SEC Filing

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 USA NETWORKS, INC. (Exact name of registrant as specified in its charter) ------------------------ COMMISSION FILE NO. 0-20570 DELAWARE 59-2712887 (State or other jurisdiction of (I.R.S. Employer 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): ------------------------ 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 / / As of October 20, 2000, the following shares of the Registrant's capital stock were outstanding: Common Stock................................................ 305,082,551 Class B Common Stock........................................ 63,033,452 ----------- Total..................................................... 368,116,003 Common Stock issuable upon exchange of outstanding exchangeable subsidiary equity............................ 361,152,846 ----------- Total outstanding Common Stock, assuming full exchange of Class B Common Stock and exchangeable subsidiary equity.................................................. 729,268,849 =========== The aggregate market value of the voting stock held by non-affiliates of the Registrant as of October 20, 2000 was $4,107,195,198. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant are assumed to be affiliates of the Registrant. Assuming the exchange, as of October 20, 2000, of all equity securities of subsidiaries of the Registrant exchangeable for Common Stock of the Registrant, the Registrant would have outstanding 729,268,849 shares of Common Stock with an aggregate market value of $13,126,839,282. All share numbers set forth above give effect to the two-for-one stock split which became effective on February 24, 2000 for holders of record as of the close of business on February 10, 2000. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

PART I--FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS USA NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- 2000 1999 2000 1999 ---------- -------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) NET REVENUES USA ENTERTAINMENT Networks and television production........................ $ 336,047 $307,094 $1,105,688 $ 955,032 Filmed entertainment...................................... 14,468 27,912 65,548 39,687 Broadcasting.............................................. 5,263 2,341 13,620 5,691 Emerging networks......................................... 8,591 266 12,862 693 USA ELECTRONIC RETAILING Electronic retailing...................................... 426,549 314,718 1,243,756 941,467 USA INFORMATION AND SERVICES Ticketing operations...................................... 124,929 105,188 395,909 324,615 Hotel reservations........................................ 94,619 47,652 227,964 70,670 Teleservicing............................................. 70,162 -- 140,374 -- Interactive............................................... 26,709 16,333 76,331 43,851 Electronic commerce and services.......................... 7,174 6,168 15,634 14,470 OTHER..................................................... 509 -- 1,568 6,894 ---------- -------- ---------- ---------- Total net revenues.................................... 1,115,020 827,672 3,299,254 2,403,070 ---------- -------- ---------- ---------- Operating costs and expenses: Cost of sales............................................. 527,539 279,813 1,485,297 767,962 Program costs............................................. 146,000 147,549 485,037 466,896 Selling and marketing..................................... 141,841 129,720 401,975 378,050 General and administrative................................ 110,174 126,971 320,196 330,582 Other operating costs..................................... 31,638 14,805 86,162 58,525 Amortization of cable distribution fees................... 8,845 6,938 25,335 19,214 Non-cash distribution and marketing expense............... 2,693 -- 4,414 -- Depreciation and amortization............................. 141,564 83,544 380,830 230,581 ---------- -------- ---------- ---------- Total operating costs and expenses.................... 1,110,294 789,340 3,189,246 2,251,810 ---------- -------- ---------- ---------- Operating profit...................................... 4,726 38,332 110,008 151,260 Other income (expense): Interest income........................................... 10,862 8,948 35,141 24,297 Interest expense.......................................... (20,417) (21,170) (62,097) (61,233) Gain on sale of securities................................ -- 39,451 -- 89,721 Other, net................................................ 69,907 (509) 67,362 1,986 ---------- -------- ---------- ---------- 60,352 26,720 40,406 54,771 ---------- -------- ---------- ---------- Earnings before income taxes and minority interest.......... 65,078 65,052 150,414 206,031 Income tax expense.......................................... (22,313) (24,947) (72,813) (65,302) Minority interest........................................... (63,004) (47,785) (145,299) (150,582) ---------- -------- ---------- ---------- NET LOSS.................................................... $ (20,239) $ (7,680) $ (67,698) $ (9,853) ========== ======== ========== ========== Basic and diluted loss per common share..................... $ (.06) $ (.02) $ (.19) $ (.03) ========== ======== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 1

USA NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS Cash and cash equivalents................................... $ 359,079 $ 424,239 Marketable securities, available for sale................... 74,817 -- Accounts and notes receivable, net of allowance of $58,860 and $41,993, respectively................................. 619,016 454,341 Inventories, net............................................ 595,073 470,844 Investments held for sale................................... 2,381 11,512 Other current assets, net................................... 66,321 27,519 ----------- ---------- Total current assets.................................... 1,716,687 1,388,455 PROPERTY, PLANT AND EQUIPMENT Computer and broadcast equipment............................ 385,193 324,412 Buildings and leasehold improvements........................ 149,906 110,403 Furniture and other equipment............................... 97,743 85,487 Land........................................................ 15,334 16,094 Projects in progress........................................ 53,293 41,438 ----------- ---------- 701,469 577,834 Less accumulated depreciation and amortization.......... (226,065) (221,203) ----------- ---------- 475,404 356,631 OTHER ASSETS Intangible assets, net...................................... 7,773,464 6,831,487 Cable distribution fees, net ($30,235 and $35,181, respectively, to related parties)... 146,155 130,988 Long-term investments....................................... 63,989 121,383 Notes and accounts receivable, net of current portion ($3,283 and $2,562, respectively, from related parties)... 36,671 26,248 Advance to Universal........................................ 102,362 163,814 Inventories, net............................................ 197,447 166,477 Deferred income taxes....................................... 18,254 -- Deferred charges and other, net............................. 80,660 67,669 ----------- ---------- $10,611,093 $9,253,152 =========== ========== 2

USA NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations................. $ 27,293 $ 10,801 Accounts payable, trade..................................... 192,116 188,343 Accounts payable, client accounts........................... 102,442 98,586 Obligations for program rights and film costs............... 307,935 272,945 Amount due under acquisition agreement...................... -- 17,500 Cable distribution fees payable ($18,431 and $18,733, respectively, to related parties)... 28,993 43,993 Deferred revenue............................................ 129,232 83,811 Deferred income taxes....................................... 21,872 4,050 Other accrued liabilities................................... 391,138 311,724 ----------- ---------- Total current liabilities............................... 1,201,021 1,031,753 LONG-TERM OBLIGATIONS (net of current maturities)........... 572,449 574,979 OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of current............................................ 292,198 262,810 OTHER LONG-TERM LIABILITIES................................. 102,456 116,695 DEFERRED INCOME TAXES....................................... -- 5,120 MINORITY INTEREST........................................... 4,941,036 4,492,066 COMMITMENTS AND CONTINGENCIES............................... -- -- STOCKHOLDERS' EQUITY Preferred stock--$.01 par value; authorized 15,000,000 shares; no shares issued and outstanding............................. -- -- Common stock--$.01 par value; authorized 1,600,000,000 shares; issued and outstanding, 305,082,551 and 274,013,418 shares, respectively...................................... 3,051 2,740 Class B--convertible common stock--$.01 par value; authorized, 400,000,000 shares; issued and outstanding, 63,033,452 shares......................................... 630 630 Additional paid-in capital.................................. 3,780,587 2,830,506 Accumulated deficit......................................... (122,056) (54,358) Accumulated other comprehensive income...................... (15,867) 4,773 Treasury stock, at cost..................................... (139,414) (9,564) Note receivable from key executive for common stock issuance.................................................. (4,998) (4,998) ----------- ---------- Total stockholders' equity.............................. 3,501,933 2,769,729 ----------- ---------- $10,611,093 $9,253,152 =========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3

USA NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) NOTE RECEIVABLE CLASS B ACCUM. FROM KEY CONVERTIBLE ADDIT. OTHER EXECUTIVE FOR COMMON COMMON PAID-IN ACCUM. COMP. TREASURY COMMON STOCK TOTAL STOCK STOCK CAPITAL DEFICIT INCOME STOCK ISSUANCE ---------- -------- ----------- ---------- --------- -------- --------- --------------- (IN THOUSANDS) BALANCE AT DECEMBER 31, 1999.................... $2,769,729 $2,740 $630 $2,830,506 $ (54,358) $ 4,773 $ (9,564) $(4,998) Comprehensive income: Net loss for the nine months ended September 30, 2000.... (67,698) -- -- -- (67,698) -- -- -- Decrease in unrealized gains in available for sale securities....... (14,588) -- -- -- -- (14,588) -- -- Foreign currency translation........... (6,052) -- -- -- -- (6,052) -- -- ---------- Comprehensive loss.... (88,338) Issuance of common stock upon exercise of stock options................. 34,493 42 -- 34,451 -- -- -- -- Income tax benefit related to stock options exercised............... 19,808 -- -- 19,808 -- -- -- -- Issuance of stock in connection with PRC acquisition............. 887,451 322 -- 887,129 -- -- -- -- Issuance of stock in connection with other transactions............ 8,697 4 -- 8,693 -- -- -- -- Purchase of treasury stock in connection with stock repurchase program...... (129,907) (57) -- -- -- -- (129,850) -- ---------- ------ ---- ---------- --------- -------- --------- ------- BALANCE AT SEPTEMBER 30, 2000.................... $3,501,933 $3,051 $630 $3,780,587 $(122,056) $(15,867) $(139,414) $(4,998) ========== ====== ==== ========== ========= ======== ========= ======= Comprehensive loss for the three months ended September 30, 2000 was $30,946. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4

USA NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss.................................................. $ (67,698) $ (9,853) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................. 380,830 230,467 Amortization of cable distribution fees................... 25,335 19,214 Amortization of program rights and film costs............. 489,887 420,285 Amortization of non-cash distribution and marketing costs................................................... 4,414 -- Amortization of deferred financing costs and non-cash interest................................................ 1,676 2,545 Equity in losses (earnings) of unconsolidated affiliates.............................................. 40,896 (812) Gain on sale of subsidiary stock.......................... (108,343) -- Gain on sale of securities................................ -- (89,721) Non-cash interest income.................................. (5,559) (3,965) Non-cash stock compensation............................... 8,380 3,754 Minority interest......................................... 145,299 150,582 Changes in current assets and liabilities: Accounts receivable....................................... (54,469) 2,607 Inventories............................................... (1,888) (18,343) Accounts payable.......................................... (68,078) (25,488) Accrued liabilities and deferred revenue.................. 105,083 48,453 Payment for program rights and film costs................. (614,406) (448,975) Increase in cable distribution fees....................... (39,251) (35,624) Other, net................................................ 14,505 4,306 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 256,613 249,432 --------- --------- Cash flows from investing activities: Acquisitions, net of cash acquired........................ (221,329) (184,671) Capital expenditures...................................... (116,491) (87,795) Advance to Universal...................................... -- (200,000) Recoupment of advance to Universal........................ 70,295 20,741 Increase in long-term investments and notes receivable.... (15,306) (17,746) Purchase of marketable securities......................... (78,172) -- Proceeds from sale of securities.......................... -- 107,231 Other, net................................................ (14,446) 5,845 --------- --------- NET CASH USED IN INVESTING ACTIVITIES................... (375,449) (356,395) --------- --------- Cash flows from financing activities: Borrowings................................................ 50,166 -- Principal payments on long-term obligations............... (81,926) (337,636) Purchase of treasury stock................................ (129,907) (7,226) Payment of mandatory tax distribution to LLC partners..... (68,065) (28,830) Proceeds from sale of subsidiary stock.................... 92,604 2,490 Proceeds from minority interest shareholders.............. -- 4,050 Cash acquired in merger transactions...................... -- 1,209 Proceeds from issuance of common stock and LLC shares..... 207,795 413,318 Other, net................................................ (12,858) -- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 57,809 47,375 --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... (4,133) 264 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (65,160) (59,324) Cash and cash equivalents at beginning of period............ 424,239 445,356 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 359,079 $ 386,032 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION USA Networks, Inc. (the "Company" or "USAi") is a holding company, the subsidiaries of which are focused on the new convergence of entertainment, information and direct selling. On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers ("Styleclick.com"), completed the merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). See Note 3. On April 5, 2000, the Company acquired Precision Response Corporation ("PRC") (the "PRC Transaction"). See Note 3. On May 28, 1999, the Company acquired October Films, Inc. ("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. ("PFE") (the "October Films/PFE Transaction"). See Note 3. On May 10, 1999, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of two entities which operate Hotel Reservations Network (the "Hotel Reservations Network Transaction"). See Note 3. The Company engages in ten principal areas of business. In the second quarter, the Company reorganized the segments into three units, USA Entertainment, USA Electronic Retailing and USA Information and Services. The units and segments are as follows: USA ENTERTAINMENT - NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios USA. Networks operates the USA Network and Sci-Fi Channel cable networks, and Studios USA produces and distributes television programming. - FILMED ENTERTAINMENT, which primarily represents the Company's domestic theatrical film distribution and production businesses. - BROADCASTING, which owns and operates television stations. - EMERGING NETWORKS, which primarily represents recently acquired cable television properties Trio and News World International and SciFi.com, an emerging Internet content and commerce site. USA ELECTRONIC RETAILING - ELECTRONIC RETAILING, consisting primarily of the Home Shopping Network and America's Store, HSN International and HSN.com, which are engaged in the electronic retailing business. USA INFORMATION AND SERVICES - TICKETING OPERATIONS, which primarily represents Ticketmaster, the leading provider of automated ticketing services in the United States, and Ticketmaster.com, Ticketmaster's exclusive agent for online ticket sales. 6

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) - HOTEL RESERVATIONS, consisting of Hotel Reservations Network, a leading consolidator of hotel rooms for resale in the consumer market in the United States. - TELESERVICES, consisting of Precision Response Corporation, a leader in outsourced customer care for both large corporations and high-growth internet-focused companies. - INTERACTIVE, which includes Styleclick, Inc. (see more information in Note 3), a facilitator of e commerce websites and Internet enabled applications and the Company's online retailing networks First Auction and First Jewelry, and local city guide business. - ELECTRONIC COMMERCE AND SERVICES, which primarily represents the Company's customer and e-care businesses. On January 20, 2000, the Board of Directors declared a two-for-one stock split of USAi's common stock and Class B common stock, payable in the form of a dividend to stockholders of record as of the close of business on February 10, 2000. The 100% stock dividend was paid on February 24, 2000. All share data and earnings per share amounts presented have been adjusted to reflect this stock split. BASIS OF PRESENTATION The interim Condensed Consolidated Financial Statements and Notes thereto of the Company are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the twelve months ended December 31, 1999. Certain amounts in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 1999 have been reclassified to conform to the 2000 presentation, including all amounts charged to customers for shipping and handling, which are now presented as revenue. In the opinion of the Company, all adjustments necessary for a fair presentation of such Condensed Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Consolidated Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's audited Consolidated Financial Statements and Notes thereto. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Form 10-K") for a summary of all significant accounting policies. NEW ACCOUNTING PRONOUNCEMENTS In June 2000, the Securities and Exchange Commission issued an amendment to Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101") which delayed the effective date for adoption of SAB 101 to the fourth quarter of 2000. SAB 101 provides guidance on revenue recognition criteria for certain types of transactions. SAB 101 also provides guidance on the disclosures that companies should make about their revenue recognition policies and the impact of events and trends on revenue. 7

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS("SOP 00-2"), which replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND DISTRIBUTORS OF MOTION PICTURE FILMS. AcSEC concluded that film costs would be accounted for under an inventory model. In addition, the SOP considers such topics as revenue recognition (fixed fees and minimum guarantees in variable fee arrangements), fee allocation in multiple films, accounting for exploitation costs, and impairment assessment. The SOP is effective for financial statements issued for fiscal years beginning after December 15, 2000. The Company is currently evaluating the impact of SAB 101 and SOP 00-2, although the impact is not expected to be material. NOTE 3--BUSINESS ACQUISITIONS STYLECLICK TRANSACTION On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network and Styleclick.com. 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 Nasdaq market under the symbol "IBUY". In accordance with the terms of the agreement, USAi 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 the $10 million of borrowing outstanding under the bridge loan. The aggregate purchase price, including transaction costs, of $211.9 million was determined as follows: Value of portion of Styleclick.com acquired in the merger... $121,781 Additional cash and promotional investment by USAi.......... 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 conjunction with the transaction, the Company recorded a pre-tax gain of $104.6 million based upon the 25% of ISN exchanged for 75% of Styleclick.com. The Styleclick transaction has been accounted for under the purchase method of accounting. The purchase price has been preliminarily 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 8

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) assets acquired of $170.5 million has been allocated to goodwill, which is being amortized over 3 years. Assets and liabilities as of the acquisition date consist of the following: (IN THOUSANDS) -------------- Current assets.............................................. $39,095 Non-current assets.......................................... 4,039 Goodwill.................................................... 170,526 Current liabilities......................................... 1,746 Non-current liabilities..................................... -- PRC TRANSACTION On April 5, 2000, USAi acquired PRC in a tax-free merger by issuing approximately 24.3 million shares of USAi common stock for all of the outstanding stock of PRC for a total value of approximately $711.1 million. In connection with the acquisition, the Company repaid approximately $32.3 million of outstanding borrowings under PRC's existing revolving credit facility. The PRC Transaction has been accounted for under the purchase method of accounting. The purchase price has been preliminarily 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 $649.8 million has been allocated to goodwill, which is being amortized over 20 years. Assets and liabilities as of the acquisition date consist of the following: (IN THOUSANDS) -------------- Current assets.............................................. $ 65,335 Non-current assets.......................................... 90,001 Goodwill.................................................... 649,750 Current liabilities......................................... 60,292 Non-current liabilities..................................... 33,739 HOTEL RESERVATIONS NETWORK TRANSACTION On May 10, 1999, the Company completed its acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of two entities which operate Hotel Reservations Network, a leading consolidator of hotel rooms for resale in the consumer market in the United States. The assets acquired and liabilities assumed comprise Hotel Reservations Network, Inc. ("HRN"). The initial purchase price was $149.2 million, net of a working capital adjustment of $0.8 million, plus contingent payments based on operating performance during the year ended December 31, 1999 and for the twelve month periods ended March 31, 2000, 2001 and 2002. The purchase price was paid in the form of a cash payment of $145.0 million on May 11, 1999 and a promissory note of $5.0 million which was paid on January 30, 2000 and which bore interest at 4.75% per annum. In addition, the Company paid $50.0 million related to HRN's performance during the year ended December 31, 1999. Furthermore, in conjunction with HRN's initial public offering (see below), USAi issued to the sellers the number of shares of HRN class A common stock equal to 10% of the aggregate value of the equity of HRN immediately prior to a transaction, as defined. USAi issued the sellers approximately 4.9 million shares of HRN class A common stock valued at $78.4 million. Pursuant to an amendment of the asset 9

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) purchase agreement with the sellers of HRN's predecessor business entered into in contemplation of the initial public offering, HRN agreed to issue HRN class A common stock to the sellers in exchange for releasing the obligation to make additional performance-based payments covering the twelve month periods ending March 31, 2001 and 2002. HRN issued the sellers approximately 5.1 million shares of HRN class A common stock valued at $81.6 million. The contingent payment for the twelve month period ending March 31, 2000 of approximately $45.8 million has been paid. The payment resulted in additional goodwill which is being amortized over the remaining life of the goodwill. The acquisition has been accounted for under the purchase method of accounting. The purchase price, including the initial contingent payments of $50 million for the year ended December 31, 1999, the stock issued to the sellers in conjunction with the initial public offering, and the estimated contingent payment for the twelve months ended March 31, 2000 has been allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase, resulting in goodwill of approximately $405.9 million which is being amortized over a ten year life. On March 1, 2000, HRN completed an initial public offering for approximately 6.2 million shares of its class A common stock, resulting in net cash proceeds of approximately $90.0 million. At the completion of the offering, USAi owned approximately 70.6% of the outstanding shares of HRN. USAi recorded a gain related to the initial public offering of approximately $3.7 million in the nine months ended September 30, 2000. OCTOBER FILMS/PFE TRANSACTION In connection with the acquisition of October Films, Inc., as of May 28, 1999, the Company issued 600,000 shares of Common Stock to Universal and paid cash consideration of approximately $12.0 million to October Films shareholders (other than Universal) for total consideration of $23.6 million. To fund the cash consideration portion of the transaction, Universal purchased from USAi 600,000 additional shares of Common Stock at $20.00 per share. In addition, the Company assumed $83.2 million of outstanding debt under October Films' credit agreement which was repaid from cash on hand on August 20, 1999. Also on May 28, 1999, USAi acquired from Universal the domestic film distribution and development business previously operated by PFE and PFE's domestic video and specialty video businesses. The acquisition included PFE's domestic production assets such as Interscope Communications and Propaganda Films, as well as the following distribution assets: PolyGram Video, Polygram Filmed Entertainment Canada, Gramercy Pictures, and PolyGram Films. In connection with the transaction, USAi agreed to assume certain liabilities related to the PFE businesses acquired. In addition, USAi advanced $200.0 million to Universal pursuant to an eight year, full recourse, interest-bearing note in connection with a distribution agreement pursuant to which USAi will distribute, in the U.S. and Canada, certain Polygram theatrical films which were not acquired in the transaction. The advance is repaid as revenues are received under the distribution agreement and, in any event, will be repaid in full at maturity. Through September 30, 2000, approximately $111.3 million had been offset against the advance and $13.6 million of interest had accrued. The October Films/PFE 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 $184.5 million has been allocated to goodwill, which is being amortized over 20 years. 10

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) The following unaudited pro forma condensed consolidated financial information for the three and nine months ended September 30, 2000 and 1999 is presented to show the results of the Company as if the Styleclick Transaction, the PRC Transaction, the Hotel Reservations Network Transaction and the October Films/PFE Transaction had occurred on January 1, 1999. The pro forma results reflect certain adjustments, including increased amortization related to goodwill and other intangibles, changes in programming and film costs amortization and an increase in interest expense, and are not necessarily indicative of what the results would have been had the transactions actually occurred on January 1, 1999. NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 ------------------- ------------------- ------------------- ------------------- (IN THOUSANDS EXCEPT SHARE DATA) Net revenues......... $3,307,792 $1,115,164 $2,616,554 $885,465 Net loss............. (86,698) (19,486) (56,883) (5,674) Basic and diluted loss per share..... (.24) (.05) (.16) (.05) NOTE 4--STOCK-BASED WARRANTS In January 2000, HRN entered into an exclusive affiliate distribution and marketing agreement with Travelocity and issued to Travelocity a performance warrant at the completion of the initial public offering. The performance warrant is subject to vesting based on achieving certain performance targets. If the performance warrant becomes fully vested and exercisable it will entitle the holder to acquire 2,447,955 shares of HRN class A common stock at the initial public offering price. The Company also entered into other exclusive affiliate distribution and marketing agreements and issued 1,428,365 warrants to purchase HRN class A common stock at the initial public offering price at the completion of the public offering. All stock warrants were accounted for in accordance with EITF 96-18. In relation to warrants to purchase 1,428,365 shares of class A common stock, the Company recorded an asset of approximately $14.7 million based on the fair market value of the warrants at the initial public offering price of $16.00 per share. The asset is amortized ratably as non-cash distribution and marketing expense over the terms of the exclusive affiliation agreements, which range from two to five years. The performance warrant, which will be subject to vesting based on the achievement of defined performance targets will be valued at the time the award is probable of being earned. The portion of the value related to the completed term of the related affiliation agreement will be expensed, and the remaining non-cash deferred distribution and marketing expense will be amortized over the remaining term of the affiliation agreement. The value of such related warrants may be subject to adjustment until such time that the warrant is nonforfeitable, fully vested and exercisable. NOTE 5--INVESTMENTS During the quarter and nine months ended September 30, 1999, the Company recognized pre-tax gains of $39.5 and $89.7 million, respectively, on the sale of securities in a publicly traded entity. 11

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6--STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000: As of January 1, 2000, the Company presents the operations of HOT Germany, an electronic retailer operating principally in Germany, on a consolidated basis, 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 USAi common stock for all the outstanding stock of IDI, for a total value of approximately $5.0 million. On January 31, 2000, TMCS completed its acquisition of 2b Technology, Inc. ("2b"), by issuing approximately 458,005 shares of TMCS Class B Common Stock for all the outstanding stock of 2b, for a total value of approximately $17.1 million. On April 5, 2000, USAi completed its acquisition of PRC by issuing approximately 24.3 million shares of USAi common stock for all of the outstanding stock of PRC, for a total value of approximately $711.1 million. On May 26, 2000, TMCS completed its acquisition of Ticketweb, Inc. ("Ticketweb"), by issuing approximately 1.8 million shares of TMCS Class B Common Stock for all the outstanding stock of Ticketweb, for a total value of approximately $35.3 million. For the three and nine months ended September 30, 2000, interest accrued on the $200.0 million advance to Universal amounted to $2.0 million and $6.9 million, respectively. For the three and nine months ended September 30, 2000, the Company incurred non-cash distribution and marketing expense of $2.7 million and $4.4 million, respectively. During the second quarter, the Company recorded $11.6 million of expense related to an agreement with an executive. Of this amount, $3.8 million is a non-cash stock compensation charge related to restricted stock. During the third quarter, the Company realized a pre-tax loss of $30.5 million related to the write-off of investments to fair value. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999: On March 29, 1999, TMCS completed its acquisition of City Auction, Inc. ("City Auction"), a person-to-person online auction community, by issuing approximately 800,000 shares of its Class B common stock for all the outstanding stock of City Auction, for a total value of $27.2 million. On May 28, 1999, the Company completed the October Films/ PFE Transaction by issuing 600,000 shares of Common Stock, for a value of $11.6 million. On September 14, 1999, TMCS completed its acquisition of Match.com, Inc., ("Match"), an Internet personals company. In connection with the acquisition, TMCS issued 1,924,777 shares of Class B Common Stock to the former owners of Match representing a total purchase price of approximately $45.0 million. On September 13, 1999, TMCS purchased all the outstanding limited liability company units ("Units") of Web Media Ventures, L.L.C. ("Web Media"). Web Media is an Internet personals company distributing its services through a network of affiliated Internet sites. In connection with the acquisition, TMCS issued 1.2 million shares of Class B Common Stock in exchange for all of the Web Media Units. In 12

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6--STATEMENTS OF CASH FLOWS (CONTINUED) addition, TMCS is obligated to issue additional contingent shares related to certain revenue targets. The total purchase price recorded at September 13, 1999 was $36.6 million. On September 18, 1999, the Company acquired certain assets associated with the entertainment city guide (A&E) portion of the Sidewalk.com web site ("Sidewalk") from Microsoft Corporation ("Microsoft"). The Company also entered into a four year distribution agreement with Microsoft pursuant to which the Company became the exclusive provider of local city guide content on the Microsoft Network ("MSN") and the Company's internet personals Web sites became the premier provider of personals content to MSN. In addition, the Company and Microsoft entered into additional cross-promotional arrangements. TMCS issued Microsoft 7.0 million shares of TMCS Class B Common Stock. The fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement amounted to $338.5 million. During the nine months ended September 30, 1999, the Company acquired post-production equipment through a capital lease totaling $2.5 million. NOTE 7--INDUSTRY SEGMENTS For the three and nine months ended September 30, 2000, the Company operated principally in ten industry segments: Networks and television production, Electronic retailing, Ticketing operations, Hotel reservations, Teleservices, Interactive, Filmed entertainment, Electronic commerce and services, Broadcasting and Emerging networks. The Networks and television production segment consists of the cable networks USA Network and Sci-Fi Channel and Studios USA, which produces and distributes television programming. The Electronic retailing segment consists principally of the Home Shopping Network, America's Store and HOT Germany, which are engaged in the sale of merchandise through electronic retailing. The Ticketing operations segment provides automated ticketing services primarily in the United States. The Hotel reservations segment was formed on May 10, 1999 in conjunction with the acquisition of Hotel Reservations Network, a leading consolidator of hotel rooms for resale in the consumer market in the United States. The Teleservices segment was formed on April 5, 2000 in conjunction with the acquisition of PRC, a leader in outsourced customer care for both large corporations and high-growth internet-focused companies. The Interactive segment represents Styleclick and local city guide business. The Filmed entertainment segment represents USA Films, which consists of domestic theatrical film distribution and production businesses which were acquired May 28, 1999, and Savoy. The Electronic commerce and services segment primarily represents the Company's customer and e-care businesses. The Broadcasting segment includes the operations of broadcast television stations in twelve markets that principally transmit Home Shopping Network programming although three transmit other programming. The Emerging networks segment consists primarily of the recently acquired cable television properties Trio and News World International, which were acquired on May 19, 2000, and SciFi.com, an emerging Internet content and commerce site. In addition, in the second quarter, the Company reorganized the segments into three units, USA Entertainment, USA Electronic Retailing and USA Information and Services. USA Entertainment consists of Networks and television production, Filmed entertainment, Broadcasting and Emerging networks. USA Electronic Retailing consists of Electronic retailing. USA Information and Services consists of Ticketing operations, Hotel reservations, Teleservices, Interactive and Electronic commerce and services. 13

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7--INDUSTRY SEGMENTS (CONTINUED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- 2000 1999 2000 1999 ---------- -------- ---------- ---------- (IN THOUSANDS) (IN THOUSANDS) Revenue USA ENTERTAINMENT Networks and television production............ $ 336,047 $307,094 $1,105,688 $ 955,032 Filmed entertainment.......................... 14,468 27,912 65,548 39,687 Broadcasting.................................. 5,263 2,341 13,620 5,691 Emerging networks............................. 8,591 266 12,862 693 USA ELECTRONIC RETAILING Electronic retailing.......................... 426,549 314,718 1,243,756 941,467 USA INFORMATION AND SERVICES Ticketing operations.......................... 124,929 105,188 395,909 324,615 Hotel reservations............................ 94,619 47,652 227,964 70,670 Teleservices.................................. 70,162 -- 140,374 -- Interactive................................... 26,709 16,333 76,331 43,851 Electronic commerce and services.............. 7,174 6,168 15,634 14,470 OTHER......................................... 509 -- 1,568 6,894 ---------- -------- ---------- ---------- 1,115,020 827,672 3,299,254 2,403,070 ========== ======== ========== ========== Operating profit (loss) USA ENTERTAINMENT Networks and television production............ $ 90,394 64,555 $ 312,371 223,170 Filmed entertainment.......................... (8,244) 904 (12,794) 262 Broadcasting.................................. (18,115) (11,525) (52,118) (36,609) Emerging networks............................. (1,875) (787) (6,669) (1,885) USA ELECTRONIC RETAILING Electronic retailing.......................... 27,723 27,075 93,228 74,894 USA INFORMATION AND SERVICES Ticketing operations.......................... 9,275 6,382 42,952 21,521 Hotel reservations............................ 1,899 1,500 3,650 2,159 Teleservices.................................. (1,597) -- (4,586) -- Interactive................................... (75,122) (42,563) (200,383) (103,551) Electronic commerce and services.............. (7,451) 483 (19,961) 768 OTHER......................................... (8,761) (7,692) (42,282) (29,469) One-time settlement of litigation............. (3,400) -- (3,400) -- ---------- -------- ---------- ---------- $ 4,726 $ 38,332 $ 110,008 $ 151,260 ========== ======== ========== ========== In the third quarter of 2000, the Company recorded a one-time charge of $3.4 million for the settlement of litigation related to ticketing operations. The settlement was reached on November 13, 2000 after a judgment was reached by a jury on November 9, 2000. 14

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7--INDUSTRY SEGMENTS (CONTINUED) The Company operates principally within the United States. NOTE 8--SAVOY SUMMARIZED FINANCIAL INFORMATION The Company has not prepared separate financial statements and other disclosures concerning Savoy Pictures, Inc., a subsidiary of the Company, because management has determined that such information is not material to holders of the Savoy Debentures, all of which have been assumed by the Company as a joint and several obligor. The information presented is reflected at Savoy's historical cost basis. SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 1999 -------- -------- (IN THOUSANDS) Net sales................................................ $4,632 $4,687 Operating expenses....................................... 1,408 4,882 Operating income (loss).................................. 3,224 (195) Net income............................................... 4,165 3,258 SUMMARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- ------------- (IN THOUSANDS) Current assets...................................... $ 591 $ 191 Non-current assets.................................. 154,244 150,236 Current liabilities................................. 14,834 12,273 Non-current liabilities............................. 38,961 39,081 NOTE 9-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION On November 23, 1998, the Company and USANi LLC as co-issuers completed an offering of $500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In May 1999, the Old Notes were exchanged in full for $500.0 million of new 6 3/4% Senior Notes due 2005 (the "Notes") that have terms that are substantially identical to the Old Notes. Interest is payable on the Notes on May 15 and November 15 of each year, commencing May 15, 1999. The Notes are jointly, severally, fully and unconditionally guaranteed by certain subsidiaries of the Company, including Home Shopping Network, Inc. ("Holdco"), a non-wholly owned, direct subsidiary of 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 Holdco) (the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or indirectly, by the Company or USANi LLC, as the case may be. 15

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED) The following tables present condensed consolidating financial information for the three and nine months ended September 30, 2000 and 1999 for: (1) the Company on a stand-alone basis, (2) Holdco on a stand-alone basis, (3) USANi LLC on a stand-alone basis, (4) the combined Wholly Owned Subsidiary Guarantors (including Wholly Owned Subsidiary Guarantors that are wholly owned subsidiaries of USANi LLC), (5) the combined non-guarantor subsidiaries of the Company (including the non-guarantor subsidiaries of USANi LLC (collectively, the "Non-Guarantor Subsidiaries")), and (6) the Company on a consolidated basis. 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. WHOLLY OWNED USANI SUBSIDIARY NON-GUARANTOR USAI USAI HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ---------- ---------- ---------- ------------- ------------ ------------ BALANCE SHEET AS OF SEPTEMBER 30, 2000: Current Assets.................. $ 5,372 $ -- $ 95,282 $ 979,448 $ 636,585 $ -- $ 1,716,687 Property and equipment, net..... -- -- 24,848 257,267 193,289 -- 475,404 Goodwill and other intangible assets, net................... 74,217 -- -- 5,106,882 2,738,520 -- 7,919,619 Investment in subsidiaries...... 3,522,749 1,292,445 6,894,645 19,717 -- (11,729,556) -- Other assets.................... 114,580 -- 3,463 816,080 88,017 (522,757) 499,383 ---------- ---------- ---------- ---------- ---------- ------------ ----------- TOTAL ASSETS.................... $3,716,918 $1,292,445 $7,018,238 $7,179,394 $3,656,411 $(12,252,313) $10,611,093 ========== ========== ========== ========== ========== ============ =========== Current liabilities............. $ -- $ -- $ -- $ 806,536 $ 444,652 $ (50,167) $ 1,201,021 Long-term debt, less current portion....................... -- -- 517,981 1,243 53,225 -- 572,449 Other liabilities............... 214,985 -- 297,911 562,733 509,758 (1,190,733) 394,654 Minority interest............... -- -- 55,037 225,475 518,681 4,141,843 4,941,036 Interdivisional equity.......... -- -- -- 5,583,407 2,130,095 (7,713,502) -- Stockholders' equity............ 3,501,933 1,292,445 6,147,309 -- -- (7,439,754) 3,501,933 ---------- ---------- ---------- ---------- ---------- ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY........... $3,716,918 $1,292,445 $7,018,238 $7,179,394 $3,656,411 $(12,252,313) $10,611,093 ========== ========== ========== ========== ========== ============ =========== STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenue......................... $ -- $ -- $ -- $ 725,271 $ 390,819 $ (1,070) $ 1,115,020 Operating expenses.............. (3,353) -- (5,764) (638,380) (463,867) 1,070 (1,110,294) Interest expense, net........... (7,718) -- 6,471 (7,798) (510) -- (9,555) Other income, expense........... (8,348) 34,197 147,313 (45,915) (2,257) (55,083) 69,907 Income tax expense.............. (820) -- -- (12,719) (8,774) -- (22,313) Minority interest............... -- -- -- (4,093) 28,315 (87,226) (63,004) ---------- ---------- ---------- ---------- ---------- ------------ ----------- NET (LOSS) INCOME............... $ (20,239) $ 34,197 $ 148,020 $ 16,366 $ (56,274) $ (142,309) $ (20,239) ========== ========== ========== ========== ========== ============ =========== 16

USA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 9-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED) WHOLLY OWNED USANI SUBSIDIARY NON-GUARANTOR USAI USAI HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- -------- -------- ---------- ------------- ------------ ------------ STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenue............................... $ -- $ -- $ -- $2,227,887 $1,072,437 $ (1,070) $3,299,254 Operating expenses.................... (12,164) -- (29,627) (1,928,502) (1,220,023) 1,070 (3,189,246) Interest expense, net................. (18,499) -- 16,260 (23,687) (1,030) -- (26,956) Other income, expense................. (37,557) 78,571 382,640 (71,922) (5,689) (278,681) 67,362 Provision for income taxes............ 522 -- (27,351) (22,307) (23,677) -- (72,813) Minority interest..................... -- -- -- (8,784) 72,060 (208,575) (145,299) -------- ------- -------- ---------- ---------- --------- ---------- NET (LOSS) INCOME..................... $(67,698) $78,571 $341,922 $ 172,685 $ (105,922) $(487,256) $ (67,698) ======== ======= ======== ========== ========== ========= ========== CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Cash flow from (used in) operations... $(29,055) $ -- $ (2,018) $ 260,231 $ 27,455 $ -- $ 256,613 Cash flow provided (used in) investing activities.......................... 9,870 -- (44,131) (179,513) (161,675) -- (375,449) Cash flow from financing activities... 19,185 -- (63,944) (123,362) 225,930 -- 57,809 Effect of exchange rate............... -- -- -- (15) (4,118) -- (4,133) Cash at beginning of period........... -- -- 276,678 (26,004) 173,565 -- 424,239 -------- ------- -------- ---------- ---------- --------- ---------- CASH AT END OF PERIOD................. $ -- $ -- $166,585 $ (68,663) $ 261,157 $ -- $ 359,079 ======== ======= ======== ========== ========== ========= ========== WHOLLY-OWNED USANI SUBSIDIARY NON-GUARANTOR USAI USAI HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- -------- -------- ------------ ------------- ------------ ------------ STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 Revenue............................. $ -- $ -- $ -- $ 628,677 $198,995 $ -- $ 827,672 Operating expenses.................. (1,035) -- (6,347) (558,517) (223,441) -- (789,340) Interest expense, net............... (3,213) -- (2,763) (5,860) (386) -- (12,222) Gain on sale of securities.......... -- -- -- 39,451 -- -- 39,451 Other income (expense), net......... 13,271 21,237 105,597 (18,722) 18,213 (140,105) (509) Income tax expense.................. (16,703) -- -- (2,394) (5,850) -- (24,947) Minority interest................... -- -- -- (2,815) 14,137 (59,107) (47,785) -------- ------- -------- ---------- -------- --------- ---------- NET (LOSS) INCOME................... $ (7,680) $21,237 $ 96,487 $ 79,820 $ 1,668 $(199,212) $ (7,680) ======== ======= ======== ========== ======== ========= ========== STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 Revenue............................. $ -- $ -- $ -- $1,918,476 $484,594 $ -- $2,403,070 Operating expenses.................. (8,333) -- (17,868) (1,686,459) (539,150) -- (2,251,810) Interest expense, net............... (7,974) -- (13,672) (15,329) 39 -- (36,936) Gain on sale of securities.......... -- -- -- 89,721 -- -- 89,721 Other income (expense), net......... 28,282 61,308 336,089 (26,716) 28,702 (425,679) 1,986 Income tax expense.................. (21,828) -- (21,898) (5,532) (16,044) -- (65,302) Minority interest................... -- -- -- (8,368) 31,970 (174,184) (150,582) -------- ------- -------- ---------- -------- --------- ---------- Net (loss) income................... $ (9,853) $61,308 $282,651 $ 265,793 $ (9,889) $(599,863) $ (9,853) ======== ======= ======== ========== ======== ========= ========== 17

ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL USAi is a holding company, with subsidiaries focused on the new convergence of entertainment, information and direct selling. USAi adopted its present corporate structure as part of the Universal transaction. USAi maintains control and management of Home Shopping Network, Inc. ("Holdco") and USANi LLC, and manages the businesses held by USANi LLC in substantially the same manner as they would be if USAi held them directly through wholly owned subsidiaries. On July 27, 2000 USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). The Styleclick class A common stock is quoted on the Nasdaq Stock Market under the symbol "IBUY". In April 2000, the Company acquired Precision Response Corporation ("PRC"), a leader in outsourced customer care for both large corporations and high-growth internet-focused companies (the "PRC Transaction"). In May 1999, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of two entities which operate Hotel Reservations Network ("HRN") (the "Hotel Reservations Network Transaction"), a leading consolidator of hotel rooms for resale in the consumer market in the United States. Also in May 1999, the Company acquired October Films, Inc. and the domestic film distribution and development business of Universal which was previously operated by Polygram Filmed Entertainment ("USA Films") (the "October Films/PFE Transaction"). In connection with these transactions, the Company established the Teleservices, Hotel reservations and Filmed entertainment business segments. On March 1, 2000, Hotel Reservations Network completed an initial public offering. The Hotel Reservation Network's class A common stock is quoted on the Nasdaq Stock Market under the symbol "ROOM". EBITDA Earnings before interest, income taxes, depreciation and amortization ("EBITDA") is defined as operating profit plus depreciation, amortization of intangibles, amortization of cable distribution fees and non-cash distribution and marketing expense. EBITDA is presented here as a management tool and as a valuation methodology for companies in the media, entertainment and communications industries. EBITDA does not purport to represent cash provided by operating activities. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. 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 IN THE MARKETS SERVED BY THE COMPANY; FUTURE REGULATORY 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; AND OBTAINING AND RETAINING KEY EXECUTIVES AND EMPLOYEES. TRANSACTIONS AFFECTING THE COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION During the past three years, the Company has augmented its media and electronic commerce businesses by acquiring and developing several new businesses. As a result, the changes resulting from the 19

Styleclick transaction, the PRC transaction, the Hotel Reservations Network transaction and the October Films/PFE transaction should be considered when comparing the results of operations for the three and nine months ended September 30, 2000 to September 30, 1999. To enhance comparability, the discussion of consolidated results of operations is supplemented, where appropriate, with separate pro forma financial information that gives effect to the above transactions as if they had occurred at the beginning of the respective periods presented. The pro forma information is not necessarily indicative of the revenues and cost of revenues which would have actually been reported had the Styleclick transaction, the PRC transaction, the Hotel Reservations Network transaction and the October Films/PFE transaction occurred at the beginning of January 1, 1999, nor is it necessarily indicative of future results. Reference should be made to the Consolidated Financial Statements and Summary Financial Data included herein. CONSOLIDATED RESULTS OF OPERATIONS QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 The Styleclick transaction, the PRC transaction, the Hotel Reservations Network transaction, the October Films/PFE transaction and the consolidation of electronic retailing operations in Germany as of January 1, 2000, resulted in increases in net revenues, operating costs and expenses, other income (expense), minority interest and income taxes. However, no significant discussion of these fluctuations is presented. NET REVENUES For the three months ended September 30, 2000, revenues increased by $287.3 million, or 34.7%, to $1.1 billion from $827.7 million in 1999 primarily due to increases of $111.8 million, $70.2 million, $47.0 million, $29.0 million and $19.7 million from the Electronic retailing, Teleservices, Hotel reservations, Networks and television production and Ticketing operations businesses, respectively. For the nine months ended September 30, 2000, revenues increased by $896.2 million, or 37.5%, to $3.3 billion from $2.4 billion in 1999 primarily due to increases of $302.3 million, $157.3 million, $150.7 million, $140.3 million and $71.3 million from the Electronic retailing, Hotel reservations, Networks and television production, Teleservices and Ticketing operations businesses, respectively. OPERATING COSTS AND EXPENSES For the three months ended September 30, 2000, operating expenses increased by $317.6 million, or 40.2%, to $1.1 billion from $789.3 million in 1999, primarily due to increases of $105.7 million, $59.0 million, $39.7 million, and $20.9 million from the Electronic retailing, Teleservices, Hotel reservations, Networks and television production, and Ticketing operations businesses, respectively. In addition, depreciation and amortization expense increased $58.0 million primarily as a result of goodwill arising from acquisitions. For the nine months ended September 30, 2000, operating expenses increased by $934.0 million, or 41.5%, to $3.2 billion from $2.3 billion in 1999, primarily due to increases of $267.5 million, $132.5 million, $117.3 million, $62.1 million and $60.2 million from the Electronic retailing, Hotel reservations, Teleservices, Networks and television production and Ticketing operations businesses, respectively. In addition, depreciation and amortization expense increased $150.2 million primarily as a result of goodwill arising from acquisitions. During the nine months ended September 30, 2000, the Company recorded $11.6 million of expense related to an agreement with an executive. Of this amount, $3.8 million is a non-cash stock compensation expense related to restricted stock. 20

OTHER INCOME (EXPENSE) For the three and nine months ended September 30, 2000, net interest expense decreased by $2.8 million and $10.0 million, respectively, compared to 1999 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 Media Corporation, a subsidiary of AT&T Corporation ("Liberty"). In the three months ended September 30, 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. Also, the Company realized a pre-tax loss of $30.5 million related to the write-off of investments to fair value. In the nine months ended September 30, 2000, the Company realized a pre-tax gain of $3.7 million related to the initial public offering of its subsidiary, HRN. In the three and nine months ended September 30, 1999, the Company realized pre-tax gains of $39.5 million and $89.7 million, respectively, related to the sale of securities. Furthermore, in the nine months ended September 30, 1999, the Company recognized other income of $10.4 million from the reversal of equity losses which were recorded in 1998 as a result of the Universal transaction. INCOME TAXES USAi's effective tax rate for the three and nine months ended September 30, 2000 of 38.3% and 48.2%, respectively, was higher than the statutory rate due to the impact of non-deductible goodwill, no tax benefits for consolidated subsidiary losses which are not included in the Company's consolidated tax returns taxable income and state income taxes. The rate would have been higher if not for the impact of the one-time gain from the Styleclick merger and the write-off of the investments to fair value. MINORITY INTEREST For the three and nine months ended September 30, 2000, minority interest primarily represented Universal's and Liberty's ownership interest in USANi LLC, Liberty's ownership interest in Holdco, the public's ownership in TMCS, the public's ownership interest in HRN since February 25, 2000 and the public's ownership interest in Styleclick since July 27, 2000. PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 The following unaudited pro forma operating results of USAi present combined results of operations as if the Styleclick transaction, the PRC transaction, the Hotel Reservations Network transaction and the October Films/PFE transaction all had occurred on January 1, 1999 and reflect the consolidation of HOT Germany operating results as if voting control was obtained on January 1, 1999. The unaudited combined condensed pro forma statements of operations of USAi are presented below for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had any of the transactions occurred as of January 1, 1999, nor are they necessarily indicative of future results of operations. 21

UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 2000 1999 2000 1999 --------- -------- ---------- --------- (IN THOUSANDS) NET REVENUES: USA ENTERTAINMENT Networks and television production.............. $ 336,047 $307,094 $1,105,688 $ 955,032 Filmed entertainment............................ 14,468 27,912 65,548 56,974 Broadcasting.................................... 5,263 2,341 13,620 5,691 Emerging networks............................... 8,591 266 12,862 693 USA ELECTRONIC RETAILING Electronic retailing............................ 426,549 354,199 1,243,756 1,057,683 USA INFORMATION AND SERVICES Ticketing operations............................ 124,929 105,188 395,909 324,615 Hotel reservations.............................. 94,619 47,652 227,964 108,371 Teleservices.................................... 70,162 57,006 210,023 153,344 Interactive..................................... 26,853 17,120 78,220 49,003 Electronic commerce and services................ 7,174 6,168 15,634 14,470 OTHER........................................... 509 -- 1,568 6,894 --------- -------- ---------- --------- Total net revenues.......................... 1,115,164 924,946 3,370,792 2,732,770 --------- -------- ---------- --------- Operating costs and expenses: Cost of sales................................... 527,600 347,179 1,539,786 998,228 Program costs................................... 146,000 147,549 485,037 466,896 Selling and marketing........................... 141,842 129,720 401,976 378,050 General and administrative...................... 111,701 149,417 338,749 403,776 Other operating costs........................... 31,636 14,805 86,161 58,525 Amortization of non cash distribution and marketing expense............................. 2,693 -- 4,414 -- Amortization of cable distribution fees......... 8,845 6,938 25,335 19,213 Depreciation and amortization................... 146,370 116,526 429,924 337,449 --------- -------- ---------- --------- Total operating costs and expenses.......... 1,116,687 912,134 3,311,382 2,662,137 --------- -------- ---------- --------- Operating profit.................................. $ (1,523) $ 12,812 $ 59,410 $ 70,633 ========= ======== ========== ========= EBITDA............................................ $ 156,385 $136,276 $ 519,083 $ 427,295 ========= ======== ========== ========= Net revenues for the three months ended September 30, 2000 increased by $190.2 million, or 20.6%, to $1.1 billion from $924.9 million in 1999. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $170.1 million, or 21.6%, to $958.8 million from $788.7 million in 1999. In the third quarter of 2000, the Company recorded a one-time charge of $3.4 million for the settlement of litigation related to ticketing operations. The settlement was reached on November 13, 2000 after a judgment was reached by a jury on November 9, 2000. EBITDA for the three months ended September 30, 2000 increased by $20.1 million, or 14.7%, to $156.4 million from $136.3 million in 1999. Net revenues for the nine months ended September 30, 2000 increased by $638.0 million, or 23.3%, to $3.4 billion from $2.7 billion in 1999. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $546.2 million, or 23.7%, to $2.8 billion from $2.3 billion in 1999. EBITDA for the nine months ended September 30, 2000 increased by $91.8 million, or 21.5%, to $519.1 million from $427.3 million in 1999. 22

The following discussion provides an analysis of the pro forma revenues and costs related to revenues and other costs and expenses by significant business segment. NETWORKS AND TELEVISION PRODUCTION Net revenues for the three months ended September 30, 2000 increased by $29.0 million, or 9.4%, to $336.0 million from $307.0 million in 1999. The increase primarily resulted from an increase in advertising and affiliate revenues at USA Network and the Sci-Fi Channel, and increased revenue from Studios USA related principally to television movies and increased production for USA Network and the Sci-Fi Channel. Net revenues for the nine months ended September 30, 2000 increased by $150.7 million, or 15.8%, to $1.1 billion from $955.0 million in 1999. The increase primarily resulted from an increase in advertising and affiliate revenues at USA Network and the Sci-Fi Channel due to an increase in subscribers and higher ratings at Sci-Fi. Revenue of Studios USA also increased due to increased revenues from one-hour dramas, talk shows and movie productions, offset by fewer network pick-ups for comedy productions. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $3.3 million, or 1.6%, to $217.6 million from $214.3 million in 1999. This increase resulted primarily from higher marketing costs offset partially by lower programming costs. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $62.1 million, or 9.6%, to $709.1 million from $647.0 million in 1999. This increase resulted primarily from marketing, development and distribution costs. EBITDA for the three months ended September 30, 2000 increased by $25.6 million, or 27.6%, to $118.5 million from $92.8 million in 1999. EBITDA for the nine months ended September 30, 2000 increased by $88.6 million, or 28.7%, to $393.6 million from $308.0 million in 1999. ELECTRONIC RETAILING Net revenues for the three months ended September 30, 2000 increased by $72.3 million, or 20.4%, to $426.5 million from $354.2 million in 1999. The increase primarily resulted from Home Shopping Network's core domestic business, which generated increased sales of $52.4 million, including HSN.com, which began operations in late 1999 and generated sales of $8.6 million. Also, core international business increased $14.3 million due to operations in Germany, which generated revenue of $53.8 million. The increase in net revenues was offset partially from an increase in the return rate to 20.2% from 19.1% in 1999. Net revenues for the nine months ended September 30, 2000 increased by $186.1 million, or 17.6%, to $1.2 billion from $1.1 billion in 1999. The increase primarily resulted from Home Shopping Network's core domestic business, which generated increased sales of $136.0 million due primarily to the increase from the Home Shopping service of $106.8 million and HSN.com, which generated revenue of $20.5 million. Also, core international business increased $46.0 million due primarily to operations in Germany. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $70.0 million, or 23.2%, to $372.0 million from $302.0 million in 1999. The increase resulted primarily from higher sales volume. The on-air gross profit margin decreased to 34.7% as compared to 35.4% in the prior year. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $160.6 million, or 17.6%, to $1.1 billion from $912.0 million in 1999. The increase resulted primarily from higher sales volume. 23

EBITDA for the three months ended September 30, 2000 increased by $2.4 million, or 4.5%, to $54.5 million from $52.1 million in 1999. EBITDA for the nine months ended September 30, 2000 increased by $25.5 million, or 17.5%, to $171.2 million from $145.7 million in 1999. TICKETING OPERATIONS Net revenues for the three months ended September 30, 2000 increased by $19.7 million, or 18.8%, to $124.9 million from $105.2 million in 1999. The increase resulted from an increase of 14.8% in the number of tickets sold, including an increase in the percentage of tickets sold online to 25.2% from 15.0% in 1999, and an increase in revenue per ticket to $5.67 from $5.34 in 1999. Net revenues for the nine months ended September 30, 2000 increased by $71.3 million, or 22.0%, to $395.9 million from $324.6 million in 1999. The increase resulted from an increase in the number of tickets sold and an increase in revenue per ticket. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $24.3 million, or 29.0%, to $108.3 million from $84.0 million in 1999. The increase resulted primarily from higher ticketing operations costs as a result of higher ticketing volume and increased secondary commissions. In the third quarter of 2000, the Company recorded a one-time charge of $3.4 million for the settlement of litigation. The settlement was reached on November 13, 2000 after a judgment was reached by a jury on November 9, 2000. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $63.6 million, or 24.8%, to $320.3 million from $256.7 million in 1999. The increase resulted primarily from higher ticketing operations costs as a result of higher ticketing volume and increased secondary commissions. EBITDA for the three months ended September 30, 2000 decreased by $4.6 million, or 21.7%, to $16.7 million from $21.3 million in 1999. The decrease is due primarily to costs related to recent acquisitions, including TicketWeb and 2b Technology and the litigation settlement. Excluding the one-time litigation settlement, EBITDA decreased $1.2 million, or 5.7%. EBITDA for the nine months ended September 30, 2000 increased by $7.7 million, or 11.3%, to $75.6 million from $67.9 million in 1999. Excluding the one-time litigation settlement, EBITDA increased $11.1 million, or 16.3%. TELESERVICES Net revenues for the three months ended September 30, 2000 increased by $13.2 million, or 23.1%, to $70.2 million from $57.0 million in 1999. The increase resulted from growth of new business, as PRC reduced its concentration of its top ten revenue-producing clients to 65% from 70% in the year-ago period. Net revenues for the nine months ended September 30, 2000 increased by $56.7 million, or 37.0%, to $210.0 million from $153.3 million in 1999 due to the growth of new business. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $10.3 million, or 21.2%, to $59.0 million from $48.7 million in 1999 due primarily to increased operations. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $44.8 million, or 33.7%, to $177.5 million from $132.8 million in 1999. EBITDA for the three months ended September 30, 2000 increased by $2.8 million, or 34.4%, to $11.1 million from $8.3 million in 1999. 24

EBITDA for the nine months ended September 30, 2000 increased by $11.9 million, or 57.9%, to $32.5 million from $20.6 million in 1999. INTERACTIVE Net revenues for the three months ended September 30, 2000 increased by $9.7 million, or 56.9%, to $26.9 million from $17.1 million in 1999. The increase primarily resulted from an increase in online city guide and sponsorship revenue of $11.9 million, or 123%, due to the growth in its combined reach among home and work users to 9.7% (7.8 million unique users) due to the expansion into new cities as well as the expansion into the online personals business. The increase was partially offset due to lower revenues of Styleclick as a result of an effort to change the sales mix from less profitable categories and lower marketing efforts due to the planned re-launch of the First Auction site planned for late 2000. Net revenues for the nine months ended September 30, 2000 increased by $29.2 million, or 59.6%, to $78.2 million from $49.0 million in 1999. The increase primarily resulted from an increase in online city guide and sponsorship revenue of $36.4 million, or 162%, due to expansion into new cities and expansion into the online personals business. The increase was offset by lower revenues of Styleclick. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $2.3 million, or 4.8%, to $49.9 million from $47.6 million in 1999. The increase resulted primarily from increased costs of city guide revenue, costs to expand the local city guides into new markets and costs related to the online personal business. The costs were offset by lower marketing expenses for Styleclick. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $36.0 million, or 28.9%, to $160.6 million from $125.6 million in 1999. EBITDA loss for the three months ended September 30, 2000 increased by $7.4 million, or 24.4%, to $23.0 million from $30.5 million in 1999. EBITDA loss for the nine months ended September 30, 2000 increased by $6.8 million, or 9.03%, to $82.4million from $75.6 million in 1999. HOTEL RESERVATIONS Net revenues for the three months ended September 30, 2000 increased by $47.0 million, or 98.6%, to $94.6 million from $47.6 million in 1999. The increase resulted from expansion of affiliate marketing programs, an increase in the number of hotels for existing cities and expansion into 118% more cities as compared to the prior year. The number of room nights sold increased 92% as compared to the prior year. Internet generated sales for the three months ended September 30, 2000 increased to 94% in 2000 from 85% in 1999. Net revenues for the nine months ended September 30, 2000 increased by $119.6 million, or 110.4%, to $228.0 million from $108.4 million in 1999. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $39.7 million, or 96.7%, to $80.7 million from $41.0 million in 1999. The increase in costs is primarily due to increased sales, including an increased percentage of revenue attributable to affiliate and travel agent sales (for which commissions are paid), increased credit card charge backs, and increased staffing levels and systems to support increased operations, partially offset by lower telephone and telephone operator costs due to the increase in Internet-related bookings. Cost related to revenues and other costs and expenses for the three months ended September 30, 2000 increased by $100.4 million, or 108.5%, to $193.0 million from $92.6 million in 1999. 25

EBITDA for the three months ended September 30, 2000 increased by $7.3 million, or 110.4%, to $13.9 million from $6.6 million in 1999. EBITDA for the nine months ended September 30, 2000 increased by $19.2 million, or 121.2%, to $35.0 million from $15.8 million in 1999. FILMED ENTERTAINMENT Net revenues for the three months ended September 30, 2000 decreased by $13.4 million, or 48.2%, to $14.5 million compared to $27.9 million in 1999 due to fewer theatrical releases, while net revenues for the nine months ended September 30, 2000 increased by $8.6 million, or 15.0%, to $65.5 million compared to $56.7 million in 1999. Cost related to revenues and other costs and expenses for the three and nine months ended September 30, 2000 decreased by $5.9 million due to the lower revenues. Cost related to revenues and other costs and expenses for the nine months ended September 30, 2000 increased by $16.4 million. EBITDA loss for the three and nine months ended September 30, 2000 increased by $7.6 million and $7.8 million, respectively. ELECTRONIC COMMERCE AND SERVICES Net revenues for the three months ended September 30, 2000 increased by $1.0 million, or 16.3%, to $7.2 million compared to $6.2 million in 1999 due to increases in ECS teleservices and Short Shopping contextual selling spots, including spots during USA Network's coverage of the US Open. Net revenues for the nine months ended September 30, 2000 increased by $1.2 million, or 8.0%, to $15.6 million compared to $14.5 million in 1999. Cost related to revenues and other costs and expenses for the three and nine months ended September 30, 2000 increased by $9.5 million and $21.8 million due primarily from start-up costs incurred to launch the business initiatives and other overhead expenses. EBITDA loss for the three and nine months ended September 30, 2000 increased by $8.5 million and $20.6 million, respectively. BROADCASTING Net revenues increased by $2.9 million to $5.3 million from $2.4 million for the three months ended September 30, 2000 and $7.9 million to $13.6 million from $5.7 million for the nine months ended September 30, 2000 as compared to the respective periods in 1999 due to increased advertising revenue at the television station in the Miami/Ft. Lauderdale market and the launch of stations in the Dallas and Atlanta markets in November 1999 and Boston in August 2000. Cost related to revenue increased by $7.0 million and $18.8 million for the three and nine months ended September 30, 2000 as compared to the respective periods in 1999, due to increased program costs and operating expenses. An increased loss is expected in the broadcasting segment in 2000 as costs are incurred to launch more local television stations. EMERGING NETWORKS Net revenues increased by $8.3 million to $8.6 million from $0.3 million for the three months ended September 30, 2000 and $12.2 million to $12.9 million from $0.7 million for the nine months ended September 30, 2000 as compared to the respective periods in 1999 due to the acquisition of Trio and News World International on May 19, 2000. Prior to this acquisition, the results reflect only SciFi.com. Cost related to revenue increased by $7.8 million and $14.9 million for the three and nine months ended September 30, 2000 as compared to the respective periods in 1999. EBITDA loss for the three and nine months ended September 30, 2000 decreased by $0.4 million and increased by $2.7 million, as compared to the respective periods in 1999. OTHER Other revenue for 2000 relates to Ingenious Designs, a business acquired in 2000. Other revenue for 1999 relates to a business that was sold in 1999. 26

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $256.6 million for the nine months ended September 30, 2000 compared to $249.4 million for the nine months ended September 30, 1999. These cash proceeds and available cash and borrowings were used to pay for acquisitions of $203.0 million, to make capital expenditures of $116.5 million, and to make mandatory tax distribution payments to the LLC partners of $68.1 million. On July 27, 2000 USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of ISN and Styleclick.com. The entities were merged with a new company, Styleclick, Inc., which owns and operates the combined properties of Styleclick.com Inc. and ISN. In accordance with the terms of the agreement, USAi invested $40 million in cash agreed to contribute $10 million in dedicated media, and received warrants to purchase additional shares of the new company. On a fully diluted basis, USAi owns approximately 75% of the new company and Styleclick.com stockholders own approximately 25%. At closing, Styleclick.com repaid the $10 million of borrowing outstanding under the bridge loan provided by USAi. On April 5, 2000, the Company acquired PRC in a tax-free merger by issuing approximately 24.3 million shares of USAi common stock in exchange for all outstanding equity of PRC. In conjunction with the acquisition, USAi repaid $32.3 million of outstanding borrowing under PRC's existing credit facility. On March 1, 2000, HRN completed an initial public offering for approximately 6.2 million shares of its class A common stock, resulting in net cash proceeds of approximately $90.0 million. USAi recorded a gain related to the initial public offering of approximately $3.7 million in the three months ended September 30, 2000. Pursuant to an agreement between USAi and the sellers of the two entities which operated HRN, USAi made a contingent payment of $58.3 million in the nine months ended September 30, 2000. The payments were based on the results of HRN for the three month period ended December 31, 1999 and the twelve month period ending March 31, 2000. The obligation for contingent payments for the twelve month periods ending March 31, 2001 and 2002 was released by the sellers in exchange for 5.1 million shares of HRN common stock. On February 29, 2000, the Company made a mandatory tax distribution payment to Universal and Liberty in the amount of $68.1 million. In connection with the 1999 acquisition of Universal's domestic film distribution and development business previously operated by PFE and PFE's domestic video and specialty video businesses transaction, USAi advanced $200.0 million to Universal in 1999 pursuant to an eight year, full recourse, interest-bearing note in connection with a distribution agreement, under which USAi agreed to distribute, in the United States and Canada, certain Polygram Filmed Entertainment, Inc. theatrical films that were not acquired in the transaction. The advance is repaid as revenues are received under the distribution agreement and, in any event, will be repaid in full at maturity. Through September 30, 2000, approximately $111.3 million has been offset against the advance. In July 1999, USAi announced that its Board of Directors authorized the extension of the Company's stock repurchase program providing for the repurchase of up to 20 million shares of USAi's common stock, on the open market or in negotiated transactions. In July 2000, USAi announced that its Board of Directors authorized the extension of the Company's stock repurchase program providing for the repurchase of up to 20 million shares of USAi's common stock over an indefinite period of time, on the open market or in negotiated transactions. The amount and timing of purchases, if any, will depend on market conditions and other factors, including USAi's overall capital structure. Funds for these purchases will come from cash on hand or borrowings under the Company's credit facility. During the nine months ended 27

September 30, 2000, the Company purchased 5.8 million shares of its common stock for aggregate consideration of $129.9 million. Under the investment agreement relating to the Universal Transaction, USAi has granted to Universal and Liberty preemptive rights with respect to future issuances of USAi's common stock and Class B common stock. These preemptive rights generally allow Universal and Liberty the right to maintain an ownership percentage in USAi equal to the ownership percentage that entity held, on a fully converted basis, immediately prior to the issuance. In May 2000, Liberty exercised its preemptive right for approximately 7.9 million shares related principally to the PRC transaction, resulting in proceeds of approximately $179.1 million to USAi. On February 12, 1998, USAi and USANi LLC, as borrower, entered into a credit agreement that provided for a $1.6 billion credit facility. $1.0 billion was permanently repaid in prior years. The $600.0 million revolving credit facility expires on December 31, 2002. As of September 30, 2000, there was $597.3 million available for borrowing after taking into account outstanding letters of credit. USAi implemented its plan to disaffiliate its television stations in the Miami/Ft. Lauderdale, Dallas and the Atlanta markets in prior years. In 2000, the Boston station was disaffiliated. USAi has incurred and will continue to incur expenditures to develop programming for these stations which, during the development and transitional stage, may not be offset by sufficient advertising revenues. USAi believes that the process of disaffiliation can be successfully managed to maximize the value of the broadcasting stations, rather than have a material adverse effect. USAi anticipates that it will need to invest working capital towards the development and expansion of its overall operations. Due primarily to the expansion of its Internet businesses and the roll-out of new television stations, future capital expenditures may be higher than current amounts. In management's opinion, available cash, internally generated funds and available borrowings will provide sufficient capital resources to meet USAi's foreseeable needs. During the nine months ended September 30, 2000, USAi did not pay any cash dividends, and none are permitted under USAi's existing credit facility. USAi's subsidiaries have no material restrictions on their ability to transfer amounts to fund USAi's operations. SEASONALITY USAi's businesses are subject to the effects of seasonality. Networks and Television Production revenues are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall. USAi believes seasonality impacts its Electronic Retailing segment but not to the same extent it impacts the retail industry in general. Ticketing Operations revenues are occasionally impacted by fluctuation in the availability of events for sale to the public. Hotel reservations revenues are influenced by the seasonal nature of holiday travel in the markets it serves, and has historically peaked in the fall. As the business expands into new markets, the impact of seasonality is expected to lessen. ITEM 3. 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 28

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. To further mitigate risk, the vast majority of the securities have a maturity date within 60 days. 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 September 30, 2000, the Company's outstanding debt approximated $599.7 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. However, the level of operations in foreign markets is insignificant to the consolidated results. EQUITY PRICE RISK The Company has a minimal investment in equity securities of a publicly-traded Company. This investment, as of September 30, 2000, 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 investments in equity securities as part of its investment strategy. 29

PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the Jovon litigation, previously reported in the Company's Form 10-K for the year ended December 31, 1999 and the Company's Form 10-Q for the quarterly period ended March 31, 2000, the Federal Communications Commission released on October 6, 2000 a Memorandum Opinion and Order confirming that the Company could have used an insulated trust mechanism to exercise the option. The FCC again stated that the validity of the option agreement was a matter for determination by the state courts. Oral argument occurred before the Court of Appeal for the Second District of Florida on October 25, 2000. In the Urban litigation, previously reported in the Company's Form 10-K for the year ended December 31, 1999 and the Company's Form 10-Qs for the quarterly periods ended March 31, 2000 and June 30, 2000, USA Station Group of Virginia, Inc. ("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, and an evidentiary hearing on USA-SGV's motion for entry of an order directing appointment of a Chapter 11 trustee for Urban is scheduled to occur before the Bankruptcy Court for the Eastern District of Virginia on November 29, 2000. In the Ticketmaster Consumer Class Action litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999, a hearing date for class certification has been set by the United States District Court for the Eastern District of Missouri for December 15, 2000, and a trial date has been set for October 29, 2001. In the Ticketmaster Cash Discount Litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999 and the Company's Form 10-Q for the quarterly period ended March 31, 2000, the plaintiff filed an amended class action petition in Texas state court on June 20, 2000 asserting as an additional claim that the cash discount program in question violates a provision in a Merchant Services Bankcard Agreement between Ticketmaster and Chase Merchant Services L.L.C. and First Financial Bank. Plaintiff claims that all consumers using VISA and Mastercard to purchase tickets from Ticketmaster are third-party beneficiaries of this agreement. Plaintiff also filed on July 14, 2000 an amended class certification motion. In addition to the nine-state class sought by Plaintiff's original class certification request, the amended motion seeks the certification of a nationwide class of VISA and Mastercard customers since approximately April 1998 to prosecute the alleged third-party beneficiary claim. Ticketmaster filed a summary judgment motion on May 1, 2000 and Plaintiff filed a second amended motion for partial summary judgment on May 24, 2000. Currently, no hearing is set on any of these motions. On July 20, 2000, Ticketmaster removed the case to federal court in McAllen, Texas on the grounds that the newly added third-party beneficiary claim raises a federal question under the Truth-in-Lending Act. On August 1, 2000, Plaintiff filed a motion to remand the case to state court. The hearing on this motion to remand has been continued without date. In the N2K litigation previously reported in the Company's Form 10-Q for the quarterly period ended March 31, 2000, the parties entered into a settlement agreement, dated as of November 13, 2000, pursuant to which all claims were released with prejudice. The settlement does not have a material adverse effect on the Company. On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-Citysearch, Inc. ("TMCS", and together with the Ticketmaster Corporation, the "TM plaintiffs") filed a complaint for damages and injunctive relief against Tickets.com, Inc. ("Tickets.com") in the United States District Court, Central District of California, entitled TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH, INC. V. TICKETS.COM, INC., Case No. 99-07654 HLH. The complaint claims that Tickets.com violates the TM plaintiffs' 30

legal and contractual rights by, among other things, (i) trespassing on their web sites, (ii) providing deep-links to their internal web pages without their consent, (iii) systematically, deceptively and intentionally accessing their computers and computer systems and copying verbatim their event pages daily and extracting and reprinting their Uniform Resource Locators ("URLs") and event data and information in complete form on Tickets.com's web site and (iv) providing false and misleading information about them, the availability of tickets on their web sites, and the relationship between them and Tickets.com. On January 7, 2000, the TM plaintiffs filed an amended complaint. Tickets.com filed a motion to dismiss the amended complaint on or about February 23, 2000, claiming that Tickets.com did not violate the Copyright Act or Lanham Act and that TM plaintiffs' state law claims were preempted and/or did not state a valid claim for relief. The Court denied Tickets.com's motion as to TM plaintiffs' claims for copyright infringement, violations of the Lanham Act, state law, unfair competition and interference with prospective economic advantage. The Court granted Tickets.com's motion as to TM plaintiffs' claims for breach of contract, trespass, unjust enrichment and misappropriation, but gave TM plaintiffs leave to amend. TM plaintiffs filed a second amended complaint on April 21, 2000. On March 3, 2000, TM plaintiffs filed a motion for preliminary injunction, requesting the Court to enjoin Tickets.com from, among other things, deep-linking to TM plaintiffs' internal web pages, accessing their computers and computer systems and copying their event pages, and providing misleading and false information about them, the availability of tickets on their web sites and the relationship between them and Tickets.com. On July 31, 2000 the Court held a hearing, and on August 11, 2000 issued a ruling denying TM plaintiffs' motion for preliminary injunction. On October 20, 2000, TM plaintiffs filed an appeal of the denial of their request for a preliminary injunction with the Court of Appeals for the Ninth Circuit. No hearing on that appeal has yet been set. On May 30, 2000, Tickets.com filed its answer to TM plaintiffs' second amended complaint in addition to counterclaims against TM plaintiffs. Tickets.com alleges claims for relief against TM plaintiffs for violations of the Sherman Act, sections 1 and 2, violations of California's Cartwright Act, violations of California's Business and Professions Code section 17200, violations of common law restraint of trade and unfair competition and business practices, interference with contract and declaratory relief. Tickets.com claims that Ticketmaster Corporation's exclusive agreements with TMCS, venues, promoters and other third parties injure competition, violate antitrust laws, constitute unfair competition and interfere with Tickets.com's prospective economic advantages. On July 19, 2000, TM plaintiffs filed a motion to dismiss any claim based in whole or in part on TM plaintiffs' alleged litigation conduct as well as Tickets.com's ninth claim for relief under California's antitrust laws (the Cartwright Act). On September 25, 2000 that motion was denied. On October 24, 2000, TM plaintiffs filed their answer to Tickets.com's. TM plaintiffs intend to vigorously defend this litigation. In the MovieFone litigation previously reported in the Company's 10-K for the year ended December 31, 1999, the parties entered into a settlement agreement, dated as of August 11, 2000, pursuant to which all claims were released with prejudice. The settlement does not have a material adverse effect on the Company. In the Home Shopping Network Consumer Class Action litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999, the plaintiffs filed an amended class action complaint that, among other things: (i) added an additional named plaintiff, (ii) added Home Shopping Club LP, Warrantech Helpdesk, Inc., Banctech Service, Inc. and Timespace Internet, Inc. as named defendants, and (iii) removed two individuals as named defendants. On May 9, 2000, Home 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 and asserted two additional causes of action for negligent misrepresentation and breach of contract. The HSN Defendants have filed an answer and 31

affirmative defenses to the second amended complaint and intend to continue to vigorously defend this action. In the World Wrestling Federation litigation, previously reported in the Company's Form 10-Qs for the quarterly periods ended March 31, 2000 and June 30, 2000, the Delaware Supreme Court on September 18, 2000 ruled against USA Cable on appeal of the decision of the Chancery Court. In the opinion of management, this outcome will not have a material adverse effect on the Company. In the Marketingworks, Inc. litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999, a status conference was held on October 30, 2000, at which time a trial date of July 3, 2001 was scheduled. In January 2000, Universal/USA removed the case to Federal Court on the basis of copyright preemption and as a result of the fact that Marketingworks sought Federal remedies under the Lanham Act. Although discovery is not yet complete, based on information revealed thus far to Universal/USA, the Company believes this claim is unlikely to present a material liability to the Company. 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 USAi 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 USAi 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 "unforseen circumstances," requests the court to modify or nullify RTL's licensing and "co-production" obligations with respect to current television programs. USI currently has until November 22, 2000 to respond to the complaint. Studios USA and its affiliated companies are not parties to the RTL Output Agreement and currently not parties to the pending proceeding. Studios USA and its affiliated entities believe the RTL complaint to be without merit, and intend to vigorously protect their interests. The Company is engaged in various other lawsuits either as plaintiff or defendant. In the opinion of management, the ultimate outcome of these various lawsuits should not have a material impact on the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 10.1* Employment Agreement, dated September 21, 2000, between USA Networks, Inc. and Dara Khosrowshahi 27.1 Financial Data Schedule (for SEC use only) 27.2 Financial Data Schedule (for SEC use only) 27.3 Financial Data Schedule (for SEC use only) 27.4 Financial Data Schedule (for SEC use only) - ------------------------ * Reflects management contracts and compensatory plans. (b) Forms 8-K 32

On October 26, 2000, USAi furnished a report on Form 8-K reporting under Item 9, Regulation FD Disclosure, attaching a press release announcing its results for the quarter ended September 30, 2000 and forward-looking financial information. On October 27, 2000, USAi furnished a report on Form 8-K reporting under Item 9, Regulation FD Disclosure, providing an overview of the company and supplemental information. 33

SIGNATURES Pursuant to the requirements 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. USA NETWORKS, INC. By: /s/ BARRY DILLER ------------------------------------- Barry Diller Chairman and Chief Executive Officer SIGNATURE TITLE DATE --------- ----- ---- /s/ BARRY DILLER ------------------------------- Chairman of the Board and Chief November 14, 2000 Barry Diller Executive Officer /s/ MICHAEL SILECK Senior Vice President, ------------------------------- Chief Financial Officer November 14, 2000 Michael Sileck Principal Financial Officer) /s/ WILLIAM J. SEVERANCE ------------------------------- Vice President and Controller November 14, 2000 William J. Severance (Chief Accounting Officer) 34

CONSOLIDATED FINANCIAL STATEMENTS HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) NET REVENUES Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Interactive.................................... 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- Total net revenues........................... 779,367 629,281 2,386,550 1,927,306 -------- -------- ---------- ---------- Operating costs and expenses: Cost of sales.................................. 280,851 206,406 823,741 634,100 Program costs.................................. 146,000 147,549 485,037 466,896 Selling and marketing.......................... 97,940 74,121 280,928 209,859 General and administrative..................... 72,022 60,080 227,121 173,876 Other operating costs.......................... 33,391 22,081 90,343 66,400 Amortization of cable distribution fees........ 8,845 6,938 25,335 19,214 Depreciation and amortization.................. 58,971 44,058 154,945 130,620 -------- -------- ---------- ---------- Total operating costs and expenses........... 698,020 561,233 2,087,450 1,700,965 -------- -------- ---------- ---------- Operating profit............................. 81,347 68,048 299,100 226,341 Other income (expense): Interest income................................ 5,283 12,636 19,195 31,959 Interest expense............................... (6,329) (21,066) (24,807) (61,685) Gain on sale of securities..................... -- 39,451 -- 89,721 Other, net..................................... 70,575 (779) 66,567 879 -------- -------- ---------- ---------- 69,529 30,242 60,955 60,874 -------- -------- ---------- ---------- Earnings before income taxes and minority interest......................................... 150,876 98,290 360,055 287,215 Income tax expense............................... (34,205) (18,080) (76,498) (52,234) Minority interest................................ (82,474) (58,973) (204,986) (173,673) -------- -------- ---------- ---------- NET EARNINGS..................................... $ 34,197 $ 21,237 $ 78,571 $ 61,308 ======== ======== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 35

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents................................... $ 135,335 $ 247,474 Accounts and notes receivable, net of allowance of $48,734 and $33,317, respectively................................. 453,277 381,175 Inventories, net............................................ 553,677 432,520 Investments held for sale................................... 2,062 -- Deferred income taxes....................................... -- 12,077 Other current assets, net................................... 28,267 8,542 ---------- ---------- Total current assets........................................ 1,172,618 1,081,788 PROPERTY, PLANT AND EQUIPMENT Computer and broadcast equipment............................ 133,148 123,606 Buildings and leasehold improvements........................ 66,050 59,074 Furniture and other equipment............................... 71,249 67,246 Land........................................................ 10,275 10,246 Projects in progress........................................ 19,948 31,736 ---------- ---------- 300,670 291,908 Less accumulated depreciation and amortization.............. (66,643) (79,350) ---------- ---------- 234,027 212,558 OTHER ASSETS Intangible assets, net...................................... 5,204,280 5,029,769 Cable distribution fees, net ($30,235 and $35,181, respectively, to related parties)......................... 146,155 130,988 Long-term investments....................................... 37,272 93,742 Notes and accounts receivable, net ($3,283 and $2,562, respectively, from related parties)....................... 29,121 19,506 Inventories, net............................................ 182,422 154,497 Advances to USAI and subsidiaries........................... 443,098 410,107 Deferred income taxes....................................... 70,308 61,755 Deferred charges and other, net............................. 39,494 36,934 ---------- ---------- $7,558,795 $7,231,644 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations................. $ 20,829 $ 3,758 Accounts payable, trade..................................... 139,149 147,864 Obligations for program rights and film costs............... 295,561 265,235 Cable distribution fees payable ($18,431 and $18,733, respectively, to related parties)......................... 28,993 43,993 Deferred revenue............................................ 63,684 47,536 Deferred income taxes....................................... 13,383 -- Other accrued liabilities................................... 357,267 271,846 ---------- ---------- Total current liabilities................................... 918,866 780,232 LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 525,406 527,339 OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, NET OF CURRENT................................................... 279,260 256,260 OTHER LONG-TERM LIABILITIES................................. 76,602 81,156 MINORITY INTEREST........................................... 4,466,216 4,244,114 COMMITMENTS AND CONTINGENCIES............................... -- -- STOCKHOLDERS' EQUITY Common Stock................................................ 1,221,408 1,221,408 Additional paid-in capital.................................. 70,312 70,312 Retained earnings........................................... 11,225 50,823 Accumulated other comprehensive income...................... (10,500) -- ---------- ---------- Total stockholders' equity.................................. 1,292,445 1,342,543 ---------- ---------- $7,558,795 $7,231,644 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 36

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) ACCUMULATED ADDITIONAL RETAINED OTHER COMMON PAID-IN EARNINGS COMPREHENSIVE TOTAL STOCK CAPITAL (DEFICIT) INCOME ---------- ---------- ---------- --------- ------------- (IN THOUSANDS) Balance at December 31, 1999....... $1,342,543 $1,221,408 $70,312 $ 50,823 $ -- Comprehensive Income: Net earnings for the nine months ended September 30, 2000....... 78,571 -- -- 78,571 -- Foreign currency translation..... (2,521) (2,521) Increase in unrealized gains in available for sale securities..................... (7,979) -- -- -- (7,979) ---------- Comprehensive income........... 68,071 Mandatory tax distribution to LLC partners......................... (118,169) -- -- (118,169) -- ---------- ---------- ------- --------- -------- Balance at September 30, 2000...... $1,292,445 $1,221,408 $70,312 $ 11,225 $(10,500) ========== ========== ======= ========= ======== Comprehensive income for the three months ended September 30, 2000 was $27,025. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 37

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 78,571 $ 61,308 ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization............................. 154,945 130,620 Amortization of cable distribution fees................... 25,335 19,214 Amortization of program rights and film costs............. 428,537 391,088 Gain on sale of subsidiary stock.......................... (104,625) -- Gain on sale of securities................................ -- (89,721) Non-cash compensation..................................... 5,954 1,890 Equity in (earnings) losses of unconsolidated affiliates.............................................. 38,260 754 Minority interest......................................... 204,986 173,673 CHANGES IN CURRENT ASSETS AND LIABILITIES: Accounts receivable....................................... (67,348) 16,205 Inventories............................................... (1,615) 375 Accounts payable.......................................... (28,228) (43,174) Accrued liabilities and deferred revenue.................. 103,126 60,120 Payment for program rights and film costs................. (528,053) (410,500) Increase in cable distribution fees....................... (39,251) (35,624) Other, net................................................ 20,430 4,082 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 291,024 280,310 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired.......................... (107,934) (7,500) Capital expenditures........................................ (49,247) (43,781) Increase in long-term investments and notes receivable...... (21,769) (12,750) Proceeds from sale of securities............................ -- 107,231 Other, net.................................................. (2,806) 6,221 --------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES..... (181,756) 49,421 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings.................................................. 50,029 -- Payment of mandatory tax distribution to LLC partners....... (118,169) (52,755) Principal payments on long-term obligations................. (44,890) (252,182) Repurchase of LLC shares.................................... (129,907) (7,226) Proceeds from issuance of LLC shares........................ 216,493 401,319 Advances to USAi and subsidiaries........................... (181,052) (457,864) Other....................................................... (13,309) -- --------- --------- NET CASH USED IN FINANCING ACTIVITIES................... (220,805) (368,708) --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... (602) -- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (112,139) (38,977) Cash and cash equivalents at beginning of period............ 247,474 234,903 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 135,335 $ 195,926 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 38

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION 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. ("USAi"), formerly known as HSN, Inc., and became a subsidiary of USAi (the "Home Shopping Merger"). On February 12, 1998, USAi acquired USA Networks, a New York general partnership, consisting of cable television networks, USA Network and Sci-Fi Channel ("Networks"), 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"). On July 27, 2000, the Company and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers ("Styleclick.com"), completed the merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). See Note 3. 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, USAi contributed Networks and Studios USA to USANi LLC on February 12, 1998. The Company is a holding company, the subsidiaries of which are focused on the new convergence of entertainment, information and direct selling. The five principal areas of business are: - Networks and television production, which includes Networks and Studios USA. Networks operates the USA Network and Sci-Fi Channel cable networks and Studios USA produces and distributes television programming. - Electronic retailing, which consists primarily of the Home Shopping Network and America's Store, HSN International and HSN.com, which are engaged in the electronic retailing business. - Interactive, which includes Styleclick, Inc. (see Note 3 for more information), a facilitator of e-commerce websites and Internet enabled applications, and the Company's online retailing networks First Auction and First Jewelry. - Electronic commerce and services, which primarily represents the Company's customer and e-care businesses. - Emerging networks, which primarily represents recently acquired cable television properties Trio and News World International, and SciFi.com, an emerging Internet content and commerce site. BASIS OF PRESENTATION The interim Condensed Consolidated Financial Statements and Notes thereto of the Company are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the twelve months ended December 31, 1999. Certain amounts in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 1999 have been 39

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) reclassified to conform to the 2000 presentation, including all amounts charged to customers for shipping and handling, which are now presented as revenue. In the opinion of the Company, all adjustments necessary for a fair presentation of such Condensed Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Consolidated Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's audited Consolidated Financial Statements and Notes thereto. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Form 10-K") for a summary of all significant accounting policies. NEW ACCOUNTING PRONOUNCEMENTS In June 2000, the Securities and Exchange Commission issued an amendment to Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101") which delayed the effective date for adoption of SAB 101 to the fourth quarter of 2000. SAB 101 provides guidance on revenue recognition criteria for certain types of transactions. SAB 101 also provides guidance on the disclosures that companies should make about their revenue recognition policies and the impact of events and trends on revenue. In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS ("SOP 00-2"), which replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND DISTRIBUTORS OF MOTION PICTURE FILMS. AcSEC concluded that film costs would be accounted for under an inventory model. In addition, the SOP considers such topics as revenue recognition (fixed fees and minimum guarantees in variable fee arrangements), fee allocation in multiple films, accounting for exploitation costs, and impairment assessment. The SOP is effective for financial statements issued for fiscal years beginning after December 15, 2000. The Company is currently evaluating the impact of SAB 101 and SOP 00-2, although the impact is not expected to be material. NOTE 3--BUSINESS ACQUISITIONS STYLECLICK TRANSACTION On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network and Styleclick.com. 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 Nasdaq market under the symbol "IBUY". In accordance with the terms of the agreement, USAi 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 the $10 million of borrowing outstanding under the bridge loan. 40

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) The aggregate purchase price, including transaction costs, of $211.9 million was determined as follows: Value of portion of Styleclick.com acquired in the merger... $121,781 Additional cash and promotional investment by USAi.......... 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 conjunction with the transaction, the Company recorded a pre-tax gain of $104.6 million based upon the 25% of ISN exchanged for 75% of Styleclick.com. The Styleclick transaction has been accounted for under the purchase method of accounting. The purchase price has been preliminarily 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 $170.5 million has been allocated to goodwill, which is being amortized over 3 years. Assets and liabilities as of the acquisition date consist of the following: (IN THOUSANDS) -------------- Current assets.............................................. $ 39,095 Non-current assets.......................................... 4,039 Goodwill.................................................... 170,526 Current liabilities......................................... 1,746 Non-current liabilities..................................... -- The following unaudited pro forma condensed consolidated financial information for the three and nine months ended September 30, 2000 and 1999 is presented to show the results of the Company as if the Styleclick Transaction had occurred on January 1, 1999. 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. NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 ------------------ ------------------ ------------------ ------------------ (IN THOUSANDS) Net revenues............... $2,388,439 $779,511 $1,932,458 $630,068 Net income................. 58,021 31,116 49,642 16,574 41

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 4--INVESTMENTS During the quarter and nine months ended September 30, 1999, the Company recognized pre-tax gains of $39.5 and $89.7 million, respectively, on the sale of securities in a publicly traded entity. NOTE 5--STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 USAi common stock for all the outstanding stock of IDI, for a total value of approximately $5.0 million. During the second quarter, the company recorded $8.7 million of expense related to an agreement with an executive. Of this amount, $2.9 million is a non-cash stock compensation charge related to restricted stock. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999: During the nine months ended September 30, 1999, the Company acquired post-production and other equipment through capital leases totaling $2.5 million. NOTE 6--INDUSTRY SEGMENTS For the three and nine months ended September 30, 2000 and 1999, the Company operated principally in five industry segments: Networks and television production, Electronic retailing, Interactive, Electronic commerce and services and Emerging networks. The Networks and television production segment consists of the cable networks USA Network and Sci-Fi Channel and Studios USA, which produces and distributes television programming. The Electronic-retailing segment consists of Home Shopping Network and America's Store, which are engaged in the sale of merchandise through electronic retailing. The Interactive segment represents Styleclick. The Electronic commerce and services segment primarily represents the Company's customer and e-care businesses. The Emerging networks segment 42

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6--INDUSTRY SEGMENTS (CONTINUED) consists primarily of the recently acquired cable television properties Trio and News World International, which were acquired on May 19, 2000, and SciFi.com, a emerging Internet content and commerce site. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) Revenue Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Internet services.............................. 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- $779,367 $629,281 $2,386,550 $1,927,306 ======== ======== ========== ========== Operating profit (loss) Networks and television production............. $ 90,394 $ 64,555 $ 312,371 $ 223,170 Electronic retailing........................... 21,949 20,553 73,769 55,036 Internet services.............................. (15,970) (9,167) (37,382) (27,815) Electronic commerce and services............... (4,315) (645) (12,260) (1,576) Emerging networks.............................. (2,907) (787) (6,669) (1,885) Other.......................................... (7,804) (6,461) (30,729) (20,589) -------- -------- ---------- ---------- $ 81,347 $ 68,048 $ 299,100 $ 226,341 ======== ======== ========== ========== The Company operating principally within the United States. NOTE 7--GUARANTEE OF NOTES USAi 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 USAi, 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. 43

CONSOLIDATED FINANCIAL STATEMENTS USANI LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) NET REVENUES Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Interactive.................................... 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- Total net revenues........................... 779,367 629,281 2,386,550 1,927,306 -------- -------- ---------- ---------- Operating costs and expenses: Cost of sales.................................. 280,851 206,406 823,741 634,100 Program costs.................................. 146,000 147,549 485,037 466,896 Selling and marketing.......................... 97,940 74,121 280,928 209,859 General and administrative..................... 72,022 60,080 227,121 173,876 Other operating costs.......................... 33,391 22,081 90,343 66,400 Amortization of cable distribution fees........ 8,845 6,938 25,335 19,214 Depreciation and amortization.................. 58,971 44,058 154,945 130,620 -------- -------- ---------- ---------- Total operating costs and expenses........... 698,020 561,233 2,087,450 1,700,965 -------- -------- ---------- ---------- Operating profit............................. 81,347 68,048 299,100 226,341 Other income (expense): Interest income................................ 5,283 12,636 19,195 31,959 Interest expense............................... (6,329) (21,066) (24,807) (61,685) Gain on sale of securities..................... -- 39,451 -- 89,721 Other, net..................................... 70,575 (779) 66,567 879 -------- -------- ---------- ---------- 69,529 30,242 60,955 60,874 -------- -------- ---------- ---------- Earnings before income taxes and minority interest....................................... 150,876 98,290 360,055 287,215 Income tax expense............................... (7,562) (1,938) (18,525) (5,076) Minority interest................................ 4,706 135 392 512 -------- -------- ---------- ---------- NET EARNINGS..................................... $148,020 $ 96,487 $ 341,922 $ 282,651 ======== ======== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 44

USANI LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents................................... $ 135,335 $ 247,474 Accounts and notes receivable, net of allowance of $48,734 and $33,317, respectively................................. 453,277 381,175 Inventories, net............................................ 553,677 432,520 Investments held for sale................................... 2,062 -- Other current assets, net................................... 28,267 8,542 ---------- ---------- Total current assets.................................... 1,172,618 1,069,711 PROPERTY, PLANT AND EQUIPMENT Computer and broadcast equipment............................ 133,148 123,606 Buildings and leasehold improvements........................ 66,050 59,074 Furniture and other equipment............................... 71,249 67,246 Land........................................................ 10,275 10,246 Projects in progress........................................ 19,948 31,736 ---------- ---------- 300,670 291,908 Less accumulated depreciation and amortization.......... (66,643) (79,350) ---------- ---------- 234,027 212,558 OTHER ASSETS Intangible assets, net...................................... 5,280,021 5,105,510 Cable distribution fees, net ($30,235 and $35,181, respectively, to related parties)... 146,155 130,988 Long-term investments....................................... 37,272 93,742 Notes and accounts receivable, net ($3,283 and $2,562, respectively, from related parties)....................... 29,121 19,506 Inventories, net............................................ 182,422 154,497 Advances to USAI and subsidiaries........................... 856,659 649,480 Deferred charges and other, net............................. 39,494 36,934 ---------- ---------- $7,977,789 $7,472,926 ========== ========== LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations................. $ 20,829 $ 3,758 Accounts payable, trade..................................... 139,149 147,864 Obligations for program rights and film costs............... 295,561 265,235 Cable distribution fees payable ($18,431 and $18,733, respectively, to related parties)... 28,993 43,993 Deferred revenue............................................ 63,684 47,536 Other accrued liabilities................................... 327,309 257,575 ---------- ---------- Total current liabilities................................... 875,525 765,961 LONG-TERM OBLIGATIONS (net of current maturities)........... 525,406 527,339 OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of current............................................ 279,260 256,260 OTHER LONG-TERM LIABILITIES................................. 85,758 81,156 MINORITY INTEREST........................................... 64,531 531 COMMITMENTS AND CONTINGENCIES............................... -- -- MEMBERS' EQUITY Class A (252,326,640 and 245,601,782 shares, respectively)............................................. 2,004,891 1,912,514 Class B (282,161,532 shares)................................ 2,978,635 2,978,635 Class C (45,774,708 shares)................................. 466,252 466,252 Retained earnings........................................... 708,031 484,278 Accumulated other comprehensive income...................... (10,500) -- ---------- ---------- Total members' equity................................... 6,147,309 5,841,679 ---------- ---------- $7,977,789 $7,472,926 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 45

USANI LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (UNAUDITED) ACCUMULATED CLASS A CLASS B CLASS C OTHER LLC LLC LLC RETAINED COMPREHENSIVE TOTAL SHARES SHARES SHARES EARNINGS INCOME ---------- ---------- ---------- -------- --------- -------------- (IN THOUSANDS) BALANCE AT DECEMBER 31, 1999..................... $5,841,679 $1,912,514 $2,978,635 $466,252 $ 484,278 $ -- Comprehensive income: Net earnings for the nine months ended September 30, 2000........................... 341,922 -- -- -- 341,922 -- Foreign currency translation................... (2,521) -- -- -- -- (2,521) Increase in unrealized gains in available for sale securities.............................. (7,979) -- -- -- -- (7,979) ---------- Comprehensive income......................... 331,422 -- -- -- -- -- Issuance of LLC shares........................... 222,284 222,284 -- -- -- -- Repurchase of LLC shares......................... (129,907) (129,907) -- -- -- -- Mandatory tax distribution to LLC partners....... (118,169) -- -- -- (118,169) -- ---------- ---------- ---------- -------- --------- -------- BALANCE AT SEPTEMBER 30, 2000.................... $6,147,309 $2,004,891 $2,978,635 $466,252 $ 708,031 ($10,500) ========== ========== ========== ======== ========= ======== Comprehensive income for the three months ended September 30, 2000 was $140,849. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 46

USANI LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 2000 1999 --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 341,922 $ 282,651 ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization............................. 154,945 130,620 Amortization of cable distribution fees................... 25,335 19,214 Amortization of program rights and film costs............. 428,537 391,088 Gain on sale of subsidiary stock.......................... (104,625) -- Gain on sale of securities................................ -- (89,721) Non-cash compensation..................................... 5,954 1,890 Equity in (earnings) losses of unconsolidated affiliates.............................................. 38,260 754 Minority interest......................................... (392) (512) CHANGES IN CURRENT ASSETS AND LIABILITIES: Accounts receivable....................................... (67,348) 16,205 Inventories............................................... (1,615) 375 Accounts payable.......................................... (28,228) (43,174) Accrued liabilities and deferred revenue.................. 45,153 15,295 Payment for program rights and film costs................. (528,053) (410,500) Increase in cable distribution fees....................... (39,251) (35,624) Other, net................................................ 20,430 1,749 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 291,024 280,310 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired.......................... (107,934) (7,500) Capital expenditures........................................ (49,247) (43,781) Increase in long-term investments and notes receivable...... (21,769) (12,750) Proceeds from sale of securities............................ -- 107,231 Other, net.................................................. (2,806) 6,221 --------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES..... (181,756) 49,421 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings.................................................. 50,029 -- Payment of mandatory tax distribution to LLC partners....... (118,169) (52,755) Principal payments on long-term obligations................. (44,890) (252,182) Repurchase of LLC shares.................................... (129,907) (7,226) Proceeds from issuance of LLC shares........................ 216,493 401,319 Advances to USAi and subsidiaries........................... (181,052) (457,864) Other....................................................... (13,309) -- --------- --------- NET CASH USED IN FINANCING ACTIVITIES................... (220,805) (368,708) --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... (602) -- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (112,139) (38,977) Cash and cash equivalents at beginning of period............ 247,474 234,903 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 135,335 $ 195,926 ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 47

USANI LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION COMPANY FORMATION USANi LLC (the "Company" or "LLC"), a Delaware limited liability company, was formed on February 12, 1998 and is a subsidiary of Home Shopping Network, Inc. ("Home Shopping" or "Holdco"), which is a subsidiary of USA Networks, Inc. ("USAi"), formerly known as HSN, Inc. At its formation, USAi and Home Shopping contributed substantially all of the operating assets and liabilities of Home Shopping to the Company in exchange for Class A LLC Shares of the Company. On February 12, 1998, the Company acquired USA Networks, a New York general partnership, consisting of cable television networks, USA Network and Sci-Fi Channel ("Networks"), 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"). On January 20, 2000, the Board of Directors declared a two-for-one stock split of USANi LLC's members' equity interests, payable in the form of a dividend to shareholders of record as of the close of business on February 10, 2000. The stock dividend was paid on February 24, 2000. All share numbers give effect to such stock split. On July 27, 2000, the Company and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers ("Styleclick.com"), completed the merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). See Note 3. COMPANY BUSINESS The Company is a holding company, the subsidiaries of which are focused on the new convergence of entertainment, information and direct selling. The five principal areas of business are: - Networks and television production, which includes Networks and Studios USA. Networks operates the USA Network and Sci-Fi Channel cable networks and Studios USA produces and distributes television programming. - Electronic retailing, which consists primarily of the Home Shopping Network and America's Store, HSN International and HSN.com, which are engaged in the electronic retailing business. - Interactive, which includes Styleclick, Inc. (see Note 3 for more information), a facilitator of e commerce websites and Internet enabled applications, and the Company's online retailing networks First Auction and First Jewelry. - Electronic commerce and services, which primarily represents the Company's customer and e-care businesses. - Emerging networks, which primarily represents recently acquired cable television properties Trio and News World International, and SciFi.com, an emerging Internet content and commerce site. BASIS OF PRESENTATION The interim Condensed Consolidated Financial Statements and Notes thereto of the Company are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the twelve months ended December 31,1999. Certain amounts in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 1999 have been 48

USANI LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) reclassified to conform to the 2000 presentation, including all amounts charged to customers for shipping and handling, which are now presented as revenue. In the opinion of the Company, all adjustments necessary for a fair presentation of such Condensed Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Consolidated Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's audited Consolidated Financial Statements and Notes thereto. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Form 10-K") for a summary of all significant accounting policies. NEW ACCOUNTING PRONOUNCEMENTS In June 2000, the Securities and Exchange Commission issued an amendment to Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101") which delayed the effective date for adoption of SAB 101 to the fourth quarter of 2000. SAB 101 provides guidance on revenue recognition criteria for certain types of transactions. SAB 101 also provides guidance on the disclosures that companies should make about their revenue recognition policies and the impact of events and trends on revenue. In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS("SOP 00-2"), which replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND DISTRIBUTORS OF MOTION PICTURE FILMS. AcSEC concluded that film costs would be accounted for under an inventory model. In addition, the SOP considers such topics as revenue recognition (fixed fees and minimum guarantees in variable fee arrangements), fee allocation in multiple films, accounting for exploitation costs, and impairment assessment. The SOP is effective for financial statements issued for fiscal years beginning after December 15, 2000. The Company is currently evaluating the impact of SAB 101 and SOP 00-2, although the impact is not expected to be material. NOTE 3--BUSINESS ACQUISITIONS STYLECLICK TRANSACTION On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network and Styleclick.com. 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 Nasdaq market under the symbol "IBUY". In accordance with the terms of the agreement, USAi 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 the $10 million of borrowing outstanding under the bridge loan. 49

USANI LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) The aggregate purchase price, including transaction costs, of $211.9 million was determined as follows: Value of portion of Styleclick.com acquired in the merger... $121,781 Additional cash and promotional investment by USAi.......... 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 conjunction with the transaction, the Company recorded a pre-tax gain of $104.6 million based upon the 25% of ISN exchanged for 75% of Styleclick.com. The Styleclick transaction has been accounted for under the purchase method of accounting. The purchase price has been preliminarily 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 $170.5 million has been allocated to goodwill, which is being amortized over 3 years. Assets and liabilities as of the acquisition date consist of the following: (IN THOUSANDS) -------------- Current assets.............................................. $39,095 Non-current assets.......................................... 4,039 Goodwill.................................................... 170,526 Current liabilities......................................... 1,746 Non-current liabilities..................................... -- The following unaudited pro forma condensed consolidated financial information for the three and nine months ended September 30, 2000 and 1999 is presented to show the results of the Company as if the Styleclick Transaction had occurred on January 1, 1999. 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. NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 2000 1999 1999 ------------- ------------- ------------- ------------- (IN THOUSANDS) Net revenues.............. $2,388,439 $779,511 $1,932,458 $630,068 Net income................ 299,258 141,539 251,336 85,045 NOTE 4--INVESTMENTS During the quarter and nine months ended September 30, 1999, the Company recognized pre-tax gains of $39.5 and $89.7 million, respectively, on the sale of securities in a publicly traded entity. 50

USANI LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 5--STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 USAi common stock for all the outstanding stock of IDI, for a total value of approximately $5.0 million. During the second quarter, the company recorded $8.7 million of expense related to an agreement with an executive. Of this amount, $2.9 million is a non-cash stock compensation charge related to restricted stock. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999: During the nine months ended September 30, 1999, the Company acquired post-production and other equipment through capital leases totaling $2.5 million. NOTE 6--INDUSTRY SEGMENTS For the three and nine months ended September 30, 2000 and 1999, the Company operated principally in five industry segments: Networks and television production, Electronic retailing, Interactive, Electronic commerce and services and Emerging networks. The Networks and television production segment consists of the cable networks USA Network and Sci-Fi Channel and Studios USA, which produces and distributes television programming. The Electronic-retailing segment consists of Home Shopping Network and America's Store, which are engaged in the sale of merchandise through electronic retailing. The Interactive segment represents Styleclick. The Electronic commerce and services segment primarily represents the Company's customer and e-care businesses. The Emerging networks segment 51

USANI LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6--INDUSTRY SEGMENTS (CONTINUED) consists primarily of the recently acquired cable television properties Trio and News World International, which were acquired on May 19, 2000, and SciFi.com, a emerging Internet content and commerce site. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) Revenue Networks and television production............. $336,047 $307,094 $1,105,688 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Internet services.............................. 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- $779,367 $629,281 $2,386,550 $1,927,306 ======== ======== ========== ========== Operating profit (loss) Networks and television production............. $ 90,394 $ 64,555 $ 312,371 $ 223,170 Electronic retailing........................... 21,949 20,553 73,769 55,036 Internet services.............................. (15,970) (9,167) (37,382) (27,815) Electronic commerce and services............... (4,315) (645) (12,260) (1,576) Emerging networks.............................. (2,907) (787) (6,669) (1,885) Other.......................................... (7,804) (6,461) (30,729) (20,589) -------- -------- ---------- ---------- $ 81,347 $ 68,048 $ 299,100 $ 226,341 ======== ======== ========== ========== The Company operates principally within the United States. NOTE 7-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION On November 23, 1998, USAi and the Company completed an offering of $500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In May 1999, the Old Notes were exchanged in full for $500.0 million of new 6 3/4% Senior Notes due 2005 (the "Notes") that have terms that are substantially identical to the Old Notes. Interest is payable on the Notes on May 15 and November 15 of each year, commencing May 15, 1999. The Notes are jointly, severally, fully and unconditionally guaranteed by certain subsidiaries of USAi, including Holdco, a non-wholly owned, direct subsidiary of USAi, and all of the subsidiaries of the Company (other than subsidiaries that are, individually and in the aggregate, inconsequential to the Company on a consolidated basis) (collectively, the "Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than Holdco) (the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or indirectly, by USAi or the Company, 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 USAi's and the Company's management has determined that the information contained in such documents would not be material to investors. USANi LLC and its subsidiaries have no material restrictions on their ability to transfer amounts to fund USAi's operations. 52

INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 10.1* Employment Agreement, dated September 21, 2000, between USA Networks, Inc. and Dara Khosrowshahi 27.1 Financial Data Schedule (for SEC use only) 27.2 Financial Data Schedule (for SEC use only) 27.3 Financial Data Schedule (for SEC use only) 27.4 Financial Data Schedule (for SEC use only) - ------------------------ * Reflects management contracts and compensatory plans.

Exhibit 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between Dara Khosrowshahi ("Executive") and USA Networks, Inc., a Delaware corporation (the "Company"), and is effective July 24, 2000, (the "Effective Date"). WHEREAS, the Company and Executive are parties to an employment agreement dated April 5, 2000 (the "Prior Employment Agreement"). WHEREAS, the parties now wish to amend and restate the Prior Employment Agreement in its entirety as set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, Executive and the Company have agreed and do hereby agree as follows: EMPLOYMENT. The Company agrees to employ Executive as Executive Vice President--Operations and Strategic Planning, and Executive accepts and agrees to such employment. During Executive's employment with the Company, Executive shall do and perform all services and acts necessary or advisable to fulfill the duties and responsibilities as are commensurate and consistent with his position and shall render such services on the terms set forth herein. During Executive's employment with the Company, Executive shall report directly to the Company's Chief Executive Officer or, in the Company's discretion, the Company's Chief Executive Officer and the Company's Vice Chairman (hereinafter collectively referred to as the "Reporting Officer"). Executive shall have such powers and duties with respect to the Company as may reasonably be assigned to him by the Board of Directors of the Company or the Reporting Officer, to the extent consistent with his position and status as set forth above. Executive agrees to devote all of his working time, attention and efforts to the Company and to perform the duties of his position in accordance with the Company's policies as in effect from time to time. Executive's principal place of employment shall be the Company's offices in New York City; however, Executive's position shall require frequent long-distance travel on Company business. TERM OF AGREEMENT. The term ("Term") of this Agreement shall commence on the Effective Date and shall continue until March 3, 2003, unless sooner terminated in accordance with the provisions of Section 4 hereof. COMPENSATION. BASE SALARY. The Company shall pay Executive an annual base salary at the rate of $450,000 per year (the "Base Salary"), payable in equal biweekly installments or in accordance with the Company's payroll practice as in effect from time to time. For all purposes under this Agreement, the term "Base Salary" shall refer to Base Salary, including increases, if any, made from time to time. DISCRETIONARY BONUS. During the Term, Executive shall be eligible to participate in the Company's discretionary annual incentive bonus plan. STOCK OPTIONS. In consideration of Executive's entering into this Agreement, Executive has been granted under the Company's 1997 Stock and Annual Incentive Plan (the "USAi Plan") a non-qualified stock option (the "USAi Option") to purchase an additional 300,000 shares of the common stock, par value $.01 per share, of the Company (the "Company's Common Stock"), which grant was approved by the Compensation Committee of the Board of Directors of the Company on August 25, 2000.The exercise price of the Option is $24.9375.Such USAi Option shall vest and become exercisable in four equal installments on each of the first, second, third and fourth anniversaries of the Effective Date, provided that the Option shall become 100% vested and exercisable upon a Change in Control (as such term is defined in the Plan), and as provided in Section 4(d) of this Agreement. Executive hereby acknowledges that the 100,000 options to purchase the Company's Common Stock proposed to be granted to Executive under the Company's 1997 Stock and Annual Incentive Plan (the "USAi Plan") in December 1999 were not granted. Executive further acknowledges that as a result of his resignation from the

Boards of Director of Ticketmaster Online-CitySearch, Inc. ("TMCS") and Styleclick Inc. ("Styleclick"), Executive has agreed to forfeit all options to purchase shares of TMCS and Styleclick, as more fully described in the letters dated September 21, 2000 to each of TMCS and Styleclick. The Company acknowledges that Executive shall retain all rights in and to all other options to purchase shares of the Company's Common Stock and to all shares of Restricted Stock, in each case previously granted to Executive under the USAi Plan and the HRN 2000 Stock Plan, including without limitation, (A) the 15,000 shares of Restricted Stock granted on December 20, 1999 (30,000 shares after giving effect to the 2-for-1 stock split of the Company's Common Stock effective February 24, 2000); (B) the option to purchase 100,000 shares of Class A Common Stock, par value $.01 per share, of Hotel Reservations Network, Inc. ("HRN Common Stock") granted on February 22, 2000 with an exercise price of $16.00; (C) the option to purchase 100,000 shares of HRN Common Stock granted on April 5, 2000 with an exercise price of $15.50 (together with the options described in clause (B) of this paragraph (iii), the "HRN Options"); and (D) the option to purchase 100,000 shares of the Company's Common Stock granted on April 5, 2000 with an exercise price of $20.8675 (the "Prior USAi Option"). The the USAi Option, the Prior USAi Option and the HRN Options (collectively, the "2000 Options") shall expire upon the earlier to occur of (x) ten years from the date of the respective grant or (y) except as otherwise provided in the award agreement for any such option or in Section 4 of this Agreement, 90 days following the termination of Executive's employment with the Company for any reason. The Prior USAi Option and the HRN Options shall vest as set forth in the Prior Employment Agreement. The 2000 Options shall not become vested and exercisable as a result of the termination or non-renewal of this Agreement (or the termination of Executive's employment with the Company) for any reason, except as provided in Section 4(d). BENEFITS. From the Effective Date through the date of termination of Executive's employment with the Company for any reason, Executive shall be entitled to participate in any fringe, welfare, health and life insurance and pension benefit and incentive programs as may be adopted from time to time by the Company on the same basis as that provided to peer corporate executives of the Company. Without limiting the generality of the foregoing, Executive shall be entitled to the following benefits: REIMBURSEMENT FOR BUSINESS EXPENSES. During the Term, the Company shall reimburse Executive for all reasonable and necessary expenses incurred by Executive in performing his duties for the Company, including, without limitation, expenses for travel related to the business of the Company (including expenses in respect of his wife in accompanying him during such travel) and entertainment expenses on the same basis as peer executives in accordance with the Company's policies. VACATION. During the Term, Executive shall be entitled to four weeks of paid vacation per year, or such longer period as may be provided by the Company, in accordance with the plans, policies, programs and practices of the Company applicable to peer corporate executives of the Company generally. TERMINATION OF EXECUTIVE'S EMPLOYMENT. DEATH. In the event Executive's employment hereunder is terminated by reason of Executive's death, (i) the Company shall pay Executive's designated beneficiary or beneficiaries within 30 days of his death his Base Salary through the end of the month in which death occurs in a lump sum in cash; (ii) all outstanding equity incentive awards (including, without limitation, the Additional Stock Options) which are vested and which have not been exercised by Executive shall remain exercisable for a period of one year following the date of Executive's death or, if earlier, until the end of the applicable option term; and (iii) the Company shall pay Executive's designated beneficiary or beneficiaries within 30 days of his death in a lump sum in cash any Accrued Obligations (as defined in subparagraph 4(f) below). DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness ("Disability"), Executive shall have been absent from the full-time performance of his duties with the Company for a period of four consecutive months and, within 30 days after written notice is provided to him by the Company, he shall not have returned to the full-time performance of his duties, Executive's employment under this Agreement may be terminated by the Company or Executive for Disability. During any period prior to such termination during 2

which Executive is absent from the full-time performance of his duties with the Company due to Disability, the Company shall continue to pay Executive his Base Salary at the rate in effect at the commencement of such period of Disability, offset by any amounts payable to Executive under any disability insurance plan or policy provided by the Company. Upon termination of Executive's employment for Disability, (i) the Company shall pay Executive within 30 days of his Disability his Base Salary through the end of the month in which termination occurs in a lump sum in cash, offset by any amounts payable to Executive under any disability insurance plan or policy provided by the Company; (ii) all outstanding equity incentive awards (including, without limitation, the Additional Stock Options) which are vested and which have not been exercised by Executive shall remain exercisable for a period of one year following the date of Executive's Disability or, if earlier, until the end of the applicable option term; and (iii) the Company shall pay Executive within 30 days of his Disability in a lump sum in cash any Accrued Obligations (as defined in subparagraph 4(f) below). TERMINATION FOR CAUSE. The Company may terminate Executive's employment under this Agreement for Cause at any time prior to the expiration of the Term. As used herein, "Cause" shall mean: (i) the plea of guilty to, or conviction for, the commission of a felony offense by Executive; PROVIDED, HOWEVER, that after indictment, the Company may suspend Executive from the rendition of services, but without limiting or modifying in any other way the Company's obligations under this Agreement; (ii) a material breach by Executive of a fiduciary duty owed to the Company; (iii) a material breach by Executive of any of the covenants made by him in Section 5 hereof; or (iv) the willful and gross neglect by Executive of the material duties required by the Agreement. In the event of termination for Cause, this Agreement shall terminate without further obligation by the Company, except for the payment of any Accrued Obligations (as defined in subparagraph 4(f) below). TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR CAUSE OR BY EXECUTIVE FOR GOOD REASON. If Executive's employment is terminated by the Company for any reason other than Executive's death or Disability or for Cause, or Executive terminates his employment for Good Reason (as defined below), then A) the Company shall pay Executive the Base Salary through the end of the Term over the course of the then remaining Term; and B) the 2000 Options shall immediately vest and they and any other then outstanding portion of the 2000 Options held by Executive shall remain outstanding for one year from the date of such termination or, if earlier, the end of the term of any such 2000 Options; and the Company shall pay Executive within 30 days of the date of such termination in a lump sum in cash any Accrued Obligations (as defined in subparagraph 4(f) below). As used herein, "Good Reason" shall mean the occurrence of any of the following: (i) the Company's material breach of any of the provisions of this Agreement; (ii) any material adverse alteration in Executive's title, position, status, duties, level of reporting or responsibilities with the Company and (iii) any relocation of Executive's office outside of the New York metropolitan area. If on or prior to December 3, 2002, after written notice by Executive, such notice to be provided no later than November 3, 2002, the Company has not offered Executive an extension of the Term specifically until July 25, 2004 on the same terms as apply to the July 24, 2000 - March 3, 2003 period of the Term, if, and to the extent that, any of the USAi Options shall then not have vested, all of said unvested USAi Options other than those which are to vest on the fourth anniversary of the Effective Date shall also immediately vest and they and any other then outstanding portion of the 2000 Options held by Executive shall remain outstanding until March 3, 2004. MITIGATION; OFFSET. In the event of termination of Executive's employment prior to the end of the Term, and Executive's obtaining other employment during the Term, all future Base Salary payable by the Company to Executive during the remainder of the Term shall be offset by the Base Salary paid to Executive from another employer. For purposes of this Section 4(e), Employee shall have an obligation to inform the Company regarding Executive's employment status following termination and during the period encompassing the Term. ACCRUED OBLIGATIONS. As used in this Agreement, "Accrued Obligations" shall mean the sum of (i) any portion of Executive's Base Salary through the date of death, Disability or termination, as the case may be, which has not yet been paid; (ii) any compensation previously deferred by Executive (together with any interest or earnings thereon) that has not yet been paid; and (iii) any accrued but unpaid bonuses or other accrued incentive compensation as of the date of death, Disability or termination, as the case may be. CONFIDENTIAL INFORMATION/NON-SOLICITATION. CONFIDENTIALITY. Executive acknowledges that in his employment hereunder he will occupy a position of trust and confidence. Executive shall not, except as may be required to perform his duties hereunder or as required by 3

applicable law, without limitation in time or until such information shall have become public other than by Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company or any of its respective subsidiaries. "Confidential Information" shall mean information about the Company or any of its respective subsidiaries, and their respective clients and customers that is not disclosed by the Company or any of its respective subsidiaries for financial reporting purposes and that was learned by Executive in the course of his employment by the Company or any of its respective subsidiaries, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company and its respective subsidiaries, and that such information gives the Company and its respective subsidiaries a competitive advantage. Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company and its respective subsidiaries or prepared by Executive in the course of his employment by the Company and its respective subsidiaries. NON-SOLICITATION OF EMPLOYEES. Executive recognizes that he will possess confidential information about other employees of the Company and its respective subsidiaries relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of the Company and its respective subsidiaries. Executive recognizes that the information he will possess about these other employees is not generally known, is of substantial value to the Company and its respective subsidiaries in developing their respective businesses and in securing and retaining customers, and will be acquired by him because of his business position with the Company. Executive agrees that, during the Term (and for a period of 24 months beyond the expiration of the Term), he will not, directly or indirectly, solicit or recruit any employee of the Company or any of its respective subsidiaries for the purpose of being employed by him or by any business, individual, partnership, firm, corporation or other entity on whose behalf he is acting as an agent, representative or employee and that he will not convey any such confidential information or trade secrets about other employees of the Company or any of its respective subsidiaries to any other person except within the scope of Executive's duties hereunder. PROPRIETARY RIGHTS; ASSIGNMENT. All Executive Developments shall be made for hire by the Executive for the Company or any of its subsidiaries or affiliates. "Executive Developments" means any idea, discovery, invention, design, method, technique, improvement, enhancement, development, computer program, machine, algorithm or other work or authorship with respect to which the Executive may have any rights that (i) relates to the business or operations of the Company or any of its subsidiaries or affiliates, or (ii) results from or is suggested by any undertaking assigned to the Executive or work performed by the Executive for or on behalf of the Company or any of its subsidiaries or affiliates, whether created alone or with others, during or after working hours. All Confidential Information and all Executive Developments shall remain the sole property of the Company or any of its subsidiaries or affiliates. The Executive shall acquire no proprietary interest in any Confidential Information or Executive Developments developed or acquired during the Term. To the extent the Executive may, by operation of law or otherwise, acquire any right, title or interest in or to any Confidential Information or Executive Development, the Executive hereby assigns to the Company all such proprietary rights. The Executive shall, both during and after the Term, upon the Company's request, promptly execute and deliver to the Company all such assignments, certificates and instruments, and shall promptly perform such other acts, as the Company may from time to time in its discretion deem necessary or desirable to evidence, establish, maintain, perfect, enforce or defend the Company's rights in Confidential Information and Executive Developments. COMPLIANCE WITH POLICIES AND PROCEDURES. During the Term, Executive shall adhere to the policies and standards of professionalism set forth in the Company's Policies and Procedures as they may exist from time to time. REMEDIES FOR BREACH. Executive expressly agrees and understands that the remedy at law for any breach by Executive of this Section 5 will be inadequate and that damages flowing from such breach are not usually susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon Executive's violation of any provision of this Section 5 the Company shall be entitled to obtain from any court of competent jurisdiction immediate injunctive relief and obtain a temporary order restraining any threatened or further breach as well as an equitable accounting of all profits or benefits arising out of such violation. 4

Nothing in this Section 5 shall be deemed to limit the Company's remedies at law or in equity for any breach by Executive of any of the provisions of this Section 5, which may be pursued by or available to the Company. SURVIVAL OF PROVISIONS. The obligations contained in this Section 5 shall, to the extent provided in this Section 5, survive the termination or expiration of Executive's employment with the Company and, as applicable, shall be fully enforceable thereafter in accordance with the terms of this Agreement. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 5 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by first-class mail, certified or registered with return receipt requested or hand delivery acknowledged in writing by the recipient personally, and shall be deemed to have been duly given three days after mailing or immediately upon duly acknowledged hand delivery to the respective persons named below: If to the Company: USA Networks, Inc. Carnegie Hall Tower 152 West 57th Street New York, New York 10019 Attention: General Counsel If to Executive: Dara Khosrowshahi 251 West 19th Street, Apartment 9B New York, New York 10011 Either party may change such party's address for notices by notice duly given pursuant hereto. TERMINATION OF PRIOR AGREEMENTS. Except as otherwise herein provided, this Agreement constitutes the entire agreement between the parties and terminates and supersedes any and all prior agreements and understandings among the parties with respect to Executive's employment and compensation by the Company, including, without limitation, the Prior Employment Agreement. The Company acknowledges and agrees that neither Executive nor anyone acting on his behalf has made, and is not making, and in executing this Agreement, the Company has not relied upon, any representations, promises or inducements except to the extent the same is expressly set forth in this Agreement. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and none of the parties hereto shall, without the consent of the others, assign or transfer this Agreement or any rights or obligations hereunder, provided that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the "Company" shall refer to such successor. GOVERNING LAW. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the internal laws of the State of New York. WITHHOLDING. The Company shall make such deductions and withhold such amounts from each payment and benefit made or provided to Executive hereunder as may be required from time to time by applicable law, governmental regulation or order. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. WAIVER; MODIFICATION. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. This Agreement shall not be modified in any respect except by a writing executed by each party hereto. SEVERABILITY. In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any law or public policy, only the portions of this Agreement that violate such law or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless for acts and omissions in his capacity as 5

an officer, director or employee of the Company to the maximum extent permitted under applicable law; provided, HOWEVER, that neither the Company, nor any of its respective subsidiaries or affiliates shall indemnify Executive for any losses incurred by Executive as a result of acts described in Section 4(c) of this Agreement. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Executive has executed and delivered this Agreement on September 21, 2000, effective as of July 24, 2000. USA NETWORKS, INC. --------------------------------------------- By: Julius Genachowski Senior Vice President and General Counsel --------------------------------------------- DARA KHOSROWSHAHI

5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 359,079 74,817 619,016 58,860 595,073 1,716,687 475,404 226,065 10,611,093 1,201,021 0 0 0 3,681 3,498,252 10,611,093 3,299,254 3,299,254 1,570,334 1,570,334 1,218,912 0 62,097 150,414 72,813 (67,698) 0 0 0 (67,698) (.19) (.19)

9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,403,070 2,403,070 1,234,858 1,234,858 1,016,952 0 61,233 206,031 65,302 (9,853) 0 0 0 (9,853) (.03) (.03)

3-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,115,020 1,115,020 673,539 673,539 436,755 0 20,417 65,078 22,313 (20,239) 0 0 0 (20,239) (.06) (.06)

3-MOS DEC-31-1999 JUL-01-1999 SEP-30-1999 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 827,672 827,672 427,362 427,362 361,978 0 21,170 65,052 24,947 (7,680) 0 0 0 (7,680) (.02) (.02)