SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE PERIOD ENDED MARCH 31, 1996
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 0-22662
UNITED VIDEO SATELLITE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1290412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7140 SOUTH LEWIS AVENUE
TULSA, OKLAHOMA 74136-5422
(Address of principal executive offices) (Zip Code)
(918) 488-4000
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
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
--- ---
Number of shares outstanding of each of the registrant's classes of
common stock as of May 1, 1996:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 23,581,086
Class B Common Stock $.01 Par Value 12,373,294
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 49,468 $ 28,485
Marketable securities, at market 29,369 32,208
Accounts receivable, net of allowance
for doubtful accounts of $1,615 and
$1,788 at March 31, 1996 and
December 31, 1995, respectively 29,662 28,890
Accrued interest receivable 633 667
Prepaid expenses and other 6,561 5,960
Deferred tax asset 1,224 1,371
-------- --------
Total current assets 116,917 97,581
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 52,819 52,844
Goodwill, net of accumulated amortization
of $2,307 and $1,733 at March 31, 1996
and December 31, 1995, respectively 32,075 32,685
Deferred tax asset 596 475
Other assets 2,278 2,295
-------- --------
Total assets $204,685 $185,880
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,347 $ 4,976
Accrued liabilities 28,470 27,441
Current portion of capital lease
obligations and long-term debt 3,107 3,053
-------- --------
35,924 35,470
Customer prepayments 59,906 49,994
-------- --------
Total current liabilities 95,830 85,464
Deferred compensation 4,775 4,269
Capital lease obligations and
long-term debt 23,199 23,992
Minority interest 3,133 3,062
Stockholders' equity
Preferred stock, par value $.01
per share -- --
Class A common stock, par value $.01
per share 112 55
Treasury stock, at cost (77) --
Class B common stock, par value $.01
per share 248 124
Additional paid-in capital 30,641 29,507
Note receivable from stockholder (481) (472)
Retained earnings 47,305 39,879
-------- --------
Total stockholders' equity 77,748 69,093
-------- --------
Total liabilities and stockholders' equity $204,685 $185,880
======== ========
See accompanying notes.
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except share and per share amounts)
Three Months Ended
March 31,
1996 1995
---- ----
Revenues:
Satellite services $59,136 $52,435
Advertising sales 5,433 3,385
Systems integration services 8,700 --
Other 173 169
------- -------
73,442 55,989
Operating expenses:
Programming and delivery 31,573 27,534
Selling, general and administrative 26,986 17,151
Depreciation and amortization 3,580 2,544
------- -------
62,139 47,229
------- -------
Operating income 11,303 8,760
Other income (expenses), net 344 231
------- -------
Income before income taxes and
minority interest 11,647 8,991
Provision for income taxes (4,342) (3,277)
Minority interest in earnings (68) --
------- -------
Net income $ 7,237 $ 5,714
======= =======
Common and common equivalent
shares outstanding (1) 36,967,783 36,390,182
Earnings per share (1) $ 0.20 $ 0.16
(1) 1995 amounts adjusted for two-for-one stock split (See Note 4).
See accompanying notes.
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended
March 31,
1996 1995
---- ----
Operating activities:
Net income $ 7,237 $ 5,714
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,580 2,544
Amortization of bond premiums 83 208
Loss on asset dispositions -- 1
Minority interest in earnings 68 --
Loss from equity method affiliate -- 56
Deferred income taxes (94) (174)
Net deferral of compensation 506 334
Amortization of deferred lease expense (22) (11)
Changes in operating assets and liabilities:
Accounts receivable (772) (3,381)
Accrued interest receivable 34 42
Prepaid expenses and other (601) (2,070)
Accounts payable (629) (2,430)
Accrued liabilities 1,310 506
Customer prepayments 9,912 12,001
Other (6) 84
------- -------
Net cash provided by operating activities 20,606 13,424
Investing activities:
Capital expenditures (2,800) (1,706)
Purchases of marketable securities (2,757) (11,928)
Maturities of marketable securities 5,822 10,111
Other (270) (573)
------- -------
Net cash used in investing activities (5) (4,096)
Financing activities:
Repayment of capital lease obligations
and long-term debt (739) (690)
Issuance of stock 1,121 935
Decrease in notes receivable from stockholders -- 141
------- -------
Net cash provided by financing activities 382 386
------- -------
Net increase in cash and cash equivalents 20,983 9,714
Cash and cash equivalents at beginning of
period 28,485 32,524
------- -------
Cash and cash equivalents at end of period $49,468 $42,238
======= =======
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 456 $ 506
Income taxes paid 868 700
See accompanying notes.
4
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UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of United Video Satellite Group, Inc. ("UVSG" or the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended
March 31, 1996, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
2. Contingencies
On October 8, 1993, the Company received correspondence from
attorneys representing StarSight Telecast, Inc. ("StarSight") bringing
to the Company's attention the existence of three patents and various
patent applications containing claims relating to certain functions
performed by interactive television program scheduling services,
alleging that the Company is or may be infringing StarSight issued
patents, including U.S. Patent No. 4,706,121 and then pending
Reexamination Certificate B1 4,706,121 (collectively, the "121
Patent"), and claims of its pending patent applications, and
threatening the Company with enforcement litigation. On October 19,
1993, the Company filed an action in the United States District Court
for the Northern District of Oklahoma seeking a Declaratory Judgment to
the effect that the services offered by the Company do not infringe the
three United States patents issued to StarSight, including the 121
Patent. On October 22, 1993, StarSight filed a separate action in the
United States District Court for the Northern District of California,
alleging that certain of the Company's interactive services infringe
the 121 Patent. This action was dismissed by StarSight on May 25,
5
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UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1994. On July 16, 1994, the Company filed an Amended Complaint seeking
declaratory judgment that it did not infringe the three StarSight
patents listed in the original complaint as well as five other patents
licensed to StarSight. On July 19, 1994, StarSight refiled its
infringement claim against the Company as a counter-claim to the
Company's Amended Complaint. On February 15, 1995, the Company filed an
Amended and Supplemental Complaint which averred that the 121 Patent is
invalid, and not infringed, that the 121 Patent is unenforceable
because of StarSight's inequitable conduct in obtaining the patent and
its misuse of the patent, and that StarSight violated the antitrust
laws. The Company also sought a Declaratory Judgment that the five
other patents licensed to StarSight are not infringed by the Company.
The trial commenced on May 8, 1996 with respect to the validity,
infringement and inequitable conduct issues relative to the 121 Patent.
Discovery and trial of all other issues has been stayed. There can be
no assurance that this litigation will be resolved without material
adverse effect on the business prospects of the Company's Prevue
Interactive subsidiary and the future financial position or results of
operations of the Company.
The State of Illinois (the "State") has asserted that certain
uplinking services performed by the Company at its Chicago Teleport are
subject to the State's Telecommunications Excise Tax Act. The State
contends that the Company should have collected approximately $1.5
million in excise taxes from its customers during the period August
1985 through June 1994 and remitted such receipts to the State. In
addition to that amount, Illinois assessed penalties and interest of
approximately $900,000. The Company, after consulting with outside
counsel, strongly disagrees with the State's position. No provision has
been made in the Company's financial statements for this contingency,
nor has the Company collected from its customers and remitted this tax
(which would aggregate approximately $300,000 annually) for periods
subsequent to June 1994. However, pursuant to the State's Protest
Money Act which stops further accrual of interest during the appeals
process, the Company has paid into the Illinois Court approximately
$2.4 million, which represents the amount of the State's claim
applicable to the period August 1985 through June 1994. Also pursuant
to the State's Protest Money Act, the Company filed a Verified
Complaint for Injunctive and Other Relief in the Cook County Chancery
Court on February 28, 1995, and an Amended Verified Complaint on
October 6, 1995. Discovery is proceeding, and a status conference is
scheduled for June 11, 1996, at which time it is anticipated that a
trial date may be scheduled. While the Company believes that this
matter will not have a material adverse effect on its business or
results of operations, the ultimate resolution, which may occur within
one year, could result in a loss of up to $3 million.
6
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UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 20 and July 28, 1994, certain of the Company's Superstar
Satellite Entertainment wholesale programming distributors initiated a
complaint proceeding with the Federal Communications Commission ("FCC")
which alleges that Superstar is discriminating in its pricing of
superstation programming when compared to the rates cable television
operators pay for programming. Under the Cable Act of 1992 and the
FCC's current regulations, any finding of such discrimination may be
resolved only through the prospective reduction of the applicable
rates. Superstar has tentatively reached a settlement agreement with
the complainants, which was recorded in the fourth quarter of 1995.
The settlement had no significant impact on the Company's results of
operations.
The Company is also a party to certain other ordinary routine
claims, actions and proceedings incidental to its business, none of
which is expected to have a material adverse effect on the business,
financial position or results of operations of the Company.
3. Merger with Tele-Communications, Inc.
On January 25, 1996, the stockholders of the Company adopted the
Agreement and Plan of Merger dated as of July 10, 1995, as amended (the
"Merger Agreement"), among UVSG, Tele-Communications, Inc. ("TCI") and
TCI Merger Sub, Inc. ("Merger Sub"), pursuant to which Merger Sub was
merged into UVSG, with UVSG as the surviving corporation (the
"Merger"). The Merger was consummated later that same day.
Pursuant to the terms of the Merger Agreement, holders of Class A
Common Stock of UVSG (other than the then controlling stockholder) had
the right to elect to have up to half of their shares of Class A Common
Stock converted into "Merger Consideration" consisting of one share of
TCI's Redeemable Convertible TCI Group Preferred Stock, Series G, par
value $.01 per share and one share of TCI's Redeemable Convertible
Liberty Media Group Preferred Stock, Series H, par value $.01 per
share. A total of 5,557,696 (11,115,392 as adjusted for the stock
split, see Note 4) shares of Class A Common Stock were held by
stockholders who had the right to convert up to half of their shares
into Merger Consideration, and a total of 1,072,733 (2,145,466 as
adjusted for the stock split) shares were so converted.
In connection with the Merger, UVSG's then controlling stockholder
converted 6,186,647 (12,373,294 as adjusted for the stock split) of the
shares of Class B Common Stock of UVSG held by him into shares of Class
A Common Stock. Pursuant to the terms of the Merger Agreement, the
remaining 6,186,647 (12,373,294 as adjusted for the stock split) shares
of Class B Common Stock retained by UVSG's controlling stockholder were
converted into Merger Consideration.
7
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As a consequence of the foregoing transactions, TCI acquired
6,186,647 (12,373,294 as adjusted for the stock split) shares of Class
B Common Stock and 1,072,733 (2,145,466 as adjusted for the stock
split) shares of Class A Common Stock, together representing
approximately 40% of the issued and outstanding common stock of UVSG
and approximately 86% of the total voting power of UVSG common stock
immediately after the Merger, resulting in UVSG becoming a majority-
controlled subsidiary of TCI.
4. Stock Split
On February 8, 1996, the Board of Directors declared a two-for-one
split of the Company's Class A Common Stock and Class B Common Stock.
The stock split was effected in the form of a stock dividend on March
12, 1996 of one additional share of Class A Common Stock for each share
of Class A Common Stock outstanding and one additional share of Class B
Common Stock for each share of Class B Common Stock outstanding to
holders of record on February 22, 1996. The par value of the Class A
Common Stock and Class B Common Stock remained $.01 per share. The
Company had previously increased the number of authorized shares of
Class A Common Stock from 30 million shares to 60 million shares and
Class B Common Stock from 15 million shares to 30 million shares in
connection with the Merger. All references in the financial statements
to number of shares and per share amounts have been adjusted to reflect
the stock split where indicated.
5. Retail C-Band Home Satellite Dish Joint Venture
The Company has agreed, in principle, with Liberty Media
Corporation to combine the retail operations of the Company's Superstar
Satellite Entertainment division with those of Liberty Media
Corporation's Netlink USA business unit in a transaction in which both
entities would contribute their retail C-band home satellite dish
business' assets, obligations and operations to a new entity owned
equally by the Company and Liberty Media Corporation.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company operates six businesses: program promotion and guide
services (Prevue Networks), interactive information delivery services
(Prevue Interactive), home satellite and business services (Superstar),
satellite distribution of video services (UVTV), software development
and systems integration services (SSDS) and satellite transmission
services for private networks (SpaceCom).
The following table sets forth certain unaudited financial
information for the Company and each of the businesses operated by it
during the three months ended March 31, 1996 and 1995.
Three Months Ended March 31,
1996 1995
------------ -----------
Amount %(1) Amount %(1)
------ --- ------ ---
Revenues:
Prevue Networks (2) $11,378 15% $ 8,592 15%
Prevue Interactive 26 -- 10 --
Superstar 43,222 59 38,437 69
UVTV 6,573 9 6,231 11
SSDS (3) 8,700 12 -- --
SpaceCom 3,543 5 2,719 5
------- --- ------- ---
Total $73,442 100% $55,989 100%
======= === ======= ===
EBITDA (4):
Prevue Networks (2) $ 5,295 35% $ 3,693 33%
Prevue Interactive (793) (5) (901) (8)
Superstar 5,009 34 4,313 38
UVTV 4,324 29 4,051 36
SSDS (3) 462 3 -- --
SpaceCom 586 4 148 1
------- --- ------- ---
Total $14,883 100% $11,304 100%
======= === ======= ===
Operating income:
Prevue Networks (2) $ 3,795 34% $ 2,463 28%
Prevue Interactive (891) (8) (958) (11)
Superstar 4,586 41 3,955 45
UVTV 3,716 33 3,421 39
SSDS (3) (178) (2) -- --
SpaceCom 275 2 (121) (1)
------- --- ------- ---
Total $11,303 100% $ 8,760 100%
======= === ======= ===
Consolidated depreciation
and amortization $ 3,580 $ 2,544
Consolidated capital
expenditures 2,800 1,706
Consolidated cash flows from
operations 20,606 13,424
9
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(1) The percentages shown in the above table represent the percentage
of the Company's consolidated revenues, EBITDA or operating
income, as applicable, attributable to each of the businesses
operated by the Company.
(2) The revenues, EBITDA and operating income for Prevue Networks
include Prevue Channel, Sneak Prevue and other services offered
both domestically and internationally.
(3) The amounts shown in the above table for SSDS represent SSDS's
revenues, EBITDA and operating income included in the Company's
consolidated results of operations. The Company increased its
ownership interest in SSDS to 70% on July 20, 1995. Prior to that
date, the Company accounted for its investment in SSDS under the
cost method. Operating results of SSDS for the three months ended
March 31, 1995 are shown in the table below under Results of
Operations.
(4) "EBITDA" represents operating income, plus depreciation and
amortization. Financial analysts generally consider EBITDA to be
an appropriate measure of performance in the industries in which
the Company operates. EBITDA does not take into account
substantial costs of doing business, such as income taxes and
interest expense, and should not be considered as an alternative
to net income or to cash flow or to any other generally accepted
accounting principles measure of performance, liquidity or
financial position.
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Results of Operations
Consolidated
Revenues for the first three months of 1996 were $73.4 million, an
increase of $17.5 million, or 31%, over the same period in 1995. The
increase in revenues for the quarter is primarily due to increased
sales of satellite programming packages to home satellite dish owners,
revenues from system integration services by SSDS, which was acquired
in 1995, and increased advertising revenues by Prevue Networks.
Operating expenses were $62.1 million for the three months ended
March 31, 1996, compared to $47.2 million for the same period in 1995.
Operating expenses increased $14.9 million, or 32%, in 1996, compared
with 1995, primarily due to increased programming fees resulting from
the growth of Superstar's business, operating expenses of SSDS, which
were not consolidated in the prior year, and increased personnel costs
resulting from additional personnel.
Prevue Networks
The following table sets forth certain financial information for
Prevue Networks for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $11,378 $ 8,592
Operating expenses, before
depreciation and amortization 6,083 4,899
------- -------
EBITDA 5,295 3,693
Depreciation and amortization 1,500 1,230
------- -------
Operating income $ 3,795 $ 2,463
======= =======
EBITDA margin percentage 47% 43%
Operating margin percentage 33% 29%
Prevue Networks' revenues for the first three months of 1996 were
$11.4 million, an increase of $2.8 million, or 32%, over the prior
year's first three months. The increase was largely attributable to
national advertising revenues which grew $2.0 million, or 61%, over the
first quarter of 1995 due to growth in measured viewership and expanded
advertising air time. Domestic service fee revenues attributable to
Prevue Channel and Sneak Prevue increased $504,000, or 16%, and
$94,000, or 6%, respectively, for the quarter. Domestically, Prevue
11
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Channel subscriber counts increased by 4.1 million, or 12%, to 39.3
million as of March 31, 1996 compared to those as of March 31, 1995.
Sneak Prevue increased by 725,000 subscribers, or 3%, to 26.6 million
during the same period.
Operating expenses, excluding depreciation and amortization,
increased by $1.2 million, or 24%, during the first quarter of 1996
compared to the same period in 1995. The increase was due primarily to
the addition of new personnel required to support increased sales
volumes and development activities and to increases in incentive
compensation related to the financial performance of Prevue. Included
in operating expenses are the costs incurred by the Company in offering
Sneak Prevue, both domestically and internationally, and the Company's
international expansion.
Depreciation and amortization during the first three months of
1996 was $1.5 million, an increase of $270,000, or 22%, over the same
period in 1995. The increase in depreciation and amortization in 1996
was a result of the acquisition of additional customer control units
and video production equipment necessary to support the various Prevue
products.
Prevue Interactive
The following table sets forth certain financial information for
Prevue Interactive for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $ 26 $ 10
Operating expenses, before
depreciation and amortization 819 911
----- -----
EBITDA (793) (901)
Depreciation and amortization 98 57
----- -----
Operating loss $(891) $(958)
===== =====
Prevue Interactive generated no significant revenues during the
first three months of 1996 or 1995. The revenues in both 1996 and 1995
were primarily attributable to Quikvue, which launched in late 1994.
The Company believes the interactive market has the potential to yield
significant revenues in the future; however, the Company does not
believe there will be any significant increase in the amount of Prevue
Interactive's revenues during 1996.
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The Company's operating expenses, before depreciation and
amortization, decreased by $92,000, or 10%, during the first quarter of
1996 compared to the same period in 1995. This decrease was primarily
attributable to lower legal expenses associated with the StarSight
litigation (See Note 2 of Notes to Condensed Consolidated Financial
Statements). The Company expects this litigation to go to trial in
1996.
Depreciation and amortization during the first three months of
1996 was $98,000, an increase of $41,000 over the same period in 1995.
The increase in depreciation is primarily due to the acquisition of
computer equipment placed in cable systems to support the Quikvue
product.
Superstar
The following table sets forth certain financial information for
Superstar for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $43,222 $38,437
Operating expenses, before
depreciation and amortization 38,213 34,124
------- -------
EBITDA 5,009 4,313
Depreciation and amortization 423 358
------- -------
Operating income $ 4,586 $ 3,955
======= =======
EBITDA margin percentage 12% 11%
Operating margin percentage 11% 10%
Revenues generated by Superstar during the first three months of
1996 were $43.2 million, an increase of $4.8 million, or 12%, over the
same period in 1995. The increase was largely attributable to an
increase in the number of retail subscribers served, as well as growth
in commission income earned as service agent for a program supplier to
the direct broadcast satellite (DBS) market. Retail subscribers
purchasing programming directly from Superstar as of March 31, 1996
totaled approximately 495,000, an increase of 5,000, or 1%, during the
quarter and 45,000, or 10%, during the prior twelve months. During the
three month period ended March 31,1996, the industry remained
relatively flat, decreasing by 5,000 subscribers; however, for the
twelve month period ended March 31, 1996, the industry increased by
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84,000 subscribers, or 4%. Commission revenues from acting as a
service agent in the DBS market increased by approximately $1.4 million
in the first quarter of 1996 over those in the same period in 1995.
Operating expenses, excluding depreciation and amortization, were
$38.2 million in the first quarter of 1996, compared to $34.1 million
for the same period in 1995. The increase in operating expenses, before
depreciation and amortization, of $4.1 million, or 12%, in the first
quarter of 1996 as compared to the previous year's results was due
primarily to increased programming fees, which vary in relation to
revenues, and selling, general and administrative costs necessary to
service the growing customer base.
Depreciation and amortization for the first three months of 1996
was $423,000, an increase of $65,000, or 18%, over the same period in
1995. The increase in depreciation and amortization is a result of the
acquisition of additional data processing equipment and office
furniture necessitated by the increase in subscribers and employees and
an upgrade of the call center.
UVTV
The following table sets forth certain financial information for
UVTV for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $6,573 $6,231
Operating expenses, before
depreciation and amortization 2,249 2,180
------ ------
EBITDA 4,324 4,051
Depreciation and amortization 608 630
------ ------
Operating income $3,716 $3,421
====== ======
EBITDA margin percentage 66% 65%
Operating margin percentage 57% 55%
UVTV's revenues for the first three months of 1996 were $6.6
million, an increase of $342,000, or 5%, over the same period in 1995.
The increase in revenues results primarily from additional programming
services. UVTV/WGN subscribers increased by 2.2 million, or 7%, from
March 31, 1995 to March 31, 1996 and subscribers to UVTV/WPIX increased
by 35,000, or 2%, during that same period.
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Operating expenses, excluding depreciation and amortization, were
$2.2 million during the first quarter of 1996, an increase of $69,000,
or 3%, over those during the first quarter of 1995. The increase in
operating expenses results primarily from increased personnel costs.
Depreciation and amortization in the first quarter of 1996 was
$608,000, a reduction of $22,000, or 3%, compared to the same period in
1995.
SSDS
The following table sets forth certain financial information for
SSDS for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $8,700 $8,160
Operating expenses, before
depreciation and amortization 8,238 7,282
------ ------
EBITDA 462 878
Depreciation and amortization 139 108
------ ------
Operating income $ 323 $ 770
====== ======
EBITDA margin percentage 5% 11%
Operating margin percentage 4% 9%
The results of operations of SSDS have been consolidated with the
results of operations of the Company for reporting purposes subsequent
to July 20, 1995, the date the Company increased its ownership interest
in SSDS to 70%. The above table and following discussion are based on
the financial statements of SSDS, both prior to and subsequent to its
July 20, 1995 acquisition date and do not include the amortization of
goodwill resulting from the acquisition, which amounted to
approximately $501,000 for the period from January 1, 1996 through
March 31, 1996.
SSDS' revenues for the first three months of 1996 were $8.7
million, an increase of $540,000, or 7%, over the same period in 1995.
The increase in revenues during the first quarter of 1996 was primarily
due to increased revenues in the public sector. Revenues from the
public sector during the first quarter of 1995 were negatively impacted
by a contractual dispute on a government project. Commercial and
defense revenues were relatively flat compared to the same period in
the prior year. Defense revenues in the first quarter of 1996 were
negatively impacted by the severe weather conditions on the East coast
which virtually shut down the defense sector for most of one week.
15
<PAGE>
Operating expenses, before depreciation and amortization,
increased during the first quarter of 1996 by $956,000, or 13%, over
the same period in 1995. The increase in operating expense was
primarily due to the cost of additional technical personnel
commensurate with the increase in revenues, additional service
development costs to develop and enhance product delivery and the
payroll costs that were absorbed in overhead and not billable due to
the inclement weather conditions in the East.
Depreciation expense during the three months ended March 31, 1996
increased by $31,000 over the same period in 1995. The increase was the
result of ongoing infrastructure equipment upgrades and new equipment
to support the increase of new employees over the first quarter of
1995.
SpaceCom
The following table sets forth certain financial information for
SpaceCom for the three months ended March 31, 1996 and 1995:
Three Months ended March 31,
1996 1995
---- ----
Revenues $3,543 $2,719
Operating expenses, before
depreciation and amortization 2,957 2,571
------ ------
EBITDA 586 148
Depreciation and amortization 311 269
------ -------
Operating income (loss) $ 275 $ (121)
====== ======
EBITDA margin percentage 17% 5 %
Operating margin percentage 8% (4)%
Revenues generated by SpaceCom for the first three months of 1996
were $3.5 million, an increase of $824,000, or 30% over the same period
in 1995. The increase in revenues was attributable principally to
increased demand for channel space from SpaceCom's existing paging
customers. The transponder with SpaceCom's fastest growing service, FM
Cubed, had an occupancy of 84% as of March 31, 1996, compared to 42% as
of March 31, 1995.
Operating expenses, excluding depreciation and amortization, were
$3.0 million during the first quarter of 1996, compared to the same
period in 1995. The increase in operating expenses, before depreciation
and amortization, of $386,000, or 15%, in 1996 over 1995 resulted
primarily from increased compensation expenses as SpaceCom increased
the number of sales and engineering personnel.
16
<PAGE>
Depreciation and amortization in the first quarter of 1996 was
$311,000, an increase of $42,000, or 16%, over that in the same period
in 1995. The increase in depreciation and amortization was the result
of acquiring new assets to provide a wider range of services.
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary
source of funds to finance operating needs, capital expenditures and
investments. During the first quarter of 1996, net cash flows from
operating activities were $20.6 million, reflecting the continued
growth of the Company's after-tax earnings. This cash plus existing
cash resources were used to fund capital expenditures of $2.8 million
and the reduction in the Company's capitalized lease obligations of
$739,000 during the quarter.
At March 31, 1996, the Company's cash, cash equivalents and
marketable securities aggregated $78.8 million, an increase of $18.1
million over that as of December 31, 1995. The above total includes
$1.8 million of cash and cash equivalents held by SSDS, in which the
Company has a 70% ownership interest. The Company has invested the
majority of its cash available for current operations in investment
grade municipal governmental obligations. As of March 31, 1996,
approximately $29.4 million of such securities had maturities greater
than 90 days and, accordingly, were classified as available-for-sale
marketable securities. The Company's policy pertaining to the temporary
investment of cash available for operations currently prohibits
investments in fixed rate securities with maturities in excess of
eighteen months from the date of investment.
The Company has a credit agreement with a bank under which,
subject to certain conditions, the bank has agreed to lend up to $10.0
million on a revolving basis through March 30, 1997, at which time the
outstanding balance, if any, will convert to a five-year term
amortizing loan. Borrowings under this facility are guaranteed by the
Company's subsidiaries, excluding SSDS, and bear interest at the bank's
designated prime rate, the London Interbank Offering Rate ("LIBOR")
plus a margin or the Certificate of Deposit rate plus a margin. At
March 31, 1996, $150,000 in letters of credit and no borrowings were
outstanding under the credit facility. The Company has reached an
understanding with the bank and other lenders on the terms of a new
credit facility of up to $50 million which would replace the existing
credit agreement; however, the credit agreement has not been finalized.
In addition, SSDS has a revolving credit facility with a bank
which provides for unsecured borrowings up to $7.5 million, subject to
certain conditions, and which expires August 31, 1996. Borrowings
under this credit facility bear interest at the bank's designated prime
rate or LIBOR plus a margin. There were no borrowings outstanding
under this credit facility at March 31, 1996.
17
<PAGE>
The Company collects annually, in advance, a majority of its
Superstar subscription fees and certain of its UVTV superstation and
Prevue Networks' revenues. As of March 31, 1996, the unearned portion
of all prepayments totaled $59.9 million, of which approximately $45.1
million, or 75%, was attributable to Superstar. Aggregate unearned
prepayments increased by $9.9 million, or 20%, during the first quarter
of 1996 due to the disproportionate number of customer renewal
anniversaries which occur during the first quarter of each year.
Superstar generally offers a refund of unearned prepayments at the
customer's option if service is discontinued for any reason. In the
case of UVTV and Prevue Networks, the Company's liability is limited to
a refund of unearned prepayments in the event that the Company is
unable to provide service. No material refunds have been paid to date.
Under the terms of the capital leases for two satellite
transponders placed in service by UVTV and Prevue Networks in 1992, the
Company was obligated for net minimum lease payments through
approximately 2004 aggregating $25.8 million as of March 31, 1996, a
reduction of $739,000, or 3%, from the obligation existing at the prior
year's end. The Company expects to further reduce the lease obligation
during the next twelve months by approximately $3.1 million. The
Company also leases various other satellite transponders accounted for
as operating leases. These operating leases accounted for
approximately $1.1 million in operating expenses, net of sublease
revenue, during the first quarter of 1996.
Capital expenditures during the first quarter of 1996 of $2.8
million were principally attributable to the purchase of control units
provided to the Company's cable television customers and to data
processing equipment and furniture, fixtures and facilities used by the
Company.
In connection with development of its Prevue Interactive
technology and in defending itself against certain patent infringement
claims by StarSight, the Company made expenditures during the first
quarter of 1996 totaling approximately $1.0 million and estimates that
its total expenditures during 1996 will aggregate approximately $5.5
million. These expenditures for 1996 are expected to relate primarily
to (i) continued market testing of the Company's interactive
technology, (ii) on-going software development which will make the
Company's interactive technology compatible with new set-top
converters, (iii) the launch of Quikvue and Prevue Express to cable
television systems that acquire and install new set-top converters, and
(iv) continued patent litigation. The Company anticipates that
substantially all of the anticipated expenditures will be expensed as
incurred and will be funded by working capital and cash generated by
operations and from the Company's other available capital resources.
At the present time, the Company is unable to estimate the amount of
funds that will be necessary to implement its plan for the development
of its interactive technology or to develop additional applications for
such technology, as much depends on the pace of technological
developments, the response of cable television systems and their
18
<PAGE>
subscribers to initial interactive services and other factors beyond
the Company's control.
Prevue Networks is considering plans to install a MPEG II video
file server platform, including locally placed digital video file
servers, which will enable the Company to deliver existing and new
services in digitally compressed formats. The MPEG II video file
server will take the place of the current Sneak Prevue control unit and
laser player, by enabling all video and data to be delivered by
satellite. This new platform will be capable of supporting Prevue
Channel, Sneak Prevue and other services on one machine. The Company
expects to spend approximately $15 million, if they proceed, during the
next eighteen months to complete engineering design, acquire digital
transmission and receive equipment and begin the purchase of customer
premise hardware. The Company anticipates that these costs will be
funded by working capital and cash generated by operations and from the
Company's other available capital resources.
The Company believes that currently available cash and cash
equivalents, marketable securities, cash flow generated from operations
and funds available under its credit facility, will provide the
resources necessary to meet its working capital and related financing
needs for the foreseeable future and to pursue opportunities to expand
its businesses.
On February 8, 1996, the Board of Directors of the Company
approved a two-for-one split of the Company's common stock which was
effected in the form of a dividend on March 12, 1996 of one additional
share of Class A Common Stock of UVSG for each share of Class A Common
Stock outstanding and one additional share of Class B Common Stock of
UVSG for each share of Class B Common Stock outstanding to holders of
record on February 22, 1996.
On January 25, 1996, the stockholders of UVSG adopted the
Agreement and Plan of Merger dated as of July 10, 1995, as amended (the
"Merger Agreement"), among UVSG, TCI and TCI Merger Sub, Inc. ("Merger
Sub"), pursuant to which Merger Sub was merged into UVSG, with UVSG as
the surviving corporation (the "Merger"). The Merger was consummated
later that same day, resulting in UVSG becoming a majority-controlled
subsidiary of TCI (see Note 3 of Notes to Condensed Consolidated
Financial Statements contained in this report).
The Company has agreed, in principle, with Liberty Media
Corporation to combine the retail operations of Superstar with those of
Liberty Media Corporation's Netlink USA in a transaction in which both
entities would contribute their retail C-band home satellite dish
business' assets, obligations and operations to a new entity owned
equally by the Company and Liberty Media Corporation. Among other
things, the Company believes that the consolidation of UVSG's and
Liberty Media Corporation's retail C-band home satellite dish
businesses will provide the Company the opportunity to reduce its per
subscriber operating costs.
19
<PAGE>
The Company has been engaged in various discussions with TV Guide
On Screen, TCI's joint venture with News Corporation of America in the
electronic guide business, regarding possible business combinations or
joint ventures. The Company continues to explore this opportunity and
other opportunities to expand its existing businesses, develop new
products and acquire interests in new businesses.
Cautionary Statement
This report contains "forward looking statements" within the
meaning of the federal securities laws, including the installation of
new file servers by Prevue Networks, the Company's pursuit of certain
business activities and other statements of expectations, beliefs,
plans and similar expressions concerning matters that are not
historical facts. These statements are subject to risks and
uncertainties that could cause results to differ materially from those
expressed in the statements. Important factors that could cause such
differences include, but are not limited to, changes in the regulation
of the cable television industry adverse to the Company's services,
loss of the cable compulsory license provided by federal law, the
willingness of cable television systems to acquire and install new
equipment that will allow the Company effectively to market its
interactive technology, increased price and service competition within
the industry, the Company's ability to keep pace with technological
developments and the Company's dependence upon intellectual property
rights, including the Company's ability to defend itself against claims
by StarSight and others asserting infringement of their intellectual
property.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
In connection with the Merger, the Company's Certificate
of Incorporation and Bylaws were amended. The rights of the
holders of the Company's common stock following the
amendments to the Certificate of Incorporation and Bylaws are
different than under such documents before they were amended.
Below is a comparison of certain stockholder's rights with
respect to the Company's common stock before and after the
amendments to the Certificate of Incorporation and Bylaws.
The following comparison of stockholder rights does not
purport to be complete and is qualified in its entirety by
reference to the complete text of the Company's current
Certificate of Incorporation (the "Restated Certificate") and
Bylaws (the "Amended Bylaws") and such documents before they
were amended.
Authorized Capital Stock - UVSG's authorized
capitalization previously consisted of a total of 30,000,000
shares of Class A Common Stock, 15,000,000 shares of Class B
Common Stock and 2,000,000 shares of preferred stock. The
Restated Certificate increased the number of authorized
shares of Class A Common Stock to 60,000,000 shares, the
number of authorized shares of Class B Common Stock to
30,000,000 and left the number of shares of authorized
preferred stock unchanged. The rights of holders of Class A
Common Stock and Class B Common Stock under the previous
Certificate of Incorporation were identical in all respects
except for voting and conversion rights. Under the Restated
Certificate, the rights of holders of Class A Common Stock
and Class B Common Stock are identical in all respects except
for voting and conversion rights, with respect to dividends
and distributions payable in securities of UVSG or another
person and with respect to the type of consideration
receivable in a merger or consolidation. No shares of the
authorized preferred stock of UVSG are currently outstanding.
Voting Rights - Under the Restated Certificate,
Class A Common Stock continues to have one vote per share and
Class B Common Stock continues to have 10 votes per share.
The Restated Certificate provides that except where otherwise
required by law or with respect to any provisions of any
series of UVSG's preferred stock, the holders of Class A
Common Stock, Class B Common Stock and preferred stock
entitled to vote thereon shall vote together as one class
with respect to the election of directors and other matters,
including increasing or decreasing the number of authorized
shares of any class or series of stock, which provisions are
essentially unchanged from UVSG's previous Certificate of
Incorporation.
21
<PAGE>>
Conversion Rights - The Restated Certificate continues
to provide that shares of Class B Common Stock are
convertible into Class A Common Stock on a share-for-share
basis and that shares of Class A Common Stock cannot be
converted into Class B Common Stock.
Dividends and Share Distributions - UVSG's previous
Certificate of Incorporation provided that the holders of
Class A Common Stock and Class B Common Stock had the same
rights to dividends and share distributions, but that
dividends or share distributions in the form of either Class
A Common Stock or Class B Common Stock could only be paid to
holders of the same class of common stock. The Restated
Certificate, however, allows UVSG to pay dividends or make
share distributions to either class of common stock in the
form of Class A Common Stock, Class B Common Stock, other
securities of UVSG or securities of any other entity. The
Restated Certificate also provides that the holders of Class
A Common Stock and Class B Common Stock will be entitled to
receive dividends or share distributions on an equal per
share basis, with certain exceptions, which are summarized
below.
In the event that dividends or share distributions
consist of any class or series of securities of UVSG or
securities of any other corporation, partnership, limited
liability company, trust or other legal entity other than
Class A Common Stock or Class B Common Stock (and other than
securities of UVSG that are convertible into, exercisable for
or evidence the right to purchase any shares of Class A
Common Stock or Class B Common Stock), the Restated
Certificate allows holders of Class A Common Stock and Class
B Common Stock to receive such securities either (i) on the
basis of a distribution of identical securities, on an equal
per share basis, or (ii) on the basis of a distribution of
different series or classes to the holders of the Class A
Common Stock than to the holders of the Class B Common Stock;
provided, however, such different series or classes must not
differ in any respect other than their relative voting rights
and related differences in designation, conversion and share
distribution provisions with the holders of Class B Common
Stock receiving the series or class with the higher relative
voting rights. For distributions under clause (ii), such
voting rights may differ to a greater or lesser extent than
the corresponding differences in voting rights and related
differences in designation, conversion and share distribution
provisions between the Class A Common Stock and the Class B
Common Stock, except in the case of a dividend or share
distribution of securities of a subsidiary of UVSG, in which
case such rights shall not differ to a greater extent than
22
<PAGE>
the corresponding differences in voting rights, designation,
conversion and share distribution provisions between the
Class A Common Stock and the Class B Common Stock.
Board of Directors - The Restated Certificate
provides for a Board of Directors consisting of not less than
three members to be elected annually. The previous
Certificate of Incorporation provided for a staggered Board
of Directors, the members of which were elected for three-
year terms.
Election of Directors - Directors may be elected
under the Amended Bylaws by a plurality of the combined
voting power of the shares present in person or represented
by proxy at the meeting and entitled to vote on the election
of directors. Under the previous Certificate of Incorporation
and Bylaws, election of directors required the vote of a
majority of the voting power of all shares entitled to vote
on the election of directors. Stockholders do not have
cumulative voting rights.
Removal of Directors - The Restated Certificate
provides that subject to the rights of the holders of any one
or more classes or series of stock issued by UVSG voting
separately by class or series to elect directors, directors
may be removed with or without cause upon the affirmative
vote of the holders of at least 66 2/3% of the total voting
power of UVSG's outstanding voting stock. Under the previous
Certificate of Incorporation, the affirmative vote of at
least 80% of the total voting power of UVSG's outstanding
voting power was required to remove directors; and such
removal could only be for cause.
Special Meeting of Stockholders - Under the
previous Certificate of Incorporation and Bylaws, special
meetings of stockholders could be called only by the chairman
of the board or by the Board of Directors pursuant to the
affirmative vote of a majority of the directors then in
office. The Restated Certificate and the Amended Bylaws
provide that special meetings of stockholders may be called
by the Secretary of UVSG (i) upon the written request of 66
2/3% of the total voting power of the outstanding capital
stock of UVSG entitled to vote at such special meeting or
(ii) at the request of 66 2/3% of the members of the Board of
Directors then in office.
23
<PAGE>
Merger, Consolidation, Sale of Assets and
Dissolution -Under Delaware law, a merger, consolidation,
sale of substantially all the assets or dissolution of UVSG
may be authorized by the affirmative vote of a majority of
the voting power of the outstanding stock entitled to vote
thereon (whether or not present in person or represented by
proxy at the meeting). Neither the previous Certificate of
Incorporation nor the Restated Certificate requires any
greater percentage vote to approve such transactions. Under
UVSG's previous Certificate of Incorporation, the holders of
Class A Common Stock and Class B Common Stock were entitled
to receive the same per share consideration in the event of a
merger or consolidation. The Restated Certificate provides
that the holders of Class A Common Stock and Class B Common
Stock are entitled to receive, in the event of a merger or
consolidation, consideration of substantially equivalent
value as determined in good faith by the UVSG Board of
Directors, taking into account all relevant factors,
including, without limitation, the anticipated tax treatment
of such consideration to the holders of Class A Common Stock
and Class B Common Stock. To the extent that the holders of
the Class A Common Stock and the holders of the Class B
Common Stock are entitled to receive in any merger or
consolidation (pursuant to any election or otherwise),
securities that do not differ in any respect other than their
relative voting rights and related differences in
designation, conversion and share distribution provisions,
which differences would be permitted for securities
distributed in a share distribution, such relative voting
rights and related differences in designation, conversion and
share distribution provisions are to be disregarded in
determining the per share value of the consideration to be
received by the holders of the Class A Common Stock and the
holders of the Class B Common Stock.
Change in Control - UVSG's previous Certificate of
Incorporation and Bylaws contained provisions such as a
staggered Board of Directors and super-majority voting
requirements to amend certain provisions of the Certificate
of Incorporation and the Bylaws that may have an anti-
takeover effect. Those provisions have largely been
eliminated in the Restated Certificate and Amended Bylaws.
Amendments to Certificate of Incorporation - The
previous Certificate of Incorporation provided that the vote
of 80% of the voting power of the outstanding voting stock
was required to amend, repeal or adopt provisions to alter
the provisions of the Certificate of Incorporation governing
the number, term, rights and obligations of the Board of
Directors, the ability of the stockholders to act without a
meeting, special meetings of the stockholders, amendment of
bylaws, use of ballots in an election of directors and the
provision regarding the amendment of certain provisions
24
<PAGE>
in the Certificate of Incorporation. The Restated
Certificate does not contain such super-majority voting
requirements to adopt, amend or repeal the provisions of the
Restated Certificate.
Amendments to Bylaws - The previous Certificate of
Incorporation required the affirmative note of a majority of
the directors then in office to adopt, amend or repeal any
provision of the Bylaws and allowed stockholders to adopt,
amend or repeal any provision of the Bylaws by the
affirmative vote of 80% of the votes of the outstanding
capital stock generally entitled to vote in the election of
directors. The Restated Certificate provides that the
affirmative vote of not less than 66 2/3% of UVSG's directors
then in office is required to adopt, amend or repeal any
provision of UVSG's Bylaws.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's special meeting of
stockholders held on January 25, 1996, the Company submitted
for vote of the stockholders a proposal to adopt the
Agreement and Plan of Merger dated as of July 10, 1995, as
amended, among UVSG, TCI and TCI Merger Sub, Inc.;
129,264,946 votes of the Company's Class A Common Stock and
Class B Common Stock were entitled to be voted at the special
meeting and 125,453,711 votes of the shares were present in
person or by proxy. The proposal was approved with
125,316,568 (99.9%) votes for, 44,295 (<1%) votes against and
92,848 (<1%) votes abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
25
<PAGE>
(b) REPORTS ON FORM 8-K
On February 8, 1996, the Company filed a report on
Form 8-K announcing that on January 25, 1996, the
Company's stockholders adopted the Merger Agreement
among the Company, TCI and Merger Sub, pursuant to which
Merger Sub was merged into the Company, with the Company
as the surviving corporation. The Merger was
consummated later that same day and resulted in TCI
acquiring control of the Company from the Company's then
controlling stockholder.
On February 9, 1996, the Company filed a report on
Form 8-K announcing that on February 8, 1996, the Board
of Directors had approved a two-for-one split of the
Company's Class A Common Stock and Class B Common Stock
to be effected in the form of a stock dividend to
holders of record on February 22, 1996.
No other reports on Form 8-K were filed during the
first quarter of 1996.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
United Video Satellite Group, Inc.
(Registrant)
Date: May 10, 1996 /s/ Peter C. Boylan, III
----------------------------------
Peter C. Boylan, III
Executive Vice President and
Chief Financial Officer
27
<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME INCLUDED
IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996
OF UNITED VIDEO SATELLITE GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> UNITED VIDEO SATELLITE GROUP, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 49,468
<SECURITIES> 29,369
<RECEIVABLES> 31,910
<ALLOWANCES> 1,615
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<CURRENT-ASSETS> 116,917
<PP&E> 93,625
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<TOTAL-LIABILITY-AND-EQUITY> 204,685
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<TOTAL-REVENUES> 73,442
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