American Family Enterprises files for protection

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On Oct. 29, American Family Enterprises, a magazine subscription company and sweepstakes operator, filed a voluntary Chapter 11 petition to resolve its pending litigation and strategically restructure its finances and operations. Time Inc. owns 50% of American Family, and company insiders said the mounting legal liabilities and concerns that Time Inc. could by association become a target of lawsuits led to the Chapter 11 decision. "AFE has been under siege with lawsuits from numerous attorneys general, and it has meant that we've been operating the business with one arm tied behind our back,'' said Time Inc. President-CEO Don Logan. "This was the only way we saw to reach some kind of closure.'' In a released statement, American Family President Susan Caughman noted business will continue as usual. American Family will continue to conduct sweepstakes, and promises publishers will still be paid remits--the fees magazine publishers collect on subscriptions that American Family sells for them. All prize monies for American Family contests are pre-funded and held in trust by independent financial institutions until the award dates, according to Ms. Caughman. Getting that message out to consumers will be crucial. A circulation director for a major publisher expressed concern this move may affect results of sweepstakes mailings. "If the public knows the company is in bankruptcy, are they going to believe that they can win a large cash prize?'' asked this executive. During the reorganization, American Family will explore other ways to sell subscriptions that do not involve sweepstakes, according to Mr. Logan. "We hope we can emerge from this period in a condition in which we can continue to operate and continue to be a meaningful source of subscriptions for the magazine industry,'' Mr. Logan said.

Copyright November 1999, Crain Communications Inc.

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