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 JUNE 30, 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 August 9, 1996:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 23,631,086
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)
June 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 46,344 $ 28,485
Marketable securities, at market 33,716 32,208
Accounts receivable, net of allowance
for doubtful accounts of $3,708 and
$1,788 at June 30, 1996 and
December 31, 1995, respectively 48,695 28,890
Accrued interest receivable 624 667
Prepaid expenses and other 9,337 5,960
Deferred tax asset 1,305 1,371
-------- --------
Total current assets 140,021 97,581
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 53,416 52,844
Goodwill, net of accumulated amortization
of $2,880 and $1,733 at June 30, 1996
and December 31, 1995, respectively 31,502 32,685
Deferred tax asset 642 475
Other assets 2,346 2,295
-------- --------
Total assets $227,927 $185,880
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,301 $ 4,976
Accrued liabilities 42,036 27,441
Current portion of capital lease
obligations and long-term debt 7,115 3,053
-------- --------
52,452 35,470
Customer prepayments 105,286 49,994
-------- --------
Total current liabilities 157,738 85,464
Deferred compensation 5,180 4,269
Capital lease obligations and
long-term debt 22,392 23,992
Minority interest (43,647) 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 31,285 29,507
Note receivable from stockholder (490) (472)
Retained earnings 55,186 39,879
-------- --------
Total stockholders' equity 86,264 69,093
-------- --------
Total liabilities and stockholders' equity $227,927 $185,880
======== ========
See accompanying notes.
2
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Satellite services $ 99,908 $55,523 $159,043 $107,958
Advertising sales 5,589 4,202 11,022 7,586
Systems integration
services 9,460 -- 18,160 --
Other 367 254 540 423
------- ------- ------- --------
115,324 59,979 188,765 115,967
Operating expenses:
Programming and
delivery 62,025 28,968 93,598 56,501
Selling, general
and administrative 34,000 18,750 60,986 35,901
Depreciation and
amortization 3,846 2,627 7,425 5,170
------- ------- ------- -------
99,871 50,345 162,009 97,572
------- ------- ------- -------
Operating income 15,453 9,634 26,756 18,395
Other income
(expenses), net 302 (40) 646 191
------- ------- ------- -------
Income before income
taxes and minority
interest 15,755 9,594 27,402 18,586
Provision for income
taxes (4,788) (3,563) (9,130) (6,841)
Minority interest
in earnings (3,135) -- (3,202) --
-------- ------- -------- --------
Net income $ 7,832 $ 6,031 $ 15,070 $ 11,745
======== ======= ======== ========
Common and common
equivalent shares
outstanding (1) 37,122 36,583 37,045 36,487
Earnings per
share (1) $ 0.21 $ 0.16 $ 0.41 $ 0.32
(1) 1995 amounts adjusted for two-for-one stock split (See Note 4).
See accompanying notes.
3
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended
June 30,
1996 1995
---- ----
Operating activities:
Net income $15,070 $11,745
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,425 5,170
Amortization of bond premiums 220 393
Loss on asset dispositions 4 11
Minority interest in earnings 3,202 --
Loss from equity method affiliate -- 115
Deferred income taxes (249) (245)
Net deferral of compensation 911 (324)
Amortization of deferred lease expense (44) 363
Changes in operating assets and
liabilities:
Accounts receivable (4,893) (4,356)
Accrued interest receivable 43 (179)
Prepaid expenses and other (3,068) (2,880)
Accounts payable (1,675) (1,412)
Accrued liabilities 1,006 1,104
Customer prepayments 4,248 7,160
Other (9) --
------- -------
Net cash provided by operating activities 22,191 16,665
Investing activities:
Capital expenditures (6,708) (4,268)
Purchases of marketable securities (15,553) (5,626)
Maturities of marketable securities 14,211 3,450
Other (266) (652)
------- -------
Net cash used in investing activities (8,316) (7,096)
Financing activities:
Repayment of capital lease obligations
and long-term debt (1,506) (1,391)
Borrowing under SSDS credit facility 3,968 --
Issuance of stock 1,522 935
Decrease in notes receivable
from stockholders -- 171
------- -------
Net cash provided by (used in)
financing activities 3,984 (285)
------- -------
Net increase in cash and cash equivalents 17,859 9,284
Cash and cash equivalents at beginning of
period 28,485 32,524
------- -------
Cash and cash equivalents at end of period $46,344 $41,808
======= =======
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 887 $ 1,018
Income taxes paid $ 8,330 $ 6,566
See accompanying notes.
4
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six-month period ended
June 30, 1996, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996. The operating results
include the results of the combined retail operations of the Company's
Superstar Satellite Entertainment division and Liberty Media
Corporation's Netlink division beginning on April 1, 1996. (See Note
5).
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
<PAGE>
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.
The trial is currently in adjournment and a date for resumption has not
been set, but is anticipated within the next few months. 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 currently aggregate approximately $350,000 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 the Company anticipates
filing dispositive motions within the near future. 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
<PAGE>
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 ("Superstar") wholesale programming
distributors initiated a complaint proceeding with the Federal
Communications Commission ("FCC") which alleged that Superstar was
discriminating in its pricing of superstation programming when compared
to the rates cable television operators pay for programming. Superstar
reached a final settlement agreement with the complainants and the FCC
order dismissing the complaints with prejudice was adopted June 17,
1996. 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
On August 9, 1996, the Company and Liberty Media Corporation
("Liberty") executed an amended and restated agreement (the
"Agreement") under which the Company's Superstar division and Liberty's
Netlink division will contribute their retail C-band home satellite
dish business' assets, obligations and operations, effective April 1,
1996, to a new entity owned 50% each by UVSG and Liberty. Liberty is a
wholly-owned subsidiary of TCI and, accordingly, for financial
reporting purposes, the combination will be accounted for as a merger
of businesses under common control, whereby the assets and obligations
of both Superstar and Netlink will be contributed to the venture at
their historical cost. The Agreement amends and restates a letter of
intent between the two parties to include necessary elements of the
basis upon which Superstar and Netlink are being combined. While
documentation for the combination was still being finalized, the new
venture commenced operating on a combined basis beginning April 1, 1996
in anticipation of the final agreement being documented as now
reflected in the Agreement. The operations of the combined businesses
have been consolidated, effective April 1, 1996, with the operating
results of the Company as the Company has voting control over the
venture's operations.
Assets being contributed by Liberty to the venture total $14.7
million and consist primarily of $14.4 million of accounts receivable.
These assets are subject to liabilities of $64.6 million, consisting of
$51.0 million of customer prepayments and $13.6 million of accrued
liabilities, which are being assumed by the venture. The Company is
contributing $10.3 million of assets to the venture, consisting
principally of $5.8 million of accounts receivable and $4.2 million of
property and equipment, which are subject to liabilities of $56.5
million, composed of $45.0 million of customer prepayments and $11.5
million of accounts payable and accrued liabilities, which are being
assumed by the venture.
The following pro forma financial information reflects the
Company's results of operations for the six-month periods ended June
30, 1996 and 1995 as though the retail operations had been combined as
of January 1, 1995:
Six Months Ended
June 30,
1996 1995
---- ----
(in thousands, except per share amounts)
Pro forma:
Revenues $227,096 $179,335
Net income $ 14,795 $ 9,115
Net income per share $ 0.40 $ 0.25
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 and six months ended June 30, 1996 and 1995.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- ------------
Amount %(1) Amount %(1) Amount %(1) Amount %(1)
------ --- ------ --- ------ --- ------ ---
(in thousands)
Revenues:
Prevue
Networks(2) $ 12,010 10% $ 9,715 16% $ 23,388 12% $ 18,306 16%
Prevue
Interactive 41 -- 8 -- 67 -- 18 --
Superstar(3) 83,537 73 39,524 66 126,759 67 77,961 67
UVTV 6,381 6 7,700 13 12,954 7 13,931 12
SSDS(4) 9,460 8 -- -- 18,160 10 -- --
SpaceCom 3,895 3 3,032 5 7,437 4 5,751 5
-------- --- ------- --- -------- --- -------- ---
Total $115,324 100% $59,979 100% $188,765 100% $115,967 100%
======== === ======= === ======== === ======== ===
EBITDA(5):
Prevue
Networks(2) $ 5,610 29% $ 3,849 31% $ 10,905 32% $ 7,542 32%
Prevue
Interactive (1,462) (8) (1,012) (8) (2,255) (7) (1,913) (8)
Superstar(3) 9,265 48 5,495 45 14,274 42 9,808 42
UVTV 4,295 22 3,762 31 8,619 25 7,813 33
SSDS(4) 720 4 -- -- 1,181 4 -- --
SpaceCom 871 5 167 1 1,457 4 315 1
-------- --- ------- --- -------- --- -------- ---
Total $ 19,299 100% $12,261 100% $ 34,181 100% $ 23,565 100%
======== === ======= === ======== === ======== ===
Operating income:
Prevue
Networks(2) $ 3,986 26 $ 2,569 27% $ 7,781 29% $ 5,032 27%
Prevue
Interactive (1,561)(10) (1,078)(11) (2,452) (9) (2,036) (11)
Superstar(3) 8,817 57 5,119 53 13,403 50 9,074 49
UVTV 3,682 24 3,129 32 7,398 28 6,551 36
SSDS(4) 21 -- -- -- (157) (1) -- --
SpaceCom 508 3 (105) (1) 783 3 (226) (1)
-------- --- ------- --- -------- --- -------- ---
Total $ 15,453 100% $ 9,634 100% $ 26,756 100% $ 18,395 100%
======== === ======= === ======== === ======== ===
Consolidated
depreciation
and amorti-
zation $ 3,846 $ 2,627 $ 7,425 $ 5,170
Consolidated
capital
expenditures $ 3,908 $ 2,562 $ 6,708 $ 4,268
Consolidated
cash flows
from
operations $ 1,585 $ 3,241 $ 22,191 $ 16,665
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 Superstar represent
Superstar's revenues, EBITDA and operating income included in the
Company's consolidated results of operations. Beginning April 1,
1996, these operating results include the combined retail
operations of Superstar and those of Liberty Media Corporation's
Netlink division.
(4) 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 six months ended
June 30, 1995 are shown in the table below under Results of
Operations - SSDS.
(5) "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.
10
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Results of Operations
Consolidated
Revenues for the three months ended June 30, 1996 were $115.3
million, an increase of $55.3 million, or 92%, over the same period in
1995. For the six months ended June 30, 1996, revenues were $188.8
million, an increase of $72.8 million, or 63%, over the corresponding
1995 period. The increases in revenues for the quarter and six-month
period are primarily due to $40.0 million of additional revenues
attributable to Liberty Media Corporation's Netlink division retail
operations ("Netlink") which were combined with those of Superstar's
retail operations effective April 1, 1996, revenues from system
integration services by SSDS, which was acquired in 1995, and increased
advertising revenues by Prevue Networks.
Operating expenses, excluding depreciation and amortization, were
$96.0 million for the three months ended June 30, 1996, an increase of
$48.3 million, or 101%, when compared to $47.7 million for the same
period in 1995. For the six months ended June 30, 1996, operating
expenses, excluding depreciation and amortization, were $154.6 million,
an increase of $62.2 million, or 67%, over the corresponding 1995
period. Operating expenses, excluding depreciation and amortization,
increased primarily due to increased operating costs of $36.8 million
attributable to Netlink, operating expenses of SSDS (which were not
consolidated in the prior year) and increased personnel costs resulting
from additional personnel.
11
<PAGE>
Prevue Networks
The following table sets forth certain financial information for
Prevue Networks for the three months and six months ended June 30, 1996
and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $12,010 $9,715 $23,388 $18,306
Operating expenses,
before depreciation
and amortization 6,400 5,866 12,483 10,764
------- ------- ------- -------
EBITDA 5,610 3,849 10,905 7,542
Depreciation and
amortization 1,624 1,280 3,124 2,510
------- ------- ------- -------
Operating income $ 3,986 $ 2,569 $ 7,781 $ 5,032
======= ======= ======= =======
EBITDA margin
percentage 47% 40% 47% 41%
Operating margin
percentage 33% 26% 33% 27%
Prevue Networks' revenues for the three months ended June 30, 1996
were $12.0 million, an increase of $2.3 million, or 24%, over the same
period in 1995. For the six months ended June 30, 1996, revenues were
$23.4 million, an increase of $5.1 million, or 28%, over the
corresponding 1995 period. The increases during both periods were
largely attributable to national advertising revenues which grew $1.4
million, or 33%, over the second quarter of 1995 and $3.4 million, or
45%, over the first six months of 1995 due to growth in measured
viewership. Domestic service fee revenues attributable to Prevue
Channel and Sneak Prevue increased $763,000, or 22%, and $114,000, or
7%, respectively, for the quarter and $1.3 million, or 19%, and
$207,000, or 7%, respectively, for the six-month period when compared
to the same respective 1995 periods. Domestically, Prevue Channel
subscriber counts increased by 3.8 million, or 10%, to 40.7 million as
of June 30, 1996 compared to those as of June 30, 1995. Sneak Prevue
increased by 384,000 subscribers, or 1%, to 26.3 million during the
same period.
Operating expenses, excluding depreciation and amortization,
increased by $534,000, or 9%, during the second quarter of 1996 and by
$1.7 million, or 16%, for the first six months of 1996 when compared to
the same periods in 1995. The increases were 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
and the Company's international expansion.
Depreciation and amortization during the second quarter of 1996
was $1.6 million, an increase of $344,000, or 27%, over the same period
in 1995. For the six months ended June 30, 1996, depreciation and
amortization increased $614,000, or 24%, over the same period in 1995.
The increases in depreciation and amortization in 1996 were a result of
the acquisition of additional customer control units and video
production equipment necessary to support the various Prevue products.
12
<PAGE>
Prevue Interactive
The following table sets forth certain financial information for
Prevue Interactive for the three months and six months ended June 30,
1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $ 41 $ 8 $ 67 $ 18
Operating expenses,
before depreciation
and amortization 1,503 1,020 2,322 1,931
------- ------- ------ ------
EBITDA (1,462) (1,012) (2,255) (1,913)
Depreciation and
amortization 99 66 197 123
------- ------- ------- -------
Operating loss $(1,561) $(1,078) $(2,452) $(2,036)
======= ======= ======= =======
Prevue Interactive generated no significant revenues during the
first six 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.
The Company's operating expenses, before depreciation and
amortization, increased by $483,000, or 47%, during the second quarter
of 1996 compared to the same period in 1995. Operating expenses, before
depreciation and amortization, were $2.3 million for the six months
ended June 30, 1996, an increase of $391,000, or 20%, from the
corresponding 1995 period. The increases during both periods were
primarily attributable to higher legal expenses associated with the
StarSight litigation. The trial associated with this litigation
commenced on May 8, 1996. (See Note 2 of Notes to Condensed
Consolidated Financial Statements).
Depreciation and amortization during the second quarter of 1996
was $99,000, an increase of $33,000, or 50%, over the same period in
1995. For the first six months of 1996, depreciation and amortization
increased $74,000, or 60%, over the first six months of 1995. The
increases in depreciation were primarily due to the acquisition of
computer equipment placed in cable systems to support the Quikvue
service.
13
<PAGE>
Superstar
The following table sets forth certain financial information for
Superstar for the three months and six months ended June 30, 1996 and
1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $83,537 $39,524 $126,759 $77,961
Operating expenses,
before depreciation
and amortization 74,272 34,029 112,485 68,153
------- ------- -------- -------
EBITDA 9,265 5,495 14,274 9,808
Depreciation and
amortization 448 376 871 734
------- ------- -------- -------
Operating income $ 8,817 $ 5,119 $ 13,403 $ 9,074
======= ======= ======== =======
EBITDA margin
percentage 11% 14% 11% 13%
Operating margin
percentage 11% 13% 11% 12%
Revenues generated by Superstar for the three months ended June
30, 1996 were $83.5 million, an increase of $44.0 million, or 111%,
over the same period in 1995. For the six months ended June 30, 1996,
revenues were $126.8 million, an increase of $48.8 million, or 63%,
over the corresponding period in 1995. Included in the revenue
increases for both periods are approximately $40.0 million of revenues
attributable to Netlink's operations which were combined with those of
Superstar's effective April 1, 1996. Also contributing to the increases
were 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 and Netlink
as of June 30, 1996 totaled approximately 941,000, relatively unchanged
during the quarter and an increase of 25,000 during the prior twelve
months compared to the aggregate Superstar and Netlink subscribers then
existing. During the quarter ended June 30, 1996, the industry declined
1%, decreasing by 24,000 subscribers; however, for the twelve month
period ended June 30, 1996, the industry increased by 16,000
subscribers, or 1%. Commission revenues from acting as a service agent
in the DBS market increased by approximately $1.9 million and $3.3
million in the second quarter and first six months of 1996,
respectively, over those in the same periods in 1995. The current
contract governing the commissions earned as a service agent in the DBS
market expires December 31, 1996 with commissions on subscribers
serviced continuing to be earned through 1999. Negotiations for a
renewal of the contract are in process.
Operating expenses, excluding depreciation and amortization, were
$74.3 million in the second quarter of 1996, compared to $34.0 million
for the same period in 1995. For the first six months of 1996,
operating expenses, excluding depreciation and amortization, increased
$44.3 million, or 65%, over the same period in 1995. The increases in
operating expenses, before depreciation and amortization, in the second
quarter and first six months of 1996 as compared to the previous year's
results were due primarily to the expenses attributed to Netlink,
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 second quarter of 1996 was
$448,000, an increase of $72,000, or 19%, over the second quarter of
1996. Depreciation and amortization for the first six months of 1996
was $871,000, an increase of $137,000, or 19%, over the same period in
1995. The increases in depreciation and amortization for both periods
were 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.
14
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months and six months ended June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $6,381 $7,700 $12,954 $13,931
Operating expenses,
before depreciation
and amortization 2,086 3,938 4,335 6,118
------ ------ ------- -------
EBITDA 4,295 3,762 8,619 7,813
Depreciation and
amortization 613 633 1,221 1,262
------ ------ ------- -------
Operating income $3,682 $3,129 $ 7,398 $ 6,551
====== ====== ======= =======
EBITDA margin
percentage 67% 49% 67% 56%
Operating margin
percentage 58% 41% 57% 47%
UVTV's revenues for the three months ended June 30, 1996 were $6.4
million, a decrease of $1.3 million, or 17%, from the same period in
1995. For the six months ended June 30, 1996, revenues were $13.0
million, a decrease of $1.0 million, or 7%, from the corresponding 1995
period. The decreases in revenues for both periods results primarily
from $1.5 million of non-recurring 1995 revenues related to the
promotion of a pay-per-view boxing event in the second quarter of 1995.
Partially offsetting these non-recurring 1995 revenues were increases
in revenues for both periods from UVTV/WGN programming services.
UVTV/WGN subscribers increased by 2.2 million, or 7%, from June 1995 to
June 1996.
Operating expenses, excluding depreciation and amortization, were
$2.1 million during the second quarter of 1996, a decrease of $1.9
million, or 47%, from those during the second quarter of 1995. For the
six months ended June 30, 1996, operating expenses, excluding
depreciation and amortization, decreased $1.8 million, or 29%, from the
corresponding period in 1995. The decreases in operating expenses for
both periods results primarily from non-recurring 1995 expenses
associated with the pay-per-view boxing event and cost saving measures
implemented in 1996.
Depreciation and amortization in the second quarter of 1996 was
$613,000, a reduction of $20,000, or 3%, compared to the same period in
1995. For the six months ended June 30, 1996, depreciation and
amortization was $1.2 million, $41,000, or 3%, lower than for the same
period in 1995.
15
<PAGE>
SSDS
The following table sets forth certain financial information for
SSDS for the three months and six months ended June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $9,460 $7,872 $18,160 $16,032
Operating expenses,
before depreciation
and amortization 8,740 7,644 16,979 14,926
------ ------ ------ -------
EBITDA 720 228 1,181 1,106
Depreciation and
amortization 196 82 333 190
------ ------ ------ -------
Operating income $ 524 $ 146 $ 848 $ 916
====== ====== ======= =======
EBITDA margin
percentage 8% 3% 7% 7%
Operating margin
percentage 6% 2% 5% 6%
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 $503,000 and $1.0 million for the second quarter and six
months ended June 30, 1996, respectively.
SSDS' revenues for the second quarter of 1996 were $9.5 million,
an increase of $1.6 million, or 20%, compared to the second quarter of
1995. Revenues for the first six months of 1996 were $18.2 million, an
increase of $2.1 million, or 13%, over the same period in 1995. The
increases in revenues during the second quarter and first six months of
1996 were 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 periods 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.
Operating expenses, before depreciation and amortization,
increased during the second quarter of 1996 by $1.1 million, or 14%,
over the same period in 1995 to $8.7 million. The increase in operating
expense during the second quarter was primarily due to the cost of
additional technical personnel commensurate with the increase in
revenues and additional service development costs to develop and
enhance product delivery. For the six months ended June 30, 1996,
operating expenses, excluding depreciation and amortization, increased
$2.1 million, or 14%, from the corresponding 1995 period. The increase
in operating expense during the first six months results primarily from
the causes explained for the second quarter increases and payroll costs
that were absorbed in overhead and not billable due to inclement
weather conditions on the East coast during the first quarter of 1996.
Depreciation expense during the second quarter of 1996 was
$196,000, an increase of $114,000, or 139%, over the second quarter of
1995. Depreciation expense during the six months ended June 30, 1996
increased by $143,000, or 75%, over the same period in 1995. The
increases in both periods were the result of ongoing infrastructure
equipment upgrades and new equipment to support the increase of new
employees over 1995.
16
<PAGE>
SpaceCom
The following table sets forth certain financial information for
SpaceCom for the three months and six months ended June 30, 1996 and
1995:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Revenues $3,895 $3,032 $7,437 $5,751
Operating expenses,
before depreciation
and amortization 3,024 2,865 5,980 5,436
------ ------ ------ ------
EBITDA 871 167 1,457 315
Depreciation and
amortization 363 272 674 541
------ ------ ------ ------
Operating income $ 508 $ (105) $ 783 $ (226)
====== ====== ====== ======
EBITDA margin
percentage 22% 6 % 20% 5 %
Operating margin
percentage 13% (3)% 11% (4)%
SpaceCom's revenues for the three months ended June 30, 1996 were
$3.9 million, an increase of $863,000, or 28%, over the same period in
1995. For the six months ended June 30, 1996, revenues were $7.4
million, an increase of $1.7 million, or 29%, over the corresponding
1995 period. The increases in revenues in both periods were
attributable principally to increased demand for channel space from
SpaceCom's existing paging customers. SpaceCom's transponders had an
average occupancy, based on revenue dollars, of 68% as of June 30,
1996, compared to 51% as of June 30, 1995.
Operating expenses, excluding depreciation and amortization, were
$3.0 million during the second quarter of 1996, an increase of
$159,000, or 6%, compared to the same period in 1995. During the six
months ended June 30, 1996, operating expenses, excluding depreciation
and amortization increased $544,000, or 10%, over the corresponding
1995 period. The increases in operating expenses, before depreciation
and amortization, for both periods resulted primarily from increased
compensation expenses as SpaceCom increased the number of sales and
engineering personnel.
Depreciation and amortization in the second quarter of 1996 was
$363,000, an increase of $91,000, or 33%, over that in the same period
in 1995. For the six months ended June 30, 1996, depreciation and
amortization was $674,000, an increase of $133,000, or 25%, over the
corresponding 1995 period. The increases in depreciation and
amortization for both periods were the result of acquiring new assets
to provide a wider range of services.
17
<PAGE>
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 six months of 1996, net cash flows from
operating activities were $22.2 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 $6.7 million
and the reduction in the Company's capitalized lease obligations of
$1.5 million during the six-month period.
At June 30, 1996, the Company's cash, cash equivalents and
marketable securities aggregated $80.1 million, an increase of $19.4
million over that as of December 31, 1995. The above total includes
$2.4 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 June 30, 1996,
approximately $33.7 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
June 30, 1996, $150,000 in letters of credit and no borrowings were
outstanding under the credit facility.
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 $4.0 million of borrowings
outstanding under this credit facility at June 30, 1996.
18
<PAGE>
The Company collects annually, in advance, a majority of its
Superstar and Netlink retail subscription fees and certain of its UVTV
superstation and Prevue Networks' revenues. As of June 30, 1996, the
unearned portion of all prepayments totaled $105.3 million, of which
approximately $94.0 million, or 89%, was attributable to the combined
retail operations of Superstar and Netlink. Aggregate unearned
prepayments increased by $55.3 million, or 111%, during the first six
months of 1996 primarily due to the customer prepayments associated
with Netlink's retail operations, which were combined with those of
Superstar's effective April 1, 1996. Superstar and Netlink generally
offer 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 $25.0 million as of June 30, 1996, a
reduction of $1.5 million, or 6%, 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 $2.8 million in operating expenses, net of sublease
revenue, during the six months ended June 30, 1996.
Capital expenditures during the six months ended June 30, 1996 of
$6.7 million were principally attributable to the purchase of digital
control units for use by Prevue 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 six
months of 1996 totaling approximately $2.6 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
subscribers to initial interactive services and other factors beyond
the Company's control.
19
<PAGE>
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.
The Company announced on June 26, 1996 that the Company and News
Corporation ("News Corp") had signed a letter of intent to combine
their efforts in the electronic program guide market, including the
development of the next generation of interactive television guides.
The Company will contribute its Prevue Networks business to the new
venture in exchange for a 50% ownership interest in the venture. In
addition, the Company will contribute its Prevue Interactive business
in exchange for a preferential return. News Corp will contribute $126
million in cash and $9 million in other assets to the venture in
exchange for a 50% ownership interest in the venture. Additionally,
News Corp and TCI will contribute the operations of TV Guide on Screen,
TCI's joint venture with News Corp, in exchange for a preferential
return. The venture will be consolidated with the operating results of
the Company for financial reporting purposes. The new venture has also
agreed in principle on the terms of a master affiliation agreement with
a subsidiary of TCI and their affiliates for its products which
includes substantial subscriber penetration commitments and an
agreement to launch the venture's planned digital interactive guide.
Negotiations are in process on definitive agreements. The Company
continues to explore this opportunity and other opportunities to expand
its existing businesses, develop new products and acquire interests in
new businesses.
In connection with the venture discussed above, Prevue Networks is
re-evaluating the timing and scope of its previously announced plans to
install a MPEG II video file server platform, including locally placed
digital video file servers, which would enable the Company to deliver
existing and new services in digitally compressed formats.
Cautionary Statement
This report contains "forward looking statements" within the
meaning of the federal securities laws, including the possible
installation of new file servers by Prevue Networks, the Company's
negotiations with News Corp and 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 reach agreement on the terms of the joint venture with News
Corp, 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
The trial with respect to the validity, infringement and
inequitable conduct issues relative to StarSight Telecast,
Inc.'s U.S. Patent No. 4,706,121 and pending Reexamination
Certificate B1 4,706,121, which commenced on May 8, 1996, is
currently in adjournment and a date for resumption has not
been set.
Superstar Satellite Entertainment reached a final settlement
agreement with certain wholesale programming distributors
who had initiated a complaint proceeding with the Federal
Communications Commission ("FCC") alleging that Superstar
was discriminating in its pricing of superstation
programming when compared to the rates cable television
operators pay for programming. The FCC order dismissing the
complaints with prejudice was adopted June 17, 1996.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's annual meeting of
stockholders held on May 15, 1996, the Company submitted for
vote of the stockholders the following matters; 147,314,026
votes of the Company's Class A Common Stock and Class B
Common Stock were entitled to be voted at the meeting and
132,517,462 votes of the shares were present in person or by
proxy:
a) the election of directors to serve until the annual
meeting of stockholders in 1997. The nominees
recommended by management and the board of directors were
elected; each nominee received 132,490,177 votes for and
27,285 votes were withheld.
b) the ratification and approval of the United Video
Satellite Group, Inc. Stock Option Plan for Non-Employee
Directors (the "Plan"). The Plan was so ratified and
approved with 132,296,572 votes for, 214,550 votes
against and 6,090 votes abstaining.
c) the ratification of the selection by the Board of
Directors of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31,
1996. The selection was so ratified with 132,510,747
votes for, 2,865 votes against and 3,850 votes
abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
10 Stock Option Plan for Non-Employee Directors
27 Financial Data Schedule
b) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the second
quarter of 1996.
On August 9, 1996, the Company filed a report on Form 8-K
reporting the execution of an agreement governing the
formation of Superstar/Netlink Group LLC.
21
<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: August 13, 1996 /s/ Peter C. Boylan, III
----------------------------------
Peter C. Boylan, III
Executive Vice President and
Chief Financial Officer
22
<PAGE>
<TABLE> <S> <C>
<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 JUNE 30, 1996 OF UNITED
VIDEO SATELLITE GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000913061
<NAME> UNITED VIDEO SATELLITE GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 46,344
<SECURITIES> 33,716
<RECEIVABLES> 52,403
<ALLOWANCES> 3,708
<INVENTORY> 0
<CURRENT-ASSETS> 140,021
<PP&E> 97,494
<DEPRECIATION> 44,078
<TOTAL-ASSETS> 227,927
<CURRENT-LIABILITIES> 157,738
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 85,904
<TOTAL-LIABILITY-AND-EQUITY> 227,927
<SALES> 0
<TOTAL-REVENUES> 188,765
<CGS> 0
<TOTAL-COSTS> 101,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,402
<INCOME-TAX> 9,130
<INCOME-CONTINUING> 15,070
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<EPS-PRIMARY> .41
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</TABLE>
UNITED VIDEO SATELLITE GROUP, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective April 24, 1996
1
<PAGE>
TABLE OF CONTENTS
ARTICLE I GENERAL 1
1.1 Definition 1
1.2 Nature of Options 1
ARTICLE II OPTIONS
2.1 Participation 1
2.2 Grant 2
2.3 Terms 2
ARTICLE III AUTHORIZED STOCK 4
3.1 The Stock 4
3.2 Adjustments for Stock Split, Stock Dividend, Etc. 5
3.3 Adjustments for Distributions of Indebtedness,
Securities or Assets 5
3.4 No Rights as Stockholder 5
3.5 Fractional Shares 5
ARTICLE IV CORPORATE REORGANIZATION; CHANGE OF CONTROL 5
4.1 Reorganization 5
4.2 Required Notice 6
4.3 Acceleration of Exercisability 6
4.4 Change of Control 6
ARTICLE V GENERAL PROVISIONS 7
5.1 Expiration 7
5.2 Amendments, Etc. 7
5.3 Treatment of Proceeds 7
5.4 Effectiveness 7
5.5 Fair Market Value 7
5.6 Section Headings 8
5.7 Severability 8
5.8 Rule 16b-3 8
2
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
The board of directors of United Video Satellite Group, Inc., a
Delaware corporation (the "Company"), hereby establishes the United
Video Satellite Group, Inc. Stock Option Plan for Non-Employee
Directors (the "Plan"), effective April 24, 1996 (the "Effective
Date"), subject to approval of the Company's stockholders.
PURPOSED
The purposes of the Plan are to provide to certain directors of
the Company, who are not also employees of the Company, added incentive
to continue in the service of the Company and a more direct interest in
the future success of the operations of the Company by granting to such
directors options ("Options") to purchase shares of the $0.01 par value
Class A common stock (the "Stock") of the Company upon the terms and
conditions described below.
ARTICLE I
GENERAL
1.1 Definition. For purposes of the Plan and as used herein, a
"non-employee director" is an individual who (a) is a member of the
Board of Directors of the Company (the "Board") and (b) is not an
employee of the Company. For purposes of the Plan, an employee is an
individual who receives wages from the Company that are subject to
withholding of federal income tax under section 3401 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"). A non-
employee director to whom an Option is granted is referred to herein as
a "Holder."
1.2 Nature of Options. The Options granted hereunder shall be
options that do not satisfy the requirements of section 422 of the
Code.
3
<PAGE>
ARTICLE II
OPTIONS
2.1 Participation. The non-employee directors on the Effective
Date and each non-employee director elected thereafter shall receive
Options to purchase Stock in accordance with Section 2.2 on the terms
and conditions herein described.
2.2 Grant.
(a) Initial Grant. Each individual who is a non-employee
director on the Effective Date shall automatically receive an Option to
purchase 15,000 shares of Stock.
(b) Newly-Elected Directors. Each non-employee director
who is newly elected to the Board after the Effective Date shall
automatically receive, at the time of such election, an Option to
purchase shares of Stock if shares are then available for grant
hereunder. Each Option granted pursuant to this Section 2.2(b) shall
entitle the newly elected non-employee director to purchase
15,000 shares of Stock, unless insufficient shares are available for
grant, in which case such director shall receive an Option to purchase
the number of shares available for grant (if the sole director elected)
or an Option to purchase his or her pro rata portion of the shares that
are available for grant (if more than one director is elected at that
time).
(c) Date of Grant. The date on which a non-employee
director receives an Option hereunder is referred to as the date of
grant of such Option.
(d) Option Agreements. Each Option granted under the Plan
shall be evidenced by a written stock option agreement (an "Option
Agreement") with the non-employee director to whom the Option is
granted. The Option Agreement shall incorporate and conform to the
terms and conditions set forth herein.
2.3 Terms. Options issued pursuant to the Plan shall have the
following terms and conditions in addition to those set forth elsewhere
herein:
(a) Number. Each non-employee director shall receive
under the Plan, Options to purchase the number of shares of Stock
specified in Section 2.2, subject to adjustment as provided in
Article III. Such grants shall be effective at the times specified in
Section 2.2.
(b) Price. The price at which each share of Stock covered
by the Option may be purchased by each non-employee director shall be
the Fair Market Value (as defined in Section 5.5) of the Stock on the
date the Company's stockholders approve adoption of the Plan (in the
case of the initial grants hereunder) or on the date the non-employee
director is newly elected to the Board (in the case of all other
grants), in each case subject to adjustment as provided in Article III.
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(c) Duration of Options. The period within which each
Option may be exercised shall expire ten years from the date the Option
is granted (the "Option Period"), unless terminated sooner pursuant to
subsection (d) below or fully exercised prior to the end of such
period.
(d) Termination of Service, Death, Etc. The Option shall
terminate in the following circumstances if the Holder ceases to be a
director of the Company:
(i) If the Holder is removed as a director of the
Company during the Option Period for cause, the Option shall be
void thereafter for all purposes.
(ii) If the Holder ceases to be a director of the
Company on account of disability within the meaning of
Section 22(e)(3) of the Code, the Option may be exercised by the
Holder within six months following the date on which the Holder
ceased to be a director (if otherwise within the Option Period),
but not thereafter. In any such case, the Option may be exercised
only as to the shares as to which the Option had become
exercisable on or before the date the Holder ceased to be a
director.
(iii) If the Holder dies during the Option Period
while still serving as a director or within either of the periods
referred to in Section 2.3(d)(ii) or (iv), the Option may be
exercised by those entitled to do so under the Holder's will or by
the laws of descent and distribution within the six month period
following the Holder's death (if otherwise within the Option
Period), but not thereafter. In any such case, the Option may be
exercised only as to the shares as to which the Option had become
exercisable on or before the date the Holder ceased to be a
director.
(iv) If the Holder ceases to be a director within the
Option Period for any reason other than removal for cause,
disability or death, the Option may be exercised by the Holder
within three months following the date of such termination (if
otherwise within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the shares as to
which the Option had become exercisable on or before the date the
Holder ceased to be a director.
(e) Transferability, Exercisability. Each Option granted
under the Plan shall not be transferable by a Holder other than by will
or the laws of descent and distribution and shall be exercisable during
the Holder's lifetime only by the Holder or, in the event of disability
or incapacity, by the Holder's guardian or legal representative.
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Notwithstanding any other provision of the Plan, no Option may be
exercised unless and until the Plan is approved by the stockholders of
the Company in accordance with Section 5.4.
(f) Exercise, Payments, Etc.
(i) The method for exercising each Option granted
shall be by delivery to the Company (at the office of its general
counsel or chief legal officer) of written notice specifying the
number of shares with respect to which the Option is exercised.
The purchase of Stock pursuant to the Option shall take place at
the principal office of the Company within thirty days following
delivery of such notice, at which time the purchase price of the
Stock shall be paid in full by any of the methods set forth in
Section 2.3(f)(ii) or a combination thereof. If the purchase
price is paid by means of a broker's loan transaction as described
in clause (C) of Section 2.3(f)(ii), in whole or in part, the
closing of the purchase of the Stock under the Option shall take
place on the date on which, and only if, the sale of Stock upon
which the broker's loan was based has been closed and settled,
unless the Holder makes an irrevocable written election, at the
time of exercise of the Option, to have the exercise treated as
fully effective for all purposes upon receipt of the purchase
price by the Company regardless of whether or not the sale of the
Stock by the broker is closed and settled. A properly executed
certificate or certificates representing the Stock shall be
delivered to the Holder upon payment therefor. If Options on less
than all shares evidenced by an Option Agreement are exercised,
the Company shall deliver a new Option Agreement evidencing the
Option on the remaining shares on delivery of the outstanding
Option Agreement for the Option being exercised.
(ii) The exercise price shall be paid by any of the
following methods or any combination of such methods, at the
option of the Holder: (A) wire transfer of funds to an account
designated by the Company; (B) certified, cashier's or other check
acceptable to the Company, payable to the order of the Company; or
(C) delivery to the Company of irrevocable instruments to a broker
to deliver promptly to the Company the amount of sale or loan
proceeds required to pay the purchase price of the Stock; or
(D) delivery to the Company of certificates representing the
number of shares of Stock then owned by the Holder, the Fair
Market Value of which (determined as of the date the notice of
exercise is delivered to the Company) equals the price of the
Stock to be purchased pursuant to the Option, properly endorsed
for transfer to the Company. No Option may be exercised by
delivery to the Company of certificates representing Stock that
has been held by the Option Holder for less than six months or
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such other period as shall be necessary for the Company to avoid,
if possible, the recognition of expense with respect to the Option
for accounting purposes.
(g) Vesting; Service Required for Exercise. Except as set
forth in Sections 2.3(d), 4.3, 4.4 and 5.4, each Option shall vest and
become exercisable in increments after each year of continuous service
by the Holder as a non-employee director of the Company commencing with
the one-year anniversary of continuous service from the date of grant.
The number of shares as to all or part of which the Option
may be exercised after one year of continuous service as a non-employee
director after the date of grant shall be 20% of the total number of
shares covered by the Option, with an additional 20% being exercisable
after each additional year of continuous service as a non-employee
director through the fifth year of continuous service following the
date of grant. Except as set forth in Sections 2.3(d), 4.3 and 4.4,
the Option shall not be exercisable as to any shares as to which the
continuous service requirement has not been satisfied, regardless of
the circumstances under which the Holder ceased to be a director. The
number of shares as to which the Option may be exercised shall be
cumulative, so that once the Option becomes exercisable as to any
shares it shall continue to be exercisable as to those shares until
expiration or termination of the Option as provided in the Plan.
ARTICLE III
AUTHORIZED STOCK
3.1 The Stock. The total number of shares of Stock as to which
Options may be granted pursuant to the Plan shall be 165,000 in the
aggregate. The number of shares of Stock authorized for grant
hereunder shall be adjusted in accordance with the provisions of
Section 3.2. Shares of Stock underlying expired or canceled and
unexercised Options shall again be available for grant under the Plan.
However, shares surrendered to the Company in payment of an Option
exercise price shall not increase the number of shares available for
grant as Options under the Plan. The Company shall at all times
reserve a sufficient number of shares of Stock, or otherwise assure
itself of its ability to perform its obligations hereunder.
3.2 Adjustments for Stock Split, Stock Dividend, Etc. If the
Company shall at any time increase or decrease the number of its
outstanding shares by means of payment of a stock dividend or any other
distribution upon such shares payable in Stock, or through a stock
split, subdivision, consolidation, combination, reclassification or
recapitalization involving the Stock, or change in any way the rights
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and privileges of such shares, then the numbers, rights and privileges
of the following shall be increased, decreased or changed in like
manner as if the corresponding shares had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence: (a) the
shares as to which Options may be granted under the Plan; (b) the
shares that a non-employee director shall receive upon the grant of an
Option hereunder; and (c) the shares then subject to each outstanding
Option. Upon any occurrence described in this Section 3.2, the total
Option Price under each then outstanding Option shall remain unchanged
but shall be apportioned ratably over the increased or decreased number
of shares subject to the Option.
3.3 Adjustments for Certain Distributions. If the Company at
any time distributes to all holders of Stock shares of its capital
stock, evidences of indebtedness, securities or assets (excluding cash
dividends or cash distributions payable out of capital surplus and
dividends or other distributions referred to in Section 3.2), then the
exercise price per share of Stock for each outstanding Option shall be
adjusted to reflect the value of the capital stock, indebtedness,
securities or assets distributed. In each such case, the Company shall
provide for the delivery upon exercise of such Option of cash in an
amount equal to the difference between the Fair Market Value of a share
of Stock on the first trading day the Stock trades without the right to
receive the distribution and the Fair Market Value of a share of Stock
on the last trading day the Stock trades with the right to receive the
distribution.
3.4 No Rights as Stockholder. A Holder shall have none of the
rights of a stockholder with respect to the shares subject to an Option
until the date the Option is properly exercised. Except as provided in
this Article III, no adjustment shall be made for dividends, rights or
other property distributed to stockholders (whether ordinary or
extraordinary) for which the record date is prior to the date the
Option is so exercised pursuant to Section 2.3(f).
3.5 Fractional Shares. No adjustment or substitution provided
for in this Article III shall require the Company to issue a fractional
share. The total substitution or adjustment with respect to each
Option shall be limited by deleting any fractional share.
ARTICLE IV
CORPORATE REORGANIZATION; CHANGE OF CONTROL
4.1 Reorganization. Upon the occurrence of any of the
following events, if the notice required by Section 4.2 shall have
first been given, the Plan and all Options then outstanding hereunder
shall automatically terminate and be of no further force and effect
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whatsoever, without the necessity for any additional notice or other
action by the Board or the Company: (a) the merger or consolidation of
the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change
of outstanding shares of Stock); or (b) the sale or conveyance of the
property of the Company as an entirety or substantially as an entirety
(other than a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct the business or
businesses formerly conducted by the Company); or (c) the dissolution
or liquidation of the Company.
4.2 Required Notice. At least 30 days' prior written notice of
any event described in Section 4.1 shall be given by the Company to
each Holder, unless in the case of the events described in clauses (a)
or (b) of Section 4.1, the Company, or the successor or purchaser, as
the case may be, shall make adequate provision for the assumption of
the outstanding Options or the substitution of new options for the
outstanding Options on terms comparable to the outstanding Options
except that the Holder of each Option then outstanding shall have the
right thereafter to purchase the kind and amount of shares of stock or
other securities or property or cash receivable upon such merger,
consolidation, sale or conveyance by a holder of the number of shares
of Stock that would have been receivable upon exercise of the Option
immediately prior to such merger, consolidation, sale or conveyance
(assuming such holder of Stock failed to exercise any rights of
election and received per share the kind and amount received per share
by a majority of the non-electing shares). The provisions of this
Article IV shall similarly apply to successive mergers, consolidations,
sales or conveyances. Such notice shall be deemed to have been given
when delivered personally to a Holder or when mailed to a Holder by
registered or certified mail, postage prepaid, at such Holder's address
last known to the Company.
4.3 Acceleration of Exercisability. Subject to Section 5.4,
Holders notified, in accordance with Section 4.2, of a transaction with
a third party not controlled by Tele-Communications, Inc. ("TCI") or
its affiliates may exercise their Options at any time before the
occurrence of the event requiring the giving of notice (but subject to
occurrence of such event), regardless of whether all conditions of
exercise relating to length of service as a director have been
satisfied.
4.4 Change of Control. If a Change in Control (as defined
below) occurs, all Options shall become exercisable in full, regardless
of whether all conditions of exercise relating to continuous service
have been satisfied. A "Change in Control" is deemed to have occurred
if (a) a person (as such term is used in Section 13(d) of the Exchange
Act) becomes the beneficial owner (as defined in Rule 13d-3 under the
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Exchange Act) of shares of the Company having 50% or more of the total
number of votes that may be cast for the election of directors of the
Company; or (b) individuals who constitute the directors of the Company
at the beginning of a 24-month period cease to constitute at least 2/3
of all directors at any time during such period, unless the election of
any new or replacement directors was approved by a vote of at least a
majority of the members of the Board in office immediately prior to
such period and of the new and replacement directors so approved.
Notwithstanding anything to the contrary in this Section 4.4, no Option
will become exercisable by virtue of the occurrence of a Change in
Control if the Holder of that Option or any group of which that Holder
is a member is the person whose acquisition constituted the Change in
Control, and no Change of Control shall be deemed to have occurred upon
the transfer of beneficial ownership of shares of the Company between
or among persons that are affiliates of TCI so long as TCI or an
affiliate thereof controls the Company.
ARTICLE V
GENERAL PROVISIONS
5.1 Expiration. The Plan shall terminate whenever the Board
adopts a resolution to that effect. After termination, no additional
Options shall be granted under the Plan, but the Company shall continue
to recognize Options previously granted.
5.2 Amendments, Etc. The Board may from time to time amend,
modify, suspend or terminate the Plan. Nevertheless, no such
amendment, modification, suspension or termination shall impair any
Option theretofore granted under the Plan or deprive any Holder of any
shares of Stock that he may have acquired through or as a result of the
Plan without the consent of the Holder. The Plan may not be amended
more than once every six months with respect to the persons entitled to
be granted Options hereunder, the timing of grants for participants,
the number of shares of Stock to be granted as Options to individual
participants or the price thereof, other than amendments necessary to
comport with changes in the Code or the rules and regulations
thereunder. The Company shall obtain the approval of stockholders to
any amendment or modification of the Plan to the extent required by
Rule 16b-3 (or any successor applicable rule) or by the listing
requirements of Nasdaq or any stock exchange on which the Company's
securities are quoted or listed for trading.
5.3 Treatment of Proceeds. Proceeds from the sale of Stock
pursuant to Options granted under the Plan shall constitute general
funds of the Company.
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5.4 Effectiveness. This Plan shall be effective on the
Effective Date, subject to approval by the affirmative votes of the
holders of a majority of the shares of the Company present or
represented and entitled to vote at a meeting duly held in accordance
with law within one year following the Effective Date. If the
stockholders of the Company do not approve the Plan as specified above,
Options granted under the Plan shall be deemed to be rescinded without
any further action by the Board or the Company, and the Plan shall
automatically terminate.
5.5 Fair Market Value. The "Fair Market Value" of a share of
Stock shall be the last reported sale price of the Stock on Nasdaq on
the day the determination is to be made, or if no sale took place on
such day, the average of the closing bid and asked prices of the Stock
on Nasdaq on such day, or if the market is closed on such day, the last
day prior to the date of determination on which the market was open for
the transaction of business, as reported by Nasdaq. If, however, the
Stock should be listed or admitted for trading on a national securities
exchange, the Fair Market Value of a share of the Stock shall be the
last sales price, or if no sales took place, the average of the closing
bid and asked prices on the day the determination is to be made, or if
the market is closed on such day, the last day prior to the date of
determination on which the market was open for the transaction of
business, as reported in the principal consolidated transaction
reporting system for the principal national securities exchange on
which the Stock is listed or admitted for trading. If the Stock is not
listed or traded on Nasdaq or on any national securities exchange, the
Fair Market Value for purposes of the grant of Options under the Plan
shall be determined by the Board in good faith.
5.6. Section Headings. The Section headings are included herein
only for convenience, and they shall have no effect on the
interpretation of the Plan.
5.7 Severability. If any article, section, subsection or
specific provision is found to be illegal or invalid for any reason,
such illegality or invalidity shall not affect the remaining provisions
of the Plan, and the Plan shall be construed and enforced as if such
illegal and invalid provision had never been set forth in the Plan.
5.8 Rule 16b-3. This Plan is intended to comply with the
requirements of Rule 16b-3 and any successor applicable rule so that
Options granted under the Plan will not affect the status of non-
employee directors as disinterested persons and that such grants will
otherwise satisfy the requirements of such rules. To the extent the
Plan does not conform to such requirements, it shall be deemed amended
to so conform without any further action on the part of the Board of
Directors or stockholders.
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Adopted as of April 24, 1996.
UNITED VIDEO SATELLITE GROUP, INC.,
a Delaware corporation
By: /s/ Lawrence Flinn, Jr.
------------------------------------
Lawrence Flinn, Jr.
Chairman and Chief Executive Officer
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