  Operating income..........................................  $411,123   $264,274   $343,595
  Depreciation and amortization.............................   236,819    376,791    175,539
  Amortization of cable distribution fees...................    43,975     36,322     26,680
  Amortization of non-cash compensation expense.............     9,799      9,704      6,314
  Disengagement expenses....................................     4,052         --         --
                                                              --------   --------   --------
Adjusted EBITDA.............................................  $705,768   $687,091   $552,128
                                                              --------   --------   --------


    THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW
MERCHANDISING STRATEGIES AND SIMILAR MATTERS. A VARIETY OF FACTORS COULD CAUSE
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE
OPERATIONS, PERFORMANCE, DEVELOPMENT AND RESULTS OF THE COMPANY'S BUSINESS
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: MATERIAL ADVERSE CHANGES IN
ECONOMIC CONDITIONS GENERALLY OR IN THE MARKETS SERVED BY THE COMPANY; FUTURE
REGULATORY AND LEGISLATIVE ACTIONS AND CONDITIONS IN THE COMPANY'S OPERATING
AREAS; COMPETITION FROM OTHERS; SUCCESSFUL INTEGRATION OF THE COMPANY'S
DIVISIONS' MANAGEMENT STRUCTURES; PRODUCT DEMAND AND MARKET ACCEPTANCE; THE
ABILITY TO PROTECT PROPRIETARY INFORMATION AND TECHNOLOGY OR TO OBTAIN NECESSARY
LICENSES ON COMMERCIALLY REASONABLE TERMS; THE ABILITY TO EXPAND INTO AND
SUCCESSFULLY OPERATE IN FOREIGN MARKET; AND OBTAINING AND RETAINING KEY
EXECUTIVES AND EMPLOYEES.

                                       32

         YEAR ENDED DECEMBER 31, 2001 VS. YEAR ENDED DECEMBER 31, 2000

    On July 27, 2000, USAi and Styleclick.com Inc. ("Old Styleclick"), an
enabler of e-commerce for manufacturers and retailers, completed the merger of
Internet Shopping Network ("ISN") and Styleclick.com, forming a new company
named Styleclick, Inc. ("Styleclick") (the "Styleclick Transaction"). The
Styleclick Transaction resulted in increases in net revenues, operating costs
and expenses, other income (expense), minority interest and income taxes. The
following historical information is supplemented, where appropriate, with pro
forma information. The unaudited pro forma information is presented below for
illustrative purposes only and is not necessarily indicative of the results of
operations that would have actually been reported had any of the transactions
occurred as of January 1, 2000, nor are they necessarily indicative of future
results of operations.

INTERACTIVE

HSN--U.S.

OPERATING RESULTS

    Net revenues in 2001 increased by $125.6 million, or 8.2%, to $1.66 billion
from $1.53 billion in 2000 due primarily to higher revenue from HSN.com of
$86.5 million, increased continuity sales of $6.3 million and $35.9 million of
revenue generated by the Improvements business, a specialty catalogue retailer
purchased in 2001. Note that 2001 was impacted by the national tragedy of
September 11th, as on-air sales declined in the third quarter of 2001
$11.5 million due to a dramatic, but relatively short-lived, decline in
viewership following the tragedy. HSN ceased its live programming commencing
shortly after the attacks and aired live news programming from USA Cable's NWI
during that time. For 2001, total units shipped domestically increased to
36.8 million units compared to 34.2 million units in 2000, while the on-air
return rate decreased slightly to 19.6% from 19.9% in 2000. The average price
point in 2001 was $48.97, compared to $48.90 in 2000. Cost related to revenues
and other costs and expenses for 2001 increased by $123.9 million, or 9.4%, to
$1.4 billion from $1.3 billion in 2000 due to higher fixed overhead costs for
fulfillment, including costs incurred to build out its new California
fulfillment facility (in 2002, the center is expected to reduce shipping times
to west coast customers), which helped contribute, along with pricing incentives
offered after September 11th, to a lower on-air gross margin of 32.4% as
compared to 33.8% in the prior year. Other operating costs increased due to
investments in alternative distribution channels and continuing technology
investments in HSN.com as the business scales. Furthermore, the Company incurred
higher selling and marketing costs, including programs to attract new customers,
and costs related to the Improvements business Adjusted EBITDA in 2001 increased
$1.7 million, to $213.2 million from $211.5 million in 2000, due to increased
Adjusted EBITDA of HSN.com of $21.6 million, the continuity business of
$1.5 million and $3.9 million of Adjusted EBITDA generated by the Improvements
business, offset partially by the impact of lower on-air sales, lower margins
and higher operating costs and one-time benefits of $6.3 million related to a
favorable settlement of litigation relating to an HSN broadcast affiliation
agreement and a cable affiliation agreement in 2000. Adjusted EBITDA in 2001
excludes amortization of cable distribution fees of $44.0 million in 2001 and
$36.3 million in 2000. Excluding one-time charges and benefits and the estimated
impact of disengagement (discussed below), net revenues in 2001 increased by
$131.9 million, or 8.6%, to $1.66 billion from $1.53 billion in 2000 and
Adjusted EBITDA increased $10.1 million, to $214.4 million from $204.3 million
in 2000. One time charges and benefits include $1.2 million related to employee
terminations in 2001 and one-time benefits of $6.3 million related to a
favorable settlement of litigation relating to an HSN broadcast affiliation
agreement and a cable affiliation agreement in 2000. See below for a discussion
of disengagement.

DISENGAGEMENT

    As noted in the Company's previous filings, the majority of the USAB
stations sold to Univision are located in the largest markets in the country and
aired HSN on a 24-hour basis. As of January 2002, HSN switched it distribution
in these markets directly to cable carriage. As a result, HSN

                                       33

lost approximately 12 million homes and accordingly, HSN's operating results
will be affected. Fortunately, sales from broadcast only homes are much lower
than sales from cable homes. As a result, HSN's losses attributable to
disengagement are expected to be limited. HSN anticipates losing sales, which
translates on a pro forma basis for 2001, of $108 million and Adjusted EBITDA of
$15 million. These anticipated losses are consistent with previous disclosures,
in which it was stated that disengagement losses would equal approximately 6% of
HSN's sales and Adjusted EBITDA. In addition, in order to effectively transfer
HSN's distribution to cable (which has been accomplished), USA will incur
charges of approximately $100 million in the form of payments to cable operators
and related marketing expenses. In effect, this approximately $100 million
payment will reduce USA's pre-tax proceeds from the Univision transaction to
$1 billion. The impact of lost sales and Adjusted EBITDA have been presented
separately to attempt to illustrate the impact of disengagement and present
results on a comparable basis. These disengagement costs are excluded from
Adjusted EBITDA. Approximately $4.1 million of these costs were incurred in 2001
and $53 million are expected to be incurred in 2002. USA believes that its
disengagement costs increased to the higher end of USA's anticipated range of
costs, since USA was required to achieve a certain portion of disengagement
after the Univision announcement and with specified end-dates for continuing
broadcast distribution. The Company has supplemented its discussion of HSN's
results by including a comparison of 2001 to 2000, adjusted for the estimated
impact of disengagement on revenues and Adjusted EBITDA. In September 2001, the
New York market was disengaged. The estimated 2000 impact was lost revenue of
$6.2 million and lost Adjusted EBITDA of $0.9 million.

HSN--INTERNATIONAL AND OTHER

    HSN--International consists primarily of HSN--Germany and Home Shopping
Espanol, which operates Spanish language electronic retailing operations serving
customers primarily in the United States, Puerto Rico and Mexico. HSN--Germany
increased sales $22.9 million, or 10.2%, in 2001 to $247.3 million compared to
$224.4 million in 2000. The Euro did decline in value as compared to the U.S.
dollar during the year. Using a constant exchange rate (1999 chosen for all
periods presented), HSN-Germany increased sales $34.3 million, or 13.1%, in 2001
to $296.0 million compared to $261.7 million in 2000. Sales trends were
adversely impacted by the conversion to a new order management system, which
delayed certain shipments. HSN--Germany recognizes revenue upon shipment. Home
Shopping Espanol had slightly increased revenues of $4.1 million, to
$23.4 million in 2001 compared to $19.3 million in 2000, resulting from
increased sales in existing markets and expansion into Mexico. Costs increased
primarily due to higher sales volume, although gross margins declined. HSN-
Germany's margins declined to 33.8% from 36.6% in 2000, due to operating
challenges of the conversion to the new order management system and increased
investments in adding an additional 4 live hours of programming and increased
marketing expenses for new product lines. Margins at Espanol declined to 17.5%
in 2001 from 25.7%, due in part to costs of expansion into new territories.
Adjusted EBITDA for electronic retailing in Germany decreased $19.5 million in
2001, to $4.8 million from $24.3 million in 2000, due to lower margins and
higher operating expenses described above. Adjusted EBITDA loss for Espanol and
International administration, widened to $29.7 million in 2001 from
$11.1 million, due to higher costs related to expansion efforts and increased
live broadcasting hours. Excluding one-time items, Adjusted EBITDA for
electronic retailing in Germany decreased $17.9 million in 2001, to
$6.4 million from $24.3 million in 2000. One-time items include non-recurring
expenses of $1.6 million related to employee terminations in 2001.

ELECTRONIC COMMERCE SOLUTIONS/ STYLECLICK

    Net revenues in 2001 increased by $3.9 million to $34.2 million compared to
$30.4 million in 2000 due primarily to increases of ECS revenue, offset
partially by decreases in revenue of Styleclick caused by the shut-down of the
First Jewelry and FirstAuction.com websites. Cost related to revenues and other
costs and expenses in 2001 increased by $12.1 million, due primarily to
additional costs of ECS, offset partially by initiatives to reduce operating
costs of Styleclick. Adjusted EBITDA loss in 2001

                                       34

widened by $8.2 million to $58.4 million in 2001 from $50.2 million in 2000.
Adjusted EBITDA excludes $5.0 million related to the write-down of a commitment
from USA to provide media time recorded in 2001, as the commitment for the time
expires on December 31, 2002 and based on current projections, Styleclick does
not believe it is likely to use the time during this period. Excluding one-time
items, Adjusted EBITDA loss in 2001 widened by $3.4 million to $53.6 million in
2001 from $50.2 million in 2000. One-time items include $4.8 million of
non-recurring charges related to consolidating Styleclick's operations in
Chicago. Note that Styleclick was acquired by USA in July 2000. On a pro forma
basis, 2001 revenues for the segment increased by $2.0 million and 2001 Adjusted
EBITDA loss, excluding one-time items, narrowed by $7.5 million. In 2001,
Styleclick began to focus on e-commerce services and technology while
eliminating its online retail business. During this transition, Styleclick
continued to incur significant net losses from operations that raise substantial
doubt about Styleclick's ability to continue as a going concern. Styleclick is
considering its options with respect to the situation.

ENTERTAINMENT

CABLE AND STUDIOS

    Net revenues in 2001 increased by $108.0 million, or 7.1%, to $1.63 billion
from $1.53 billion in 2000 due to significant increases in license fees earned
by Studios USA, including amounts related to the three Law & Order programs
currently airing on NBC, increased license fees earned in secondary markets,
increased revenues associated with THE DISTRICT, higher revenues earned on
reality programming, including ARREST AND TRIAL and CROSSING OVER WITH JOHN
EDWARD, offset partially by lower talk show syndication revenues. Revenues at
USA Cable increased slightly, due mainly to a $16 million positive adjustment
related to affiliate fees recorded in the third quarter of 2001. Advertising
revenue was lower than the prior year due to the weak advertising market, which
was worsened by the events of September 11th. Note that the cable networks
provided $10.7 million of advertising to Citysearch and Match.com in 2001. In
addition, the networks recognized $42.2 million of barter revenue pursuant to
agreements with unaffiliated third parties. Studios USA defers revenue
recognition for internally produced series for USA Network and Sci Fi Channel
until the product is aired on the networks. Cost related to revenues and other
costs and expenses in 2001 increased by $42.1 million, or 4.3%, to $1.0 billion
from $977.4 million in 2000 due to higher expenses incurred by Studios USA in
relation to product delivered to the broadcast networks and $13.7 million of
higher expense for development costs, offset partially by efficient use of
programming by Cable and increased usage of internally developed product by
Cable, resulting in reduced program amortization. Adjusted EBITDA in 2001
increased by $65.9 million, or 12.0%, to $613.6 million from $547.7 million in
2000. Excluding one-time items, Adjusted EBITDA in 2001 increased by
$69.1 million, or 12.6%, to $616.8 million from $547.7 million in 2000. One-time
items include $3.2 million of one-time compensation expense related to a senior
executive in 2001.

EMERGING NETWORKS

    Net revenues in 2001 increased by $3.8 million to $24.1 million from
$20.3 million in 2000. Revenue in 2001 was impacted by a new affiliate
distribution deal, resulting in lower subscriber rates. Cost related to revenue
increased by $8.1 million to $35.6 million from $27.5 million in 2001 as
compared to 2000 due primarily to higher programming costs of Trio. Adjusted
EBITDA loss in 2001 increased by $4.3 million, to a loss of $11.5 million.

DEPRECIATION AND AMORTIZATION, NON-CASH COMPENSATION AND OTHER INCOME (EXPENSE)

    Depreciation and amortization decreased $140.0 million to $236.8 million
from $376.8 million, due primarily to the impact in 2000 of the write-off of
Styleclick goodwill of $145.6 million. Amortization of non-cash compensation
expense increased slightly to $9.8 million in 2001 from $9.7 million in 2000.
The

                                       35

expense relates to non-cash charges for the Company's bonus stock purchase
program, restricted stock awards, and stock compensation expense related to
certain executive terminations.

    For the year ended December 31, 2001, net interest expense increased by
$21.2 million compared to 2000 primarily due to lower interest earned due to
lower rates.

    In the years ended December 31, 2001 and 2000, the Company realized pre-tax
losses of $30.7 million and $7.9   million, respectively, on equity losses in
unconsolidated subsidiaries resulting primarily from HOT Networks, which
operates electronic retailing operations in Europe. In 2001 and 2000, the
Company also realized pre-tax losses of $7.5 million and $35.9 million,
respectively, related to the write-off of equity investments to fair value. The
write-off in equity investments was based upon management's estimate of the
current value of the investments, considering the current business environment,
financing opportunities of the investees, anticipated business plans and other
factors. Note that the majority of investments were in Internet related
companies.

    In the year ended December 31, 2000, the Company realized a pre-tax gain of
$104.6 million based upon the exchange of 25% of ISN for 75% of Old Styleclick
in the Styleclick Transaction.

MINORITY INTEREST

    Minority interest primarily represents Universal's and Liberty's ownership
interest in USANi LLC, the public's ownership interest in Styleclick since
July 27, 2000 and the public's ownership interest in HSN--Germany since its
consolidation as of January 1, 2000. Upon completion of the Vivendi Transaction,
Holdco and USA will own 100% of the member's interest in USANi LLC

    INCOME TAXES

    The Company's effective tax rate, calculated after deducting the effects of
USANi LLC minority interest, of 57.6% for the twelve months ended December 31,
2001 is higher than the statutory rate due to the effects of state taxes and
non-deductible goodwill.

         YEAR ENDED DECEMBER 31, 2000 VS. YEAR ENDED DECEMBER 31, 1999

    The Styleclick Transaction and the consolidation of HSN--Germany as of
January 1, 2000 resulted in increases in net revenues, operating costs and
expenses, other income (expense), minority interest and income taxes. The
following information is supplemented, where appropriate, with pro forma
information. The unaudited pro forma information is presented below for
illustrative purposes only and is not necessarily indicative of the results of
operations that would have actually been reported had any of the transactions
occurred as of January 1, 2000 and 1999, respectively, nor are they necessarily
indicative of future results of operations.

                                       36

INTERACTIVE

HSN--U.S.

    Net revenues in 2000 increased by $200.4 million, or 15.0%, to $1.5 billion
from $1.3 billion in 1999, resulting primarily from Home Shopping Network's core
business, which generated increased sales of $152.0 million and HSN.com, which
generated increased sales of $39.9 million on revenues of $41.6 million. Total
units shipped increased to 33.4 million units compared to 32.0 million units in
1999, and the average price point increased to $48.90 per unit as compared to
$45.47 in 1999. Furthermore, the return rate decreased to 19.9% from 20.3% in
1999. Cost related to revenues and other costs and expenses in 2000 increased by
$177.7 million, or 15.5%, to $1.3 billion from $1.1 billion in 1999 due
primarily to higher sales volume and higher selling and marketing costs.
Adjusted EBITDA in 2000 increased by $22.7 million, or 12.0%, to $211.5 million
from $188.9 million in 1999. Adjusted EBITDA excludes amortization of cable
distribution fees of $36.3 million in 2000 and $26.7 million in 1999. Excluding
one-time charges and benefits, Adjusted EBITDA increased $16.4 million, to
$205.2 million from $188.8 million in 1999. One time charges and benefits
include one-time benefits of $6.3 million related to a favorable settlement of
litigation

HSN--INTERNATIONAL AND OTHER

    Net revenues for 2000 increased by $272.1 million to $281.0 million from
$8.9 million in 1999 due to the consolidation of HSN--Germany as of January 1,
2000. Revenues in 1999 related to Home Shopping Espanol. Cost related to
revenues and other costs and expenses in 2000 increased by $252.9 million to
$266.3 million from $13.4 million in 1999 and Adjusted EBITDA in 2000 increased
by $19.2 million to $14.7 million from a loss in 1999 of $4.5 million. Costs
related to revenues and other costs and Adjusted EBITDA increased due to the
consolidation of HSN--Germany as of January 1, 2000. On a pro forma basis, 2000
revenues increased by $105.3 million and Adjusted EBITDA increased by
$2.9 million. These results were dampened by the impact of the Euro exchange
rate decline against the dollar, which resulted in lower equivalent U.S. dollar
revenue of $35.3 million and lower Adjusted EBITDA of $3.9 million as compared
to 1999.

ELECTRONIC COMMERCE SOLUTIONS/ STYLECLICK

    Net revenues in 2000 decreased by $1.5 million to $30.4 million compared to
$31.9 million in 1999 due to decreases in the Company's auction sites of
$6.7 million as compared to 1999, offset partially by higher revenues of ECS.
The decrease is due to the merger of ISN and Styleclick and the integration of
the ISN sites with the Styleclick technology, resulting in a period of 2000
where no significant sales occurred, offset partially by increases in ECS
teleservices and Short Shopping contextual selling spots, including spots during
USA Network's coverage of the US Open. Cost related to revenues and other costs
and expenses in 2000 increased by $5.2 million due primarily to start-up costs
incurred to launch the business initiatives and other overhead expenses, offset
partially by lower marketing expenditures related to the auction business.
Adjusted EBITDA loss in 2000 increased by $6.7 million. Styleclick was acquired
by USA in July 2000. On a pro forma basis, net revenue for the segment decreased
$5.8 million and the Adjusted EBITDA loss widened $3.42 million as compared to
1999.

    As a result of the 2000 losses and anticipated operating losses of
Styleclick at that time, and the continuing evaluation of the operations and
technology, Styleclick determined the goodwill recorded in conjunction with the
Styleclick Merger was impaired and recorded a write-down of $145.6 million as
goodwill amortization as of December 31, 2000.

ENTERTAINMENT

CABLE AND STUDIOS

    Net revenues in 2000 increased by $220.4 million, or 16.9%, to $1.5 billion
from $1.3 billion in 1999 due primarily to an increase in advertising revenues
at USA Network and a significant increase in advertising revenues and affiliate
revenues at Sci Fi Channel due to an increase in subscribers. Ratings

                                       37

and affiliate revenues increased at both networks. Net revenues at Studios USA
increased due primarily to increased productions for USA Network and Sci Fi
Channel, increased deliveries of network drama and reality productions, and
increased performance of talk shows. Note that Studios USA defers revenue
recognition for internally produced series for USA Network and Sci Fi Channel
until the product is aired on the networks. Cost related to revenues and other
costs and expenses in 2000 increased by $106.7 million, or 12.3%, to
$977.5 million from $870.8 million in 1999, resulting primarily from costs
associated with the increased revenues of all of the businesses, offset
partially by efficient use of programming and increased usage of internally
developed product by USA, resulting in reduced program amortization. Adjusted
EBITDA in 2000 increased by $113.8 million, or 26.2%, to $547.7 million from
$433.9 million in 1999.

EMERGING NETWORKS

    Net revenues increased by $19.1 million to $20.3 million in 2000 from
$1.2 million in 1999 due to the acquisition of Trio and NewsWorld International
on May 19, 2000. Prior to this acquisition, the results reflect only SciFi.com.
Cost related to revenue increased by $23.3 million in 2000 as compared to 1999
due primarily to the increased revenues as well as start-up initiatives.
Adjusted EBITDA loss in 2000 increased by $4.1 million.

DEPRECIATION AND AMORTIZATION, NON-CASH COMPENSATION AND OTHER INCOME (EXPENSE)

    Depreciation and amortization decreased $201.2 million to $376.8 million
from $175.5 million, due primarily to the impact in 2000 of the write-off of
Styleclick goodwill of $145.6 million. Amortization of non-cash compensation
expense increased to $9.7 million in 2001 from $6.1 million in 2000 due
primarily to costs recorded related to a consulting arrangement as part of a
resignation agreement with a senior executive. Non-cash compensation expense
relates to non-cash charges for the Company's bonus stock purchase program,
restricted stock awards, and stock compensation expense related to certain
executive terminations.

    For the year ended December 31, 2001, net interest expense decreased by
$27.2 million compared to 2000 primarily due to lower borrowing levels as a
result of the repayment of bank debt in 1999 from the proceeds of equity
transactions involving Universal and Liberty.

    In the year ended December 31, 2000, the Company realized pre-tax losses of
$7.9 million on equity losses in unconsolidated subsidiaries compared to
$0.8 million in 1999, primarily resulting from HOT Networks, which operates
electronic retailing operations in Europe. In 2000, the Company recorded
$35.9 million related to the write-off of equity investments to fair value,
compared to none in 1999. The write-off in equity investments was based upon
management's estimate of the current value of the investments, considering the
current business environment, financing opportunities of the investees,
anticipated business plans and other factors. Note that the majority of
investments were in Internet related companies. In the year ended December 31,
2000, the Company realized pre-tax losses of $7.9 million on equity losses in
unconsolidated subsidiaries compared to $0.8 million in 1999, primarily
resulting from HOT Networks, which operates electronic retailing operations in
Europe.

    In the year ended December 31, 2000, the Company realized a pre-tax gain of
$104.6 million based upon the exchange of 25% of ISN for 75% of Old Styleclick
in the Styleclick Transaction. In the year ended December 31, 1999, the Company
realized pre-tax gains of $89.7 million related to the sale of securities and
$10.4 million from the reversal of equity losses that were recorded in 1998 as a
result of the Universal Transaction.

MINORITY INTEREST

    Minority interest primarily represents Universal's and Liberty's ownership
interest in USANi LLC, the public's ownership interest in Styleclick since
July 27, 2000 and the public's ownership interest in HSN--Germany since its
consolidation as of January 1, 2000. Upon completion of the Vivendi Transaction,
Holdco and USA will own 100% of the member's interest in USANi LLC.

                                       38

INCOME TAXES

    The Company's effective tax rate, calculated after deducting the effects of
USANi LLC minority interest, of 57.9% for the twelve months ended December 31,
2000 is higher than the statutory rate due to the effects of state taxes and
non-deductible goodwill.

                                  SEASONALITY

    USANi LLC's businesses are subject to the effects of seasonality. Cable and
Studios revenues are influenced by advertiser demand and the seasonal nature of
programming, and generally peak in the spring and fall.

    USANi LLC believes seasonality impacts its Electronic Retailing segment but
not to the same extent it impacts the retail industry in general.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

    The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's short-term investment portfolio and issuance
of debt. The Company does not use derivative financial instruments in its
investment portfolio. The Company has a prescribed methodology whereby it
invests its excess cash in debt instruments of government agencies and high
quality corporate issuers. The portfolio is reviewed on a periodic basis and
adjusted in the event that the credit rating of a security held in the portfolio
has deteriorated.

    At December 31, 2001, the Company's outstanding debt approximated
$532.4 million, substantially all of which is fixed rate obligations. If market
rates decline, the Company runs the risk that the related required payments on
the fixed rate debt will exceed those based on the current market rate.

FOREIGN CURRENCY EXCHANGE RISK

    The Company conducts business in certain foreign markets, primarily in the
European Union. The Company has exposure to exchange rate fluctuations of the
U.S. dollar to the Euro. However, the Company intends to reinvest profits from
international operations in order to grow the businesses.

    As the Company increases its operations in international markets it becomes
increasingly exposed to potentially volatile movements in currency exchange
rates. The economic impact of currency exchange rate movements on the Company
are often linked to variability in real growth, inflation, interest rates,
governmental actions and other factors. These changes, if material, could cause
the Company to adjust its financing and operating strategies.

    As currency exchange rates change, translation of the income statements of
the Company's international businesses into U.S. dollars affects year-over-year
comparability of operating results. The Company does not hedge translation risks
because cash flows from international operations are generally reinvested
locally. Further, the Company does not enter into hedges to minimize volatility
of reported earnings because the Company does not believe it is justified by the
attendant cost.

    Foreign exchange gains and losses were not material to the Company's
earnings for the years ended December 31, 2001, 2000 and 1999.

EQUITY PRICE RISK

    The Company has a minimal investment in equity securities of publicly-traded
companies. This investment, as of December 31, 2001, was considered
available-for-sale, with the unrealized gain deferred as a component of
stockholders' equity. It is not customary for the Company to make significant
investments in equity securities as part of its investment strategy.

                                       39

SIGNIFICANT ACCOUNTING POLICIES

    In connection with the issuance of Securities and Exchange Commission FR-60,
the following disclosure is provided to supplement USA's accounting policies in
regard to significant areas of judgment. Management of the Company is required
to make certain estimates and assumptions during the preparation of consolidated
financial statements in accordance with generally accepted accounting
principles. These estimates and assumptions impact the reported amount of assets
and liabilities and disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements. They also impact the reported
amount of net earnings during any period. Actual results could differ from those
estimates. Because of the size of the financial statement elements they relate
to, some of our accounting policies and estimates have a more significant impact
on our financial statements than others:

    - How we access the recoverability of the carrying value of long -lived
      assets is disclosed in Footnote 2. If circumstances suggest that
      long-lived assets may be impaired, and a review indicates that the
      carrying value will not be recoverable, as determined based on the
      projected undiscounted future cash flows, the carrying value is reduced to
      its estimated fair value. The determination of cash flows is based upon
      assumptions and forecasts that may not occur. Although it has not
      completed its assessment, the Company does not anticipate a write-off upon
      adoption.

    - Our revenue recognition for HSN is described in Footnote 2. As noted,
      sales are reduced by incentive discounts and sales returns to arrive at
      net sales. Home Shopping's sales policy allows merchandise to be returned
      at the customer's discretion within 30 days of the date of delivery and
      allowances for returned merchandise and other adjustments are provided
      based upon past experience. The estimated return percentage for 2001 of
      19.6% was arrived at based upon empirical evidence of actual returns, and
      the percentage was applied against sales to arrive at net sales. Actual
      levels of product returned may vary from these estimates.

    - The estimated ultimate costs of completed television productions and
      filmed entertainment are amortized, and participation expenses are
      accrued, for each production in the proportion that current period revenue
      recognized bears to the estimated future revenue to be received from all
      sources. Estimated ultimate revenues and costs are reviewed quarterly and
      revisions to amortization rates or write-downs to net realizable value are
      made as required. Actual ultimate revenue and expense may differ from
      estimates, as shifts in audience viewing habits, program time-slot
      changes, increased competition and other factors outside the Company's
      control could adversely impact actual results.

    - Merchandise inventories are valued at the lower of cost or market, cost
      being determined using the first-in, first-out method. Market is
      determined on the basis of net realizable value, giving consideration to
      obsolescence and other factors. Net realizable value is estimated by
      management based upon historical sales data, the age of inventory, the
      quantity of goods on hand and the ability to return merchandise to
      vendors. The actual net realizable value may vary from estimates due to
      changes in customer tastes or viewing habits, or errors in judgment made
      by merchandising personnel when ordering new products.

    - The Company has entered into various arrangements that contain multiple
      elements, such as arrangements providing for distribution and other
      services to be provided by the third party to multiple USA business
      segments. Multi-element arrangements require that management assess the
      relative fair value of the elements based upon revenue forecasts and other
      factors. The actual fair value of the various services received may differ
      from these estimates.

    - The Company has entered into various non-monetary transactions,
      principally related to barter advertising for goods and services which are
      recorded at the estimated fair value of the products or services received
      or given in accordance with the provisions of the Emerging Issues Task
      Force Issue No. 99-17, "Accounting for Advertising Barter Transactions."
      The actual fair value of the products and services received may differ
      from these estimates.

                                       40

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
HOME SHOPPING NETWORK, INC.

    We have audited the accompanying consolidated balance sheets of Home
Shopping Network, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
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 consolidated financial position of
Home Shopping Network, Inc. and subsidiaries at December 31, 2001 and 2000, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

    As discussed in Note 2 to the consolidated financial statements, on January
1, 2001, the Company adopted AICPA Statement of Position 00-2, "Accounting by
Producers or Distributors of Films."

                                        /s/ ERNST & YOUNG LLP

New York, New York
January 29, 2002

                                       41

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                 YEARS ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              2001         2000         1999
                                                           ----------   ----------   ----------
                                                                            
  Product sales..........................................  $1,935,542   $1,799,932   $1,370,790
  Service revenue........................................   1,687,376    1,554,860    1,315,689
                                                           ----------   ----------   ----------
  Net revenues...........................................   3,622,918    3,354,792    2,686,479
Operating costs and expenses:
  Cost of sales-product sales............................   1,287,630    1,178,369      900,896
  Cost of sales-service revenue..........................      16,823        6,360        4,446

  Program costs..........................................     726,549      684,992      630,956
  Selling and marketing..................................     421,259      383,722      277,257
  General and administrative.............................     336,140      284,800      231,003
  Other operating costs..................................     132,801      129,458       89,793
  Amortization of cable distribution fees................      43,975       36,322       26,680
  Amortization of non-cash compensation..................       9,799        9,704        6,314
  Depreciation and amortization..........................     236,819      376,791      175,539
                                                           ----------   ----------   ----------
  Total operating costs and expenses.....................   3,211,795    3,090,518    2,342,884
                                                           ----------   ----------   ----------
Operating profit.........................................     411,123      264,274      343,595
Other income (expense):
  Interest income........................................      43,675       61,336       37,573
  Interest expense.......................................     (73,183)     (69,659)     (73,106)
  Gain on sale of securities.............................          --           --       89,721
  Gain on sale of subsidiary stock.......................          --      104,625           --
  Other, net.............................................     (40,395)     (45,859)       2,103
                                                           ----------   ----------   ----------
                                                              (69,903)      50,443       56,291
Earnings before income taxes, minority interest and
  cumulative effect of accounting change.................     341,220      314,717      399,886
Income tax expense.......................................     (87,738)     (89,424)     (73,318)
Minority interest........................................    (188,925)    (160,267)    (241,369)
                                                           ----------   ----------   ----------
Earnings before cumulative effect of accounting change...      64,557       65,026       85,199
Cumulative effect of accounting change...................       1,901           --           --
                                                           ----------   ----------   ----------
NET EARNINGS.............................................  $   66,458   $   65,026   $   85,199
                                                           ----------   ----------   ----------


The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.

                                       42

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS



                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2001         2000
                                                              ----------   ----------
                                                                  (IN THOUSANDS)
                                                                     
                                       ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................  $  779,592   $   71,816
Accounts and notes receivable, net of allowance of $30,586
  and $50,646, respectively.................................     533,869      519,365
Inventories, net............................................     404,155      396,523
Investments held for sale...................................          --          750
Deferred income taxes.......................................      11,084       17,448
Other current assets, net...................................      26,120       18,024
                                                              ----------   ----------
  Total current assets......................................   1,754,820    1,023,926

PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................     132,712      143,559
Buildings and leasehold improvements........................      79,043       71,979
Furniture and other equipment...............................      96,941       76,623
Land........................................................      10,386       10,281
Projects in progress........................................      40,032       32,747
                                                              ----------   ----------
                                                                 359,114      335,189
  Less accumulated depreciation and amortization............    (120,468)     (83,549)
                                                              ----------   ----------
                                                                 238,646      251,640
OTHER ASSETS
Intangible assets, net......................................   4,888,545    5,023,735
Cable distribution fees, net................................     158,880      159,473
Long-term investments.......................................      39,485       29,187
Notes and accounts receivable, net ($99,819 and $22,575,
  respectively, from related parties).......................     130,368       33,571
Inventories, net............................................     484,679      430,215
Advances to USA and subsidiaries............................      70,477      547,292
Deferred charges and other, net.............................      58,475       44,011
                                                              ----------   ----------
                                                              $7,824,375   $7,543,050
                                                              ----------   ----------
                        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Current maturities of long-term obligations.................  $   32,911   $   20,053
Accounts payable, trade.....................................     233,063      201,484
Obligations for program rights and film costs...............     272,601      283,812
Cable distribution fees.....................................      32,795       33,598
Deferred revenue............................................      58,949       41,335
Other accrued liabilities...................................     416,212      351,331
                                                              ----------   ----------
Total current liabilities...................................   1,046,531      931,613
LONG-TERM OBLIGATIONS (net of current maturities)...........     499,513      504,063
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
  current...................................................     285,378      295,210
OTHER LONG-TERM LIABILITIES.................................      40,247       81,925
DEFERRED INCOME TAXES.......................................      69,397       25,821
MINORITY INTEREST...........................................   4,563,804    4,420,252
COMMITMENTS AND CONTINGENCIES...............................          --           --

STOCKHOLDERS' EQUITY
Common Stock................................................   1,221,408    1,221,408
Additional paid-in capital..................................      70,312       70,312
Retained earnings...........................................      33,398       (2,320)
Accumulated other comprehensive income......................      (5,613)      (5,234)
                                                              ----------   ----------
  Total stockholder's equity................................   1,319,505    1,284,166
                                                              ----------   ----------
                                                              $7,824,375   $7,543,050
                                                              ----------   ----------


The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.

                                       43

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                                                                         ACCUMULATED
                                                               ADDITIONAL   RETAINED                        OTHER
                                                    COMMON      PAID-IN     EARNINGS      UNEARNED      COMPREHENSIVE
                                       TOTAL        STOCK       CAPITAL     (DEFICIT)   COMPENSATION        INCOME
                                     ----------   ----------   ----------   ---------   -------------   --------------
                                                                      (IN THOUSANDS)
                                                                                      
BALANCE AT DECEMBER 31, 1998.......  $1,320,172   $1,221,408    $70,755     $  18,379       $(723)        $  10,353
  Comprehensive Income:
    Net earnings for the year ended
      December 31, 1999............      85,199           --         --        85,199          --                --
    Decrease in unrealized gains in
      available for sale
      securities...................     (10,353)          --         --            --          --           (10,353)
                                     ----------
    Comprehensive income...........      74,846
                                     ----------
  Mandatory tax distribution to LLC
    partners.......................     (52,755)          --         --       (52,755)         --                --
  Amortization of unearned
    compensation related to stock
    options and equity
    participation plans............         280           --       (443)           --         723                --
                                     ----------   ----------    -------     ---------       -----         ---------
BALANCE AT DECEMBER 31, 1999.......   1,342,543    1,221,408     70,312        50,823          --                --
  Comprehensive Income:
    Net earnings for the year ended
      December 31, 2000............      65,026           --         --        65,026          --                --
    Decrease in unrealized loss in
      available for sale
      securities...................      (5,647)          --         --            --          --            (5,647)
    Foreign currency translation...         413           --         --            --          --               413
                                     ----------
    Comprehensive income...........      59,792           --         --            --          --                --
                                     ----------
  Mandatory tax distribution to LLC
    partners.......................    (118,169)          --         --      (118,169)         --                --
                                     ----------   ----------    -------     ---------       -----         ---------
BALANCE AT DECEMBER 31, 2000.......   1,284,166    1,221,408     70,312        (2,320)         --            (5,234)
  Comprehensive Income:
    Net earnings for the year ended
      December 31, 2001............      66,458           --         --        66,458          --                --
    Decrease in unrealized loss in
      available for sale
      securities...................       5,647           --         --            --          --             5,647
    Foreign currency translation...      (6,026)          --         --            --          --            (6,026)
                                     ----------
    Comprehensive income...........      66,079           --         --            --          --                --
                                     ----------
  Mandatory tax distribution to LLC
    partners.......................     (30,740)          --         --       (30,740)         --                --
                                     ----------   ----------    -------     ---------       -----         ---------
BALANCE AT DECEMBER 31, 2001.......  $1,319,505   $1,221,408    $70,312     $  33,398       $  --         $  (5,613)
                                     ----------   ----------    -------     ---------       -----         ---------


    Accumulated other comprehensive income is comprised of unrealized (losses)
gains on available for sale securities of $0 and $(5,647) for December 31, 2001
and 2000, respectively and foreign currency translation adjustments of $(5,613)
and $413 for December 31, 2001 and 2000 respectively. There were no foreign
currency translation for December 31, 1999.

The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.

                                       44

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                  YEARS ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2001        2000        1999
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................  $  66,458   $  65,026   $  85,199
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
  PROVIDED BY OPERATING ACTIVITIES:
  Depreciation and amortization.............................    236,819     376,791     175,539
  Amortization of cable distribution fees...................     43,975      36,322      26,680
  Amortization of program rights and film costs.............    658,328     597,659     532,900
  Gain on sale of subsidiary stock..........................         --    (104,625)         --
  Cumulative effect of accounting change....................     (1,901)         --          --
  Non-cash compensation.....................................      9,799       9,704       6,314
  Amortization of deferred financing costs..................         --       2,457       5,035
  Deferred income taxes.....................................         --      30,186      13,298
  Equity in (earnings) losses of unconsolidated
    affiliates..............................................     38,155      46,025      (1,866)
  Minority interest.........................................    188,925     160,267     241,369

CHANGES IN CURRENT ASSETS AND LIABILITIES:
  Accounts receivable.......................................    (40,545)   (105,835)    (33,879)
  Inventories...............................................     30,210     (44,687)    (16,805)
  Accounts payable..........................................     25,118      34,425     (11,233)
  Accrued liabilities and deferred revenue..................     76,135      73,007      28,738
  Payment for program rights and film costs.................   (764,625)   (739,066)   (555,383)
  Increase in cable distribution fees.......................    (47,393)    (64,876)    (42,887)
  Other, net................................................    (17,319)    (12,541)    (25,321)
                                                              ---------   ---------   ---------
  NET CASH PROVIDED BY OPERATING ACTIVITIES.................    502,139     360,239     427,698

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, net of cash acquired........................    (35,845)   (110,780)     (7,500)
  Capital expenditures......................................    (68,496)    (94,826)    (70,681)
  Increase in long-term investments and notes receivable....   (110,871)    (40,220)    (54,478)
  Proceeds from sale of securities..........................         --       2,194     107,231
  Payment of merger and financing costs.....................         --          --          --
  Other, net................................................     21,627      (2,168)      8,654
                                                              ---------   ---------   ---------
  NET CASH USED IN INVESTING ACTIVITIES.....................   (193,585)   (245,800)    (16,774)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings................................................     22,494      64,611          --
  Payment of mandatory tax distribution to LLC partners.....    (30,740)   (118,169)    (52,755)
  Principal payments on long-term obligations...............    (14,842)    (60,981)   (253,224)
  Repurchase of LLC shares..................................         --    (129,907)     (8,934)
  Proceeds from issuance of LLC shares......................         --     210,455     410,545
  Advances from (to) USA and subsidiaries...................    430,242    (246,775)   (493,985)
  Other.....................................................     (5,821)    (10,531)         --
                                                              ---------   ---------   ---------
  NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.......    401,333    (291,297)   (398,353)
Effect of exchange rate changes on cash and cash
  equivalents...............................................     (2,111)      1,200          --
                                                              ---------   ---------   ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........    707,776    (175,658)     12,571
Cash and cash equivalents at beginning of period............     71,816     247,474     234,903
                                                              ---------   ---------   ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................  $ 779,592   $  71,816   $ 247,474
                                                              ---------   ---------   ---------


The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.

                                       45

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION

GENERAL

    Home Shopping Network, Inc. (the "Company" or "Home Shopping"), is a holding
company, whose subsidiary USANi LLC is engaged in diversified media and
electronic commerce businesses. In December 1996, the Company consummated a
merger with USA Networks, Inc. ("USA"), formerly known as HSN, Inc., and became
a subsidiary of USA (the "Home Shopping Merger").

    On February 12, 1998, the Company acquired USA Cable, a New York general
partnership, consisting of cable television networks, USA Network and Sci Fi
Channel ("USA Cable"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram") (the "Universal Transaction"). In connection with the Universal
Transaction, the Company formed a new subsidiary, USANi LLC, and contributed the
operating assets of the Home Shopping Network services ("HSN") to USANi LLC.
Furthermore, USA contributed USA Cable and Studios USA to USANi LLC on
February 12, 1998.

    The Company is organized into two groups, the Interactive Group and the
Entertainment Group. The Interactive Group consists of Home Shopping Network
(including HSN International and HSN.com; Electronic Commerce Solutions; and
Styleclick (OTC: IBUY). The Entertainment Group consists of USA Cable, including
USA Network and Sci Fi Channel and Emerging networks TRIO, Newsworld
International, and Crime; and Studios USA, which produces and distributes
television programming.

    On December 17, 2001, USA and Vivendi Universal, S.A. ("Vivendi") announced
a transaction (the "Vivendi Transaction") in which USA's Entertainment Group,
consisting of USA Cable, Studios USA, and USA Films, would be contributed to
Vivendi Universal Entertainment, a new joint venture controlled by Vivendi. See
below for further discussion under "Subsequent Events".

SUBSEQUENT EVENTS (UNAUDITED)

CONTRIBUTION OF THE USA ENTERTAINMENT GROUP TO VUE

    On December 17, 2001, USA announced it had entered into an agreement with
Vivendi pursuant to which USA would contribute USA's Entertainment Group to a
limited liability entity (Vivendi Universal Entertainment, "VUE") to be
controlled by Vivendi, to which Vivendi would contribute the film, television
and theme park businesses of Universal Studios, Inc. ("Universal"). Upon
consummation of the Vivendi transaction, the joint venture will be controlled by
Vivendi and its subsidiaries, with the common interests owned 93.06% by Vivendi,
5.44% by USA and 1.5% by Mr. Diller, Chairman and CEO of USA.

    In connection with the Vivendi Transaction, USA and its subsidiaries will
receive the following at the closing of the transactions: (i) approximately
$1.62 billion in cash, debt-financed by VUE, subject to tax-deferred treatment
for a 15-year period, (ii) a $750 million face value Class A preferred interest
in VUE, with a 5% annual paid-in-kind dividend and a 20-year term, to be settled
in cash at its then face value at maturity; (iii) a $1.75 billion face value
Class B preferred interest in VUE, with a 1.4% annual paid-in-kind dividend, a
3.6% annual cash dividend, callable and puttable after 20 years, to be settled
by Universal at its then face value with a maximum of approximately
56.6 million USA common shares, provided that Universal may substitute cash in
lieu of shares of USA common stock (but not USA Class B common stock), at its
election; (iv) a 5.44% common interest in VUE, generally callable by

                                       46

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--ORGANIZATION (CONTINUED)
Universal after five years and puttable by USA after eight years, which may be
settled in either Vivendi stock or cash, at Universal's election, and (v) a
cancellation of Universal's USANi LLC interests currently exchangeable into USA
common shares including USANi LLC interests obtained from Liberty in connection
with a related transaction (see immediately below).

    Related to the transaction, Liberty will exchange 7,079,726 shares of USANi
LLC for shares of USA common stock, and subsequently transfer to Universal
25,000,000 shares of USA common stock, its remaining 38,694,982 shares of USANi
LLC, as well as the assets and liabilities of Liberty Programming France (which
consist primarily of 4,921,250 shares of multiThematiques S.A., a French
entity), in exchange for 37,386,436 Vivendi ordinary shares.

    In addition, USA will issue to Universal ten-year warrants to acquire shares
of USA common stock as follows: 24,187,094 shares at $27.50 per share;
24,187,094 shares at $32.50 per share; and 12,093,547 shares at $37.50 per
share. Barry Diller, USA's chairman and chief executive officer, will receive a
common interest in VUE with a 1.5% profit sharing percentage, with a minimum
value of $275.0 million, in return for his agreeing to specified non-competition
provisions and agreeing to serve as chairman and chief executive officer of VUE.
USA and Mr. Diller have agreed that they will not compete with Vivendi's
television and filmed entertainment businesses (including VUE) for a minimum of
18 months.

    In February 2002, Mr. Diller assigned to three executive officers of USA,
the right to receive economic interests in a portion of the common interests in
VUE that Mr. Diller will receive upon closing of the transactions.

    The Vivendi Transaction is subject to USA shareholder vote, including the
approval of 66 2/3% of the outstanding USA common stock and USA preferred stock,
voting together as a single class, and excluding shares held by Vivendi,
Liberty, Mr. Diller and their respective affiliates, as well as other customary
regulatory approvals, and there can be no assurance that the transaction will be
completed.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
and all wholly-owned and voting-controlled subsidiaries. The Company
consolidates HSN--Germany based upon a Pooling Agreement allowing for the
Company to elect a majority of the Board of Directors and to control the
operations of HSN--Germany. Significant intercompany transactions and accounts
have been eliminated.

    Investments in which the Company owns a 20%, but not in excess of 50%,
interest and where it can exercise significant influence over the operations of
the investee, are accounted for using the equity method. In addition,
partnership interests are recorded using the equity method. All other
investments are accounted for using the cost method. The Company periodically
evaluates the recoverability of investments recorded under the cost method and
recognizes losses if a decline in value is determined to be other than
temporary.

                                       47

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES

CABLE AND STUDIOS

    Television production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television production advertising revenues (I.E., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancelable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the commencement date of the license agreement,
provided the program is available for exhibition.

    USA Cable advertising revenue is recognized in the period in which the
advertising commercials are aired on the cable networks. Certain contracts with
advertisers contain minimum commitments with respect to advertising viewership.
In the event that such minimum commitments are not met, the contracts require
additional subsequent airings of the advertisement. As a result, provisions are
recorded against advertising revenues for audience under deliveries
("makegoods") until such subsequent airings are conducted. Affiliate fees are
recognized in the period during which the programming is provided.

ELECTRONIC RETAILING

    Revenues from Home Shopping primarily consist of merchandise sales and are
reduced by incentive discounts and sales returns to arrive at net sales.
Revenues for domestic sales are recorded for credit card sales upon transaction
authorization, which occurs only if the goods are in stock, and for check sales
upon receipt of customer payment, which does not vary significantly from the
time goods are shipped. Revenues for international sales are recorded upon
shipment. Home Shopping's sales policy allows merchandise to be returned at the
customer's discretion within 30 days of the date of delivery. Allowances for
returned merchandise and other adjustments are provided based upon past
experience.

OTHER

    Revenues from all other sources are recognized either upon delivery or when
the service is provided.

FILM COSTS

    Film costs consist of direct production costs and production overhead, less
accumulated amortization. Prior to the adoption of SOP 00-2 on January 1, 2001
(see below for further information), development roster (and related costs),
abandoned story and development costs were charged to production overhead. Film
costs are stated at the lower of unamortized cost or estimated net realizable
value on a production-by-production basis.

                                       48

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Generally, the estimated ultimate costs of completed film costs are
amortized, and participation expenses are accrued, for each production in the
proportion that current period revenue recognized bears to the estimated future
revenue to be received from all sources. Amortization and accruals are made
under the individual film forecast method. Estimated ultimate revenues and costs
are reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required.

    Film costs, net of amortization, are classified as non-current assets.

PROGRAM RIGHTS

    License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.

ADVERTISING BARTER TRANSACTIONS

    Barter transactions represent the exchange of commercial air-time for
programming, merchandise or services. The transactions are recorded at the
estimated fair market value of the asset or services received or given in
accordance with Emerging Issues Task Force Issue No. 99-17, "Accounting for
Advertising Barter Transactions." Barter revenue for the year ended
December 31, 2001 was $42.2 million. Barter revenues for the year ended
December 31, 2000 and 1999 are not material to the Company's statement of
operations.

MERCHANDISE INVENTORIES, NET

    Merchandise inventories are valued at the lower of cost or market, cost
being determined using the first-in, first-out method. Cost includes freight,
certain warehouse costs and other allocable overhead. Market is determined on
the basis of net realizable value, giving consideration to obsolescence and
other factors. Merchandise inventories are presented net of an inventory
carrying adjustment of $40.4 million and $37.9 million at December 31, 2001 and
2000, respectively.

CASH AND CASH EQUIVALENTS

    Cash and cash equivalents include cash and short-term investments.
Short-term investments consist primarily of U.S. Treasury Securities, U.S.
Government agencies and certificates of deposit with original maturities of less
than 91 days.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment, including significant improvements, are
recorded at cost. Repairs and maintenance and any gains or losses on
dispositions are included in operations.

                                       49

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.



                                                    DEPRECIATION/AMORTIZATION
ASSET CATEGORY                                               PERIOD
- --------------                                      -------------------------
                                                 
Computer and broadcast equipment..................        3 to 13 Years
Buildings.........................................       30 to 40 Years
Leasehold improvements............................        4 to 20 Years
Furniture and other equipment.....................        3 to 10 Years


    Depreciation and amortization expense on property, plant and equipment was
$83.6 million, $65.2 million and $41.0 million for the years ended December 31,
2001, 2000 and 1999, respectively.

LONG-LIVED ASSETS INCLUDING INTANGIBLES

    The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including goodwill
and other intangibles and property, plant and equipment, is to review the
carrying value of the assets if the facts and circumstances suggest that they
may be impaired. If this review indicates that the carrying value will not be
recoverable, as determined based on the projected undiscounted future cash
flows, the carrying value is reduced to its estimated fair value. See below
under "New Accounting Pronouncements" for further information related to
goodwill and other intangible assets. The Company amortizes goodwill and other
intangible assets over their estimated useful lives, which range from 3 to 40
years for goodwill and 1 to 5 years for intangibles.

CABLE DISTRIBUTION FEES

    Cable distribution fees relate to upfront fees paid in connection with
multi-year cable contracts for carriage of Home Shopping's programming. These
fees are amortized to expense on a straight line basis over the terms of the
respective contracts.

ADVERTISING

    Advertising costs are primarily expensed in the period incurred. Advertising
expense for the years ended December 31, 2001, 2000 and 1999 were
$137.3 million, $127.5 million and $95.5 million, respectively.

STOCK-BASED COMPENSATION

    The Company accounts for stock-based compensation issued to employees in
accordance with APB 25, "Accounting for Stock Issued to Employees." In cases
where exercise prices are less than fair value as of the grant date,
compensation is recognized over the vesting period. For stock-based compensation
issued to non-employees, the Company accounts for the grants in accordance with
FASB Statement No. 123, "Accounting for Stock Based Compensation."

MINORITY INTEREST

    Minority interest represents the ownership interests of third parties in the
net assets and results of operations of certain consolidated subsidiaries.
Minority interest primarily represents the public's

                                       50

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ownership interest in Styleclick since July 27, 2000 and the public's ownership
interest in HSN--Germany since its consolidation as of January 1, 2000. Upon
completion of the Vivendi Transaction, Holdco and USA will own 100% of the
member's interest in USANi LLC.

FOREIGN CURRENCY TRANSLATION

    The financial position and operating results of all foreign operations are
consolidated using the local currency as the functional currency. Local currency
assets and liabilities are translated at the rates of exchange on the balance
sheet date, and local currency revenues and expenses are translated at average
rates of exchange during the period. Resulting translation gains or losses,
which have not been material, are included as a component of accumulated other
comprehensive income (loss) in accumulated deficit.

ISSUANCES OF SUBSIDIARY STOCK

    The Company accounts for issuances of stock by a subsidiary via income
statement recognition, recording income or losses as non-operating income/
(expense). During the year ended December 31, 2000, the Company recorded a gain
of $104.6 million related to the issuance of subsidiary stock. See Note 3 for
further discussion.

ACCOUNTING ESTIMATES

    Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with generally accepted accounting principles. These estimates and
assumptions impact the reported amount of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the consolidated
financial statements. They also impact the reported amount of net earnings
during any period. Actual results could differ from those estimates.

    Significant estimates underlying the accompanying consolidated financial
statements include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
estimates of film revenue ultimates and various other operating allowances and
accruals.

NEW ACCOUNTING PRONOUNCEMENTS

GOODWILL AND OTHER INTANGIBLE ASSETS

    Effective January 1, 2002, all calendar year companies will be required to
adopt Statement of Financial Accounting Standards No. 142, "Accounting for
Goodwill and Other Intangible Assets." The new rules eliminate amortization of
goodwill and other intangible assets with indefinite lives and establish new
measurement criterion for these assets. Although it has not completed its
assessment, the Company does not anticipate a write-off upon adoption. The rules
are expected to reduce USA's annual amortization by approximately
$145.4 million.

FILM ACCOUNTING

    The Company adopted SOP 00-2, "Accounting by Producers or Distributors of
Films" ("SOP 00-2") during the twelve months ended December 31, 2001. SOP 00-2
established new film accounting

                                       51

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards, including changes in revenue recognition and accounting for
advertising, development and overhead costs. Specifically, SOP 00-2 requires
advertising costs for theatrical and television product to be expensed as
incurred. This compares to the Company's previous policy of first capitalizing
these costs and then expensing them over the related revenue streams. In
addition, SOP 00-2 requires development costs for abandoned projects and certain
indirect overhead costs to be charged directly to expense, instead of those
costs being capitalized to film costs, which was required under the previous
accounting rules. SOP 00-2 also requires all film costs to be classified in the
balance sheet as non-current assets. Provisions of SOP 00-2 in other areas, such
as revenue recognition, generally are consistent with the Company's existing
accounting policies.

    SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a
one-time, non-cash benefit of $1.9 million. The benefit is reflected as a
cumulative effect of an accounting change in the accompanying consolidated
statement of operations.

RECLASSIFICATIONS

    Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 2001 presentation.

NOTE 3--BUSINESS ACQUISITIONS

STYLECLICK TRANSACTION

    On July 27, 2000, USA and Styleclick.com Inc., an enabler of e-commerce for
manufacturers and retailers, completed the merger of Internet Shopping Network,
a subsidiary of USA, and Styleclick.com (the "Styleclick Transaction"). The
entities were merged with a new company, Styleclick, Inc., which owns and
operates the combined properties of Styleclick.com and ISN. Styleclick, Inc. is
traded on the OTC under the symbol "IBUY". In accordance with the terms of the
agreement, USA invested $40 million in cash and agreed to contribute
$10 million in dedicated media, and received warrants to purchase additional
shares of the new company. At closing, Styleclick.com repaid $10 million of
borrowings outstanding under a bridge loan provided by USA.

    The aggregate purchase price, including transaction costs, of $211.9 million
was determined as follows:



                                                              (IN THOUSANDS)
                                                              --------------
                                                           
Value of portion of Styleclick.com acquired in the merger...     $121,781
Additional cash and promotional investment by USA...........       50,000
Fair value of outstanding "in the money options" and
  warrants of Styleclick.com................................       37,989
Transaction costs...........................................        2,144
                                                                 --------
Total acquisition costs.....................................     $211,914
                                                                 --------


    The fair value of Styleclick.com was based on the fair value of $15.78 per
share times 7.7 million shares outstanding. Fair value of the shares was
determined by taking an average of the opening and closing price of
Styleclick.com common stock for the period just before and just after the terms
of the transaction were agreed to by the Company and Styleclick.com and
announced to the public. In

                                       52

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
conjunction with the transaction, the Company recorded a pre-tax gain of
$104.6 million in accordance with Staff Accounting Bulletin No. 51, "Accounting
for Sales of Stock by a Subsidiary", based upon the 25% of ISN's net book value
exchanged for 75% of Styleclick.com's fair value, determined based upon the fair
value of Styleclick.com common stock received in the merger.

    The Styleclick transaction has been accounted for under the purchase method
of accounting. The purchase price has been allocated to the assets acquired and
liabilities assumed based on their respective fair values at the date of
purchase. The unallocated excess of acquisition costs over net assets acquired
of $170.2 million has been allocated to goodwill, which originally was being
amortized over 3 years.

    In March 2001, Styleclick announced a new company organization designed to
advance its offering of scaleable commerce services. The announcement included
Styleclick's acquisition of the MVP.com technology platform. Also in
March 2001, the Styleclick Board elected two executives of ECS to top management
positions at Styleclick, and certain senior executives of Styleclick left the
Company. As of December 31, 2000, as a result of the historical and anticipated
operating losses of Styleclick, and the continuing evaluation of the operations
and technology, Styleclick determined the goodwill recorded in conjunction with
the Styleclick Merger was impaired and recorded a write-down of $145.6 million
as goodwill amortization in fiscal 2000. Since the second quarter of 2001,
Styleclick has focused on e-commerce services and technology while eliminating
its online retail business. During this transition, Styleclick continued to
incur significant net losses from operations that raise substantial doubt about
Styleclick's ability to continue as a going concern. Styleclick is considering
its options with respect to the situation.

BUSINESS ACQUISITION PRO FORMA RESULTS

    The following unaudited pro forma condensed consolidated financial
information for the twelve months ended December 31, 2000 and 1999 is presented
to show the results of the Company as if the Styleclick Transaction had occurred
on January 1, 2000. The pro forma results reflect certain adjustments, including
increased amortization related to goodwill and other intangibles, and are not
necessarily indicative of what the results would have been had the transactions
actually occurred on January 1, 1999.



                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                          2000          1999
                                                       -----------   -----------
                                                               
Net revenues.........................................  $3,356,681    $2,692,653
Net income...........................................      61,413        73,021


NOTE 4--INTANGIBLE ASSETS

    Intangible assets represents goodwill which is amortized using the
straight-line method over periods ranging from 3 to 40 years.

    Goodwill primarily relates to various transactions, and represents the
excess of purchase price over the fair value of assets acquired and is net of
accumulated amortization of $573.1 million and $453.6 million at December 31,
2001 and 2000, respectively.

                                       53

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--LONG-TERM OBLIGATIONS



                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
                                                                   
Unsecured Senior Credit Facility ("New Facility"); with a
  $40,000,000 sub-limit for letters of credit, entered into
  February 12, 1998, which matures on December 31, 2002. At
  the Company's option, the interest rate on borrowings is
  tied to the London Interbank Offered Rate ("LIBOR") or the
  Alternate Base Rate ("ABR"), plus an applicable margin.
  Interest rate at December 31, 2000 was 2.9%...............  $     --   $     --
$500,000,000 6 3/4% Senior Notes (the "Senior Notes") due
  November 15, 2005; interest payable May 15 and
  November 15 commencing May 15, 1999. Interest rate at
  December 31, 2001 was 6.75%...............................   498,515    498,213
Other long-term obligations maturing through 2005...........    33,909     25,903
                                                              --------   --------
Total long-term obligations.................................   532,424    524,116
Less current maturities.....................................   (32,911)   (20,053)
                                                              --------   --------
Long-term obligations, net of current maturities............  $499,513   $504,063
                                                              --------   --------


    On February 12, 1998, USA and USANi LLC, as borrower, entered into a credit
agreement which provides for a $1.6 billion credit facility. The credit facility
was used to finance the Universal Transaction and to refinance USA's
then-existing $275.0 million revolving credit facility. The credit facility
consists of (1) a $600.0 million revolving credit facility with a $40.0 million
sub-limit for letters of credit, (2) a $750.0 million Tranche A Term Loan and,
(3) a $250.0 million Tranche B Term Loan. The Tranche A Term Loan and the
Tranche B Term Loan have been permanently repaid as of December 31, 1999, as
described below.

    The existing credit facility is guaranteed by certain of USA's subsidiaries.
The interest rate on borrowings under the existing credit facility is tied to an
alternate base rate or the London InterBank Rate, in each case, plus an
applicable margin, and $595.4 million was available for borrowing as of
December 31, 2001 after taking into account outstanding letters of credit. The
credit facility includes covenants requiring, among other things, maintenance of
specific operating and financial ratios and places restrictions on payment of
certain dividends, incurrence of indebtedness and investments. The Company pays
a commitment fee of .1875% on the unused portion of the credit facility. Note
that with the closing of the Vivendi Transaction, the Company expects that the
existing credit facility will expire.

    Aggregate contractual maturities of long-term obligations are as follows:



YEARS ENDING DECEMBER 31,                                     (IN THOUSANDS)
- -------------------------                                     --------------
                                                           
2002........................................................     $ 32,911
2003........................................................          748
2004........................................................           50
2005........................................................      498,715
2006........................................................           --
Thereafter..................................................           --
                                                                 --------
                                                                 $532,424
                                                                 --------


                                       54

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--INCOME TAXES

    Federal income tax expense represents an allocation of income tax expense
from USA, calculated as if Home Shopping was a separate filer for federal tax
purposes.

    A reconciliation of total income tax expense to the amounts computed by
applying the statutory federal income tax rate to earnings before income taxes
is shown as follows:



                                                   YEARS ENDED DECEMBER 31,
                                                ------------------------------
                                                  2001       2000       1999
                                                --------   --------   --------
                                                        (IN THOUSANDS)
                                                             
Income tax expense at the federal statutory
  rate of 35%.................................  $119,427   $155,017   $140,064
Amortization of goodwill and other
  intangibles.................................    11,688     14,494     11,618
State income taxes, net of effect of federal
  tax benefit.................................     9,450      9,158     10,128
Impact of minority interest...................   (76,827)   (98,606)   (87,246)
Other, net....................................    24,000      9,361     (1,246)
                                                --------   --------   --------
Income tax expense............................  $ 87,738   $ 89,424   $ 73,318
                                                --------   --------   --------


    The components of income tax expense are as follows:



                                                      YEARS ENDED DECEMBER 31,
                                                   ------------------------------
                                                     2001       2000       1999
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
                                                                
CURRENT INCOME TAX EXPENSE:
  Federal........................................  $55,971    $45,750    $47,265
  State..........................................   11,117      9,087     12,755
  Foreign........................................       --      4,401         --
                                                   -------    -------    -------
  Current income tax expense:....................  $67,088    $59,238    $60,020
DEFERRED INCOME TAX EXPENSE:
  Federal........................................  $17,228    $25,184    $10,472
  State..........................................    3,422      5,002      2,826
                                                   -------    -------    -------
  Deferred income tax expense:...................  $20,650    $30,186    $13,298
                                                   -------    -------    -------
  Total income tax expense.......................  $87,738    $89,424    $73,318
                                                   -------    -------    -------


    The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and 2000, are presented below.

                                       55

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--INCOME TAXES (CONTINUED)
The valuation allowance represents items for which it is more likely than not
that the tax benefit will not be realized.



                                                              DECEMBER 31,    DECEMBER 31,
                                                                  2001            2000
                                                              -------------   -------------
                                                                     (IN THOUSANDS)
                                                                        
CURRENT DEFERRED TAX ASSETS (LIABILITIES):
  Inventory costing.........................................    $  8,400        $ 10,888
  Provision for accrued expenses............................       8,246           3,980
  Investment in affiliates..................................          --              --
  Deferred Revenue..........................................     (55,093)        (43,385)
  Bad debts.................................................       3,505           2,573
  Program rights amortization...............................       8,472           8,472
  Other.....................................................      37,554          34,920
                                                                --------        --------
  Total current deferred tax assets.........................    $ 11,084        $ 17,448
  Less valuation allowance..................................          --              --
                                                                --------        --------
  Net current deferred tax assets...........................    $ 11,084        $ 17,448
NON-CURRENT DEFERRED TAX ASSETS (LIABILITIES):
  Broadcast and cable fee contracts.........................       1,783           1,783
  Depreciation for tax in excess of financial statements....      (6,710)         (7,769)
  Amortization of tax deductible goodwill...................     (79,962)        (44,369)
  Amortization of FCC licenses and broadcast related
    intangibles.............................................     (15,879)        (15,879)
  Program rights amortization...............................       1,804           1,804
  Investment in subsidiaries................................      10,369          10,369
  Programming...............................................      22,370          36,343
  Deferred revenue..........................................      (5,062)         (5,062)
  Net federal operating loss carryforward...................      21,334              --
  Other.....................................................      15,705          10,775
                                                                --------        --------
  Total non-current deferred tax liabilities................    $(34,248)       $(12,005)
  Less Valuation allowance..................................     (35,149)        (13,816)
                                                                --------        --------
  Net non-current deferred tax liabilities..................    $(69,397)       $(25,821)
                                                                --------        --------
TOTAL DEFERRED TAX LIABILITIES..............................    $(58,313)       $ (8,373)
                                                                --------        --------


    The Company has Federal income tax returns under examination by the Internal
Revenue Service. The Company has received proposed adjustments related to
certain examinations. Management believes that the resolution of the proposed
adjustments will not have a material adverse effect on the Company's
consolidated financial statements.

NOTE 7--COMMITMENTS AND CONTINGENCIES

    The Company leases satellite transponders, computers, warehouse and office
space, as well as broadcast and production facilities, equipment and services
used in connection with its operations under various operating leases and
contracts, many of which contain escalation clauses.

                                       56

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
    Future minimum payments under non-cancelable agreements are as follows:



YEARS ENDING DECEMBER 31,                                     (IN THOUSANDS)
- -------------------------                                     --------------
                                                           
2002........................................................     $ 42,608
2003........................................................       23,089
2004........................................................       20,088
2005........................................................       10,480
2006........................................................        7,029
Thereafter..................................................       41,384
                                                                 --------
                                                                 $144,678
                                                                 --------


    Expenses charged to operations under these agreements were $61.8 million,
$56.4 million and $46.1 million for the years ended December 31, 2001, 2000 and
1999, respectively.

    Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of December 31, 2001, the unrecorded commitments amounted to $968.0 million.
Annual commitments are $153.8 million in 2002, $173.5 million in 2003,
$189.1 million in 2004, $155.0 million in 2005, $112.4 million in 2006 and
$184.2 million in 2007 and thereafter.

    The Company is required to provide funding, from time to time, for the
operations of its investments in joint ventures accounted for under the equity
method. To date, HSN has funded $125.3 million to Hot Networks, a company
operating electronic retailing operations in Europe in which the Company holds
an equity stake.

NOTE 8--INVENTORIES



                                                       DECEMBER 31, 2001       DECEMBER 31, 2000
                                                     ---------------------   ---------------------
                                                     CURRENT    NONCURRENT   CURRENT    NONCURRENT
                                                     --------   ----------   --------   ----------
                                                                    (IN THOUSANDS)
                                                                            
Film costs:
Released, net of amortization......................  $     --    $210,325    $     --    $216,656
In process and unreleased..........................        --      25,411          --      34,713
Programming costs, net of amortization.............   209,798     248,943     172,493     178,846
Sales merchandise, net.............................   194,357          --     224,030          --
                                                     --------    --------    --------    --------
Total..............................................  $404,155    $484,679    $396,523    $430,215
                                                     --------    --------    --------    --------


    The Company estimates that approximately 90% of unamortized film costs at
December 31, 2001 will be amortized within the next three years.

NOTE 9--LITIGATION

    In the ordinary course of business, the Company is engaged in various
lawsuits, including a certain class action lawsuit in connection with the
Vivendi Transaction. In the opinion of management, the ultimate outcome of the
various lawsuits should not have a material impact on the liquidity, results of
operations or financial condition of the Company.

                                       57

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--BENEFIT PLANS

    The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code covering substantially all full-time employees who are not party to
collective bargaining agreements. The Company's share of the matching employer
contributions is set at the discretion of the Board of Directors or the
applicable committee thereof.

NOTE 11--STOCK OPTION PLANS

    The following describes the stock option plans. Share numbers, prices and
earnings per share reflect USA's two-for-one stock split to holders of record at
the close of business on February 10, 2000.

    USA has outstanding options to employees of the Company under several plans
(the "Plans") which provide for the grant of options to purchase USA's common
stock at not less than fair market value on the date of the grant. The options
under the Plans vest ratably, generally over a range of three to five years from
the date of grant and generally expire not more than 10 years from the date of
grant. Five of the Plans have options available for future grants.

    USA also has outstanding options to outside directors under one plan (the
"Directors Plan") which provides for the grant of options to purchase USA's
common stock at not less than fair market value on the date of the grant. The
options under the Directors Plan vest ratably, generally over three years from
the date of grant and expire not more than 10 years from the date of grant. A
summary of changes in outstanding options under the stock option plans following
the Company's two-for-one stock split, is as follows:



                                                                     DECEMBER 31,
                                            ---------------------------------------------------------------
                                                   2001                  2000                  1999
                                            -------------------   -------------------   -------------------
                                                        PRICE                 PRICE                 PRICE
                                             SHARES     RANGE      SHARES     RANGE      SHARES     RANGE
                                            --------   --------   --------   --------   --------   --------
                                                                 (SHARES IN THOUSANDS)
                                                                                 
Outstanding at beginning of period........   78,053    $ 1-$37     68,330    $ 1-$37     68,916     $ 2-37
Granted or issued in connection with
  mergers.................................    5,676    $19-$28     13,445    $17-$28      8,093     $16-28
Exercised.................................   (7,016)   $ 3-$28     (1,915)   $ 3-$17     (7,881)    $ 1-13
Cancelled.................................   (1,060)   $ 5-$28     (1,807)   $ 6-$37       (798)    $ 6-18
                                             ------                ------                ------
Outstanding at end of period..............   75,653    $ 1-$28     78,053    $ 1-$28     68,330     $ 1-37
                                             ------    -------     ------    -------     ------     ------
Options exercisable.......................   58,591    $ 1-$28     52,082    $ 1-$37     44,697     $ 1-37
                                             ------                ------                ------


    The weighted average exercise prices during the year ended December 31,
2001, were $22.87, $8.93 and $20.62 for options granted, exercised and
cancelled, respectively. The weighted average fair value of options granted
during the year was $9.69.

    The weighted average exercise prices during the year ended December 31,
2000, were $20.92, $9.69 and $20.13 for options granted, options exercised and
options cancelled, respectively. The weighted average fair value of options
granted during the year was $8.10.

                                       58

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCK OPTION PLANS (CONTINUED)
    The weighted average exercise prices during the year ended December 31,
1999, were $23.77, $6.05 and $11.56 for options granted, exercised and
cancelled, respectively. The weighted average fair value of options granted
during the year was $9.52.



                                              OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                                  -------------------------------------------   -----------------------------
                                                        WEIGHTED
                                                         AVERAGE     WEIGHTED                        WEIGHTED
                                                        REMAINING    AVERAGE                         AVERAGE
                                    OUTSTANDING AT     CONTRACTUAL   EXERCISE     EXERCISABLE AT     EXERCISE
RANGE OF EXERCISE PRICE           DECEMBER 31, 2000       LIFE        PRICE     DECEMBER 31, 2000     PRICE
- -----------------------           ------------------   -----------   --------   ------------------   --------
                                                                (IN THOUSANDS)
                                                                                      
$0.01 to $5.00..................        18,043             3.9        $ 4.72          18,043          $ 4.72
$5.01 to $10.00.................        30,088             5.0          8.43          30,085            8.43
$10.01 to $15.00................         4,008             6.5         12.46           2,795           12.42
$15.01 to $20.00................         8,422             7.2         18.74           3,748           18.71
$20.01 to $25.00................        11,462             8.4         22.81           2,294           22.50
$25.01 to $27.91................         3,630             8.1         27.71           1,626           27.90
                                        ------                                        ------
                                        75,653             5.7         10.27          58,591            7.53
                                        ------                                        ------


    Pro forma information regarding net income and earnings per share is
required SFAS 123. The information is determined as if the Company had accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair market value method. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2001, 2000 and 1999: risk-free interest rates
of 5.0%; a dividend yield of zero; a volatility factor of .72, .62, and .44,
respectively, based on the expected market price of USA Common Stock based on
historical trends; and a weighted-average expected life of the options of five
years.

    The Black-Scholes option valuation model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option 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 market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:



                                                      YEARS ENDED DECEMBER 31,
                                                   ------------------------------
                                                     2001       2000       1999
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
                                                                
Pro forma net income (loss)......................  $(13,873)   $3,826    $48,111


    These pro forma amounts 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.

                                       59

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE YEAR ENDED
  DECEMBER 31, 2001:

    For the twelve months ended December 31, 2001, the Company incurred non-cash
compensation expense of $9.8 million, including $4.9 million related to an
agreement with and executive.

    In 2001 the Company realized pre-tax losses of $30.7 million on equity
losses in unconsolidated subsidiaries, resulting primarily from HOT Networks,
which operates electronic retailing operations in Europe. In 2001 the Company
realized pre-tax losses of $7.9 million related to the write-off of equity
investments to fair value. The write-off in equity investments was based upon
management's estimate of the current value of the investments, considering the
current business environment, financing opportunities of the investees,
anticipated business plans and other factors. Note that the majority of
investments were in Internet related companies.

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE YEAR ENDED
  DECEMBER 31, 2000:

    As of January 1, 2000 the Company began to consolidate the accounts of HOT
Germany, an electronic retailer operating principally in Germany, whereas its
investment in HOT Germany was previously accounted for under the equity method
of accounting.

    On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.

    For the twelve months ended December 31, 2000, the Company incurred non-cash
compensation expense of $9.7 million, including $3.8 million related to a
consulting agreement with an executive.

    In 2000 the Company realized pre-tax losses of $7.9 million on equity losses
in unconsolidated subsidiaries resulting primarily from HOT Networks, which
operates electronic retailing operations in Europe. In d 2000 the Company also
realized pre-tax losses of $35.9 million related to the write-off of equity
investments to fair value. The write-off in equity investments was based upon
management's estimate of the current value of the investments, considering the
current business environment, financing opportunities of the investees,
anticipated business plans and other factors. Note that the majority of
investments were in Internet related companies.

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE YEAR ENDED
  DECEMBER 31, 1999:

    For the twelve months ended December 31, 1999, the Company incurred non-cash
compensation expense of $6.5 million.

    In 1999, the Company acquired post-production equipment through a capital
lease totaling $2.5 million.

                                       60

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--STATEMENTS OF CASH FLOWS (CONTINUED)
    Supplemental disclosure of cash flow information:



                                                      YEARS ENDED DECEMBER 31,
                                                   ------------------------------
                                                     2001       2000       1999
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
                                                                
Cash paid during the period for:
  Interest.......................................  $35,856    $35,688    $47,112
  Income tax payments............................   12,499      5,680      3,935
  Income tax refund..............................    1,053      1,250         --


NOTE 13--RELATED PARTY TRANSACTIONS

    As of December 31, 2001, the Company was involved in several agreements with
related parties as follows:

    Universal provides certain support services to the Company under a
Transition Services agreement entered into in connection with the Universal
Transaction. For these services, which include use of pre-production, production
and post-production facilities, information technology services, physical
distribution, contract administration, legal services and office space,
Universal charged the Company $7.1 million, $8.2 million and $12.5 million for
the years ended December 31, 2001, 2000 and 1999, respectively, of which $5.7
million, $4.7 million and $8.0 million was capitalized to production costs,
respectively.

    Universal and the Company entered into an International Television
Distribution Agreement under which the Company pays to Universal a distribution
fee of 10% on all programming owned or controlled by the Company distributed
outside of the United States. For the years ended December 31, 2001, 2000 and
1999, the fee totaled $13.6 million, $14.0 million and $9.0 million,
respectively.

    In addition, the Company and Universal entered into a Domestic Television
Distribution Agreement under which the Company distributes in the United States
certain of Universal's television programming. For the years ended December 31,
2001, 2000 and 1999, Universal paid the Company $4.1 million, $1.5 million and
$1.5 million, respectively.

    Home Shopping has affiliation agreements with USA Broadcasting ("USAB"), a
wholly owned subsidiary of USA which provides for the USAB's broadcast of Home
Shopping's electronic retailing programming on a full-time basis. Expense
related to these affiliation agreements with USAB for the years ended
December 31, 2001, 2000 and 1999 was $17.1 million, $35.0 million and
$38.1 million, respectively.

    Under the USANi LLC Operating Agreement, USANi LLC is obligated to make a
distribution to each of the LLC members in an amount equal to each member's
share of USANi LLC's taxable income at a specified tax rate. The estimated
amount for 2001 is $153.5 and is expected to be paid on February 28, 2002. In
March 2000, the Company made a mandatory tax distribution payment to the
partners in the amount of $118.1 million related to the year ended December 31,
1999, of which $50.1 was paid to USA. In March 1999, the Company paid $52.8
million, of which $24.0 million was paid to USA.

                                       61

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--RELATED PARTY TRANSACTIONS (CONTINUED)

    In connection with the settlement of its interest in an international joint
venture, the Company received $24.0 million from Universal during 2001.

NOTE 14--TRANSACTIONS WITH USA AND SUBSIDIARIES

    Advances to USA and subsidiaries generally represent net amounts transferred
from the Company to USA and its subsidiaries to fund operations and other
related items. Pursuant to the Investment Agreement, all excess cash held at USA
and subsidiaries is transferred to the Company no less frequently than monthly
and the Company may transfer funds to USA to satisfy obligations of USA and its
subsidiaries. Under the Investment Agreement, transfers of cash are evidenced by
a demand note and accrue interest at the Company's borrowing rate under the
credit facility.

    During the year ended December 31, 2001, net transfers from USA to USANi LLC
totaled approximately $547.0 million, principally due to the proceeds of $589.6
from the sale of all of the capital stock of certain USA Broadcasting ("USAB")
subsidiaries that own 13 full-power television stations and minority interests
in four additional full-power stations to Univision Communications Inc., and net
receipts of $67.4 million and $23.8 million from USA Films and PRC,
respectively. The receipts were offset by $77.8 million to fund two acquisitions
by PRC and $40.9 million to fund the operations of USA's television broadcast
operations, as USA continued to air HSN programming on a majority of the
stations until January 2002.

    During the year ended December 31, 2000, net transfers from USANi LLC to USA
totaled approximately $350.4 million, including $70.8 million related to
contingent purchase price payments on the Hotel Reservations Network
transaction, $69.2 million to fund the operations of USA's television broadcast
operations, $50.7 million to fund the operations and acquisitions of
Ticketmaster, $26.9 million to fund the operations and acquisition of PRC and
$32.3 million to pay off outstanding debt of PRC at the date of acquisition,
offset partially by net receipts of $25.1 million from USA Films.

    During the year ended December 31, 1999, net transfers from USANi LLC to USA
totaled approximately $429.1 million, including $372.2 million related to the
Hotel Reservations Network Transaction and the October Films/PFE Transaction
(including $200 million advanced to Universal pursuant to an eight year, full
recourse, interest-bearing note in connection with the acquisition of October
Films, in which Universal owned a majority interest, and the domestic film
distribution and development business of Universal previously operated by
Polygram Filmed Entertainment, Inc.), $50.9 million to fund the operations of
USA's television broadcast operations, $98.6 million to repay a portion of the
outstanding borrowings assumed in the October Films/PFE Transaction and $8.8
million to fund the operations of USA Films. Funds were also transferred to USA
to purchase shares of treasury stock. These amounts were offset by $79.4 million
and $40.0 million of funds transferred to USANi LLC from the Ticketing
operations business and the Hotel reservations business, respectively. During
the year ended December 31, 1998 net cash transfers totaling approximately
$118.2 million were made to repay USA's revolving credit facility, repay
Ticketmaster's bank credit facility, and fund the operations of USA's broadcast
operation, offset by proceeds from the sale of the assets of SF Broadcasting and
USA's Baltimore television station. The interest incurred on the net transfers
for the years ended December 31, 2000, 1999 and 1998 was approximately $2.9
million, $7.2 million and $9.5 million, respectively.

    The Company allocates certain overhead expenses to the USA parent company
based upon the fair value of services performed. Expenses allocated for the
periods ended December 31, 2001, 2000 and 1999 were $8.6 million, $11.6 million
and $8.6 million, respectively.

                                       62

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--QUARTERLY RESULTS (UNAUDITED)



                                                     QUARTER         QUARTER        QUARTER     QUARTER
                                                      ENDED           ENDED          ENDED       ENDED
                                                  DECEMBER 31,    SEPTEMBER 30,    JUNE 30,    MARCH 31,
                                                  -------------   --------------   ---------   ----------
                                                                      (IN THOUSANDS)
                                                                                   
Year Ended December 31, 2001
Net revenues....................................    $942,687         $862,646      $912,803     $904,782
Operating profit................................      96,097           92,412       107,697      114,917
Net earnings(a)(b)..............................      (2,391)          18,023        24,361       26,465
Year Ended December 31, 2000
Net revenues....................................    $970,939         $776,881      $799,806     $807,166
Operating profit................................     (34,826)          81,347        99,769      117,984
Net earnings(a)(c)..............................     (13,546)          34,197        22,585       21,790


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

(a) The Company recorded losses of $7.5 million and $0.4 million during the
    fourth and second quarters of 2001, respectively, related to the write-down
    of equity investments to fair value. The Company recorded losses of $5.4
    million and $30.5 million during the fourth and third quarters of 2000,
    respectively, related to the write-down of equity investments to fair value.

(b) During the first quarter of 2001, the Company adopted Statement of Position
    00-2, "Accounting By Producers or Distributors of Films." The Company
    recorded income of $1.9 million related to the cumulative effect of
    adoption.

(c) The quarterly results include the operations of Styleclick.com since its
    acquisition on July 27, 2000, and PRC since its acquisition on April 5,
    2000. During the third quarter of 2000, the Company recorded a pre-tax gain
    of $104.6 million related to the Styleclick Transaction. During the fourth
    quarter of 2000, the Company recorded a pre-tax charge of $145.6 million
    related to the impairment of Styleclick goodwill.

NOTE 16--INDUSTRY SEGMENTS

    The Company operates principally in five industry segments: Cable and
studios, HSN-US, ECS/ Styleclick, Emerging networks and HSN-International and
other.

    Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") is defined as operating income plus (1)
depreciation and amortization, (2) amortization of cable distribution fees of
$44.0 million, $36.3 million and $26.7 million in fiscal years 2001, 2000 and
1999, respectively (3) amortization of non-cash distribution and marketing
expense and (4) disengagement expenses (described below) of $4.1 million in
2001. Adjusted EBITDA is presented here as a tool and as a valuation methodology
used by management in evaluating the business. Adjusted EBITDA does not purport
to represent cash provided by operating activities. Adjusted EBITDA should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. Adjusted
EBITDA may not be comparable to calculations of similarly titled measures
presented by other companies.

                                       63

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--INDUSTRY SEGMENTS (CONTINUED)
    The following is a reconciliation of Operating Income to Adjusted EBITDA for
2001, 2000 and 1999.



                                                TWELVE MONTHS ENDED DECEMBER 31,
                                                ---------------------------------
                                                  2001        2000        1999
                                                ---------   ---------   ---------
                                                               
  Operating income............................  $411,123    $264,274    $343,595
  Depreciation and amortization...............   236,819     376,791     175,539
  Amortization of cable distribution fees.....    43,975      36,322      26,680
  Amortization of non cash compensation
    expense...................................     9,799       9,704       6,314
  Disengagement expenses......................     4,052          --          --
                                                --------    --------    --------
Adjusted EBITDA...............................  $705,768    $687,091    $552,128
                                                --------    --------    --------




                                                 YEARS ENDED DECEMBER 31,
                                           ------------------------------------
                                              2001         2000         1999
                                           ----------   ----------   ----------
                                                      (IN THOUSANDS)
                                                            
REVENUES
Cable and studios........................  $1,633,130   $1,525,124   $1,304,683
HSN--U.S.(a).............................   1,658,904    1,533,271    1,332,911
Electronic Commerce
  Solutions/Styleclick...................      34,229       30,350       31,886
Trio, NWI, Crime, other emerging media...      24,086       20,332        1,188
HSN--International and other(b)..........     272,569      245,715        8,917
Other....................................          --           --        6,894
                                           ----------   ----------   ----------
    TOTAL................................  $3,622,918   $3,354,792   $2,686,479
                                           ----------   ----------   ----------

OPERATING PROFIT (LOSS)
Cable and studios........................  $  486,667   $  435,116   $  320,878
HSN--U.S.(a)(c)..........................      86,825      105,152      104,963
Electronic Commerce
  Solutions/Styleclick...................     (73,145)    (230,021)     (46,588)
Trio, NWI, Crime, other emerging media...     (20,133)     (13,244)      (2,989)
HSN--International and other(b)..........     (34,907)       4,641       (4,517)
Corporate & other........................     (34,184)     (37,370)     (28,152)
                                           ----------   ----------   ----------
  TOTAL..................................  $  411,123   $  264,274   $  343,595
                                           ----------   ----------   ----------

ADJUSTED EBITDA
Cable and studios........................  $  613,587   $  547,684   $  434,084
HSN--U.S.(a).............................     213,239      211,462      188,984
Electronic Commerce
  Solutions/Styleclick...................     (58,364)     (50,163)     (43,421)
Trio, NWI, Crime, other emerging media...     (11,467)      (7,120)      (2,989)
HSN--International and other(b)..........     (25,306)      10,740       (4,505)
Corporate & other........................     (25,921)     (25,512)     (20,025)
                                           ----------   ----------   ----------
  TOTAL..................................  $  705,768   $  687,091   $  552,128
                                           ----------   ----------   ----------


                                       64

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--INDUSTRY SEGMENTS (CONTINUED)



                                                 YEARS ENDED DECEMBER 31,
                                           ------------------------------------
                                              2001         2000         1999
                                           ----------   ----------   ----------
                                                      (IN THOUSANDS)
                                                            
ASSETS
Cable and studios........................  $6,189,380   $5,885,301   $5,524,236
HSN--U.S.................................   1,849,946    1,855,512    1,771,560
Electronic Commerce
  Solutions/Styleclick...................     (42,751)      36,726       28,623
Trio, NWI, Crime, other emerging media...      97,376      100,943          200
HSN--International and other.............     212,549      133,654       37,840
Corporate & other........................    (482,125)    (469,086)    (130,815)
                                           ----------   ----------   ----------
  TOTAL..................................   7,824,375   $7,543,050   $7,231,644
                                           ----------   ----------   ----------

DEPRECIATION AND AMORTIZATION OF
  INTANGIBLES AND CABLE DISTRIBUTION FEES
Cable and studios........................  $  122,008   $  112,568   $  113,034
HSN--U.S.................................     122,115      106,059       83,796
Electronic Commerce
  Solutions/Styleclick...................      14,589      179,858        3,167
Trio, NWI, Crime, other emerging media...       8,666        6,124           --
HSN--International and other.............       9,601        6,099           12
Corporate & other........................       3,815        2,405        2,210
                                           ----------   ----------   ----------
  TOTAL..................................  $  280,794   $  413,113   $  202,219
                                           ----------   ----------   ----------

CAPITAL EXPENDITURES
Cable and studios........................  $   12,907   $   15,229   $    6,771
HSN--U.S.................................      42,615       34,122       33,412
Electronic Commerce
  Solutions/Styleclick...................       2,292        5,047       13,657
Trio, NWI, Crime, other emerging media...          61          600           --
HSN--International and other.............       6,031       18,105       13,746
Corporate & other........................       4,590       21,723        3,095
                                           ----------   ----------   ----------
  TOTAL..................................  $   68,496   $   94,826   $   70,681
                                           ----------   ----------   ----------


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

(a) Includes estimated revenue in 2000 generated by homes lost by HSN following
    the sale of USA Broadcasting to Univision, which is estimated to be $6.2
    million. Adjusted EBITDA for these homes is estimated at $0.9 million.

(b) Includes impact of foreign exchange fluctuations, which reduced revenue by
    $44.0 million and $36.3 million in 2001 and 2000, respectively, if the
    results are translated from Euros to U.S. dollars at a constant exchange
    rate, using 1999 as the base year.

(c) 2001 includes $4.1 million of costs incurred related to the disengagement of
    HSN from USA Broadcasting stations. Amounts primarily related to payments to
    cable operators and related marketing expenses in the disengaged markets.

                                       65

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17--FINANCIAL INSTRUMENTS

    The additional disclosure below of the estimated fair value of financial
instruments have been determined by the Company using available market
information and appropriate valuation methodologies when available. The carrying
value of all current assets and current liabilities approximates fair value due
to their short-term nature.



                                                   DECEMBER 31, 2001         DECEMBER 31, 2000
                                                -----------------------   -----------------------
                                                 CARRYING       FAIR       CARRYING       FAIR
                                                  AMOUNT       VALUE        AMOUNT       VALUE
                                                ----------   ----------   ----------   ----------
                                                                 (IN THOUSANDS)
                                                                           
Cash and cash equivalents.....................  $  779,592   $  779,592   $   71,816   $   71,816
Long-term investments.........................      39,485       39,485       29,187       29,187
Long-term obligations.........................    (532,424)    (532,424)    (524,116)    (524,116)


NOTE 18--EQUITY INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

    At December 31, 2001, USA beneficially owned 46.7% of the outstanding common
stock of Hot Networks AG, a German stock corporation, the subsidiaries of which
operate electronic retailing operations in Europe. This investment is accounted
for using the equity method. Due to the significance of the results of Hot
Networks, AG, in relation to USA's results, summary financial information for
Hot Networks AG is presented below. There were no significant operations in
1999.



                                                           AS OF AND FOR THE
                                                              YEARS ENDED
                                                             DECEMBER 31,
                                                         ---------------------
                                                           2001        2000
                                                         ---------   ---------
                                                            (IN THOUSANDS)
                                                               
Current assets.........................................  $  17,597   $   6,943
Noncurrent assets......................................    157,274      42,784
Current liabilities....................................     46,085      37,531
Noncurrent liabilities.................................    194,249      23,668
Net sales..............................................      8,215       6,242
Gross profit...........................................        277       1,301
Net loss...............................................    (51,453)    (20,254)


    To date, the Company has contributed approximately $125.3 million, including
$105.5 million in 2001, and recorded equity losses in unconsolidated
subsidiaries of $30.5 million, including $27.6 million in 2001.

NOTE 19--PROGRAM RIGHTS AND FILM COSTS

    As of December 31, 2001, the liability for program rights, representing
future payments to be made under program contract agreements amounted to $510.1
million. Annual payments required are $259.3 million in 2002, $156.6 million in
2003, $70.8 million in 2004, $17.0 million in 2005, $3.9 million in 2006 and
$2.5 million in 2007 and thereafter. Amounts representing interest are $48.1
million and the present value of future payments is $462.0 million.

    As of December 31, 2001, the liability for film costs amounted to $95.9
million. Annual payments are $51.6 million in 2002, $42.4 million in 2003 and
$1.9 million in 2004.

                                       66

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 20--GUARANTEE OF NOTES

    USA issued $500.0 million 6 3'4% Senior Notes due 2005 (the "Notes"). USANi
LLC is a co-issuer and co-obligor of the Notes. The Notes are jointly,
severally, fully and unconditionally guaranteed by certain subsidiaries of USA,
including the Company and all of the subsidiaries of USANi LLC (other than
subsidiaries that are, individually and in the aggregate, inconsequential to
USANi LLC on a consolidated basis) (collectively, the "Subsidiary Guarantors").
All of the Subsidiary Guarantors (other than the Company) (the "Wholly Owned
Subsidiary Guarantors") are wholly owned, directly or indirectly, by the Company
or USANi LLC, as the case may be.

    Separate financial statements for each of the Wholly Owned Subsidiary
Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not
filing separate reports under the Securities Exchange Act of 1934 because the
Company's management has determined that the information contained in such
documents would not be material to investors.

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

    Not applicable.

                                    PART IV

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

        (a) List of Documents filed as part of this Report

        (1)--Consolidated Financial Statements

           Report of Independent Auditors: Ernst & Young LLP.
           Consolidated Statement of Operations for the Years Ended December 31,
       2001,
             2000 and 1999.
           Consolidated Balance Sheets as of December 31, 2001 and 2000.
           Consolidated Statement of Stockholders' Equity for the Years Ended
       December 31, 2001,
             2000 and 1999.
           Consolidated Statements of Cash Flows for Years Ended December 31,
       2001,
             2000 and 1999.
           Notes to Consolidated Financial Statements.

                                       67




      SCHEDULE                                                                              PAGE
       NUMBER                                                                              NUMBER
- ---------------------                                                                     --------
                                                                                    
      II                   --Valuation and Qualifying Accounts.........................


    All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the notes thereto, or is not applicable or required.

    (5)--Exhibits (numbered in accordance with Item 601 of Regulation S-K)



       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
        2.1             Agreement and Plan of Exchange and Merger, dated as of
                        August 25, 1996, by and among Silver King Communications,
                        Inc., HouseAcquisition Corp., Home Shopping Network, Inc.
                        and Liberty HSN, Inc., filed as Appendix B to USA's
                        Definitive Proxy Statement, dated November 20, 1996, is
                        incorporated herein by reference.

        2.2             Agreement and Plan of Merger by and among Silver King
                        Communications, Inc., Thames Acquisition Corporation and
                        Savoy Pictures Entertainment, Inc., as amended and restated
                        as of August 13, 1996, filed as Appendix A to USA's
                        Definitive Proxy Statement, dated November 20, 1996, is
                        incorporated herein by reference.

        2.3             Investment Agreement, dated as of October 19, 1997, among
                        Universal Studios, Inc., HSN, Inc., Home Shopping Network,
                        Inc. and Liberty Media Corporation, as amended and restated
                        as of December 18, 1997, filed as Appendix A to USA's
                        Definitive Proxy Statement, dated January 12, 1998, is
                        incorporated herein by reference.

        2.4             Amended and Restated Agreement and Plan of Reorganization,
                        dated as of August 12, 1998, among CitySearch, Inc.,
                        Tiberius, Inc., USA Networks, Inc., Ticketmaster Group,
                        Inc., Ticketmaster Corporation and Ticketmaster Multimedia
                        Holdings, Inc., filed as Exhibit 10 to USA's Quarterly
                        Report on Form 10-Q for the quarter ended September 30,
                        1998, is incorporated herein by reference.

        2.5             Agreement and Plan of Merger, dated as of March 20, 1998, by
                        and among USA, Brick Acquisition Corp. and Ticketmaster
                        Group, Inc., filed as Exhibit 10.61 to USA's Annual Report
                        on Form 10-K for the fiscal year ended December 31, 1997, is
                        incorporated herein by reference.

        2.6             Agreement and Plan of Merger, dated as of January 12, 2000,
                        by and among Precision Response Corporation, USA and P
                        Acquisition Corp., filed as Exhibit 1 to USA's Schedule 13D
                        filed on January 19, 2000, is incorporated herein by
                        reference.

        2.7             Amended and Restated Agreement and Plan of Recapitalization
                        and Merger, dated as of July 15, 2001, by and among USA
                        Networks, Inc., Expedia, Inc., Taipei, Inc., Microsoft
                        Corporation and Microsoft E-Holdings, Inc., filed as Annex A
                        to USA's Registration Statement on Form S-4 (No. 333-68120),
                        is incorporated herein by reference.

        2.8             Transaction Agreement, dated as of December 16, 2001, among
                        Vivendi Universal, S.A., Universal Studios, Inc., USA
                        Networks, Inc., USANi LLC and Liberty Media Corporation,
                        filed as Appendix A to USA's Definitive Proxy Statement,
                        dated March 25, 2002, is incorporated herein by reference.


                                       68




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
        3.1             Restated Certificate of Incorporation of USA filed as
                        Exhibit 3.1 to USA's Quarterly Report on Form 10-Q for the
                        fiscal quarter ended June 30, 2000, is incorporated herein
                        by reference.

        3.2             Amendment to Restated Certificate of Incorporation of USA,
                        filed as Exhibit A the USA's Definitive Information
                        Statemet, filed on November 19, 2001, is incorporated herein
                        by reference.

        3.3             Amendment to By-Laws of USA, dated January 31, 2002, filed
                        as Exhibit 3.3 to USA's Annual Report of Form 10-K for the
                        fiscal year ended December 31, 2001, is incorporated herein
                        by reference.

        3.4             Amended and Restated By-Laws of USA, filed as Exhibit 3.4 to
                        USA's Annual Report of Form 10-K for the fiscal year ended
                        December 31, 2001, is incorporated herein by reference.

        3.5             Restated Certificate of Incorporation of Home Shopping
                        Network, Inc., as amended, filed as Exhibit 3.15 to USANi
                        LLC's Registration Statement on Form S-4 (No. 333-71305), is
                        incorporated herein by reference.

        3.6             By-Laws of Home Shopping Network, Inc., filed as Exhibit 3.4
                        to Home Shopping Network, Inc.'s Annual Report on Form 10-K
                        for the fiscal year ended December 31, 1996, is incorporated
                        herein by reference.

        3.7             Certificate of Formation of USANi LLC, filed as Exhibit 3.3
                        to USANi LLC's Registration Statement on Form S-4, dated
                        January 27, 1999, is incorporated herein by reference

        3.8             Amended and Restated Limited Liability Company Agreement of
                        USANi LLC, filed as Exhibit 10.59 to USAi's Annual Report on
                        From 10-K for the fiscal year ended December 31, 1997, is
                        incorporated herein by reference

        4.1             Indenture, dated as of November 23, 1998, among USA, USANi
                        LLC, the Guarantors party thereto, and The Chase Manhattan
                        Bank, as Trustee, filed as Exhibit 4.1 to USA's Registration
                        Statement on Form S-4 (No. 333-71305) (the " USA S-4"), is
                        incorporated herein by reference.

        4.2             Form of 6 3/4% Senior Notes due 2005 (included as Exhibit B
                        to Exhibit 4.1 to the USA S-4).

        4.3             Certificate of Designations of Series A Cumulative
                        Convertible Preferred Stock of USA, filed as Exhibit 4.3 to
                        USA's Annual Report of Form 10-K for the fiscal year ended
                        December 31, 2001, is incorporated herein by reference.

        4.4             Indenture, dated as of June 25, 1993, for the Savoy 7%
                        Convertible Subordinated Debentures due July 1, 2003, filed
                        as Exhibit 4(d) to Savoy's S-1 Registration Statement No.
                        33-63192, is incorporated herein by reference.

        4.5             First Supplemental Indenture, dated as of October 24, 1993,
                        for the Savoy 7% Convertible Debentures due July 1, 2003,
                        filed as Exhibit 4(e) to Savoy's S-1 Registration Statement
                        No. 33-70160, is incorporated herein by reference.

        4.6             Second Supplemental Indenture, dated as of December 17,
                        1993, for the Savoy 7% Convertible Debentures due July 1,
                        2003, filed as Exhibit 4(e) to Savoy's Annual Report on Form
                        10-K for the fiscal year ended December 31, 1993, is
                        incorporated herein by reference.


                                       69




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
        4.7             Third Supplemental Indenture, dated as of December 19, 1996,
                        for the Savoy 7% Convertible Debentures due July 1, 2003
                        filed as Exhibit 4.1 to Savoy's Form 8-K, dated December 19,
                        1996, is incorporated herein by reference.

        4.8             Equity Warrant Agreement, dated as of February 4, 2002,
                        between USA and The Bank of New York, as equity warrant
                        agent, filed as Exhibit 4.8 to USA's Annual Report of Form
                        10-K for the fiscal year ended December 31, 2001, is
                        incorporated herein by reference.

       10.1             Form of Affiliation Agreements between USA and Home
                        Shopping, filed as Exhibit 10.2 to USA's Registration
                        Statement on Form 10, as amended, is incorporated herein by
                        reference.

       10.2*            Form of 1992 Stock Option and Restricted Stock Plan between
                        USA and Home Shopping, filed as Exhibit 10.6 to USA's
                        Registration Statement on Form 8, as amended, is
                        incorporated herein by reference.

       10.3             Form of Indemnification Agreement, filed as Exhibit 10.10 to
                        USA's Registration Statement on Form 10, as amended, is
                        incorporated herein by reference.

       10.4             Form of Loan Agreement, as amended, by and between Silver
                        King Capital Corporation, Inc. and Roberts Broadcasting
                        Company of Denver, filed as Exhibit 10.17 to USA's Annual
                        Report on Form 10-K for the fiscal year ended August 31,
                        1994, is incorporated herein by reference.

       10.5             Form of Shareholder Agreement by and among Silver King
                        Capital Corporation, Inc., Roberts Broadcasting Company of
                        Denver, Michael V. Roberts and Steven C. Roberts, filed as
                        Exhibit 10.18 to USA's Annual Report on Form 10-K for the
                        fiscal year ended August 31, 1994, is incorporated herein by
                        reference.

       10.6             Limited Liability Company Agreement, Funding Agreement and
                        Form of First Amendment to LLC, Registration Rights
                        Agreement and associated documents between USA, the Class A
                        Shareholders of Blackstar Communications, Inc. and Fox
                        Television Stations, Inc., dated as of June 27, 1995 and
                        August 18, 1995, filed as Exhibit 10.23 to USA's Annual
                        Report on Form 10-K for the fiscal year ended August 31,
                        1995, are incorporated herein by reference.

       10.7*            1986 Stock Option Plan for Employees, dated as of August 1,
                        1986, filed as Exhibit 10.33 to Home Shopping's Form S-1
                        Registration Statement No. 33-8560, is incorporated herein
                        by reference.

       10.8*            First, Second, Third and Fourth Amendments to the 1986 Stock
                        Option Plan for Employees, filed as Exhibit 10.31 to Home
                        Shopping's Annual Report on Form 10-K for the fiscal year
                        ended December 31, 1993, are incorporated herein by
                        reference.

       10.9*            Form of 1990 Executive Stock Award Program, dated as of
                        October 17, 1990, as amended, filed as Exhibit 10.23 to Home
                        Shopping's Annual Report on Form 10-K for the fiscal year
                        ended August 31, 1991, is incorporated herein by reference.

       10.10*           Home Shopping Network, Inc. Employee Stock Purchase Plan and
                        Part-Time Employee Stock Purchase Plan, filed as Exhibit
                        10.30 to Home Shopping's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1994, is incorporated herein
                        by reference.

       10.11*           Home Shopping Network, Inc. 1996 Stock Option Plan for
                        Employees, filed as Exhibit A to the Home Shopping
                        Definitive Proxy Statement, dated March 28, 1996, is
                        incorporated herein by reference.


                                       70




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
       10.12            Exchange Agreement, dated as of December 20, 1996, by and
                        between the Registrant and Liberty HSN, Inc. filed as
                        Exhibit 10.25 to USA's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1996, is incorporated herein
                        by reference.

       10.13*           Equity and Bonus Compensation Agreement, dated as of August
                        24, 1995, between Barry Diller and the Registrant filed as
                        Exhibit 10.26 to USA's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1996, is incorporated herein
                        by reference.

       10.14*           Silver King Communications, Inc. 1995 Stock Incentive Plan
                        filed as Appendix G to USA's Definitive Proxy Statement,
                        dated November 20, 1996, is incorporated herein by
                        reference.

       10.15*           Silver King Communications, Inc. Directors' Stock Option
                        Plan filed as Appendix H to USA's Definitive Proxy
                        Statement, dated November 20, 1996, is incorporated herein
                        by reference.

       10.16            Shareholders Agreement, dated December 12, 1996, relating to
                        Jupiter Shop Channel Co. Ltd. among Jupiter Programming Co.
                        Ltd., Home Shopping Network, Inc. and Jupiter Shop Channel
                        Co. Ltd. filed as Exhibit 10.35 to USA's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1996, is
                        incorporated herein by reference.

       10.17            Services and Trademark License Agreement, dated as of
                        December 12, 1996, between Home Shopping Network, Inc. and
                        Jupiter Shop Channel Co. Ltd., filed as Exhibit 10.36 to
                        USA's Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1996, is incorporated herein by reference.

       10.18            Purchase and Sale Agreement among Home Shopping Network
                        GmbH, Home Shopping Network, Inc., Quelle Schickedanz AG &
                        Co., Mr. Thomas Kirch and Dr. Georg Kofler, dated as of
                        January 16, 1997, filed as Exhibit 10.37 to USA's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996, is incorporated herein by reference.

       10.19            Joint Venture Agreement between Quelle Schickedanz AG & Co.,
                        Home Shopping Network, Inc., Home Shopping Network GmbH, Mr.
                        Thomas Kirch and Dr. Georg Kofler, filed as Exhibit 5.3 to
                        the Purchase and Sale Agreement, filed as Exhibit 10.38 to
                        USA's Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1996, is incorporated herein by reference.

       10.20            License Agreement, dated as of January 1, 1996, between
                        Ronald A. Katz Technology Licensing, L.P. and Home Shopping
                        Network, Inc., filed as Exhibit 10.39 to USA's Annual Report
                        on Form 10-K for the fiscal year ended December 31, 1996, is
                        incorporated herein by reference.

       10.21            Shareholder Agreement, dated as of April 26, 1996, by and
                        among Channel 66 of Vallejo, California, Inc., Whitehead
                        Media of California, Inc. and Silver King Capital
                        Corporation, Inc., filed as Exhibit 10.40 to USA's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1996, is incorporated herein by reference.

       10.22            Loan Agreement, dated as of April 26, 1996, by and between
                        SKC Investments, Inc. and Channel 66 of Vallejo, California,
                        Inc., filed as Exhibit 10.41 to USA's Annual Report on Form
                        10-K for the fiscal year ended December 31, 1996, is
                        incorporated herein by reference.


                                       71




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
       10.23            Joint Venture and License Agreement, dated as of June 12,
                        1992, between Savoy Pictures Entertainment, Inc. and Home
                        Box Office, Inc. (confidential treatment for portions
                        thereof granted), filed as Exhibit 10(a) to Savoy's S-1
                        Registration Statement No. 33-57956, is incorporated herein
                        by reference.

       10.24            License Agreement, dated as of June 12, 1992, among Savoy
                        Pictures Entertainment, Inc. and Home Box Office, Inc.
                        (confidential treatment of portions thereof granted), filed
                        as Exhibit 10(b) to Savoy's S-1 Registration Statement No.
                        33-57956, is incorporated herein by reference.

       10.25            Warrant Agreement, dated as of March 2, 1992, between Savoy
                        Pictures Entertainment, Inc. and Allen & Company
                        Incorporated, filed as Exhibit 10(f) to Savoy's S-1
                        Registration Statement No. 33-57956, is incorporated herein
                        by reference.

       10.26            Warrant Agreement, dated as of March 2, 1992, between Savoy
                        Pictures Entertainment, Inc. and GKH Partners, L.P., filed
                        as Exhibit 10(g) to Savoy's S-1 Registration Statement No.
                        33-57956, is incorporated herein by reference.

       10.27            Warrant Agreement, dated as of April 20, 1994, between Savoy
                        and GKH Partners, L.P., filed as Exhibit 10.2 to Savoy's
                        Quarterly Report on Form 10-Q for the quarter ended March
                        31, 1994, is incorporated herein by reference.

       10.28            $1,600,000,000 Credit Agreement, dated February 12, 1998,
                        among USA, USANi LLC, as Borrower, Various Lenders, The
                        Chase Manhattan Bank as Administrative Agent, Syndication
                        Agent and Collateral Agent, and Bank of America National
                        Trust & Savings Association and The Bank of New York as
                        Co-Documentation Agents, filed as Exhibit 10.50 to USA's
                        Annual Report on Form 10- K for the fiscal year ended
                        December 31, 1997, is incorporated herein by reference.

       10.29            First Amendment and Consent, dated as of June 24, 1998, to
                        the Credit Agreement, dated February 12, 1998, among USA,
                        USANi LLC, as Borrower, Various Lenders, The Chase Manhattan
                        Bank, as Administrative Agent, Syndication Agent and
                        Collateral Agent, and Bank of America National Trust &
                        Savings Association and The Bank of New York, as
                        Co-Documentation Agents, filed as Exhibit 10.39 to the S-4,
                        is incorporated herein by reference.

       10.30            Second Amendment, dated as of October 9, 1998, to the Credit
                        Agreement, dated February 12, 1998, among USA, USANi LLC, as
                        Borrower, Various Lenders, The Chase Manhattan Bank, as
                        Administrative Agent, Syndication Agent and Collateral
                        Agent, and Bank of America National Trust & Savings
                        Association and The Bank of New York, as Co- Documentation
                        Agents, filed as Exhibit 10.40 to the USA S-4, is
                        incorporated herein by reference.

       10.31            Third Amendment, dated as of April 29, 1999, to the Credit
                        Agreement, dated February 12, 1998, among USA, USANi LLC, as
                        Borrower, Various Lenders, The Chase Manhattan Bank, as
                        Administrative Agent, Syndication Agent and Collateral
                        Agent, and Bank of America National Trust & Savings
                        Association and The Bank of New York, as Co-Documentation
                        Agents, filed as Exhibit 10.39 to USA's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1999, is
                        incorporated herein by reference.


                                       72




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
       10.32            Fourth Amendment, dated as of January 31, 2000, to the
                        Credit Agreement, dated February 12, 1998, among USA, USANi
                        LLC, as Borrower, Various Lenders, The Chase Manhattan Bank,
                        as Administrative Agent, Syndication Agent and Collateral
                        Agent, and Bank of America National Trust & Savings
                        Association and The Bank of New York, as Co-Documentation
                        Agents, filed as Exhibit 10.40 to USA's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1999, is
                        incorporated herein by reference.

       10.33            Fifth Amendment, dated as of January 31, 2001, to the Credit
                        Agreement, dated February 12, 1998, among USA, USANi LLC, as
                        Borrower, Various Lenders, The Chase Manhattan Bank, as
                        Administrative Agent, Syndication Agent and Collateral
                        Agent, and Bank of America National Trust & Savings
                        Association and The Bank of New York, as Co-Documentation
                        Agents, filed as Exhibit 10.41 to USA's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 2000, is
                        incorporated herein by reference.

       10.34            Sixth Amendment, dated as of December 7, 2001, to the Credit
                        Agreement, dated February 12, 1998, among USA, USANi LLC, as
                        Borrower, Various Lenders, The Chase Manhattan Bank, as
                        Administrative Agent, Syndication Agent and Collateral
                        Agent, and Bank of America National Trust & Savings
                        Association and The Bank of New York, as Co-Documentation
                        Agents, filed as Exhibit 10.34 to USA's Annual Report of
                        Form 10-K for the fiscal year ended December 31, 2001, is
                        incorporated herein by reference.

       10.35            Form of Governance Agreement among HSN, Inc., Universal
                        Studios, Inc., Liberty Media Corporation and Barry Diller,
                        dated as of October 19, 1997, filed as Appendix B to USA's
                        Definitive Proxy Statement, dated January 12, 1998, is
                        incorporated herein by reference.

       10.36            Form of Stockholders Agreement among Universal Studios,
                        Inc., Liberty Media Corporation, Barry Diller, HSN, Inc. and
                        The Seagram Company Ltd. dated as of October 19, 1997, filed
                        as Appendix C to USA's Definitive Proxy Statement, dated
                        January 12, 1998, is incorporated herein by reference.

       10.37            Form of Spinoff Agreement between Liberty Media Corporation
                        and Universal Studios, Inc. dated as of October 19, 1997,
                        filed as Appendix D to USA's Definitive Proxy Statement,
                        dated January 12, 1998, is incorporated herein by reference.

       10.38            Form of Amended and Restated Governance Agreement, among
                        USA, Vivendi Universal, S.A., Universal Studios, Inc.,
                        Liberty Media Corporation and Barry Diller, dated as of
                        December 16, 2001, filed as Appendix C to USA's Definitive
                        Proxy Statement, dated March 25, 2002, is incorporated
                        herein by reference.

       10.39            Form of Amended and Restated Stockholders Agreement among
                        Universal Studios, Inc., Liberty Media Corporation, Barry
                        Diller and Vivendi Universal, S.A., dated as of December 16,
                        2001, filed as Appendix D to USA's Definitive Proxy
                        Statement, dated March 25, 2002, is incorporated herein by
                        reference.

       10.40*           HSN, Inc. 1997 Stock and Annual Incentive Plan, filed as
                        Exhibit F to USA's Definitive Proxy Statement, dated January
                        12, 1998, is incorporated herein by reference.

       10.41*           Employment Agreement between Michael Sileck and USA, dated
                        October 12, 1999, filed as Exhibit 10.47 to USA's Annual
                        Report on Form 10-K for the fiscal year ended December 31,
                        1999, is incorporated herein by reference.


                                       73




       EXHIBIT                                                                          PAGE
       NUMBER                                   DESCRIPTION                            NUMBER
- ---------------------                           -----------                           --------
                                                                                
       10.42*           Employment Agreement between Dara Khosrowshahi and USA,
                        dated September 21, 2000, filed as Exhibit 10.1 to USA's
                        Quarterly Report on Form 10-Q for the quarter ended
                        September 30, 2000, is incorporated herein by reference.

       10.43*           Employment Agreement between Julius Genachowski and USA,
                        dated August 9, 2000, filed as Exhibit 10.43 to USA's Annual
                        Report of Form 10-K for the fiscal year ended December 31,
                        2001, is incorporated herein by reference.

       10.44            Exchange Agreement, dated as of October 19, 1997, by and
                        among HSN, Inc. (renamed USA Networks, Inc.), Universal
                        Studios, Inc. (and certain of its subsidiaries) and Liberty
                        Media Corporation (and certain of its subsidiaries), filed
                        as Exhibit 10.60 to USA's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1997, is incorporated herein
                        by reference.

       10.45*           USA Networks, Inc. 2000 Stock and Annual Incentive Plan,
                        filed as Exhibit 10.1 to USA's Quarterly Report on Form 10-Q
                        for the quarter ended June 30, 2000, is incorporated herein
                        by reference.

       10.46*           USA Networks, Inc. Deferred Compensation Plan For
                        Non-Employee Directors, filed as Exhibit 10.2 to USA's
                        Quarterly Report on Form 10-Q for the quarter ended June 30,
                        2000, is incorporated herein by reference.


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

*   Reflects management contracts and compensatory plans.

    (b) Reports on Form 8-K filed during the quarter ended December 31, 2001:

    None.

                                       74

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

April 1, 2002

                                                      
                                                       HOME SHOPPING NETWORK, INC.

                                                       By:               /s/ BARRY DILLER
                                                            -----------------------------------------
                                                                           Barry Diller
                                                               CHAIRMAN AND CHIEF EXECUTIVE OFFICER



    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 1, 2002.



                      SIGNATURE                                            TITLE
                      ---------                                            -----
                                                    
                  /s/ BARRY DILLER
     -------------------------------------------       Chairman of the Board, Chief Executive Officer
                    Barry Diller                         and Director

               /s/ JULIUS GENACHOWSKI
     -------------------------------------------       Director
                 Julius Genachowski

                /s/ DARA KHOSROWSHAHI                  Executive Vice President, Chief Financial
     -------------------------------------------         Officer and Director (Principal Financial
                  Dara Khosrowshahi                      Officer)

              /s/ WILLIAM J. SEVERANCE
     -------------------------------------------       Vice President and Controller (Chief
                William J. Severance                     Accounting Officer)


                                      II-1

                  HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS



                                            BALANCE AT   CHARGES TO    CHARGES                   BALANCE
                                            BEGINNING    COSTS AND    TO OTHER    DEDUCTIONS-    AT END
                                            OF PERIOD     EXPENSES    ACCOUNTS    DESCRIBE(1)   OF PERIOD
                                            ----------   ----------   ---------   -----------   ---------
                                                                   (IN THOUSANDS)
                                                                                 
Allowance for doubtful accounts:
  Year ended December 31, 2001............    $50,646      $44,512     $    --      $(64,572)    $30,586
  Year ended December 31, 2000............    $33,317      $21,133     $    42      $ (3,846)    $50,646
  Year ended December 31, 1999............    $20,572      $21,207     $(1,414)     $ (7,048)    $33,317


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

(1) Write-off fully reserved accounts receivable.

                                      II-2