<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-12995
FOX FAMILY WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4596247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10960 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (310) 235-5100
Former name, address and fiscal year, if changed since last report
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of February 1, 1999,
there were 160,000 shares of Class A Common Stock outstanding and 15,840,000
shares of Class B Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
(audited) (unaudited)
----------- --------------
(In thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents..................................................... $ 82,313 $ 46,702
Restricted cash............................................................... 8,000 8,000
Accounts receivable, net...................................................... 132,053 157,459
Amounts receivable from related parties....................................... 58,043 64,449
Programming costs, net........................................................ 453,608 500,430
Property and equipment, net................................................... 60,805 61,709
Deferred income taxes......................................................... 39,779 39,779
Intangible assets, net........................................................ 1,594,286 1,573,846
Other assets, net............................................................. 87,137 74,533
---------- ----------
Total assets................................................................. $2,516,024 $2,526,907
========== ==========
Liabilities and stockholders' equity:
Accounts payable.............................................................. $ 37,668 $ 48,734
Accrued liabilities........................................................... 194,353 214,875
Deferred revenue.............................................................. 74,518 60,365
Accrued residuals and participations.......................................... 52,601 41,822
Income taxes payable.......................................................... 10,326 26,416
Deferred income taxes......................................................... 21,698 22,020
Bank and other debt........................................................... 1,746,510 1,768,821
Amounts payable to related parties............................................ 2,954 8,950
---------- ----------
Total liabilities............................................................ 2,140,628 2,192,003
---------- ----------
Commitments and contingencies
Series A Mandatorily Redeemable Preferred Stock, $0.001 par value;
500,000 shares authorized; 345,000 shares issued and outstanding
($1,000 per share liquidation value)......................................... 345,000 345,000
Stockholders' equity:
Preferred Stock, $0.001 par value; 19,500,000 shares authorized, no shares
issued or outstanding..................................................... -- --
Class A Common Stock, $0.001 par value; 16,000,000 shares
authorized, 160,000 shares issued and outstanding......................... -- --
Class B Common Stock, $0.001 par value; 16,000,000 shares
authorized, 15,840,000 shares issued and outstanding...................... 16 16
Contributed capital........................................................ 60,731 60,731
Accumulated comprehensive loss............................................. (1,201) (605)
Deficit.................................................................... (29,150) (70,238)
---------- ----------
Total stockholders' equity................................................. 30,396 (10,096)
---------- ----------
Total liabilities and stockholders' equity................................... $2,516,024 $2,526,907
========== ==========
</TABLE>
See accompanying notes
2
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FOX FAMILY WORLDWIDE, INC.,
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1997 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1997 1998 1997 1998
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenues...................................... $210,025 $180,190 $332,971 $363,778
Costs and expenses:
Production and programming.................. 124,185 82,975 192,626 189,858
Selling, general and administrative......... 35,134 49,637 60,329 88,015
Depreciation................................ 2,893 2,785 4,942 4,967
Amortization of intangible assets........... 10,467 10,220 17,436 20,440
-------- -------- -------- --------
172,679 145,617 275,333 303,280
Operating income.............................. 37,346 34,573 57,638 60,498
Equity in loss of unconsolidated affiliate.... 1,204 944 2,388 2,665
Other (income) expense, net................... (220) (174) 62 (282)
Interest expense, net......................... 39,574 41,105 58,388 82,835
-------- -------- -------- --------
Loss before provision for income
taxes....................................... (3,212) (7,302) (3,200) (24,720)
Provision for income taxes.................... 1,216 338 2,403 716
-------- -------- -------- --------
Net loss...................................... $ (4,428) $ (7,640) $ (5,603) $(25,436)
======== ======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 and 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
----------- ---------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................................ $ (5,603) $ (25,436)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of programming costs.................................................... 158,427 168,576
Depreciation of property and equipment............................................... 4,942 4,967
Amortization of intangible assets.................................................... 17,436 20,440
Equity in loss of unconsolidated affiliate........................................... 2,388 2,665
Non-cash interest expense............................................................ 19,320 32,637
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (36,882) (25,406)
Amounts receivable from related parties.......................................... (42,174) (6,406)
Income tax refund receivable..................................................... (8,471) ---
Other assets..................................................................... (53,194) 11,446
Accounts payable and accrued liabilities......................................... (351) 31,588
Accrued participation and residuals.............................................. 12,089 (10,779)
Income taxes payable and deferred income taxes................................... 9,460 16,412
Deferred revenue................................................................. 14,359 (14,153)
----------- ---------
Net cash provided by operating activities............................................... 91,746 206,551
INVESTING ACTIVITIES
Purchase of property and equipment...................................................... (4,504) (7,690)
Additions to programming costs.......................................................... (150,252) (213,583)
Acquisition of IFE...................................................................... (1,370,076) ---
Sale of marketable securities........................................................... 61,396 ---
Proceeds from sale of property and equipment............................................ 1,100 ---
Cash acquired in acquisition of IFE..................................................... 19,241 ---
Other................................................................................... (792) (907)
----------- ---------
Net cash used in investing activities................................................... (1,443,887) (222,180)
FINANCING ACTIVITIES
Proceeds from bank borrowings........................................................... 1,281,674 610
Paydown on bank borrowings.............................................................. (835,906) (10,801)
Proceeds from News America Bridge Note.................................................. 345,514 ---
Paydown on News America Bridge Note..................................................... (250,679) (135)
Issuance of Senior Notes................................................................ 475,000 ---
Issuance of Senior Discount Notes....................................................... 375,001 ---
Dividends on Mandatorily Redeemable Preferred Stock..................................... (13,015) (15,652)
Issuance of common stock................................................................ 10 ---
Proceeds from related party borrowings.................................................. 1,074 5,996
----------- ---------
Net cash provided by (used in) financing activities..................................... 1,378,673 (19,982)
Increase (decrease) in cash and cash equivalents........................................ 26,532 (35,611)
Cash and cash equivalents at beginning of period........................................ 28,877 82,313
----------- ---------
Cash and cash equivalents at end of period.............................................. $ 55,409 $ 46,702
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for (in thousands):
Interest, net of amounts capitalized................................................. $ 22,994 $ 44,096
Income taxes......................................................................... $ 1,086 $ 1,158
</TABLE>
See accompanying notes.
4
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FOX FAMILY WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
Note 1--Basis of Preparation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements of
Fox Family Worldwide, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain prior year amounts have been reclassified to conform to the
current year presentation. Operating results for the three and six month
periods ended December 31, 1998 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1999.
These interim condensed consolidated financial statements and the notes
thereto should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 30, 1998.
The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes including amortization
of programming costs. Actual results could differ from those estimates.
Management periodically reviews and revises its estimates of future airings and
revenues, as necessary, which may result in revised amortization of its
programming costs. Results of operations may be significantly affected by the
periodic adjustments in such amortization.
Note 2--Acquisition of International Family Entertainment, Inc.
In September 1997, the Company completed the acquisition of International
Family Entertainment, Inc. ("IFE"). The following unaudited pro forma
information for the six months ended December 31, 1997 reflect the results of
the Company's consolidated operations as if the acquisition occurred at the
beginning of the period presented. The unaudited pro forma consolidated
financial results are not necessarily indicative of the actual results that
would have been reported had the acquisition occurred at the beginning of the
period presented (in thousands).
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1997
(unaudited)
-----------------
<S> <C>
Revenues.......................................................................... $357,456
Operating income.................................................................. 61,427
Net loss.......................................................................... (18,832)
</TABLE>
5
<PAGE>
Note 3--Programming Costs
Programming costs, less accumulated amortization, are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------------------------
Programming
Costs, less
Accumulated Accumulated
Cost Amortization Amortization
----------- -------------- ------------
<S> <C> <C> <C>
Children's programming................................ $1,081,397 $ 900,785 $180,612
Family programming, movies and mini-series............ 413,507 214,006 199,501
Projects in production................................ 67,070 -- 67,070
Development........................................... 6,425 -- 6,425
---------- ---------- --------
$1,568,399 $1,114,791 $453,608
=========== ========== ========
December 31, 1998
-----------------------------------------------------------------------
Programming
Costs, less
Accumulated Accumulated
Cost Amortization Amortization
----------- ------------ ------------
Children's programming................................ $1,172,185 $1,000,698 $171,487
Family programming, movies and mini-series............ 520,369 282,669 237,700
Projects in production................................ 85,333 -- 85,333
Development........................................... 5,910 -- 5,910
----------- ---------- --------
$1,783,797 $1,283,367 $500,430
=========== ========== ========
</TABLE>
Interest expense amounting to $1,532,000 and $368,000 was capitalized to
programming costs for the six months ended December 31, 1998 and 1997,
respectively.
Note 4--Comprehensive Income (Loss)
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Comprehensive income (loss) for the three and six month
periods ended December 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1997 1998 1997 1998
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Net loss $(4,428) $(7,640) $(5,603) $(25,436)
Foreign currency translation adjustment 461 1,013 387 596
------- ------- ------- --------
Comprehensive income (loss) $(3,967) $(6,627) $(5,216) $(24,840)
======= ======= ======= ========
</TABLE>
Accumulated other comprehensive loss at December 31, 1997 consisted of foreign
currency translation adjustments of $416,000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended.
The words "expect", "estimate", "anticipate", "predict", "believe" and similar
expressions and variations thereof are intended to identify forward-looking
statements. These statements appear in a number of places in this report and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (a)
trends affecting the Company's financial condition or results of operations; (b)
the Company's programming on the Fox Family Channel; (c) the impact of
competition; and (d) the expansion of the Company's international channels and
certain other operations. The readers of this report are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in this filing, including, without limitation, those risks
and uncertainties discussed under the headings "Factors That Could Impact Future
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 as well as the information set forth below. The
Company does not ordinarily make public projections of its future operating
results and undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. Readers should carefully review the risk factors referred to above
and the other documents the Company files from time to time with the Securities
and Exchange Commission, including the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998, the quarterly reports on Form 10-Q filed by
the Company, and any current reports on Form 8-K filed by the Company.
Results of Operations
Six months ended December 31, 1998 compared with six months ended December 31,
1997
For the six-month period ended December 31, 1998, revenues increased 9.2%
to $363.8 million as compared to $333.0 million for the same six-month period of
the prior year. On a pro forma basis, giving effect to the International Family
Entertainment, Inc. ("IFE") acquisition as if it had occurred on July 1, 1997,
revenues increased $6.3 million or 1.8%. The actual revenue increase of $30.8
million for the period results from a number of factors, including the results
of one additional month of operations for the Fox Family Channel (the Company
acquired a controlling interest in IFE on August 1, 1997, and only five months
were included for the Fox Family Channel for the six-month period ended December
31, 1997) and increased domestic and foreign revenue. The domestic and foreign
revenue increase of approximately $19.9 million resulted principally from
increased licensing of library product accompanied by higher revenue from the
international cable channels as a result of increased penetration in the
marketplace. These increases were offset, in part, by a decrease in direct-to-
video revenue of approximately $12.9 million. The market for direct-to-video
features is currently quite competitive, primarily due to an oversupply of
product in the marketplace.
On August 15, 1998, the Fox Family Channel was relaunched to the cable
households of America with new programming and a new schedule, including
children's programming from 7:00 a.m. until 6:00 p.m. daily, followed by evening
and late-night programming for the entire family. The Company utilizes its
library product along with other third party programming during the daytime
children's block. Prime time programming, on the other hand, consists
principally of original series, specials, and movies produced for or licensed by
the Fox Family Channel. The process of repositioning a channel is challenging
and takes time to accomplish. Since the August 15, 1998 relaunch, overall
ratings compared to last year are lower. However, the Company introduced various
programming changes in mid-October 1998 which have had a positive impact on
ratings and have improved important demographics. The Company continues to
pursue its long-term objective of attracting a broader audience with improved
advertiser demographics.
Production and programming costs for the six-month period ended December
31, 1998 decreased 1.4% to $189.9 million as compared to $192.6 million for the
same six-month period of the prior year. Production and programming costs as a
percentage of total revenues decreased to 52.2% for the six-month period ended
December 31, 1998 from 57.8% for the comparable prior year period. The
decreases in production and programming costs are attributable to a number of
factors, including the decrease in direct-to-video revenues described above,
which have high amortization rates, and lower amortization expense associated
with the Company's mix of domestic and foreign revenues, also described above,
offset by the inclusion of the operations of IFE for six months versus five
months in the prior year.
7
<PAGE>
Selling, general and administrative expenses increased 45.9% to $88.0
million for the six-month period ended December 31, 1998, from $60.3 million for
the same six months of the prior year. This increase is due principally to
various one-time costs of approximately $17.9 million incurred in connection
with the launch of the new Fox Family Channel and from the inclusion of six
months of activity at IFE as compared to five months in the prior year.
Amortization of intangible assets for the six-month period ended December
31, 1998 results from the acquisition of IFE. These intangible assets are being
amortized over 40 years. The increase results from six months of IFE activity
for the six-month period ended December 31, 1998 as compared to five months of
activity for the six months ended December 31, 1997.
The equity in loss of unconsolidated affiliate represents the Company's
portion of the loss generated by TV10, a cable network based in The Netherlands.
The Company has entered into an agreement, which is binding subject to approval
of the Company's lender under the Amended Credit Facility (defined below), to
sell 50% of its interest in TV10.
Interest expense increased by $24.4 million for the six-month period ended
December 31, 1998, as compared to the same period in 1997. The increase is
principally due to interest on the debt incurred in connection with the
acquisition of IFE.
The Company's provision for income taxes for the six-month period ended
December 31, 1998 reflects foreign withholding taxes.
Due primarily to the amount of interest expense and amortization of
intangible assets, the Company does not expect to report net income for fiscal
1999.
Three months ended December 31, 1998 compared with the three months ended
December 31, 1997
For the three-month period ended December 31, 1998, revenues decreased
14.2% to $180.2 million as compared to $210.0 million for the same three-month
period of the prior year. The decrease in revenues for the current quarter
primarily relates to lower revenues for the Company's new direct-to-video
releases which generated revenues of $13.6 million offset by an increase in
foreign revenues. In the prior year period, the Company released "Casper: A
Spirited Beginning" and "Turbo: A Power Rangers Movie" which generated revenue
of $45.9 million.
Production and programming costs for the three-month period ended December
31, 1998 decreased 33.2% to $83.0 million as compared to $124.2 million for the
same three-month period of the prior year. Production and programming costs as
a percentage of total revenues decreased to 46.1% for the three-month period
ended December 31, 1998 from 59.1%. These decreases are attributable principally
to the decrease in direct-to-video revenues discussed above and to a lesser
extent, lower amortization expense associated with the Company's current period
revenue mix.
Selling, general and administrative expenses increased 41.3% to $49.6
million for the three-month period ended December 31, 1998, from $35.1 million
for the same three months of the prior year. This increase is due principally
to various one-time costs of $11.0 million incurred in connection with the
launch of the new Fox Family Channel.
Interest expense increased by $1.5 million for the three-month period ended
December 31, 1998, as compared to the same three-month period in 1997. The
increase is principally due to the timing of the bond offering in 1997 and
increased interest expense on the Company's subordinated debt offset by lower
interest rates on the bank facility.
The Company's provision for income taxes for the three-month period ended
December 31, 1998 reflects foreign withholding taxes.
Liquidity and Capital Resources
In September 1997, the Company completed the acquisition of IFE (the "IFE
Acquisition"). The total consideration for the IFE Acquisition was
approximately $1.9 billion, including assumption of debt, and was financed by
(i) the borrowing of $1.25 billion under a credit facility (the "Old Credit
Facility"), (ii) the issuance of approximately $345 million of Series A
Preferred Stock to Liberty IFE, Inc. ("Liberty IFE") and (iii) the issuance of a
note to News America Incorporated in the
8
<PAGE>
amount of $345.5 million (the "News America Bridge Note"). In October 1997, the
Company completed an offering (the "Offering") of 9 1/4% Senior Notes due 2007
and 10 1/4% Senior Discount Notes due 2007 (collectively, the "Company Notes"),
generating net proceeds to the Company of approximately $830 million. Of the net
proceeds from the Offering, $215 million was used to repay a portion of the News
America Bridge Note and the balance of $615 million was used to repay
indebtedness under the Company's Old Credit Facility. Approximately $113.2
million (including accreted interest) was outstanding under the News America
Bridge Note at December 31, 1998; however, no payments are due under the News
America Bridge Note until March 2008.
In October 1997, as part of the Offering, the Company amended the Old
Credit Facility to a new credit facility (the "Amended Credit Facility") which
includes a $710 million facility, comprised of a seven-year amortizing term loan
and a seven-year reducing revolving credit facility. The Amended Credit
Facility is scheduled to terminate September 29, 2004. Borrowings under the
Amended Credit Facility bear interest, at the Company's option, at a rate per
annum equal to either LIBOR plus a 1.5% interest rate margin or a base rate plus
a .5% interest rate margin. As of December 31, 1998, $75 million was available
under the Amended Credit Facility for additional borrowings subject to certain
restrictions. Consequently, the Company's principal sources of liquidity
include borrowings under the Amended Credit Facility and cash generated from
operations.
As a result of the IFE Acquisition and the financing transactions described
above, the Company's principal liquidity requirements arise from interest and
dividend payments. The Company further anticipates certain seasonal working
capital needs related to the development, production and acquisition of
programming, the financing of accounts receivable and other related operating
costs. The Company on a regular basis has had, and intends to continue to
engage in, exploratory discussions concerning programming and other acquisition
opportunities, and any such acquisition could result in additional capital
requirements.
Net cash provided by operating activities of the Company for the six months
ended December 31, 1998 was $206.6 million as compared to $91.7 million for the
six months ended December 31, 1997, reflecting six months of activity of IFE as
compared to five months of activity for the six months ended December 31, 1997.
Net cash used in investing activities of the Company during the six months
ended December 31, 1998 and 1997 was $222.2 million and approximately $1.4
billion, respectively. The net cash flow used in investing activities for the
six months ended December 31, 1998 primarily related to additions to programming
costs. The Company's net cash flow used in investing activities for the six
months ended December 31, 1997 primarily related to the IFE Acquisition as
described above and additions to programming costs.
Net cash provided by (used in) financing activities of the Company during
the six months ended December 31, 1998 and 1997 was $(20.0) million and
approximately $1.4 billion, respectively. The financing activities for the six
months ended December 31, 1998 related to payments of dividends and paydown of
bank borrowings while the financing activities for the six months ended December
31, 1997 related to bank and other borrowings in connection with the IFE
Acquisition.
The Company's total unrestricted cash balances at December 31, 1998 were
$46.7 million.
The Company believes that the available borrowings under the Amended Credit
Facility, together with cash flow from operations, cash on hand and funding from
the Company's stockholders should be sufficient to fund its operations and
service its debt for the foreseeable future.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits instead of four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software or facilities or equipment
containing embedded micro-controllers may recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing potential disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company's Year 2000 compliance project is divided into two areas:
information technology and non-information technology. The Company began its
Year 2000 information technology project in June 1997 and has completed its
assessment
9
<PAGE>
of the significant software applications and equipment used in the Company's
operations. The Company is in the process of modifying or replacing portions of
its software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company is also in the process of
testing and implementing both software and hardware changes where required. The
Company expects that this phase of the project will continue through the end of
the first quarter of 1999.
With respect to the Company's Year 2000 project for non-information
technology, the Company has identified two areas which require attention:
engineering and operations. The assessment phase of the engineering project and
the operations project are in process. The Company has engaged the services
of a consulting firm to review all phases completed to date, to assist the
Company with testing and to help the Company build its contingency plan. With
the assistance of the consultant, the Company's goal is to complete all phases
of its information technology and non-information technology project by the end
of the first calendar quarter of 1999.
The Company is in the process of preparing documents for the purpose of
contacting its key vendors and customers to determine if there are any
significant Year 2000 exposures which would have a material effect on the
Company. However, if the Company, its customers or vendors are unable to resolve
any Year 2000 compliance problems in a timely manner, it could result in a
material financial risk. Accordingly, management plans to devote the resources
it concludes are appropriate to resolve all significant Year 2000 problems in a
timely manner.
The Year 2000 project cost has not been material to date and, based on
preliminary information, is not currently anticipated to have a material adverse
effect on the Company's financial condition, results of operations or cash flow
in future periods.
Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading "Factors That Could Impact Future Results" in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance project. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, timely responses to and
corrections by third parties and suppliers, the ability to implement interfaces
between the new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year 2000
readiness of third parties and the interconnection of national and international
businesses, the Company cannot ensure that its ability to timely and cost
effectively resolve problems associated with the Year 2000 issue will not affect
its operations and business, or expose it to third party liability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
and exchange rate variability. The Company manages these market risks by using
derivative financial instruments in accordance with established policies and
procedures. The Company does not use derivative financial instruments for
trading purposes.
When the Company licenses its programming outside the United States, the
majority of transactions are denominated in U.S. dollars. Channel subscription
fees are denominated in local currencies. For those transactions denominated in
foreign currencies, to the extent possible, sales and purchases in specific
currencies are offset against each other. The foreign currencies in which the
Company has the most significant exchange rate exposure are the British pound,
French franc, German mark and Canadian dollar. To manage these exposures, the
Company periodically initiates hedging activities by entering into currency
exchange agreements, consisting primarily of currency forward contracts, to
minimize cost variations which could result from fluctuations in currency
exchange rates. The currency exchange agreements which provide hedge coverage
typically mature within one year of origination, consistent with the underlying
purchase or sales commitment.
The Company maintains a mix of fixed and floating debt to mitigate its
exposure to interest rate fluctuations.
10
<PAGE>
The Company's management believes that fluctuations in interest rates and
currency exchange rates in the near term would not materially affect the
Company's consolidated operating results, financial position or cash flows as
the Company has limited risks related to interest rate and currency exchange
rate fluctuations.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is engaged in litigation in the
ordinary course of its business. The Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, if decided adversely
to the Company, would be likely to have a material adverse effect on the
Company's financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
--------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
-------------------
None.
12
<PAGE>
SIGNATURE
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.
FOX FAMILY WORLDWIDE, INC.
Date: February 12, 1999 /s/ Mel Woods
-------------
Mel Woods
President, Chief Operating Officer and
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE
- ---- ------- ----
27.1 Financial Data Schedule
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOX FAMILY
WORLDWIDE, INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 63,409<F1> 54,702<F1>
<SECURITIES> 0 0
<RECEIVABLES> 239,536 224,309
<ALLOWANCES> (1,410) (2,401)
<INVENTORY> 354,348 500,430
<CURRENT-ASSETS> 0<F2> 0<F2>
<PP&E> 88,470 88,478
<DEPRECIATION> (14,672) (26,769)
<TOTAL-ASSETS> 2,504,376 2,526,907
<CURRENT-LIABILITIES> 0<F2> 0<F2>
<BONDS> 856,853 897,165
345,000 345,000
0 0
<COMMON> 16 16
<OTHER-SE> 66,033 (10,112)
<TOTAL-LIABILITY-AND-EQUITY> 2,504,376 2,526,907
<SALES> 332,971 363,778
<TOTAL-REVENUES> 332,971 363,778
<CGS> (192,626) (189,858)
<TOTAL-COSTS> (275,333) (303,280)
<OTHER-EXPENSES> (2,450) (2,383)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (58,388) (82,835)
<INCOME-PRETAX> (3,200) (24,720)
<INCOME-TAX> (2,403) (716)
<INCOME-CONTINUING> (5,603) (25,436)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,603) (25,436)
<EPS-PRIMARY> 0<F3> 0<F3>
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1>Includes restricted cash of $8.0 million.
<F2>The Company has elected to present an unclassified balance sheet.
<F3>EPS is not applicable as the Company has no publicly traded equity.
</FN>
</TABLE>
