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 September 30, 1999
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 November 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
<TABLE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
June 30, September 30,
1999 1999
(Audited) (Unaudited)
------------ -------------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 46,858 $ 78,596
Restricted cash........................................... 8,204 8,206
Accounts receivable, net.................................. 145,050 141,230
Amounts receivable from related parties................... 19,082 34,027
Programming costs, net.................................... 538,219 527,978
Property and equipment, net............................... 58,096 55,717
Deferred income taxes..................................... 38,829 38,829
Intangible assets, net.................................... 1,539,852 1,529,721
Other assets, net......................................... 77,684 71,781
------------ ------------
Total assets............................................ $ 2,471,874 $ 2,486,085
============ ============
Liabilities and stockholders' deficit:
Accounts payable.......................................... $ 44,743 $ 37,366
Accrued liabilities ...................................... 190,664 197,986
Deferred revenue.......................................... 59,314 53,506
Accrued participations.................................... 38,860 46,364
Deferred income taxes..................................... 20,748 20,748
Bank and other debt....................................... 1,726,315 1,745,035
Amounts payable to related parties........................ 113,973 132,721
------------ ------------
Total liabilities....................................... 2,194,617 2,233,726
------------ ------------
Commitments and contingencies
Series A Mandatorily Redeemable Preferred Stock,
$0.001 par value, 500,000 shares authorized,
345,000 shares issued and outstanding
($1,000 per share liquidation value) ................... 345,000 345,000
------------ ------------
Stockholders' deficit:
Preferred Stock, $0.001 par value, 19,500,000
shares authorized, no shares issued or
outstanding....................................... -- --
Class A Common Stock, $0.0001 par value,
16,000,000 shares Authorized, 160,000
shares issued and outstanding..................... -- --
Class B Common Stock, $0.0001 par value,
16,000,000 shares Authorized, 15,840,000
shares issued and outstanding..................... 16 16
Contributed capital.................................. 60,731 60,731
Accumulated other comprehensive loss................. (1,893) (1,760)
Accumulated deficit.................................. (126,597) (151,628)
------------ ------------
Total stockholders' deficit.......................... (67,743) (92,641)
------------ ------------
Total liabilities and stockholders' deficit............. $ 2,471,874 $ 2,486,085
============ ============
</TABLE>
See accompanying notes.
Page 2
<PAGE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(In thousands)
<S> <C> <C>
Revenues.................................... $ 183,588 $ 172,202
Costs and expenses:
Production and programming............... 104,993 85,287
Selling, general and administrative...... 40,268 46,942
Depreciation............................. 2,182 2,632
Amortization of intangibles.............. 10,220 10,131
------------ ------------
157,663 144,992
Operating income............................ 25,925 27,210
Equity in loss of unconsolidated affiliate.. 1,721 565
Other (income) expense, net................. (108) 21
Interest expense, net....................... 41,730 43,334
------------ ------------
Loss before provision for income taxes...... (17,418) (16,710)
Provision for income taxes.................. 378 498
------------ ------------
Net loss.................................... $ (17,796) $ (17,208)
============ ============
</TABLE>
See accompanying notes.
Page 3
<PAGE>
FOX FAMILY WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................... $ (17,796) $ (17,208)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of programming costs............................ 96,120 75,065
Depreciation................................................. 2,182 2,632
Amortization of intangibles.................................. 10,220 10,131
Amortization of debt issuance costs.......................... 815 815
Equity in loss of unconsolidated affiliate................... 1,721 565
Non-cash interest expense.................................... 15,972 19,158
Changes in operating assets and liabilities:
Restricted cash........................................... -- (2)
Accounts receivable....................................... (10,079) 3,820
Amounts receivable from related parties................... (11,332) (14,945)
Other assets.............................................. 9,364 4,657
Accounts payable and accrued liabilities.................. 47,150 (55)
Accrued participations.................................... 3,680 7,504
Deferred revenue.......................................... 5,666 (5,808)
--------- ---------
Net cash provided by operating activities.......................... 153,683 86,329
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment................................. (5,280) (1,268)
Additions to production and programming costs...................... (140,079) (63,808)
Intangible assets.................................................. 14,000 --
Other.............................................................. (907) (2)
--------- ---------
Net cash used in investing activities.............................. (132,266) (65,078)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from bank borrowings...................................... 610 --
Paydown on bank borrowings......................................... (5,291) (15,371)
Paydown on NAHI Bridge loan........................................ -- (67)
Proceeds from Fox Subordinated Debt................................ -- 15,000
Dividends on Preferred Stock....................................... (7,826) (7,823)
Advances from related parties...................................... 3,215 18,748
--------- ---------
Net cash (used in) provided by financing activities................ (9,292) 10,487
--------- ---------
Increase in cash and cash equivalents.............................. 12,125 31,738
Cash and cash equivalents at beginning of period................... 82,313 46,858
--------- ---------
Cash and cash equivalents at end of period......................... $ 94,438 $ 78,596
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized........................ $ 11,018 $ 8,212
Income taxes................................................ $ 794 $ 498
</TABLE>
See accompanying notes.
Page 4
<PAGE>
FOX FAMILY WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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-month period
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2000.
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, 1999.
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, principally
amortization of programming costs. Actual results could differ from those
estimates. Management periodically reviews and revises its estimates of future
broadcast 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--Programming Costs
Programming costs, less accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------
(IN THOUSANDS)
---------------------------------------------
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS, NET
----------- ------------ -----------
<S> <C> <C> <C>
Children's programming.................... $ 1,289,026 $ 1,064,308 $ 224,718
Family programming, movies and mini-series 562,304 328,291 234,013
Projects in production.................... 72,172 -- 72,172
Development............................... 7,316 -- 7,316
----------- ----------- ----------
$ 1,930,818 $ 1,392,599 $ 538,219
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------
(IN THOUSANDS)
---------------------------------------------
ACCUMULATED PROGRAMMING
COST AMORTIZATION COSTS, NET
----------- ------------ -----------
<S> <C> <C> <C>
Children's programming.................... $ 1,321,402 $ 1,102,123 $ 219,279
Family programming, movies and mini-series 573,985 365,541 208,444
Projects in production.................... 93,231 -- 93,231
Development............................... 7,024 -- 7,024
----------- ----------- ----------
$ 1,995,642 $ 1,467,664 $ 527,978
=========== =========== ==========
</TABLE>
Interest expense amounting to $703,000 and $812,000 was capitalized to
programming costs for the three months ended September 30, 1999 and 1998,
respectively. Depreciation expense amounting to $1,016,000 and $883,000 was
capitalized to programming costs for the three months ended September 30, 1999
and 1998, respectively.
Page 5
<PAGE>
Note 3--Comprehensive Income (Loss)
Comprehensive income (loss) for the three-month periods ended September
30, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1999
------------- ------------
<S> <C> <C>
Net loss $ (17,796) $ (17,208)
Foreign currency translation adjustment (417) 133
------------- ------------
Comprehensive income (loss) $ (18,213) $ (17,075)
============= ============
</TABLE>
Accumulated other comprehensive loss at September 30, 1998 consisted of foreign
currency translation adjustments of $(1,618,000).
Note 4--Business Segment Reporting
The Company's business units have been aggregated into two reportable
operating segments: production & distribution and broadcasting. The other column
includes corporate related items and income and expenses not allocated to the
reportable segments. The Company's reportable operating segments have been
determined in accordance with the Company's internal management structure, which
is organized based on operating activities. The Company evaluates performance
based upon several factors, of which the primary financial measure is segment
income (loss) before interest, income taxes, depreciation and amortization of
intangibles.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables (in thousands):
<TABLE>
<CAPTION>
Production
& Distribution Broadcasting Other Total
-------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
QUARTER ENDED SEPTEMBER 30, 1999:
Revenues........................... $ 75,255 $ 96,666 $ 281 $ 172,202
Income (loss) before interest,
income taxes, depreciation
and amortization of
intangibles...................... $ 23,486 $ 16,833 $ (932) $ 39,387
QUARTER ENDED SEPTEMBER 30, 1998:
Revenues........................... $ 83,563 $ 99,434 $ 591 $ 183,588
Income (loss) before interest,
income taxes, depreciation
and amortization of
intangibles...................... $ 21,224 $ 17,546 $ (2,056) $ 36,714
</TABLE>
The following table reconciles segment income (loss) before interest, income
taxes, depreciation and amortization of intangibles to the Company's condensed
consolidated statements of operations (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1999
----------- -----------
<S> <C> <C>
Income before interest, income taxes,
depreciation and amortization of
intangibles........................ $ 36,714 $ 39,387
Amortization of intangibles............... (10,220) (10,131)
Interest expense, net..................... (41,730) (43,334)
Depreciation.............................. (2,182) (2,632)
Provision for income taxes................ (378) (498)
--------- ---------
Net loss.................................. $ (17,796) $ (17,208)
========= =========
</TABLE>
Page 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 its channels; (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, 1999 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, 1999, 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
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
For the three-month period ended September 30, 1999, revenues decreased
6.2% to $172.2 million as compared to $183.6 million for the same three-month
period of the prior year. The revenue decrease of $11.4 million for the period
primarily results from lower direct-to-video revenues of $17.9 million offset by
higher foreign syndication revenues associated with the production and
distribution segment of the Company. The market for direct-to-video features is
highly competitive, primarily due to an oversupply of product in the marketplace
and as such, the Company did not release any new titles in the current year. The
Company's broadcast segment revenues decreased $2.8 million due to lower
domestic cable and network ad sales revenues as a result of lower overall
ratings, but these decreases were offset, in part, by higher subscription fee
and international ad sale revenues. Subscriber fee revenues for the Fox Family
Channel increased due to greater household penetration and higher subscriber
rates while both ad sale and subscription fee revenues from the Company's
international cable channels improved as a result of increased penetration in
the marketplace and the launch of additional channels.
The Company is positioning the Fox Family Channel by marketing and
appealing to the adult 18-49 demographic during primetime and evenings and to
children during the day. The Company utilizes original series, specials, and
both produced and licensed movies for its primetime programming while the
daytime children's block consists of library product along with other third
party acquired and original programming. The cable platform reaches
approximately 95% of U.S. cable and direct broadcast satellite homes and has
increased over 3% since the prior year currently reaching approximately 75.3
million viewers. Since the prior year, overall ratings compared to last year are
lower. However, the Company introduced various programming changes, 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 three-month period ended
September 30, 1999 decreased 18.8% to $85.3 million as compared to $105.0
million for the same three-month period of the prior year. Production and
programming costs as a percentage of total revenues decreased to 49.5% for the
three-month period ended September 30, 1999 from 57.2% for the comparable prior
year period. The decreases in production and programming costs are attributable
to a number of factors, primarily 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 as
compared to the prior year.
Page 7
<PAGE>
Selling, general and administrative expenses increased 16.6% to $46.9
million for the three-month period ended September 30, 1999, from $40.3 million
for the same three months of the prior year. This increase is due to various
costs incurred with the expansion of the international channels and increased
marketing expenses for the Fox Kids Network.
Depreciation expense for the three-month period ended September 30, 1999
increased $0.5 million or 20.6% as compared to the comparable prior year period.
As a percentage of total revenues, depreciation expense increased to 1.5% in the
current year from 1.2% in the prior year. The increase is due to depreciation on
property and equipment additions.
Amortization of intangibles for the three-month periods ended September
30, 1999 and 1998 results from the acquisition of International Family
Entertainment, Inc. ("IFE'). These intangible assets are being amortized over 40
years.
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.
Effective August 1998, as part of a joint venture with a subsidiary of The News
Corporation Limited ("News Corp."), a subsidiary of the company, Fox Kids Europe
Holdings, Inc., contributed its interest in TV10 BV to a U.S. limited liability
company ("TV10 LLC") in exchange for a 50% equity interest in the TV10 LLC. The
other 50% equity interest is owned by a subsidiary of News Corp.
Interest expense increased by $1.6 million for the three-month period
ended September 30, 1999, as compared to the same period in 1998. The increase
is principally due to increased interest expense on the Company's subordinated
debt partially offset by lower interest on the bank credit facility.
The Company's provision for income taxes for the three-month periods
ended September 30, 1999 and 1998 reflects foreign withholding taxes.
Due primarily to the amount of interest expense, the Company does not
expect to report net income for fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the various financing transactions utilized to fund the
IFE acquisition (the "Acquisition"), which was completed in September 1997, the
Company's principal liquidity requirements arise from interest payments on both
the Company's credit facility ("Amended Credit Facility") and the 9 1/4% Senior
Notes due 2007 and the dividend payments on the Mandatorily Redeemable Preferred
Stock. 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. The Company's
principal sources of liquidity include borrowings under the Amended Credit
Facility, cash generated from operations and funding from the Company's
stockholders.
The Amended Credit Facility is comprised of a seven-year amortizing term
loan and a seven-year reducing revolving credit facility. The maximum borrowings
allowed under the facility as of September 30, 1999 are $200 million and $355
million for the term loan and revolving credit facility, respectively. 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 1.125% interest rate margin or a
base rate plus a .25% interest rate margin. As of September 30, 1999, $50
million was available under the Amended Credit Facility for additional
borrowings subject to certain restrictions.
Net cash provided by operating activities of the Company for the three
months ended September 30, 1999 was $86.3 million as compared to $153.7 million
for the three months ended September 30, 1998, primarily reflecting lower
revenues discussed above, expansion of the Company's international channel
activities and timing of production and programming payments.
Net cash used in investing activities of the Company during the three
months ended September 30, 1999 and 1998 was $65.1 million and $132.3 million,
respectively. The net cash flow used in investing activities for the three
months ended September 30, 1999 and 1998 primarily related to additions to
production and programming costs and purchases of property and equipment. The
three months ended September 30, 1998 reflected higher than normal production
and programming costs associated with the completely revamped program schedule
of the Fox Family Channel. In addition, the three months
Page 8
<PAGE>
ended September 30, 1998 included a one-time income tax refund resulting from
a carry-back of an operating loss related to the operations of IFE prior to the
Acquisition.
Net cash provided by (used in) financing activities of the Company
during the three months ended September 30, 1999 and 1998 was $10.5 million and
$(9.3) million, respectively. The financing activities for the three months
ended September 30, 1999 relate to proceeds from the issuance of additional Fox
subordinated debt and advances from related parties, payments of dividends
related to the Company's Series A Mandatorily Redeemable Preferred Stock and
paydown of bank borrowings while the financing activities for the three months
ended September 30, 1998 related primarily to dividend payments, paydown of bank
borrowings and advances from related parties.
The Company's total unrestricted cash and cash equivalents balance at
September 30, 1999 was $78.6 million.
The Company believes that the available borrowings under the Amended
Credit Facility, together with cash flows 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.
RECENT DEVELOPMENTS
Fox Kids Europe, N.V., ("FKE") an indirect subsidiary of the Company, is
in the process of completing an offering of approximately 30% of its ordinary
shares. Upon completion of the offering, FKE's ordinary shares will be listed on
the Official Market of Amsterdam Exchanges N.V.'s stock market. FKE anticipates
that the offering will have gross proceeds of approximately $279 million. The
ordinary shares are being offered outside the United States in reliance on
Regulation S under the United States Securities Act of 1933 (the "Securities
Act") and inside the United States to qualified institutional buyers in reliance
on Rule 144A under the Securities Act.
USE OF EBITDA
While many in the financial community consider earnings before interest,
income taxes, depreciation and amortization of intangibles ("EBITDA") to be an
important measure of comparative operating performance, it should be considered
in addition to, but not as a substitute for or superior to, operating income,
net income (loss), cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
does not reflect cash available to fund cash requirements, and the items
excluded from EBITDA, such as depreciation and non-film amortization, are
significant components in assessing the Company's financial performance. Other
significant uses of cash flows are required before cash will be available to the
Company, including debt service, taxes and expenditures for production,
distribution and broadcast assets. EBITDA eliminates the uneven effect across
business segments of depreciation and amortization primarily resulting from the
value of intangible assets acquired in business combinations accounted for by
the purchase method of accounting, including the Company's August 1997
acquisition of IFE. The Company's calculation of EBITDA may be different from
the calculation used by other companies and, therefore, comparability may be
limited.
Page 9
<PAGE>
The following table sets forth the Company's revenues and earnings
before interest, income taxes, depreciation and amortization of intangibles for
the three-month periods ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Three months ended September 30,
1998 1999
------------ ------------
(In thousands)
<S> <C> <C>
REVENUES:
Production and distribution.............. $ 83,563 $ 75,255
Broadcasting............................. 99,434 96,666
Other.................................... 591 281
---------- ----------
Total Revenues......... 183,588 172,202
EBITDA:
Production and distribution.............. 21,224 23,486
Broadcasting............................. 17,546 16,833
Other.................................... (2,056) (932)
---------- ----------
Total EBITDA.......... 36,714 39,387
OTHER EXPENSES:
Interest expense, net.................... 41,730 43,334
Depreciation............................. 2,182 2,632
Amortization of intangibles.............. 10,220 10,131
---------- ----------
Loss before provision for income taxes...... (17,418) (16,710)
Provision for income taxes.................. 378 498
---------- ----------
Net loss.................................... $ (17,796) $ (17,208)
========== ==========
</TABLE>
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 began its Year 2000 project in June 1998. In November 1998, the
Company 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 consultants, the Company completed its
assessment of the significant software applications and equipment used in the
Company's operations. The Company then substantially completed the modification
or replacement of its software and hardware so that the areas of information
technology and non-information technology will function properly with respect to
dates in the year 2000 and thereafter. The vast majority of this hardware and
software was tested and changes were implemented prior to June 1999. Based upon
its efforts to date, the Company believes that all mission critical hardware and
software has been vendor verified and tested as Year 2000 compliant. The small
percentage of items which remain to be fixed are identified as non-critical and
are on schedule to be completed by the end of the year.
The Company is in the process 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. The financial impact on the Company of such
third parties not achieving high levels of Year 2000 readiness cannot be
estimated with any degree of accuracy. In the area of business continuity,
technological operations dependent in some way on one or more third parties, the
situation is much less in the Company's ability to predict or control. In
addition, many of the Company's businesses are dependent on third parties that
are themselves heavily dependent on technology. In some cases, third party
dependence is on vendors of technology who are themselves working towards
solutions to Year 2000 problems. In other cases, third party dependence is on
suppliers of products or services that are themselves computer-intensive. The
Company has included in its "mission critical" inventory
Page 10
<PAGE>
significant service providers, vendors, suppliers and customers that are
believed to be critical to business operations. The Company is in various stages
of attempting to ascertain the state of Year 2000 readiness of significant third
parties. The Company is taking steps to attempt to ensure that the third parties
on which it is heavily reliant are Year 2000 ready, but cannot predict the
likelihood of such compliance nor the direct or indirect costs of non-readiness
by those third parties or of securing such services from alternate third
parties.
Through September 30, 1999, the Company has incurred approximately $600,000
in costs related to its Year 2000 readiness program which has been funded from
its operating cash flow. The Company currently estimates that the total costs of
its Year 2000 readiness program will not exceed $750,000. The total cost
estimate is based on the current assessment of the Company's Year 2000 readiness
needs and is subject to change as the program progresses. These costs have not
all been incremental, but rather reflect redeployment of internal resources from
other activities. The Company does not expect the activities of the Year 2000
readiness program to have a material adverse effect on the ongoing business
operations of the Company, although it is possible that certain maintenance and
upgrading processes will be delayed as the result of the priority being given to
Year 2000 readiness.
Based upon its efforts to date, the Company continues to believe that the
vast majority of its systems will be able to process date-related data without
error after January 1, 2000. Accordingly, the Company does not currently
anticipate that internal systems failures will result in any material adverse
effect to its operations or financial condition. At this time, the Company
continues to believe that the most likely "worst-case" scenario involves
potential disruptions in areas in which the Company's operations must rely on
third parties whose systems may not work properly after January 1, 2000. While
such failures could affect important operations of the Company and its
subsidiaries, either directly or indirectly, in a significant manner, the
Company cannot, at present, estimate either the likelihood or the potential cost
of such failures.
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, 1999.
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.
Page 11
<PAGE>
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.
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.
Page 12
<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.
Page 13
<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: November 12, 1999 /S/ MEL WOODS
----------------------------
Mel Woods
President, Chief Operating Officer and
Chief Financial Officer
Page 14
<PAGE>
EXHIBIT INDEX
ITEM EXHIBIT PAGE
27.1 Financial Data Schedule
Page 15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.1
FINANCIAL DATA SCHEDULE
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>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-2000
<PERIOD-START> JUL-01-1998 JUL-01-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 102,438<F1> 86,802<F1>
<SECURITIES> 0 0
<RECEIVABLES> 213,443 177,750
<ALLOWANCES> (1,936) (2,493)
<INVENTORY> 498,450 527,978
<CURRENT-ASSETS> 0<F2> 0<F2>
<PP&E> 86,068 92,755
<DEPRECIATION> (23,048) (37,038)
<TOTAL-ASSETS> 2,574,987 2,486,085
<CURRENT-LIABILITIES> 0<F2> 0<F2>
<BONDS> 886,631 929,970
345,000 345,000
0 0
<COMMON> 16 16
<OTHER-SE> 4,341 (92,657)
<TOTAL-LIABILITY-AND-EQUITY> 2,574,987 2,486,085
<SALES> 183,588 172,202
<TOTAL-REVENUES> 183,588 172,202
<CGS> (104,993) (85,287)
<TOTAL-COSTS> (157,663) (144,992)
<OTHER-EXPENSES> (1,613) (586)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (41,730) (43,334)
<INCOME-PRETAX> (17,418) (16,710)
<INCOME-TAX> (378) (498)
<INCOME-CONTINUING> (17,796) (17,208)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,796) (17,208)
<EPS-BASIC> 0<F3> 0<F3>
<EPS-DILUTED> 0<F3> 0<F3>
<FN>
<F1> INCLUDES RESTRICTED CASH OF $8,000 AS OF SEPTEMBER 30, 1998 AND $8,206
AS OF SEPTEMBER 30, 1999.
<F2> THE COMPANY HAS ELECTED TO PRESENT AN UNCLASSIFIED BALANCE SHEET
<F3> EPS IS NOT APPLICABLE AS THE COMPANY HAS NO PUBLICLY TRADED EQUITY
Note: Certain prior year (September 30, 1998) amounts have been reclassified
to conform to the current year presentation.
</FN>
</TABLE>
