10-Q 1 abcq.txt ABC FORM 10Q UNITED STATES 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 quarter ended June 30, 2002 COMMISSION FILE NUMBER: 333-12995 ABC FAMILY WORLDWIDE, INC. DELAWARE 95-4596247 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 SOUTH BUENA VISTA STREET BURBANK, CALIFORNIA 91521 Registrant's Telephone Number, Including Area Code: (818) 560-1000 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 August 1, 2002, there were 160,000 shares of Class A Common Stock outstanding and 15,840,000 shares of Class B Common Stock outstanding. PART I. FINANCIAL INFORMATION ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in thousands, except share data)

See notes to condensed consolidated financial statements ABC FAMILY WORLDWIDE, INC., (FORMERLY FOX FAMILY WORLDWIDE, INC.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands)

See notes to condensed consolidated financial statements ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands)

------------------------------------------------------------------------------ See notes to condensed consolidated financial statements ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; in thousands) 1. The accompanying unaudited condensed consolidated financial statements of ABC Family Worldwide, Inc., formerly known as Fox Family Worldwide, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) 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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) 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 nine-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending September 30, 2002. As discussed in Note 2, the Company was acquired by The Walt Disney Company (Disney) on October 24, 2001. These interim unaudited condensed consolidated financial statements continue to reflect the Company's historical cost basis of accounting and do not reflect the push-down of any fair value adjustments made by Disney in its accounting for the acquisition. The Company continues to have outstanding publicly traded debt securities and, accordingly, continues to report its financial statements prepared on a basis consistent with periods prior to the acquisition by Disney. These interim unaudited 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, 2001, and the Company's Transition Report on Form 10-Q for the transition period from July 1, 2001 to September 30, 2001. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. 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. 2. On October 24, 2001, Disney completed its previously announced acquisition of all of the outstanding common stock of the Company. In connection with the acquisition by Disney, the Company repaid $467.0 million of borrowings under its credit facility and the facility was terminated. This payment was funded by an advance from Disney totaling $522.4 million. Additionally, Disney paid certain subordinated borrowings that the Company had with one of its former shareholders and other advances totaling $394.3 million on the Company's behalf. These amounts are now reported in amounts payable to related parties. In addition, pursuant to the closing of the acquisition and in accordance with the terms of their respective employment agreements, the Company made cash payments totaling $74.1 million to Company stock option holders for the vested option shares held by each option holder. There are no more options outstanding. The stock option expense related to these options had been previously recorded by the Company prior to the Disney acquisition. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; in thousands) Immediately following the closing of the acquisition, the Company ceased to broadcast the Fox Kids Network (FKN), which is now operated by Fox Broadcasting Company (Fox). The Company is providing, under a licensing fee agreement, certain programming to Fox for the 2001-2002 broadcast season for broadcast on FKN. On October 24, 2001, Moody's Investor Service announced that it had upgraded the Company's senior unsecured notes due in 2007 to Baa1 from B1 following the completion of the acquisition of the company by Disney. In addition, Standard & Poor's announced that it had raised the Company's senior unsecured debt rating from B to A-, following the completion of the acquisition. As a result of these ratings upgrades, certain debt covenants no longer apply. During the nine months ended June 30, 2002, the Company recorded acquisition charges totaling $361.6 million, due primarily to changes in its strategic direction resulting from the acquisition by Disney. The charges were primarily for write-offs of programming that, under Disney management, will not be utilized. Management is in the process of finalizing its review of the Company's operations and additional acquisition charges may be recorded. Additionally, the charges included employee related severance costs, one-time acquisition bonuses to certain Company executives, fixed asset write-downs and leasehold termination costs for facilities that will not be used. The Company will now file consolidated federal income tax returns with Disney. The Company determines its federal tax liability principally on a separate company basis and pays any liability to Disney. State tax returns are filed on an individual company basis except for certain states where they are filed on a combined basis with Disney. The Company determines its state tax liability for those combined states on a separate company basis and pays any liability to Disney. 3. As of June 30, 2002, the Company had amounts payable to Disney totaling approximately $1.24 billion. These amounts represent the repayment by Disney of subordinated borrowings that the Company had with one of its former shareholders and amounts loaned to the Company by Disney, subsequent to the acquisition, under certain revolving credit agreements. Additionally, amounts payable to Disney include funds advanced by Disney for operating needs. The revolving credit agreements provide for borrowings totaling $2.6 billion and expire in fiscal 2007. As of June 30, 2002, there were $777.3 million of borrowings outstanding under the revolving credit agreements and approximately $1.8 billion was available. The borrowings are due on October 23, 2006, and the Company may make prepayments of the outstanding principal amount without premiums or penalty. The borrowings bear interest at the Eurocurrency rate, as defined, and are payable semi-annually. Interest expense for both the subordinated and revolving borrowings totaled $41.7 million for the nine month period ended June 30, 2002 reflecting an effective interest rate of approximately 7%. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; in thousands) 4. The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment operating income or loss amounts are evaluated regularly by management in deciding how to allocate resources and in assessing performance.

The Company evaluates the performance of its operating segments based on segment operating income. A reconciliation of segment operating income to loss before income taxes is as follows:

5. Comprehensive loss for the three months and nine months ended June 30, 2002 and 2001, are as follows:

ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; in thousands) 6. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). The Board also issued SFAS No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets (SFAS 143), and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), in August and October 2001, respectively. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002 (SFAS 145) and in June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. SFAS 141 superseded APB Opinion No. 16, Business Combinations, and Statement of Financial Accounting Standards No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, the Company is no longer required to amortize goodwill and other intangible assets with indefinite lives but will be subject to periodic testing for impairment. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets. Effective October 1, 2002, the Company will adopt SFAS 142 and is evaluating the effect that such adoption may have on its consolidated results of operations and financial position. However, the Company expects that a substantial amount of its intangible assets will no longer be amortized. SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company expects that the provisions of SFAS 143 will not have a material impact on its consolidated results of operations and financial position upon adoption. The Company plans to adopt SFAS 143 effective October 1, 2002. SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS 144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted and, in general, are to be applied prospectively. The Company adopted SFAS 144 effective October 1, 2001 and such adoption did not have a material impact on its consolidated results of operations and financial position. The most immediate impact of SFAS 145 is that losses on the early extinguishment of debt are no longer recorded as extraordinary items. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and nullifies the guidance of EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring), which recognized a liability for an exit cost at the date of an entity's commitment to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 with early adoption encouraged. The Company plans to adopt SFAS 146 effective October 1, 2002 and does not expect that the adoption will have a material impact on its consolidated results of operations and financial position. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEASONALITY The Company's businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter and nine months ended June 30, 2002 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year. Broadcasting revenues are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall. Production and distribution revenues fluctuate based upon the timing of the release of product. Release dates are determined by several factors, including product availability, timing of vacation and holiday periods and competition in the market. Results of Operations Three months ended June 30, 2002 as compared with three months ended June 30, 2001 Revenues for the quarter decreased 31.4%, or $63.7 million, to $139.2 million compared to the prior-year quarter. The decrease was driven by declines of $12.4 million and $51.3 million in broadcasting and production and distribution, respectively. Decreased broadcasting revenues were primarily due to the fact that the Company ceased to broadcast the Fox Kids Network upon the close of the acquisition by Disney, which reduced revenues by $14.4 million, partially offset by higher subscriber fee revenues. Decreased production and distribution revenues reflected a non-recurring sale of a film library in the prior year and lower foreign syndication revenues due to decreased production activity and several non-recurring deals in the prior year. Production and programming costs decreased 35.6%, or $35.0 million, to $63.4 million. Production and programming costs as a percentage of total revenues decreased to 45.6% for the current period from 48.5% for the prior-year quarter. The decrease in production and programming costs as a percentage of revenues is primarily due to the sale of a film library in the prior year and lower film library amortization in the current year due to the mix of programming, partially offset by higher amortization expense for the ABC Family Channel due to increased airings of higher priced off-network programming. Selling, general and administrative expenses increased 20.0%, or $11.3 million, to $67.8 million as compared to the prior-year quarter, reflecting higher bad debt expenses and increased costs from international broadcast operations due to expansion, partially offset by decreases due to the transfer of Fox Kids Network to Fox. During the quarter, the Company adjusted its previously recorded acquisition charges as a result of management's continuing review of Company operations. Management is the process of finalizing its review of Company operations and additional acquisition charges may be recorded. Net interest expense includes a loss on the repurchase of debt totaling $12.8 million resulting from repurchases during the quarter of certain amounts of the Company's senior notes and senior discount notes at costs in excess of book value. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net loss for the quarter was $56.5 million, compared to a net loss of $10.1 million for the prior-year quarter. The current period loss was driven by decreased revenues and higher selling, general and administrative charges, partially offset by lower production and programming costs. The Company has not provided for any income tax provision or benefit during the current or prior-year period. The combination of current losses and prior-year loss carry forwards resulted in no income tax liability and accordingly no provision. The Company has not recorded any income tax benefit as it is not certain that those benefits will be realized. Nine months ended June 30, 2002 as compared with nine months ended June 30, 2001 Revenues for the nine-month period decreased 31.9%, or $181.2 million, to $386.0 million compared to the prior-year nine-month period. Revenues for the broadcast and production and distribution segments decreased $56.1 million and $125.1 million, respectively. Decreased broadcasting revenues were primarily due to the termination of Fox Kids Network broadcasts following the acquisition by Disney, which reduced revenues by $42.4 million, and lower domestic advertising sales and domestic subscriber fee revenues. The decrease in production and distribution revenues reflected a non-recurring sale of a film library in the prior year, lower merchandising and toy royalty revenue for certain licensed properties and lower foreign syndication revenues due to decreased production activity and several non-recurring deals in the prior year. Production and programming costs decreased 30.8%, or $77.1 million, to $172.9 million. Production and programming costs as a percentage of total revenues increased to 44.8% for the current nine-month period from 44.1% for the prior-year period. The increase in production and programming costs as a percentage of revenues is primarily due to higher amortization rates for the Company's film library due to programming mix, partially offset by decreases due to the film library sale in the prior year. Selling, general and administrative expenses increased 18.6%, or $30.0 million, to $190.9 million as compared to the prior-year nine-month period, reflecting higher legal and bad debt expenses and increased costs from international broadcast operations due to expansion, partially offset by decreases due to the transfer of the Fox Kids Network to Fox. During the nine-month period, the Company recorded acquisition charges totaling $361.6 million due primarily to changes in its strategic direction resulting from the acquisition by Disney. The charges were primarily for write-offs of programs that, under Disney management, will not be utilized. Management is in the process of finalizing its review of the Company's operations and additional acquisition charges may be recorded. Additionally, the charges included one-time acquisition bonuses to certain Company executives, employee-related severance costs, fixed asset write-downs and leasehold termination costs for facilities that will no longer be used. Net interest expense includes a loss on repurchase of debt totaling $12.8 million resulting from repurchases during the current-period of the Company's senior notes and senior discount notes at costs in excess of book value. Net loss for the nine-month period was $517.4 million, compared to a net loss of $10.8 million for the prior-year period. The current period loss was driven by acquisition charges, decreased revenues and higher selling, general and administrative costs, partially offset by lower production and programming costs. The Company has not provided for any income tax provision or benefit during the current or prior-year period. The combination of current losses and prior-year loss carry forwards resulted in no income tax liability and accordingly no provision. The Company has not recorded any income tax benefit as it is not certain that those benefits will be realized. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources Net cash used in operating activities for the current nine month period was $150.4 million, compared to $22.8 million for the prior-year nine-month period, primarily due to lower earnings, the timing of the payments of accounts payable and accrued liabilities and stock option payments made in conjunction with the Disney acquisition, partially offset by the collection of related party receivables. Net cash used in investing activities was $3.3 million and $12.0 million for the current and prior-year nine-month periods, respectively, and was primarily for property and equipment purchases. Net cash provided by financing activities was $176.0 million and $8.5 million for the current and prior-year nine-month periods, respectively. In connection with the acquisition, all outstanding debt under the $467.0 million credit facility was repaid and the credit facility was terminated. This repayment was funded by an advance from Disney totaling $522.4 million during the first quarter of the current year. During the six months ended June 30, 2002, Disney advanced an additional $342.8 million to the Company representing cash for operating requirements, interest, senior note and senior discount note buy backs and other charges. Additionally, during the current nine-month period, the Company repurchased certain of its senior notes and senior discount notes with a basis of $185.1 for a total cost of $197.9 million and paid $23.2 million in preferred dividends. The Company has revolving credit agreements with Disney, which provide for borrowings totaling $2.6 billion and expire in fiscal 2007. As of June 30, 2002, there were $777.3 million of borrowings outstanding under the revolving credit agreements and approximately $1.8 billion was available. The borrowings are due on October 23, 2006, and the Company may make prepayments of the outstanding principal amount without premiums or penalty. The borrowings bear interest at the Eurocurrency rate, as defined and is payable semi-annually. Interest expense for both the subordinated and revolving borrowings totaled $41.7 million for the nine month period ended June 30, 2002 reflecting an effective interest rate of approximately 7%. On November 1, 2001, the Company made an election to change the payment terms on its 10 1/4% senior discount notes. Whereas interest on this debt accrued semi-annually to the principal balance to be paid at maturity, on November 1, 2001, the Company elected to change to semi-annual cash interest payments with the first payment on May 1, 2002. Commitments to purchase broadcast programming were approximately $540.0 million, including approximately $140.9 million for available programming, at June 30, 2002. The Company expects to continue to enter into commitments to purchase broadcast programming rights. Management believes that cash flow from operations, cash on hand and funding from Disney, should be sufficient to fund its operations and service its debt for the foreseeable future. OTHER MATTERS Accounting Policies and Estimates We believe that the application of the following accounting policies, which are important to the Company's financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 2 of the Consolidated Financial Statements in the Company's Annual Report on Form 10K for the year ended June 30, 2001. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Film and television revenues and costs We expense the cost of film and television production and participations over the applicable product life cycle based upon the ratio of the current period's gross revenues to the estimated remaining total gross revenues. These estimates are calculated on an individual production basis for film and television and on an individual contract basis for sports rights. Estimates of total gross revenues can change due to a variety of factors, including the level of market acceptance, advertising rates and subscriber fees. Broadcast rights for theatrical movies, series and other programs are charged to expense based on the number of times the program is expected to be shown. Estimates of usage may change based on competition and audience acceptance. Accordingly, revenue estimates and planned usage are reviewed periodically and are revised if necessary. A change in revenue projections or planned usage could have an impact on our results of operations. Costs of film and television productions and programming costs for our television and cable networks are subject to valuation adjustments pursuant to the applicable accounting rules. Estimated values are based upon assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than our projections, film, television and programming cost write-downs may be required. Goodwill, Intangible Assets, Long-lived Assets and Investments We continuously monitor and evaluate the realizability of goodwill and intangible assets, to determine whether their carrying values have been impaired. In evaluating the value and future benefits of existing assets, we compare their carrying value to our best estimate of undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. We also consider events or changes in circumstances, such as changes in the number of subscribers, that indicate that assets may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the estimated fair value of the assets. If these estimates or related projections change in the future, we may be required to record impairment charges for these assets. Long-lived assets include certain long-term investments. The fair value of the long-term investments is dependent on the performance of the companies we invest in, as well as volatility inherent in the external markets for these investments. In assessing potential impairment for these investments, we will consider these factors as well as forecasted financial performance of our investees. If these forecasts are not met, impairment charges may be required. Contingencies and Litigation We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs for the resolution of these claims. This estimate has been developed in consultation with outside counsel and is based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Accounting Changes In July 2001, the FASB issued SFAS No. 141, Business Combinations (SFAS 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The FASB also issued SFAS No. 143, Accounting for Obligations Associated with the Retirement of Long-Lived Assets (SFAS 143), and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), in August and October 2001, respectively. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002 (SFAS 145) and in June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit on Disposal Activities (SFAS 146). SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. SFAS 141 superseded APB Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. SFAS 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, the Company is no longer required to amortize goodwill and other intangible assets with indefinite lives but will be subject to periodic testing for impairment. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets. Effective October 1, 2002, the Company will adopt SFAS 142 and is evaluating the effect that such adoption may have on its consolidated results of operations and financial position. However, the Company expects that a substantial amount of its intangible assets will no longer be amortized. SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective in fiscal years beginning after June 15, 2002, with early adoption permitted. The Company expects that the provisions of SFAS 143 will not have a material impact on its consolidated results of operations and financial position upon adoption. The Company plans to adopt SFAS 143 effective October 1, 2002. SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS 144 superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted and, in general, are to be applied prospectively. The Company adopted SFAS 144 effective October 1, 2001 and such adoption did not have a material impact on its consolidated results of operations and financial position. The most immediate impact of SFAS 145 is that losses on the early extinguishment of debt are no longer recorded as extraordinary items. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and nullifies the guidance of EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring), which recognized a liability for an exit cost at the date of an entity's commitment to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 with early adoption encouraged. The Company plans to adopt SFAS 146 effective October 1, 2002 and does not expect that the adoption will have a material impact on its consolidated results of operations and financial position. 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. On occasion, the Company may choose to manage these market risks by using derivative financial instruments in accordance with established policies and procedures. Currently, the Company does not use derivative financial instruments for trading purposes. Additionally, the Company maintains a mix of fixed and floating debt to mitigate its exposure to interest rate fluctuations. The Company had no interest rate swaps, foreign exchange or other material financial instruments outstanding at June 30, 2002. 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. ABC FAMILY WORLDWIDE, INC. (FORMERLY FOX FAMILY WORLDWIDE, INC.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99(a) Certification by Robert A. Iger, President of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99(b) Certification by Thomas O. Staggs, Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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. ABC FAMILY WORLDWIDE, INC. Date: August 12, 2002 /s/ Thomas O. Staggs --------------------------------- Thomas O. Staggs Chief Financial Officer

ABC FAMILY WORLDWIDE INC 10-Q