FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-22023
Macrovision Corporation
(Exact name of registrant as specified in its charter)
Delaware 77-0156161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1341 Orleans Drive
Sunnyvale, California 94089
(Address of principal executive offices) (Zip code)
(408) 743-8600
(Registrant's telephone number including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 |_|
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Outstanding as of October 31, 2000
Common Stock, $0.001 par value 49,623,437
<PAGE>
MACROVISION CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999 .................. 3
Condensed Consolidated Statements of Income
for the Three Month Period Ended September 30, 2000 and 1999
and the Nine Month Period Ended September 30, 2000 and 1999 ..... 4
Condensed Consolidated Statements of Cash Flows
for the Nine Month Period Ended September 30, 2000 and 1999...... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 16
Risk Factors....................................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 24
Item 2. Changes in Securities ............................................. 25
Item 4. Submission of Matters to a Vote of Security Holders ............... 25
Item 5. Other Information ................................................. 26
Item 6. Exhibits and Reports on Form 8-K .................................. 26
Signatures ................................................................. 26
2
<PAGE>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements.
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,605 $ 4,710
Short-term investments 105,919 31,452
Accounts receivable, less allowance for doubtful
accounts of $1,133 and $1,059, respectively 14,855 12,929
Inventories 159 265
Receivables from related party -- 555
Deferred tax assets 2,580 2,477
Prepaid expenses and other assets 5,523 2,683
--------- ---------
Total current assets 167,641 55,071
Property and equipment, net 2,192 1,831
Patents and other intangibles, net 2,242 2,391
Long-term marketable investment securities 83,097 52,241
Intangibles associated with C-Dilla Ltd acquisition, net 14,401 16,632
Other assets 7,151 4,524
--------- ---------
$ 276,724 $ 132,690
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,506 $ 1,394
Accrued expenses 4,818 6,320
Deferred revenue 9,526 6,847
Income taxes payable 1,979 1,574
Current portion of capital lease obligation -- 76
--------- ---------
Total current liabilities 18,829 16,211
Notes payable -- 133
Deferred tax liabilities 3,219 14,073
--------- ---------
22,048 30,417
Stockholders' equity:
Common stock 50 46
Additional paid-in capital 254,968 63,753
Stockholder note receivable (297) --
Deferred stock-based compensation (25,224) --
Accumulated other comprehensive gain 10,134 25,165
Retained earnings 15,045 13,309
--------- ---------
Total stockholders' equity 254,676 102,273
--------- ---------
$ 276,724 $ 132,690
========= =========
</TABLE>
See the accompanying notes to these condensed
consolidated financial statements.
3
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $20,446 $13,824 $55,303 $35,819
------- ------- ------- -------
Costs and expenses:
Cost of revenues 1,476 1,333 3,988 3,463
Research and development 2,114 1,521 5,452 4,262
Selling and marketing 3,418 3,325 10,601 9,054
General and administrative 2,596 1,780 7,686 5,119
Amortization of intangibles from acquisition 743 683 2,230 791
Acquisition costs related to GLOBEtrotter Software Inc. 2,061 -- 2,061 --
Deferred stock-based compensation related to
GLOBEtrotter Software Inc. 2,405 -- 13,251 --
In process research and development -- -- -- 4,285
------- ------- ------- -------
Total costs and expenses 14,813 8,642 45,269 26,974
------- ------- ------- -------
Operating income 5,633 5,182 10,034 8,845
Interest and other income, net 3,127 371 8,022 1,213
------- ------- ------- -------
Income before income taxes 8,760 5,553 18,056 10,058
Income tax expense 3,957 1,273 10,459 2,024
------- ------- ------- -------
Net income $ 4,803 $ 4,280 $ 7,597 $ 8,034
======= ======= ======= =======
Computation of basic and diluted earnings per share:
Basic earnings per share $ 0.10 $ .09 $ 0.15 $ 0.18
======= ======= ======= =======
Shares used in computing basic earnings per share 49,502 45,391 48,949 44,840
======= ======= ======= =======
Diluted earnings per share $ 0.09 $ .09 $ 0.15 $ 0.17
======= ======= ======= =======
Shares used in computing diluted earnings per share 52,230 47,627 51,759 46,764
======= ======= ======= =======
</TABLE>
See the accompanying notes to these condensed
consolidated financial statements.
4
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,597 $ 8,034
Adjustments to reconcile net income to net cash provided
by operating activities:
Stock-based compensation 13,477 --
Depreciation and amortization 3,350 1,790
Amortization of prepaid future royalties to C-Dilla Limited -- 166
Deferred income taxes (620) (2,289)
Loss on disposal of assets 397 7
Tax benefit from employee stock plans 2,045 756
In-process research and development -- 4,286
Changes in operating assets and liabilities:
Accounts receivable, inventories, and other current assets (4,686) (1,830)
Accounts payable, accrued expenses, deferred revenue
and income taxes payable 2,694 1,664
Other 13 62
--------- ---------
Net cash provided by operating activities 24,267 12,646
--------- ---------
Cash flows from investing activities:
Purchases and sales (net) of long-term and short-term marketable
Investment securities (126,699) 11,600
Acquisition of property and equipment (1,151) (437)
Payments for patents and other intangibles (577) (394)
Minority equity investments in companies (6,610) (2,750)
Acquisition of C-Dilla Limited, net of cash acquired -- (11,960)
Note receivable from related party 555 (481)
Other, net -- 48
--------- ---------
Net cash used in investing activities (134,482) (4,374)
--------- ---------
Cash flows from financing activities:
Payments on capital lease obligations (76) (83)
Payments on note payable (133) (335)
Payment of stockholder's note receivable -- 78
Cash distribution to stockholders (5,858) (5,150)
Proceeds from stock offering, net 146,104 --
Proceeds from issuance of common stock, net 4,073 1,326
--------- ---------
Net cash provided (used) by financing activities 144,110 (4,164)
--------- ---------
Net increase in cash and cash equivalents 33,895 4,108
Cash and cash equivalents at beginning of period 4,710 4,607
--------- ---------
Cash and cash equivalents at end of period $ 38,605 $ 8,715
========= =========
Supplemental cash flow information:
Interest paid $ 5 $ 8
========= =========
Income taxes paid $ 8,023 $ 2,117
========= =========
Stock and stock options issued for GLOBEtrotter Software, Inc. $ 38,475 $ --
========= =========
Stock and stock options issued for C-Dilla Ltd. $ -- $ 6,902
========= =========
</TABLE>
See the accompanying notes to these condensed
consolidated financial statements.
5
<PAGE>
MACROVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by Macrovision Corporation and its subsidiaries (the "Company") in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted in accordance with such rules and
regulations. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company, and their results of operations and cash flows for those periods
presented. This quarterly report on Form 10-Q should be read in conjunction with
the audited financial statements and notes thereto for the year ended December
31, 1999, and other disclosures, including risk factors, included in the
Company's Annual Report on Form 10-K filed on March 30, 2000, as amended.
The results of operations for the interim periods presented are not necessarily
indicative of the results expected for the entire year ending December 31, 2000
or any other future interim period.
In August 1999 and March 2000, the Company issued one additional share for every
share outstanding, thus effecting 2 for 1 stock splits. All share and per share
information presented have been retroactively adjusted for the effect of such
stock splits.
On August 31, 2000, the Company completed its acquisition of GLOBEtrotter
Software, Inc. through the issuance of 8,944,548 shares of common stock of
Macrovision in exchange for all the outstanding common stock of GLOBEtrotter.
The transaction has been accounted for using the "pooling of interests" method.
As a result, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of GLOBEtrotter Software, Inc.
NOTE 2 - REVENUE RECOGNITION
In connection with its acquisition of GLOBEtrotter Software, Inc., the Company
generates a portion of its revenue from licensing GLOBEtrotter's software and
performance of services related to the support of this software. The Company
follows the provisions of Statements of Position (SOP) 97-2, Software Revenue
Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition with Respect to Certain Transactions.
License revenue is recognized upon the execution of a license agreement, when
the licensed product has been delivered, fees are fixed and determinable,
collection is probable, and when all other significant obligations have been
fulfilled. For license agreements in which customer acceptance is a condition to
earning the license fees, revenue is not recognized until acceptance occurs. For
arrangements containing multiple elements, such as software license fees,
consulting services and maintenance, or multiple products and where
vendor-specific objective evidence of fair value (VSOE) exists for all
undelivered elements, the Company accounts for the delivered elements in
accordance with the "residual method" prescribed by SOP 98-9. For arrangements
containing multiple elements where VSOE does not exist, all revenue is deferred
until such time that VSOE is evidenced or all elements of the arrangement have
been delivered, or if the only undelivered element is maintenance, revenue is
recognized pro rata over the contract period.
Service revenues include consulting fees for training, support, and other
services and are recognized as revenue as the services are performed.
Maintenance and support revenues are deferred and recognized ratably over the
contract period.
NOTE 3 - CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist of cash on deposit with banks and money market funds. All
other liquid investments with maturities over three months and less than 12
months are classified as short-term investments. Short-term investments
consisted of government bonds, government agency securities
6
<PAGE>
and corporate securities. All marketable securities with maturities over one
year or which the Company's intent is to retain for the long-term are classified
as long-term marketable investment securities.
Management determines the appropriate classification of investment securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. The Company enters into certain equity investments for the promotion of
business and strategic objectives, and typically does not attempt to reduce or
eliminate the inherent market risks on these investments. In December 1999,
Digimarc, in which the Company has a minority interest of 924,475 shares (or
approximately 7.7%), consummated an initial public offering. In January 2000,
the Company invested $4.0 million in TTR Technologies, Inc., a public company,
representing 1,880,937 shares or approximately 11.4%. The fair market valuation
for Digimarc and TTR is classified as long-term marketable investment securities
on the consolidated balance sheets. As of September 30, 2000 and December 31,
1999, all investment securities were designated as "available-for-sale."
Available-for-sale securities are carried at fair market value based on quoted
market prices, with unrealized gains and losses, reported in comprehensive
income as a separate component of stockholders' equity.
Realized gains and losses and declines in value judged to be
other-than-temporary for available-for-sale securities are included in the
consolidated statements of income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in interest income.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Cash equivalents - money market funds ................. $ 15,793 $ 2,963
-------- --------
Investments:
Corporate preferred certificates ................... -- 2,000
Corporate bonds .................................... 152,781 --
Municipal preferred certificates ................... -- 2,000
United States government bonds and agency securities 11,493 33,469
Equity investments ................................. 24,742 46,224
-------- --------
189,016 83,693
-------- --------
$204,809 $ 86,656
======== ========
</TABLE>
As of September 30, 2000 and December 31, 1999, government bond securities and
equity investments totaling $83.1 million and $52.2 million, respectively, are
classified as long-term marketable investment securities in the accompanying
consolidated balance sheet.
As of September 30, 2000 and December 31, 1999, the difference between the fair
value and the amortized cost of available-for-sale securities was a gain of
$17,254,000 and $42,634,000, respectively. These unrealized gains, net of
deferred income tax, related to short-term and long-term government bonds and
investment securities, have been recorded as a component of comprehensive
income. As of September 30, 2000 and December 31, 1999, the weighted average
portfolio duration and contractual maturity for the government bonds and other
instruments was approximately ten months and eight months, respectively.
NOTE 4 - PUBLIC OFFERING, EXERCISE OF OPTIONS, EMPLOYEE STOCK PURCHASE PLAN AND
DIRECTOR'S FEES
On January 26, 2000, the Company consummated an offering (the "offering") of
3,820,000 shares of its Common Stock, of which 2,874,000 shares were issued and
sold by the Company and 946,000 shares were sold by stockholders of the Company.
All shares were sold for $53.44 per share. The net proceeds to the Company from
the offering, after deducting the underwriting discount and other expenses of
the offering, were approximately $146 million. The Company did not receive any
proceeds from the sale of shares sold by the selling stockholders.
During the quarter ended September 30, 2000, the Company issued 188,417 shares
of common stock and received proceeds of approximately $1,907,000 associated
with the exercise of stock options. Also during the quarter ended
7
<PAGE>
September 30, 2000, the Company issued 42,965 shares of common stock under the
Employee Stock Purchase Plan and received proceeds of approximately $438,000.
The Company issued 150 shares of common stock pursuant to the Director's
compensation plan in lieu of cash of approximately $15,000.
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method and consisted of the following:
September 30, December 31,
(In thousands) 2000 1999
------------- ------------
Raw materials $ 32 $ 72
Work in progress 14 26
Finished goods 113 167
------------- ------------
$ 159 $ 265
============= ============
NOTE 6 - OTHER ASSETS
The Company intends to hold its investments for the long term and monitors
whether there has been something other than a temporary decline in the value of
these investments based on management's estimates of their net realizable value
taking into account the achievement of milestones in business plans and
third-party financing. The Company records its investments using the cost
method, and these investments are classified as other assets in the accompanying
condensed consolidated balance sheets as follows:
(In thousands)
September 30, December 31,
2000 1999
------------- ------------
Investment in CAC $ 3,688 $ 3,688
Minority equity investments in companies 3,360 750
Deposits and other assets 103 86
------------- ------------
$ 7,151 $ 4,524
============= ============
NOTE 7 - ACQUISITION
On August 31, 2000, the Company completed its acquisition of privately held
GLOBEtrotter Software, Inc. of San Jose, California. GLOBEtrotter is a leading
OEM supplier of B2B (business-to-business) electronic licensing and license
management technology to software vendors and a leading direct supplier of
software asset management products to corporate customers worldwide. The
acquisition of GLOBEtrotter was accounted for as a pooling-of-interests
combination and accordingly, the consolidated financial statements for the
periods prior to the combination have been restated to include the accounts and
results of operations of GLOBEtrotter. The results of operations previously
reported by the separate pooled enterprises and the combined amounts presented
in the accompanying consolidated financial statements are summarized below (in
thousands):
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Net revenues:
Macrovision $ 40,616 $ 24,583
GLOBEtrotter 14,687 11,236
-------- --------
Combined $ 55,303 $ 35,819
======== ========
Net income:
Macrovision $ 15,059 $ 3,543
GLOBEtrotter (7,462) 4,491
-------- --------
Combined $ 7,597 $ 8,034
======== ========
8
<PAGE>
NOTE 8 - NET INCOME PER SHARE
Basic "EPS" is computed using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period except for periods of operating loss for which no common share
equivalents are included because their effect would be antidilutive. Dilutive
common equivalent shares consist of common stock issuable upon exercise of stock
options using the treasury stock method. In March 2000, the Company issued one
additional share for every share outstanding, thus effecting a two 2 for 1 stock
splits. All share information presented has been retroactively adjusted for the
effect of the stock split. In August 2000, the Company completed its acquisition
of GLOBEtrotter Software, Inc. The transaction has been accounted for using the
"pooling of interests" method. All share information presented has been
retroactively adjusted to reflect the combination of the companies. The
following is a reconciliation of the shares used in the computation of basic and
diluted EPS (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS - weighted average number of
common shares outstanding 49,502 45,391 48,949 44,840
Effect of dilutive common shares -
stock options outstanding 2,728 2,236 2,810 1,924
------- ------- -------
Diluted EPS - weighted average number
of common shares and common shares
outstanding 52,230 47,627 51,759 46,764
======= ======= ======= =======
Anti-dilutive shares excluded 138,000 88,000 76,000 368,000
======= ======= ======= =======
</TABLE>
The anti-dilutive shares excluded from the diluted earnings per share
calculation noted in the above table represent the average number of stock
options that were not included in the diluted earnings per share calculation
because they were anti-dilutive as the exercise price was greater than the
average market price.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." As amended
by SFAS No. 137 and 138, SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company anticipates that
the adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations or cash flows. The Company will adopt SFAS No.
133 in its first fiscal quarter of 2001.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. In March 2000,
the SEC issued Staff Accounting Bulletin No. 101A (SAB 101A), Amendment; Revenue
Recognition in Financial Statements. SAB 101A delays the implementation date of
SAB 101 for registrants with fiscal years that begin between December 16, 1999
and March 15, 2000. SAB 101B "Second Amendment: Revenue Recognition in Financial
Statements" delays the implementation of SAB 101 until the Company's fourth
fiscal quarter of 2000. The Company will adopt SAB 101 as required in the fourth
quarter of 2000 and is evaluating the effect that such adoption might have on
its financial statements.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB 25.
This Interpretation clarifies (a) the definition of an employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation was effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occured after
either December 15, 1998, or January 12, 2000. Accordingly, the Company has
adopted the provisions of FIN 44 without significant impact to its statements of
consolidated financial position and results of operations.
9
<PAGE>
NOTE 10 - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in three industry segments as follows: Video Copy
Protection, Computer Software Copy Protection and Electronic License Management
("ELM") Software. In the Video Copy Protection segment, the Company licenses its
video technologies for videocassette, DVD and digital pay-per-view applications.
In the Computer Software Copy Protection segment, the Company licenses copy
protection technology in the multimedia software market. In the Electronic
License Management Software segment, the Company licenses ELM solutions to
independent software vendors (ISVs), software asset management tools for
business applications and maintenance contracts for its software.
The Company identifies segments based principally upon the type of products
sold. The accounting policies of these reportable segments are the same as those
described for the consolidated entity. The Company evaluates the performance of
its segments based on revenue and segment income. In addition, as the Company's
assets are primarily located in its corporate office in the United States, and
not allocated to any specific segment, the Company does not produce reports for
or measure the performance of its segments based on any asset-based metrics.
Therefore, segment information is presented only for revenue and income.
The following segment reporting information of the Company is provided (dollars
in thousands):
<TABLE>
<CAPTION>
Revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Video Copy Protection $ 12,501 $ 7,673 $ 34,230 $ 22,012
Computer Software Copy Protection 1,769 1,442 5,471 2,121
Electronic License Management Software 6,076 4,460 14,687 11,236
Other 100 249 915 450
-------- -------- -------- --------
Total $ 20,446 $ 13,824 $ 55,303 $ 35,819
======== ======== ======== ========
<CAPTION>
Operating Income:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Video Copy Protection $ 10,327 $ 5,907 $ 28,339 $ 17,197
Computer Software Copy Protection 586 579 1,686 (319)
Electronic License Management Software 4,597 2,750 10,451 7,051
Other 42 (70) 238 (627)
-------- -------- -------- --------
Segment income 15,552 9,166 40,714 23,302
Research and development 2,114 1,521 5,452 4,262
General and administrative 2,596 1,780 7,686 5,119
Amortization of intangibles from acquisition 743 683 2,230 791
Acquisition costs related to GLOBEtrotter 2,061 -- 2,061 --
Deferred compensation expense 2,405 -- 13,251 --
In process research and development -- -- -- 4,285
-------- -------- -------- --------
Operating income 5,633 5,182 10,034 8,845
Interest and other income, net 3,127 371 8,022 1,213
-------- -------- -------- --------
Income before income taxes $ 8,760 $ 5,553 $ 18,056 $ 10,058
======== ======== ======== ========
</TABLE>
NOTE 11 - SUBSEQUENT EVENTS
On October 5, 2000, Macrovision acquired the assets of Manchester (UK) based
Productivity through Software plc ("PtS") which are applicable to PtS' license
management business. PtS has served as the exclusive European distributor for
Macrovision's GLOBEtrotter Software subsidiary since the early 1990s.
Macrovision's GLOBEtrotter subsidiary will form a European sales and support
group near Manchester which will consist of 18 former PtS employees who will
sell, service, and support GLOBEtrotter products in the United Kingdom and
throughout Europe.
10
<PAGE>
On October 20, 2000, Macrovision made an additional equity investment of $21.8
million in Digimarc Corporation, the world leader in digital watermark
technology and applications. This increases Macrovision's equity interest in the
company to 12.5%.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Statements concerning future
matters such as the Company's expectations for gross margins, operating expenses
and capital needs and other statements regarding matters that are not historical
are forward-looking statements. Predictions of future events are inherently
uncertain. Actual events could differ materially from those predicted in the
forward-looking statements as a result of the risks set forth in this Form 10-Q
and in the "Risk Factors" section of the Company's 1999 Annual Report on Form
10-K filed on March 30, 2000. There are no assurances that the Company has
identified all possible problems that the Company might face. All investors
should carefully read the annual report on Form 10-K, together with this Form
10-Q, and consider all such risks before making an investment decision with
respect to the Company's stock.
Overview
The Company was formed in 1983 and designs, develops and markets video copy
protection technologies for motion pictures and other proprietary content stored
on videocassettes, DVDs or that is transmitted by cable, satellite or microwave
transmission. In 1998, the Company broadened its focus to include copy
protection and digital rights management for other media, including multimedia
computer software on CD-ROMs. In 2000, the Company expanded into licensing
Electronic License Management, ("ELM") solutions and software asset management
tools for business. The Company is headquartered in Sunnyvale, California and
has subsidiaries in San Jose, California, the United Kingdom and Japan.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
The following table provides revenue information by specific product segments
for the periods indicated (dollars in thousands):
Three Months ended
September 30,
-------------------- $ %
2000 1999 Change Change
------- ------- ------- -------
Video Copy Protection
Videocassette $ 2,603 $ 3,374 $ (771) (22.9)%
DVD 5,669 2,032 3,637 179.0
Pay-Per-View 4,229 2,267 1,962 86.5
Computer Software Copy
Protection 1,769 1,442 327 22.7
Electronic License Management
Software 6,076 4,460 1,616 36.2
Other 100 249 (149) (59.8)
------- ------- -------
Total $20,446 $13,824 $ 6,622 47.9%
======= ======= =======
Net Revenues
Our net revenues for the third quarter of 2000 increased 47.9% from $13.8
million in the third quarter of 1999 to $20.4 million in 2000. DVD copy
protection revenues increased $3.7 million or 179.0% from $2.0 million in the
third quarter of 1999 to $5.7 million in the third quarter of 2000 due to
increases in DVD shipments as the market for both DVD players and DVD titles
continued to expand throughout the world. Digital PPV copy protection revenues
increased $1.9 million or 86.5% from $2.3 million in the third quarter of 1999
to $4.2 million in the third quarter of 2000 due to continued growth in the
shipments of copy protection enabled digital set-top boxes, new system operator
licenses, and increased usage royalties. Revenues from videocassette copy
protection decreased $771,000 from $3.4 million in the third quarter of 1999 to
$2.6 million in 2000 due to the significant growth in the studio DVD video
business and the
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concurrent trend for many of the studios to decrease the use of copy protection
on movies on VHS format and focus on the DVD format and we expect this trend to
continue.
Computer Software/CD-ROM Copy Protection revenues increased $327,000 or 22.7%
from $1.4 million in the third quarter of 1999 to $1.8 million in the third
quarter of 2000 due to the increased level of business from several of our major
software publishers. Revenues from our Electonic License Management Software
products increased 36.2% from $4.5 million in the third quarter of 1999 to $6.1
million in the third quarter of 2000 primarily due to the acquisition of two new
major customers. Other revenue for the third quarter of 2000 was $100,000
relating to our encryption technology.
Gross Margin
Gross margin for the third quarter of 2000 was 93% compared to 90% for the same
period in 1999. The increased percentage was a result of a higher proportion of
revenues from our higher-margin DVD and digital pay-per-view businesses. Cost of
revenues includes items such as product costs, duplicator/replicator fees,
videocassette copy protection processor costs, software product support and
patent amortization and patent litigation expense related to patent protection.
We expect gross margins to remain at or close to these levels in the future.
Research and Development
Research and development expenses increased by $593,000 or 39.0% from $1.5
million in the third quarter of 1999 to $2.1 million in 2000. The increased
expenses resulted from higher expenses relating to software development for the
Computer Software Copy protection business and from development of GLOBEtrotter
Electronic License Management software products. Research and development
expenses decreased as a percentage of net revenues from 11.0% for the third
quarter of 1999 to 10.3% for the third quarter of 2000. We expect research and
development expenses to increase in absolute terms over the prior year periods
as a result of expected increases in research and development activity relating
to digital rights management and ELM products, and as we develop new
technologies in other areas.
Selling and Marketing
Selling and marketing expenses increased by $93,000 or 2.8% from $3.3 million in
the third quarter of 1999 to $3.4 million in the third quarter of 2000. This
slight increase was primarily due to the increased selling and marketing
expenses in our Computer Software /CD-ROM Copy Protection business offset by
lower spending for advertising in the Electronic License Management software
business. Selling and marketing expenses decreased as a percentage of net
revenues from 24.1% for the third quarter of 1999 to 16.7% for the third quarter
of 2000. Selling and marketing expenses are expected to increase over the prior
year periods as we continue to expand our efforts in building market share in
our Computer Software/CD-ROM Copy Protection ELM software and other digital
rights management products.
General and Administrative
General and administrative expenses increased by $816,000 or 45.8% from $1.8
million in the third quarter of 1999 to $2.6 million in the third quarter of
2000 primarily due to a tax consulting project, increased insurance expenses,
increased legal and increased general and administrative expenses relating to
our Electonic License Management business at GLOBEtrotter. General and
administrative expenses decreased slightly as a percentage of net revenues from
12.9% in the third quarter of 1999 to 12.7% in the third quarter of 2000.
General and administrative expenses are expected to increase in the future as we
continue to expand our administrative support infrastructure to serve a larger,
diversified business.
Amortization of Intangibles from Acquisitions
The Company amortizes intangibles relating to the acquisition of C-Dilla in June
of 1999 on a straight line basis over three to seven years based on expected
useful lives of existing products and technologies, retention of workforce,
non-compete agreements and goodwill. If the identified projects are not
successfully developed the value of the acquired intangible assets may also
become impaired.
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Acquisition Costs Related to GLOBEtrotter Software, Inc.
The one-time costs relating directly to the acquisition of GLOBEtrotter
Software, Inc., in the amount of $2.1 million reflect the legal, accounting,
consulting, and regulatory fees incurred for the acquisition.
Deferred Stock-Based Compensation
Globetrotter granted 783,742 options to certain of its employees in January 2000
at an exercise price equal to the underlying market value of GLOBEtrotter common
stock as supported by a valuation done in December 1999. However, because of the
chronological proximity of the letter of intent with Macrovision (March 27,
2000) and the option issuance (i.e. January 25, 2000), deferred stock-based
compensation amortization has been recorded to reflect the amortization of the
deferred stock-based compensation created by the exchange of GLOBEtrotter
options for Macrovision options, which have exercise prices less than the deemed
fair market value on the date of grant. Macrovision's closing share price on
January 25, 2000 (the date of the option grant) of $52.19 was used to calculate
total deferred stock-based compensation of approximately $38.5 million. The
amortization of the deferred stock-based compensation for the three month period
ended September 30, 2000 was $2.4 million. The expense associated with the
stock-based compensation award will continue to result in substantial non-cash
compensation charges to future earnings.
Interest and Other Income
Interest and other income increased $2.8 million or 742.9% from $371,000 in the
third quarter of 1999 to $3.1 million in the third quarter of 2000, primarily
from interest income received on the proceeds of our public stock offering in
late January 2000.
Income Tax Expense
Income tax expense represents combined federal and state taxes at effective
rates of 45% and 23% for the third quarter of 2000 and 1999, respectively. As
GLOBEtrotter elected S corporation status for federal and state income tax
purposes, tax expense relating to their respective income is not provided for on
the combined statements for the third quarter of 2000 prior to August 31, 2000
(the acquisition date) and the third quarter of 1999 thus lowering the rate.
Deferred stock-based compensation, related to in-the-money stock options issued,
is not tax deductible and hence drives a higher effective rate for 2000.
Net Income
Net income for the third quarter of 2000 was $4.8 million compared to $4.3
million for the third quarter of 1999. The minor increase in net income
(compared to the increase in revenue) for the third quarter of 2000 resulted
primarily from acquisition costs of $2.1 million related to GLOBEtrotter
Software Inc. and the related deferred stock-based compensation of $2.4 million.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
The following table provides revenue information by specific product segments
for the periods indicated (dollars in thousands):
Nine Months ended
September 30,
---------------------- $ %
2000 1999 Change Change
-------- -------- -------- --------
Video Copy Protection
Videocassette $ 9,511 $ 11,709 $ (2,198) (18.8)%
DVD 13,433 5,065 8,368 165.2
Pay-Per-View 11,286 5,238 6,048 115.5
Computer Software Copy
Protection 5,471 2,121 3,350 157.9
Electronic License Management
Software 14,687 11,235 3,452 30.7
Other 915 451 464 102.9
-------- -------- --------
Total $ 55,303 $ 35,819 $ 19,484 54.4%
======== ======== ========
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Net Revenues
Our net revenues for the first nine months of 2000 increased 54.4% from $35.8
million in the nine months ended September 30, 1999 to $55.3 million for the
first nine months of 2000. DVD copy protection revenues increased $8.4 million
or 165.2% from $5.1 million in the first nine months of 1999 to $13.4 million in
the first nine months of 2000 due to increases in DVD shipments as the domestic
and international markets for both DVD players and DVD titles continued to
expand at a rapid rate. Digital PPV copy protection revenues increased $6.1
million or 115.5% from $5.2 million in the first nine months of 1999 to $11.3
million in the nine months ended September 30, 2000 due to continued growth in
the shipments of copy protection enabled digital set-top boxes, new system
operator licenses, and usage royalties from the activation of copy protection on
PPV programs. Revenues from videocassette copy protection decreased $2.2 million
or 18.8% from $11.7 million in the first nine months of 1999 to $9.5 million in
the comparable period of 2000 due to the significant growth in the studio DVD
business and the concurrent trend for studios to decrease the use of copy
protection on movies on VHS format and to focus on the DVD format and we expect
this trend to continue.
Computer Software/CD-ROM Copy Protection revenues increased $3.4 million or
157.9% from $2.1 million in the first nine months of 1999 to $5.5 million in the
first nine months of 2000 due to the increased level of business from several of
our major software publishers. Revenues from our Electronic License Management
Software products increased 30.7% from $11.2 million in the first nine months of
1999 to $14.7 million in the first nine months of 2000 primarily due to growth
in ELM software acceptance by ISVs. Other revenue for the first nine months of
2000 was $915,000 relating to our video encryption technology and a consulting
agreement.
Our international and export revenues as a percentage of net revenues increased
from 42.2% for the first nine months of 1999 to 44.3% for the first nine months
of 2000 due to higher video copy protection revenues in DVD and digital PPV,
Computer Software/CD-ROM copy protection revenues and Electronic License
Management Software revenues.
Gross Margin
Gross margin for the first nine months of 2000 was 93% compared to 90% for the
same period in 1999. The increased percentage was a result of a higher
proportion of revenues from our higher-margin DVD and digital pay-per-view
businesses, offset slightly by the write-down of patents, assets and inventory
related to our video scrambling technology. Cost of revenues includes items such
as product costs, duplicator/replicator fees, videocassette copy protection
processor costs, patent amortization, patent litigation expense related to
patent protection, software support and SafeDisc royalty expense paid to C-Dilla
Ltd prior to the acquisition of C-Dilla Ltd. We expect gross margins to remain
at or close to these levels in the future.
Research and Development
Research and development expenses increased by $1.2 million or 27.9% from $4.3
million in the first nine months of 1999 to $5.5 million in 2000. The increased
expenses were a result of higher expenses relating to the software development
at C-Dilla that was not part of Macrovision for the full nine months of 1999.
These expenses were offset by the reimbursement from TTR Technologies for
expenses relating to the SafeAudio(TM) CD copy protection project, lower
expenses for GLOBEtrotter rights management software products and the one-time
charges in 1999 relating to licensing fee for technology and bonuses paid to
engineering employees at C-Dilla. Research and development expenses decrease as
a percentage of net revenues from 11.8% for the first nine months of 1999 to
9.9% for the first nine months of 2000. We expect research and development
expenses to increase in absolute terms over the prior year periods as a result
of expected increases in research and development activity related to digital
rights management and ELM products, and as we develop new technologies in other
areas.
Selling and Marketing
Selling and marketing expenses increased by $1.5 million or 17.1% from $9.1
million in the first nine months of 1999 to $10.6 million in the first nine
months of 2000. This increase was primarily due to the increased selling and
marketing expenses in our Computer Software/CD-ROM Copy Protection and
Electronic License Management businesses, primarily from increased headcount..
Selling and marketing expenses decreased as a percentage of net revenues from
25.3% for the first nine months of 1999 to 19.2% for the first nine months of
2000. Selling and marketing expenses are expected to increase over the prior
year periods as we continue to expand our efforts in
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selling and marketing Computer Software/CD-ROM Copy Protection, Electronic
License Management Software and other digital rights management products.
General and Administrative
General and administrative expenses increased by $2.6 million or 50.1% from $5.1
million in the first nine months of 1999 to $7.7 million in the first nine
months of 2000 primarily due to a tax consulting project, increased insurance
expenses and increased general and administrative expenses relating to our
Electronic License Management business and for our Computer Software/CD Copy
Protection business. General and administrative expenses decreased as a
percentage of net revenues from 14.3% in the first nine months of 1999 to 13.9%
in the first nine months of 2000. General and administrative expenses are
expected to increase over the prior periods as we continue to expand our
administrative support infrastructure to serve a larger, diversified business.
Amortization of Intangibles from Acquisitions
The Company amortizes intangibles relating to the acquisition of C-Dilla in June
of 1999 on a straight line basis over three to seven years based on expected
useful lives of existing products and technologies, retention of workforce,
non-compete agreements and goodwill. If the identified projects are not
successfully developed the value of the acquired intangible assets may also
become impaired.
Acquisition Costs Related to GLOBEtrotter Software, Inc.
The costs relating directly to the acquisition of GLOBEtrotter Software, Inc.,
in the amount of $2.1 million reflect the legal, accounting, consulting, and
regulatory fees incurred for the acquisition.
Deferred Stock-Based Compensation
Globetrotter granted 783,742 options to certain of its employees in January 2000
at an exercise price equal to the underlying market value of GLOBEtrotter common
stock as supported by a valuation done in December 1999. However, because of the
chronological proximity of the letter of intent with Macrovision (March 27,
2000) and the option issuance (i.e. January 25, 2000), deferred stock-based
compensation amortization has been recorded to reflect the amortization of the
deferred stock-based compensation created by the exchange of GLOBEtrotter
options for Macrovision options, which have exercise prices less than the deemed
fair market value on the date of grant. Macrovision's closing share price on
January 25, 2000 (the date of the option grant) of $52.19 was used to calculate
total deferred stock-based compensation of approximately $38.5 million. The
amortization of the deferred stock-based compensation for the nine month period
ended September 30, 2000 was $13.3 million. The expense associated with the
stock-based compensation award will continue to result in substantial non-cash
compensation charges to future earnings.
In-process Research and Development
In June 1999, we allocated $4.3 million of the $23.2 million total purchase
price for C-Dilla to in-process research and development projects. This
allocation represents the estimated fair value based on risk adjusted cash flows
related to the incomplete research and development projects. At the date of the
acquisition, this amount was expensed as a non-recurring charge as the in
process technology had not yet reached technological feasibility and had no
alternative future uses.
The value assigned to purchased in process technology was determined by
estimating the completion percentage of research and development efforts at the
acquisition date, forecasting risk adjusted revenues considering completion
percentage, estimating the resulting net cash flows from the projects and
discounting the net cash flows to their present values. The completion
percentages were estimated based on costs incurred to date, importance of
completed development tasks and elapsed portion of the total project time.
The remaining excess purchase price was allocated to existing products and
technologies, retention of workforce and non-compete agreements. We used the
income approach to determine the value allocated to existing products and
technologies and non-compete agreements and used the replacement cost approach
to determine the value allocated to workforce. The residual excess purchase
price was allocated to goodwill.
We amortize these intangibles on a straight line basis over three to seven years
based on expected useful lives of existing products and technologies, retention
of workforce, non-compete agreements and goodwill. If the identified projects
are not successfully developed, we may not realize the value assigned to the in
process research and development projects and the value of the acquired
intangible assets may also become impaired.
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Interest and Other Income
Interest and other income increased $6.8 million or 561.3% from $1.2 million in
the first nine months of 1999 to $8.0 million in the first nine months of 2000,
primarily from interest income received on the proceeds of our public stock
offering in late January 2000.
Income Tax Expense
Income tax expense represents combined federal and state taxes at effective
rates of 58% and 20% for the first nine months of 2000 and 1999, respectively.
As GLOBEtrotter elected S corporation status for federal and state income tax
purposes, tax expense relating to their respective income is not provided for on
the combined statements for the first eight months of 2000 prior to August 31,
2000 (the acquisition date) and the first nine months of 1999 thus lowering the
rate. Deferred stock-based compensation, related to in-the-money stock options
issued, is not tax deductible and hence drives a higher effective rate for 2000.
Net Income
Net income for the first nine months of 2000 was $7.6 million compared to $8.0
million for the first nine months of 1999. The slight decrease for the first
nine months of 2000 compared to 1999 resulted primarily from one-time
acquisition costs of $2.1 million related to GLOBEtrotter Software, Inc. and the
related deferred stock-based compensation expense of $13.3 million.
Liquidity and Capital Resources
We have financed our operations primarily from cash generated by operations,
principally our copy protection businesses. Our operating activities provided
net cash of $24.3 and $12.6 million in the first nine months of 2000 and 1999,
respectively. In the first nine months of 2000, net cash was provided primarily
by net income, increases from the amortization of deferred stock compensation,
depreciation and amortization, increases in accounts payable and deferred
revenue reduced by an increase in accounts receivable, prepaids and a decrease
in accrued expenses. For the first nine months of 1999, net cash was provided
primarily by net income adjusted for noncash charges and in-process research and
development, reduced by an increase in accounts receivable and offset slightly
by an increase in deferred revenue and income taxes payable.
Investing activities used net cash of $134.5 million and $4.4 million in the
first nine months of 2000 and 1999, respectively. For the first nine months of
2000, net cash used in investing activities was primarily for the net purchases
of short and long-term investment securities from employing funds received from
the public offering and the minority equity investments in companies. For the
first nine months of 1999, net cash used in investing activities was primarily
the acquisition of C-Dilla Ltd. and the investments in Digimarc and AudioSoft,
offset by the net sales and maturities in short and long-term investment
securities. The investment in Digimarc and AudioSoft were in connection with
separate rounds of third-party financing obtained by each company. We made
capital expenditures of $1.2 million and $437,000 in the first nine months of
2000 and 1999, respectively. We also paid $577,000 and $394,000 in the first
nine months of 2000 and 1999, respectively, related to patents and other
intangibles during those periods.
Net cash provided by financing activities was $144.1 million in the first nine
months of 2000 resulting from our January public offering and proceeds from
issuance of stock under various stock option plans partially offset by the
dividend distribution to shareholders of GLOBEtrotter. In 1999, the net cash
used in financing activities was primarily related to the dividendcash
distribution to shareholders of GLOBEtrotter offset slightly by the issuance of
stock under various stock option plans.
Recent Accounting Pronouncements
See Note 9.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to financial market risks, including changes in interest rates,
foreign exchange rates and security investments. Changes in these factors may
cause fluctuations in our earnings and cash flows. We evaluate and manage the
exposure to these market risks as follows:
Fixed Income Investments. We have an investment portfolio of fixed income
securities, including those classified as cash equivalents, short-term
investments and long-term marketable investments securities of $202.9 million as
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of September 30, 2000. These securities are subject to interest rate
fluctuations. An increase in interest rates could adversely affect the market
value of our fixed income securities.
We do not use derivative financial instruments in our investment portfolio to
manage interest rate risk. We limit our exposure to interest rate and credit
risk, however, by establishing and strictly monitoring clear policies and
guidelines for our fixed income portfolios. The primary objective of these
policies is to preserve principal while at the same time maximizing yields,
without significantly increasing risk. A hypothetical 50 basis point increase in
interest rates would result in an approximate $644,000 decrease (approximately
0.4%) in the fair value of our available-for-sale securities as of September 30,
2000.
Foreign Exchange Rates. Due to our reliance on international and export sales,
we are subject to the risks of fluctuations in currency exchange rates. Because
a substantial majority of our international and export revenues are typically
denominated in United States dollars, fluctuations in currency exchange rates
could cause our products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. Our subsidiaries in England and Japan operate in their local currency,
thereby partially offsetting the above operational exposure to the respective
currency royalties collected.
Strategic Investments. We have expanded our technology through strategic
investments in companies, technologies, or products. We currently hold minority
equity interests in CAC, Digimarc, AudioSoft, TTR Technologies, Secure Media and
InterActual Technologies. These investments, totaling $31.8 million, represented
11.5% of our total assets as of September 30, 2000. CAC, AudioSoft, RPK and
InterActual are privately held companies. There is no active trading market for
their securities and our investments in them are illiquid. We may never have an
opportunity to realize a return on our investment in these companies, and we may
in the future be required to write off all or part of one or more of these
investments. Digimarc and TTR Technologies are publicly traded companies.
On August 31, 2000, the Company completed its acquisition of privately held
GLOBEtrotter Software, Inc. of San Jose, California. GLOBEtrotter is a leading
OEM supplier of B2B (business-to-business) electronic licensing and license
management technology to software vendors and a leading direct supplier of
software asset management products to corporate customers worldwide. We acquired
all the outstanding shares of GLOBEtrotter for 8,944,548 shares of Macrovision
common stock and assumed all vested and unvested GLOBEtrotter stock options in
exchange for options to purchase 821,852 shares of Macrovision common stock.
RISK FACTORS
We depend on a majority of our revenues from the continued use by major movie
studios of our video copy protection technology.
In the event that the major motion picture studios, or other customers of our
video copy protection technology determined that the benefits of our technology
did not justify the cost of licensing the technology, demand for our technology
and our revenues would decline. We currently derive a majority of our net
revenues and operating income from fees for the application of our patented
video copy protection technology to prerecorded videocassettes, DVDs and digital
pay per view, or PPV programs. These fees represented 62.1%, 61.4% and 61.9% of
our net revenues during 1998, 1999 and the first nine months of 2000,
respectively.
Any future growth in revenues from these fees will depend on the use of our
video copy protection technology on a larger number of videocassettes, DVDs or
digital pay-per-view, or PPV, programs. To increase or maintain our market
penetration, we must continue to persuade content owners that the cost of
licensing the technology is outweighed by the increase in revenues that content
owners and retailers would gain as a result of using copy protection, such as
revenues from additional sales of the copy protected material or subsequent
revenues from other venues.
Any decline in demand for our video copy protection technology, including a
change of video copy protection policy by the major motion picture studios or a
decline in sales of prerecorded videocassettes and DVDs that are encoded with
our video copy protection technology, would have a material adverse effect on
our business. If several of the motion picture studios withdraw their support
for our copy protection technologies or otherwise determine not to copy protect
a significant portion of prerecorded videocassettes, DVD or digital PPV
programs, our business would be harmed.
Our operating results may fluctuate, which may adversely affect the price of our
common stock.
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Our quarterly and annual revenues, expenses and operating results could vary
significantly in the future and period-to-period comparisons should not be
relied upon as indications of future performance. We may not be able to grow in
future periods, or we may not be able to sustain our level of net revenues, or
our rate of revenue growth, on a quarterly or annual basis. Fluctuations in our
operating results may cause the price of our common stock to decline.
Further, we may not be in a position to anticipate a decline in revenues in any
quarter until late in the quarter, due primarily to the delay inherent in
reporting from certain licensees, resulting in potential volatility in the price
of our common stock. Factors which could cause the price of our common stock to
decline include:
o the timing of releases of popular movies on videocassettes,
DVDs or by digital PPV transmission;
o the ability of the Motion Picture Association of America
studios to produce one or more "blockbuster" titles on an
annual basis;
o the degree of acceptance of our copy protection technologies
by major motion picture studios and software companies;
o the timing of releases of computer software CD-ROM multimedia
titles;
o the degree to which various hacking technologies are viewed to
be successful by our customers, and
o the acceptance of our rights management software by software
vendors and end-user organizations.
We experience seasonality in our operating results, which may affect the price
of our common stock.
We have experienced significant seasonality in our business, and our business is
likely to be affected by seasonality in the future. We have typically
experienced our highest revenues in the fourth quarter of each calendar year
followed by lower revenues and operating income in the first quarter, and at
times in subsequent quarters, of the next year. We believe that this trend has
been principally due to the tendency of our customers to release their more
popular movies on videocassettes and DVDs during the year-end holiday shopping
season. We anticipate that revenues from multimedia CD-ROM copy protection will
also reflect this seasonal trend. However, our ELM business has not historically
experienced such seasonal behavior.Our revenues generally have tended to be
lower in the summer months, particularly in Europe.
We depend on a small number of key customers for a high percentage of our
revenues and the loss of a significant customer could result in a substantial
decline in our revenues and profits.
Our customer base and a majority of our net revenues is highly concentrated
among a limited number of customers, primarily due to the fact that the Motion
Picture Association of America studios dominate the motion picture industry and
the loss of any one customer would have a significant adverse impact on our
business. Historically, we have derived the majority of our net revenues from a
relatively small number customers. The Motion Picture Association of America
studios as a group accounted for 30.2%, 24.7% and 23.6 % of our net revenues in
1998, 1999 and the first nine months of 2000, respectively.
We expect that revenues from the Motion Picture Association of America studios
will continue to account for a substantial portion of our net revenues for the
foreseeable future. We have agreements with six of the major home video
companies for copy protection of a substantial part of their videocassettes
and/or DVDs in the United States. These agreements expire at various times
ranging from 2000 to 2005. The failure of any one of these customers to renew
its contract or to enter into a new contract with us on terms that are favorable
to us would likely result in a substantial decline in our net revenues and
operating income, and our business would be harmed.
We depend on high-value license agreements during the reporting period from
major software customers for our Electronic License Management products and
the inability to capture these agreements could result in a decline in our
revenues and profits.
Currently, a significant portion of our Electronic License Management revenues
are generated from perpetual licenses, under which license fee revenue is
recognized upfront on a one-time basis. Failure to close a small number of
high-value perpetual licenses during any period could result in a decline in our
revenues and profits. As a result, we are transitioning to an annual license (or
subscription) model which results in ratable recognition of the license fee over
a 12-month period. This provides better visibility into future revenues, and
smoothes peaks and troughs in revenue flows that result from perpetual licenses.
If we are unable to persuade major customers to adopt the annual
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(or subscription) model, and we continue to rely on the capture of a small
number of high-value licenses in a given period, this may result in volatility
in our net revenues and operating income.
We are dependent on international sales for a substantial amount of our revenue.
We face diverse risks in our international business, which could adversely
affect our operating results.
International and export sales together represented 38.3%, 40.5% and 44.3% of
our net revenues in 1998, 1999 and the first nine months of 2000, respectively.
We expect that international and export sales will continue to represent a
substantial portion of our net revenues for the foreseeable future. Our future
growth will depend to a large extent on worldwide deployment of digital PPV
networks, DVDs, and computer software CD-ROMs, and the use of copy protection in
these media. Worldwide adoption of our ELM technology will also be an important
driver of future growth.
To the extent that foreign governments impose restrictions on importation of
programming, technology or components from the United States, the requirement
for copy protection and rights management solutions in these markets could
diminish. In addition, the laws of some foreign countries may not protect our
intellectual property rights to the same extent as do the laws of the United
States, which increases the risk of unauthorized use of our technologies and the
ready availability or use of circumvention technologies. Such laws also may not
be conducive to copyright protection of video materials and digital media, which
reduces the need for our copy protection technology.
Due to our reliance on international and export sales, we are subject to the
risks of conducting business internationally, including:
o foreign government regulation;
o changes in diplomatic and trade relationships;
o changes in, or imposition of, regulatory requirements;
o tariffs or taxes and other trade barriers and restrictions;
o difficulty in staffing and managing foreign operations; and
o fluctuations in foreign currency exchange rates.
Our business could be materially adversely affected if foreign markets do not
continue to develop, if we do not receive additional orders to supply our
technologies or products for use in foreign prerecorded video, PPV and other
applications requiring our copy protection solutions or if regulations governing
our international business change. For example, under the United States Export
Administration Act of 1979, encryption algorithms such as those used in our
computer software copy protection technology are classified as munitions and
subject to stringent export controls. Any changes to the statute or the
regulations with respect to export of encryption technologies could require us
to redesign our products or technologies or prevent us from selling our products
and licensing our technologies internationally.
We may be unable to integrate the GLOBEtrotter operations, and if we cannot do
so, it could harm our business.
The acquisition of GLOBEtrotter has placed, and is expected to continue to
place, significant demands on our personnel, management and other resources. Our
future results of operations will depend in part on the ability of our officers
and other key employees to integrate the operations, financial control systems
and employees into our operations. We will need to augment our existing
financial and management systems or implement new systems. We may not be able to
augment or to implement these systems efficiently, or on a timely basis, or to
manage the integration successfully. The failure to do so could harm our
business.
Potential intellectual property claims and litigation could subject us to
significant liability for damages and invalidation of our property rights.
Litigation may be necessary in the future to enforce our patents and other
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. We are currently subject
to several legal proceedings. See "Legal Proceedings."
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Litigation could harm our business and result in:
o substantial settlement or related costs, including
indemnification of customers;
o diversion of management and technical resources;
o discontinuing the use and sale of infringing products;
o expending significant resources to develop non-infringing
technology; and
o obtaining licenses to infringed technology.
Our success is heavily dependent upon our proprietary technologies. We rely on a
combination of patent, trademark, copyright and trade secret laws, nondisclosure
and other contractual provisions, and technical measures to protect our
intellectual property rights. Our patents, trademarks or copyrights may be
challenged and invalidated or circumvented. Our patents may not be of sufficient
scope or strength or be issued in all countries where our products can be sold.
The expiration of some of our patents may harm our business.
Others may develop technologies that are similar or superior to our
technologies, duplicate our technologies or design around our patents. Effective
intellectual property protection may be unavailable or limited in some foreign
countries. Despite efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise use aspects of processes and devices
that we regard as proprietary. Policing unauthorized use of our proprietary
information is difficult, and the steps we have taken may not prevent
misappropriation of our technologies.
It may be time-consuming and costly to enforce our patents against devices and
hacking techniques that attempt to circumvent our copy protection technology,
and our failure to control them could harm our business.
We use our patents to limit the proliferation of devices intended to circumvent
our video copy protection technologies. In the past, we have initiated a number
of patent infringement disputes against manufacturers and distributors of these
devices. Any legal action that we may initiate could be time-consuming to
pursue, result in costly litigation, and divert management's attention from
day-to-day operations.
In the event of an adverse ruling in a patent infringement lawsuit, we might
suffer from the legal availability of the circumvention device or have to obtain
rights to the offending device. The legal availability of circumvention devices
could result in the increased proliferation of devices that defeat our copy
protection technology and a decline in demand for our technologies, which could
have a material adverse effect on our business.
A limited number of DVD manufacturers may build products that either do not
contain our copy protection technology, or include features that allow consumers
to bypass copy protection. Though we believe this is in contravention of the
Digital Copyright Millennium Copyright Act, as well as the basic DVD CSS
license, proliferation of these products could cause a decline in demand for our
technologies, which could harm our business. Any legal or other enforcement
action that we may initiate could be time consuming to pursue, result in costly
litigation, and divert management's attention from day-to-day activities.
In the computer software copy protection market, a number of individuals have
developed and posted SafeDisc hacks on the Internet, or CD cloning software. If
we are not able to develop frequent SafeDisc software releases and new digital
signatures, which deter the hackers from developing circumvention or cloning
techniques, our customers could reduce their usage of our technology because it
was compromised. Although the anti-circumvention provisions in the Digital
Millennium Copyright Act may be applicable to Internet service providers who
support the hacker sites, any legal action that we initiate could be
time-consuming to pursue, result in costly litigation, and divert management's
attention from day-to-day operations.
In the Electronic License Management market, our product includes patented
technologies. Any legal action that we may initiate regarding these patents may
be time-consuming to pursue, involve costly litigation, divert management's
attention from operations or may not be successful. (See "Part II. , Item 1.
Legal Proceedings")
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We are exposed to risks associated with expanding our technology base through
strategic investments.
We have recently expanded our technology base through strategic investments in
companies with complementary technologies or products, which may not prove to be
of long-term benefit to us. We currently hold minority equity interests in four
privately held companies, Command Audio Corporation, AudioSoft, Secure Media and
InterActual and two publicly traded companies, Digimarc and TTR.
The negotiation, creation and management of these strategic relationships
typically involve a substantial commitment of our management time and resources.
We may in the future be required to write off all or part of one or more of
these investments which could harm our business.
Our strategic investments typically involve joint development or marketing
efforts or technology licensing. Any joint development efforts may not result in
the successful introduction of any new products by us or a third party, and any
joint marketing efforts may not result in increased demand for our products.
Further, any current or future strategic investments by us may not allow us to
enter and compete effectively in new markets or improve our performance in any
current markets.
We depend on third parties to develop SafeDisc compatible encoding and quality
assurance applications.
We rely on third party vendors such as DCA, Eclipse, Media Morphics, CD
Associates, Koch Media and Audio Development to develop add-on enabling software
modules that will:
o apply the SafeDisc digital signature at licensed replication
facilities;
o allow replicators to run specialized quality assurance tests
to ensure the SafeDisc technology is applied; and
o check for manufacturing defects in the mass produced discs.
Our operations could be disrupted if our relationships with third party vendors
are disrupted or if their products are defective, not available or not accepted
by licensed replicators. This could result in a loss of customer orders and
revenue.
We must establish and maintain licensing relationships to continue to expand our
business, and failure to do so could harm our business prospects.
Our future success will depend upon our ability to establish and maintain
licensing relationships with companies in related business fields, including:
o videocassette duplicators;
o international distributors of videocassettes;
o DVD authoring facilities and replicators;
o DVD authoring tools software companies;
o DVD hardware manufacturers;
o semiconductor and equipment manufacturers;
o operators of digital PPV networks;
o consumer electronics and digital PPV set-top hardware
manufacturers; and
o CD-ROM mastering facilities and replicators.
Substantially all of our license agreements are non-exclusive, and therefore
our licensees are free to enter into similar agreements with third parties,
including our competitors. Our licensees may develop or pursue alternative
technologies either on their own or in collaboration with others, including our
competitors.
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If we do not retain our key employees and attract new employees, our ability to
execute our business strategy will be impaired.
We compete for employees in California's Silicon Valley, one of the most
challenging employer environments in the United States. Hiring key personnel is
highly competitive. Because of the specialized nature of our business, our
future success will depend upon our continuing ability to identify, attract,
train and retain other highly skilled managerial, technical, sales and marketing
personnel, particularly as we enter new markets. The loss of key employees could
harm our business.
Industry Risks
We are introducing products into the evolving market for digital PPV copy
protection, and if this market does not develop or we are unable to serve
this market effectively, our revenues will be adversely affected.
While our copy protection capability is embedded in more than 43 million digital
set-top boxes manufactured by the leading digital set-top box manufacturers,
only four system operators have activated copy protection for digital PPV
programming. Our ability to expand our markets in additional home entertainment
venues such as digital PPV will depend in large part on the support of the major
motion picture studios in advocating the incorporation of copy protection
technology into the hardware and network infrastructure required to distribute
such video programming. The Motion Picture Association of America studios may
not require copy protection for any of their PPV movies or PPV system operators
may not activate copy protection in other digital PPV networks outside of Japan,
Hong Kong or the United Kingdom.
Further, consumers may react negatively to copy protected PPV programming
because they have routinely copied for later viewing analog cable and
satellite-delivered subscription television and PPV programs, as well as free
broadcast programming. In addition, some television sets or combinations of VCRs
and television sets may exhibit impaired pictures while displaying a copy
protected digital PPV program. If there is consumer dissatisfaction that cannot
be managed, or if there are technical compatibility problems, our business would
be harmed.
Potential revenue may be lost if our digital video watermarking technology is
not selected as an industry standard.
In cooperation with Philips and Digimarc, we are jointly developing a digital
video watermarking solution to address the digital-to-digital copying issues
associated with the next generation of DVD recording devices. Our group has
submitted a proposed solution to the DVD Copy Control Association, or DVD/CCA, a
wholly owned subsidiary of Matsushita Electric Industries, which has assumed
responsibility for selecting the industry standard. Our group is competing with
a consortium of five other companies, comprised of IBM, NEC, Sony, Hitachi and
Pioneer, that have submitted a similar proposal to the DVD/ CCA. Some of these
companies have substantially greater name recognition and significantly greater
financial, technical, marketing and other resources than Philips, Digimarc and
ourselves.
We continue to discuss our solution and our implementation plans with the
studios and other industry participants, but risks of patent infringement
lawsuits still remain an issue for the studios and hardware companies. Our plan
is to continue with the development and release of our group's watermarking
solution and search for a way to minimize or eliminate the patent risks for
users.
Our digital watermarking technology may not be selected by the DVD/CCA. The
group whose digital video watermarking solution is selected will have a
significant advantage in licensing its technology to video content owners
worldwide, and in working with consumer electronics manufacturers, PC platform
companies and their suppliers to implement digital-to-digital copy protection.
Even if the DVD/CCA adopts our solution, other companies may elect to compete in
this market. If the solution being developed by Philips, Digimarc and ourselves
is not the selected solution or otherwise is not widely adopted by studios or
consumer electronics manufacturers, our group will be at a competitive
disadvantage in marketing our solution. The solution being developed by our
group may not be selected as the standard by the DVD/CCA or our solution may not
achieve market acceptance as the market and the standards for digital-to-digital
copy protection evolve. If this happens, our future revenue opportunities will
be negatively impacted.
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We have recently entered the market for computer software copy protection, and
we do not know if we will be successful in selling our products in this
market.
We acquired C-Dilla in June 1999. C-Dilla's products include SafeDisc, our copy
protection technology for CD-ROM software products in the consumer multimedia
market. The market for copy protection of CD-ROMs is unproven, and we may not be
successful in developing this market.
For us to be successful in this new market, producers of multimedia CD-ROMs must
accept copy protection generally and also adopt our SafeDisc solution. Copy
protection of multimedia CD-ROMs may not be accepted if consumers react
negatively to of copy protected CD-ROMs because they are prevented from copying
their favorite applications or if copy protection impairs the playability of a
CD-ROM. Moreover, copy protection may not be effective or compatible with all PC
and CD-ROM hardware platforms or configurations or may prove to be easily
circumvented.
A number of competitors and potential competitors are developing CD-ROM copy
protection solutions. Many of these competitors and potential competitors have
substantially greater name recognition and financial, technical and marketing
resources than we do. If the market for CD-ROM copy protection fails to develop
or develops more slowly than expected, or if our solution does not achieve or
sustain market acceptance, our business would be harmed.
We have recently entered the ELM market, and we do not know if we will be
successful in selling our products in this market.
We acquired GLOBEtrotter Software, Inc. in August 2000. GLOBEtrotter's major
product line is FLEXlm, a product that allows independent software vendors to
license their products electronically, and monitor and enforce compliance with
their licensed use rights. GTlicensing, allows software vendors to create, ship
and track licenses online. SAMSuite, is an end-user software asset management
product. There is no assurance of our ability to grow and be successful in this
market and if we are unsuccessful in this market, our business would be harmed.
We are entering the market for music CD copy protection and we do not know if we
will be successful in selling our products in this market.
We have entered into a strategic relationship with TTR to develop and market a
copy protection system that will inhibit casual copying of music CDs using
dual-deck CD recorder systems or personal computer systems. A number of
competitors and potential competitors may be developing similar and related
music copy protection solutions. The solution we expect to market may not
achieve or sustain market acceptance, or may not meet, or continue to meet, the
demands of the music industry. It is possible that there could be significant
consumer resistance to audio copy protection, as consumers may feel that they
are entitled to copy audio CDs, because no technology has been used in the past
to prevent copying. It is not clear what the reaction of the major music labels
would be to any consumer resistance.
If the market for music CD copy protection fails to develop, or develops more
slowly than expected, if our solution does not achieve or sustain market
acceptance or if there is consumer resistance to this technology, our business
would be harmed.
If we are unable to compete successfully against competitive technologies that
may be developed in the future our business will be harmed.
We believe that there are currently no significant videocassette copy protection
competitors other than companies that have occasionally developed hardware based
on our technology for sale in small foreign markets, where we have not sought
patent protection. It is possible, however, that a competitive copy protection
technology could be developed in the future. For example, our customers could
attempt to promote competition by supporting the development of alternative copy
protection technologies or solutions, including solutions that deter
professional duplication. Increased competition would be likely to result in
price reductions and loss of market share, either of which could harm our
business.
We believe that our ELM products have no major competition other than software
vendors who attempt to develop their own rights management applications for
their software products. In the event that software vendors succeed with their
internal developments,or to forego the implementation of such applications, this
would adversely affect our business.
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Problems related to the year 2000 risks may not appear for several months after
January 1, 2000.
We believe that we have successfully rendered our product, internal management
and other administrative systems and external information systems year 2000
compliant. As of September 30, 2000, we have experienced no disruptions in our
business operations as a result of year 2000 compliance problems or otherwise,
and have received no reports of any year 2000 compliance problems with our
products. To date, the total cost of our efforts to address year 2000 compliance
has not been material.
Nonetheless, some problems related to the year 2000 risks may not appear for
some time after January 1, 2000. Year 2000 issues could include problems with
our own products or with third-party products or technology that we use. Any
problems that are not identified and corrected successfully and completely could
adversely affect our business.
Part II. Other Information
Item 1. Legal Proceedings.
We are involved in legal proceedings related to some of our intellectual
property rights.
In January 1999, we filed a complaint against Dwight-Cavendish Developments Ltd.
in the United States District Court for the District of Northern California
(Case No. 99-20011). The complaint alleges that Cavendish infringes a United
States patent held by us. We seek to recover compensatory damages, treble
damages and costs and to obtain injunctive relief arising from these claims.
Cavendish's response to the complaint contained a counterclaim alleging that we
have violated the federal Sherman Antitrust Act and the Lanham Act and the
California false advertising laws and Unfair Competition Act. The counterclaim
seeks injunctive relief, compensatory damages, treble damages and costs. It also
seeks a declaratory judgment that the United States patent held by us is invalid
and that Cavendish's products do not infringe the patent. We intend to defend
the allegations in the counterclaim vigorously. In July 2000, The District Court
issued a ruling on claim construction regarding patent infringement. Following
the claim construction ruling, Cavendish moved for summary judgment on the
patent infringement portion of the lawsuit. The hearing date for the patent
infringement summary judgment was September 25, 2000. We were permitted to file
an additional reply brief on October 6, 2000 arguing that Cavendish would still
infringe on our patent in light of the claim construction ruling based on some
internal tests that we had performed. Judge Infante has not ruled on the summary
judgment. A trial is still scheduled for mid-to-late 2001. If an adverse ruling
is ultimately reached on patent infringement against Macrovision, we may incur
legal competition from Dwight-Cavendish and a corresponding decline in demand
for our technology could have a material adverse effect on our business. If an
adverse ruling is ultimately reached on the counterclaims against Macrovision,
significant monetary damages may be levied against us.
We initiated a patent infringement lawsuit in March 1999 against Vitec Audio und
Video GmbH, a German company, which manufactures what we believe to be a video
copy protection circumvention device. Vitec filed a reply brief arguing that its
product does not infringe. The case was heard in the District Court of
Dusseldorf, Germany. The District Court of Dusseldorf ruled adversely against
us. We have in turn appealed the District Court's ruling in July 2000. We are
awaiting the Court of Appeal's decision. If an adverse ruling on the appeal is
ultimately reached against us, we may incur a corresponding decline in demand
for our video copy protection technology, which could harm our business in
Germany.
In November 1997, GLOBEtrotter filed a patent infringement lawsuit (Case No.
C-98-20419-JF/EAI) in the Federal District Court for the Northern District of
California against Elan Computer Group and its founder, Ken Greer, alleging
infringement of one of its patents and unfair competition and trade practices.
In December 1997, GLOBEtrotter added Wind River System to the patent
infringement suit. In March 1998, Rainbow Technologies North America, Inc.
entered into an agreement to purchase certain assets of Elan and entered into a
litigation cooperation agreement with Elan regarding pending GLOBEtrotter
litigation. Subsequently, GLOBEtrotter added Rainbow Technologies to the patent
infringement suit. Wind River Systems subsequently settled the litigation with
GLOBEtrotter in October 1998. Wind River Systems has since entered into a
license agreement with GLOBEtrotter to use FLEXlm. Rainbow Technologies and Ken
Greer filed separate counterclaims against GLOBEtrotte and its founder, Matthew
Christiano alleging antitrust violations, unfair competition, tortious
interference of business relations, and trade libel. Rainbow Technologies and
Ken Greer are seeking compensatory damages, punitive damages, injunctive relief,
and disgorgement of profits. GLOBEtrotter intends to defend the allegations in
the counterclaim vigorously. The patent infringement case has been bifurcated
from the counterclaims. In October 1999, Judge Fogel granted the motion for
partial summary judgment for non-
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infringement of claims 55-59 which was filed by Rainbow Technologies based on
Judge's Fogel claim construction order. In February 2000, GLOBEtrotter filed an
appeal with the Court of Appeals for the Federal Circuit on the summary
judgement of claims 55-59 based on erroneous claim construction. GLOBEtrotter
argued its case at the appeal hearing on October 2, 2000. GLOBEtrotter is
awaiting the CAFC's decision. The patent infringement trial is scheduled for
April 2001. The trial for the remaining claims and the counterclaims are
scheduled for September 2001. If an adverse ruling is ultimately reached on
patent infringement, GLOBEtrotter may incur legal competition from Rainbow
Technologies and a corresponding decline in demand for GLOBEtrotter's technology
could have a material adverse effect on its business. If an adverse ruling is
ultimately reached on the counterclaims against GLOBEtrotter, significant
monetary damages may be levied against GLOBEtrotter.
Item 2 - Changes in Securities
On August 31, 2000, the Company completed its acquisition of privately held
GLOBEtrotter Software, Inc. of San Jose, California. GLOBEtrotter is a leading
OEM supplier of B2B (business-to-business) electronic licensing and license
management technology to software vendors and the leading direct supplier of
software asset management products to corporate customers worldwide. We acquired
all the outstanding shares of GLOBEtrotter for 8,944,548 shares of Macrovision
common stock and assumed all vested and unvested GLOBEtrotter stock options in
exchange for options to purchase 821,852 shares of Macrovision common stock. The
Company did not register any of the shares of common stock of the Company issued
to the GLOBEtrotter shareholders. The California Commissioner of Corporations
held a hearing and determined the terms and conditions of the merger were fair.
Thus, the shares issued to the GLOBEtrotter shareholders were exempt under
Section 3 (00)(10) of the Securities Act of 1933.
Item 4 - Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on August 24, 2000.
(b) The Company's stockholders voted upon the following matters:
(1) Election of directors. All nominees were elected, with the votes
indicated below:
Authority
Name Votes For Withheld
John O. Ryan 35,798,658 487,570
William A. Krepick 35,798,658 487,570
Richard S. Matuszak 35,789,800 496,428
Donna S. Birks 35,020,425 1,265,803
William N. Stirlen 35,979,297 306,931
Thomas Wertheimer 35,979,160 307,068
(2) To amend the Company's Certificate of Incorporation to increase the
authorized number of shares of common stock from 50,000,000 to
250,000,000 shares. 25,768,398 votes were cast in favor of the
increase, 4,786,695 votes were cast against, 44,989 abstained and
there were 5,686,146 nonvotes.
(3) To approve the issuance of approximately 8,944,550 shares of the
Company's common stock in exchange for approximately 8,098,958
shares of GLOBEtrotter Software, Inc. so that Macrovision may
acquire GLOBEtrotter. 30,545,530 votes were cast in favor of the
acquisition, 6,970 votes were cast against, 47,582 abstained and
there were 5,686,146 nonvotes.
(4) To approve the creation of the Company's 2000 Equity Incentive Plan.
23,012,069 votes were cast in favor of the plan, 7,522,199 votes
were cast against, 65,814 abstained and there were 5,686,146
nonvotes.
(5) To approve an amendment to the Company's 1996 Directors Stock Option
Plan to authorize 126,000 additional shares to be available under
the Plan. 23,806,819 votes were cast in favor of the amendment,
6,716,791 votes were cast against, 76,472 abstained and there were
5,686,146 nonvotes.
(6) Appointment of KPMG LLP as auditors of the Company's financial
statements for the fiscal year ending December 31, 2000. 36,239,084
votes were cast in favor of the appointment, 4,697 votes were cast
against and there were 42,447 abstentions.
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Item 5 - Other Information.
On October 5, 2000, Macrovision acquired the assets of Manchester (UK) based
Productivity through Software plc ("PtS") which are applicable to PtS' license
management business. PtS has served as the exclusive European distributor for
Macrovision's GLOBEtrotter Software subsidiary since the early 1990s.
Macrovision's GLOBEtrotter subsidiary will form a European sales and support
group near Manchester which will consist of 18 former PtS employees who will
sell, service, and support GLOBEtrotter products in the United Kingdom and
throughout Europe.
On October 20, 2000, Macrovision made an additional equity investment of $21.8
million in Digimarc Corporation, the world leader in digital watermark
technology and applications. This increases Macrovision's equity interest in the
company to 12.5%.
On October 30, 2000, Macrovision appointed Matt Christiano, founder of
GLOBEtrotter Software, Inc. to Macrovision's Board of Directors bringing the
number of directors to a total of six.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 - 2000 Financial Data Schedule.
27.2 - 1999 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company filed one Current
Report on Form 8-K. On September 15, 2000, the Company reported on Form
8-K the acquisition of GLOBEtrotter Software, Inc.
SIGNATURES
In accordance with 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.
Macrovision Corporation
Date: November 14, 2000 By: /S/ William A. Krepick
------------------ ---------------------------------------------
William A. Krepick, President and Chief
Operating Officer
Date: November 14, 2000 By: /S/ Ian R. Halifax
------------------ ---------------------------------------------
Ian Halifax, Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
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