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, 1997
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 5, 1997:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 24,362,320
Class B Common Stock $.01 Par Value 12,373,294
1
<PAGE>
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,
1997 1996
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,115 $ 42,796
Marketable securities, at market 66,824 58,581
Accounts receivable, net of allowance
for doubtful accounts 51,973 58,813
Prepaid expenses and other 11,244 9,916
Deferred tax asset 1,667 2,210
-------- --------
Total current assets 179,823 172,316
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 54,225 56,381
Goodwill, net of accumulated amortization 30,858 31,459
Other assets, net of accumulated
amortization 2,335 2,427
-------- --------
Total assets $267,241 $262,583
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,820 $ 6,744
Accrued liabilities 49,578 46,336
Current portion of capital lease
obligations and long-term debt 8,121 10,519
-------- --------
62,519 63,599
Customer prepayments 106,475 108,059
-------- --------
Total current liabilities 168,994 171,658
Deferred compensation 1,214 1,452
Deferred tax liability 119 765
Capital lease obligations and
long-term debt 19,863 20,718
Minority interest 3,424 3,830
Stockholders' equity
Preferred stock, $.01 par value -- --
Class A common stock, $.01 par value 244 238
Treasury stock, at cost (114) (77)
Class B common stock, $.01 par value 124 124
Additional paid-in capital 38,030 34,865
Note receivable from stockholder -- (509)
Retained earnings 79,594 70,234
-------- --------
117,878 104,875
Minority interest deficit in Superstar/
Netlink Group LLC (44,251) (40,715)
-------- --------
Total stockholders' equity 73,627 64,160
-------- --------
Total liabilities and stockholders' equity $267,241 $262,583
======== ========
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
March 31,
1997 1996
---- ----
Revenues:
Satellite services $107,025 $59,309
Advertising sales 6,272 5,433
Systems integration services 9,579 8,700
-------- -------
122,876 73,442
Operating expenses:
Programming and delivery 64,428 31,573
Selling, general and administrative 36,472 26,986
Depreciation and amortization 4,556 3,580
-------- -------
105,456 62,139
-------- -------
Operating income 17,420 11,303
Other income (expenses), net 497 344
-------- -------
Income before income taxes and
minority interest 17,917 11,647
Provision for income taxes (5,413) (4,342)
Minority interest in earnings (3,097) (68)
-------- -------
Net income $ 9,407 $ 7,237
======== =======
Common and common equivalent shares
outstanding 36,992 36,968
Earnings per share $ 0.25 $ 0.20
See accompanying notes.
3
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended
March 31,
1997 1996
---- ----
Operating activities:
Net income $ 9,407 $ 7,237
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,556 3,580
Minority interest in earnings 3,097 68
Non-cash compensation expense 72 506
Deferred income taxes 35 (94)
Amortization of bond premiums 257 83
Other (29) (22)
Changes in operating assets and
liabilities:
Accounts receivable 6,840 (772)
Prepaid expenses and other (1,374) (567)
Accounts payable (1,947) (629)
Accrued liabilities 6,504 1,310
Customer prepayments (1,584) 9,912
Other (310) (6)
------- ------
Net cash provided by operating activities 25,524 20,606
Investing activities:
Capital expenditures (1,665) (2,800)
Purchases of marketable securities (16,429) (2,757)
Maturities of marketable securities 7,744 5,822
Other 57 (270)
------- -------
Net cash used in investing activities (10,293) (5)
Financing activities:
Repayment of capital lease obligations
and long-term debt (3,253) (739)
Issuance of stock 1,950 1,121
Repurchase of stock (2,078) --
Distributions to minority interests (7,000) --
Net proceeds from subsidiary stock
transactions (40) --
Decrease in notes receivable
from stockholder 509 --
------- -------
Net cash provided by (used in)
financing activities (9,912) 382
------- -------
Net increase in cash and cash equivalents 5,319 20,983
Cash and cash equivalents at beginning of
period 42,796 28,485
------- -------
Cash and cash equivalents at end of period $48,115 $49,468
======= =======
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 566 $ 456
Income taxes paid $ 1,581 $ 868
See accompanying notes.
4
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. Basis of Presentation
United Video Satellite Group, Inc. ("the Company"), a majority-
controlled subsidiary of Tele-Communications, Inc. ("TCI"), provides
satellite-delivered video, audio, data and program promotion services
to cable television systems, direct-to-home satellite dish users, radio
stations and private network users primarily throughout North America,
and software development and system integration services to commercial
entities, the federal government and defense related agencies in
locations throughout the United States.
The accompanying interim financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
consolidated financial position of the Company and its results of
operations and cash flows for such periods. Operating results for any
interim period are not necessarily indicative of the results that may
be expected for the full year. Certain amounts in the 1996 financial
statements have been reclassified to conform with the 1997
presentation.
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 3).
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, 1996.
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 U.S. 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,
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. Discovery and trial of all
other issues has been stayed. On December 13, 1996, the Court held a
status conference at which time the parties reported that settlement
had not been reached. The trial resumed on May 5, 1997 and is in
process. 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.
5
<PAGE>
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 has 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 their 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 $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. The Company filed a motion for summary judgment on
August 29, 1996, asking the Court for summary disposition of the case.
Pursuant to this motion, the Company received a partial refund of
$123,000 on February 10, 1997. The remaining issues raised by the
motion are still pending. The Company has been informed that the State
is considering filing a counter motion for summary judgement. No trial
date has been scheduled. While the Company believes that this matter
will not have a material adverse effect on its business, financial
position or results of operations, the ultimate resolution, which may
occur within one year, could result in a loss of up to $3.5 million.
The Company has received correspondence from one of its marketing
agents of C-band retail programming packages which claims, among other
matters, additional amounts owed in connection with its past and
current business relationship with the Company. Discussions to resolve
these matters are on going. The Company has evaluated these claims and
believes them to be without merit. The Company believes that this
matter will not have a material adverse effect on its financial
position or 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.
6
<PAGE>
3. 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 contributed 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 was accounted for as a merger of businesses
under common control, whereby the assets and obligations of both
Superstar and Netlink were contributed to the venture at their
historical cost. 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 contributed by Liberty to the venture totaled $14.7 million
and consisted primarily of $14.3 million of accounts receivable.
These assets were subject to liabilities of $64.0 million, consisting
of $50.9 million of customer prepayments and $13.1 million of accounts
payable and accrued liabilities and resulted in Liberty contributing
net liabilities to the venture. The Company contributed net liabilities
in the same amount to the venture. The Company has classified the
capital deficit of Liberty in the venture as a reduction to
stockholders' equity. Liberty's minority interest in the earnings of
the venture, net of distributions, will be reported as an adjustment to
Liberty's capital deficit in the venture until such time as the capital
deficit has been satisfied.
The following pro forma financial information reflects the
Company's results of operations for the three-month period ended March
31, 1996 as though the retail operations had been combined as of
January 1, 1996:
Three Months Ended
March 31, 1996
------------------
(in thousands, except per share amounts)
Pro forma:
Revenues $112,504
Net income $ 6,963
Net income per share $ 0.19
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company operates five businesses: program promotion and guide
services (Prevue Networks), 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). Effective
January 1, 1997, the Company established Technology Ventures to hold
the Company's interests in other enterprises unrelated to the five core
businesses.
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, 1997 and 1996.
Three Months Ended March 31,
1997 1996
------------------------------
Amount % Amount %
------ --- ------ ---
(in thousands)
Revenues:
Prevue Networks (1) $ 13,984 11% $11,404 15%
Superstar (2)(3) 86,233 70 40,882 56
UVTV (3) 10,669 9 9,633 13
SSDS 10,097 8 8,700 12
SpaceCom 4,087 3 3,543 5
Other/Eliminations (2,194) (1) (720) (1)
-------- --- ------- ---
Total $122,876 100% $73,442 100%
======== === ======= ===
EBITDA (4):
Prevue Networks (1) $ 5,236 24% $ 4,502 30%
Superstar (2)(3) 10,251 47 3,436 23
UVTV (3) 7,366 33 5,897 40
SSDS (1,115) (5) 462 3
SpaceCom 854 4 586 4
Other/Eliminations (616) (3) -- --
-------- --- ------- ---
Total $ 21,976 100% $14,883 100%
======== === ======= ===
Operating income:
Prevue Networks (1) $ 3,173 18% $ 2,904 26%
Superstar (2)(3) 9,448 54 3,029 27
UVTV (3) 6,770 39 5,273 47
SSDS (1,836) (11) (178) (2)
SpaceCom 481 3 275 2
Other/Eliminations (616) (3) -- --
-------- --- ------- ---
Total $ 17,420 100% $11,303 100%
======== === ======= ===
Consolidated depreciation
and amortization $ 4,556 $ 3,580
Consolidated capital
expenditures 1,665 2,800
Consolidated cash flows
from operations 25,524 20,606
8
<PAGE>
(1) The revenues, EBITDA and operating income for Prevue Networks
include Prevue Channel, Sneak Prevue and other services offered
both domestically and internationally.
(2) The amounts shown in the above tables 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 retail operations of
Liberty Media Corporation's Netlink division.
(3) Effective January 1, 1997, the Company began reporting the
operating results of Superstar's Wholesale division, which
distributes WGN and other programming to multi-channel video
programming distributors, with those of UVTV as they are in the
same line of business. The operating results for 1996 have been
reclassified to conform to the current period presentation.
Additionally, effective January 1, 1997, the Company increased the
price at which the Superstar Wholesale division (now UVTV) charges
the Superstar/Netlink Group LLC ("SNG") for certain programming,
primarily WGN. Had these rates been in effect during the first
quarter of 1996, UVTV's revenue, EBITDA and operating income would
have been approximately $725,000 higher and Superstar's EBITDA and
operating income would have been approximately $725,000 lower.
(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 a substitute for
net income, cash flow or any other generally accepted accounting
principles measure of performance, liquidity or financial
position.
9
<PAGE>
Results of Operations
Consolidated
Revenues for the three months ended March 31, 1997 were $122.9
million, an increase of $49.4 million, or 67%, over the same period in
1996. The increase in revenues for the quarter was primarily due to
$39.5 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, increased commission revenues from acting as a service agent in
the direct broadcast satellite ("DBS") market by Superstar, increased
system integration service revenues by SSDS and increased service fee
and advertising revenues by Prevue Networks.
Operating expenses, excluding depreciation and amortization, were
$100.9 million for the three months ended March 31, 1997, an increase
of $42.3 million, or 72%, when compared to $58.6 million for the same
period in 1996. Operating expenses, excluding depreciation and
amortization, increased primarily due to increased operating costs of
$35.9 million attributable to Netlink and increased personnel costs
primarily attributable to the growth in Prevue Networks and Superstar.
Depreciation and amortization during the first quarter of 1997 was
$4.6 million, an increase of $1.0 million, or 27%, over the same period
in 1996. The increase in depreciation and amortization in 1997 was
primarily a result of the acquisition of equipment to support the
various Prevue products and growth in Superstar subscribers and
personnel.
Minority interest in earnings for the quarter ended March 31, 1997
of $3.1 million represents that portion of earnings attributable to the
50% minority ownership in SNG, the 30% minority ownership in SSDS and
the 28% minority ownership in Sneak Prevue LLC. SNG and Sneak Prevue
LLC were formed during April and September 1996, respectively. The
Company's 70% interest in SSDS was acquired in July 1995.
10
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Prevue Networks
The following table sets forth certain financial information for
Prevue Networks for the three months ended March 31, 1997 and 1996:
Three Months Ended March 31,
1997 1996
---- ----
(in thousands)
Revenues $13,984 $11,404
Operating expenses, before
depreciation and amortization 8,748 6,902
------- -------
EBITDA 5,236 4,502
Depreciation and amortization 2,063 1,598
------- -------
Operating income $ 3,173 $ 2,904
======= =======
EBITDA margin percentage 37% 39%
Operating margin percentage 23% 25%
Prevue Networks' revenues for the three months ended March 31,
1997 were $14.0 million, an increase of $2.6 million, or 23%, over the
same period in 1996. The increase in revenues was largely attributable
to advertising revenues, which grew $839,000, or 15%, over the first
quarter of 1996, due to higher rates and growth in measured viewership
and service fee revenues attributable to Prevue Channel and Sneak
Prevue, which increased $1.0 million, or 26%, and $593,000, or 39%,
respectively, for the quarter when compared to the same period in 1996.
Prevue Channel subscriber counts increased by 6.4 million, or 16%, to
45.7 million as of March 31, 1997 compared to those as of March 31,
1996. Sneak Prevue increased by 8.4 million subscribers, or 32%, to
35.0 million during the same period. The increase in Sneak subscribers
resulted primarily from the formation of Sneak Prevue LLC in September
1996, a new consolidated subsidiary of the Company into which were
combined Sneak Prevue and The Barker, a similar product to Sneak Prevue
which was previously offered by StarNet.
Operating expenses, excluding depreciation and amortization,
increased by $1.8 million, or 27%, during the first quarter of 1997
when compared to the same period in 1996. The increased operating
expenses, before depreciation and amortization, was due primarily to
additional employees added to accommodate Prevue's growth.
Depreciation and amortization during the first quarter of 1997 was
$2.1 million, an increase of $465,000, or 29%, over the same period in
1996. The increase in depreciation and amortization was a result of
the acquisition of additional customer control units and video
production equipment necessary to support the various Prevue products
combined with the assets acquired in the Sneak Prevue LLC, joint
venture.
11
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Superstar
The following table sets forth certain financial information for
Superstar for the three months ended March 31, 1997 and 1996:
Three Months Ended March 31,
1997 1996 (1)
---- ----
(in thousands)
Revenues $86,233 $40,882
Operating expenses, before
depreciation and amortization 75,982 37,446
------- -------
EBITDA 10,251 3,436
Depreciation and amortization 803 407
------- -------
Operating income $ 9,448 $ 3,029
======= =======
EBITDA margin percentage 12% 8%
Operating margin percentage 11% 7%
(1) Effective January 1, 1997, the Company began reporting the
operating results of Superstar's Wholesale division, which
distributes WGN and other programming to multi-channel video
programming distributors, with those of UVTV as they are in
the same line of business. The operating results in the
above table for 1996 have been restated to conform to the
current period presentation.
Additionally, effective January 1, 1997, the Company
increased the price at which the Superstar Wholesale division
(now UVTV) charges SNG for certain programming, primarily
WGN. Had these rates been in effect during the first quarter
of 1996, Superstar's EBITDA and operating income would have
been approximately $725,000 lower.
Revenues generated by Superstar for the three months ended March
31, 1997 were $86.2 million, an increase of $45.4 million, or 111%,
over the same period in 1996. Included in the revenue increase for the
three month period is approximately $39.5 million of revenues
attributable to Netlink's operations which were combined with those of
Superstar's retail operations into a new consolidated subsidiary, SNG,
effective April 1, 1996. Also contributing to the increase was growth
in commission income earned as a service agent for a program supplier
to the DBS market partially offset by a decrease in the number of
retail subscribers served by SNG. The current contract governing the
commissions earned as a service agent in the DBS market has been
extended through June 1997 with commissions on subscribers serviced
continuing to be earned through 2000. Negotiations for a renewal of the
contract are on-going; however, the parties have not reached agreement
on the terms of a new contract to date. Retail subscribers purchasing
programming directly from SNG as of March 31, 1997 totaled
approximately 919,000, a decrease of 42,000 during the quarter and a
decrease of 25,000 during the prior twelve months compared to the
aggregate Superstar and Netlink subscribers then existing. The
reduction in retail subscribers during the last twelve months is net of
approximately 36,000 subscribers purchased from Jones Satellite
Programming, Inc. ("Jones Satellite") on August 1, 1996. During the
quarter ended March 31, 1997, the C-band industry declined 2%,
decreasing by 53,000 subscribers and for the twelve month period ended
March 31, 1997, the industry decreased by 136,000 subscribers, or 6%.
12
<PAGE>
Operating expenses, excluding depreciation and amortization, were
$76.0 million in the first quarter of 1997, an increase of $38.5
million, or 103%,compared to the same period in 1996. The increase in
operating expenses, before depreciation and amortization, in the first
quarter of 1997 as compared to the previous year's results was due
primarily to expenses attributable to Netlink of $35.9 million and
increased programming fees, which vary in relation to revenues.
Depreciation and amortization for the first three months of 1997
was $803,000, an increase of $396,000, or 97%, compared to the same
period in 1996. The increase in depreciation and amortization in 1997
was a result of the acquisition of additional data processing equipment
and office furniture necessitated by the increase in subscribers and
employees, respectively, as well as the amortization related to the
purchase of Jones Satellite in 1996.
Excluding Liberty's minority interest in SNG, the revenues, EBITDA
and operating income attributable to the Company's ownership interest
in Superstar for the quarter ended March 31, 1997 was $46.7 million,
$6.6 million and $6.1 million, respectively, increases of 14%, 92% and
103%, respectively, over the prior year and resulting in EBITDA and
operating margin percentages of 14% and 13%, respectively.
13
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months ended March 31, 1997:
Three Months Ended March 31,
1997 1996 (1)
---- ----
(in thousands)
Revenues $10,669 $ 9,633
Operating expenses, before
depreciation and amortization 3,303 3,736
------- -------
EBITDA 7,366 5,897
Depreciation and amortization 596 624
------- -------
Operating income $ 6,770 $ 5,273
======= =======
EBITDA margin percentage 69% 61%
Operating margin percentage 63% 55%
(1) Effective January 1, 1997, the Company began reporting the
operating results of Superstar's Wholesale division, which
distributes WGN and other programming to multi-channel video
programming distributors, with those of UVTV as they are in
the same line of business. The operating results in the
above table for 1996 have been restated to conform to the
current period presentation.
Additionally, effective January 1, 1997, the Company
increased the price at which the Superstar Wholesale division
(now UVTV) charges SNG for certain programming, primarily
WGN. Had these rates been in effect during the first quarter
of 1996, UVTV's revenue, EBITDA and operating income would
have been approximately $725,000 higher.
UVTV's revenues for the first three months of 1997 were $10.7
million, an increase of $1.0 million, or 11%, from the same period in
1996. The increase in revenues is primarily the result of the
wholesale price increase described above, which increased revenues
$720,000 from first quarter 1996 to first quarter 1997. Additionally,
revenues from superstation services provided in Canada increased due to
subscriber growth for both WPIX and KTLA. Domestically, UVTV/WGN
subscribers decreased 3.5 million, or 9%, from March 1996 to March
1997, primarily due to the impact from TCI discontinuing UVTV/WGN from
certain of its fully owned systems partially offset by new system
launches and existing system subscriber growth aggregating
approximately 1.1 million subscribers. The Company began providing
UVTV/WGN to two DBS providers in April 1997 with approximately 3.9
million subscribers, more than offsetting the net reduction in
subscribers that resulted during the past twelve months.
Operating expenses, excluding depreciation and amortization, were
$3.3 million during the first quarter of 1997, a decrease of $433,000,
or 12%, from those during the first quarter of 1996. The decrease in
operating expenses during 1997 results primarily from cost saving
measures implemented in 1996 and a reduction in personnel compared to
the prior year.
Depreciation and amortization in the first quarter of 1997 was
$596,000, relatively unchanged compared to the same period in 1996.
14
<PAGE>
SSDS
SSDS' revenues for the first quarter of 1997 were $10.1 million,
an increase of $1.4 million, or 16%, compared to the first quarter of
1996. The increase in revenues during 1997 over those of 1996 is
primarily due to an increase in work in both the commercial and public
sectors coupled with the defense sector realizing an improvement over
the first quarter of 1996, which was negatively impacted by severe
weather conditions on the East coast that virtually shut down the
defense sector for most of one week.
Operating expenses, before depreciation and amortization,
increased during the first quarter of 1997 by $3.0 million, or 36%,
from the same period in 1996 to $11.2 million. The increase in
operating expense during the first quarter was primarily due to the
cost of additional technical personnel commensurate with the increase
in revenues coupled with additional personnel which were added
throughout the later part of 1996 to facilitate new business growth
which did not occur. SSDS implemented several cost reduction measures
late in the first quarter of 1997 with the goal of returning
operations to profitability.
Depreciation and amortization expense during the three months
ended March 31, 1997 increased by $81,000, or 13%, over the same period
in 1996. The increase in 1997 was the result of ongoing infrastructure
equipment upgrades and new equipment to support the increase of new
employees. Included in depreciation and amortization expense in both
periods is approximately $500,000 of amortization of goodwill resulting
from the Company's acquisitions of SSDS in July 1995.
15
<PAGE>
SpaceCom
SpaceCom's revenues for the three months ended March 31, 1997 were
$4.1 million, an increase of $544,000, or 15%, over the same period in
1996. The increase in revenues was 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 69% as of March 31, 1997, compared to 62% as of
March 31, 1996.
Operating expenses, excluding depreciation and amortization, were
$3.2 million during the first quarter of 1997, an increase of $276,000,
or 9%, compared to the same period in 1996. The increase in operating
expenses, before depreciation and amortization, resulted primarily from
increased transmission expenses.
Depreciation and amortization in the first quarter of 1997 was
$373,000, an increase of $62,000, or 20%, over that in the same period
in 1996. The increase in depreciation and amortization was the result
of acquiring new assets to provide a wider range of services.
16
<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 three months of 1997, net cash flows
from operating activities were $25.5 million ($18.5 million after
distributions to minority interests), reflecting the continued growth
of the Company's after-tax earnings. This cash, plus existing cash
resources, and proceeds of $2.0 million from the exercise of stock
options were used to fund the Company's additional net investment in
marketable securities of $8.7 million, debt payments by SSDS of $2.5
million, stock repurchases of $2.1 million, capital expenditures of
$1.7 million and the reduction in the Company's capitalized lease
obligations of $800,000 during the three-month period.
At March 31, 1997, the Company's cash, cash equivalents and
marketable securities aggregated $114.9 million, an increase of $13.6
million over that as of December 31, 1996. The above total includes
$11.7 million of cash and cash equivalents held by SNG, in which the
Company has a 50% 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, 1997,
approximately $66.8 million of such securities had maturities greater
than 90 days and 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.
SSDS has a revolving credit facility with a bank which provides
for borrowings up to 75% of billed trade receivables of SSDS less than
60 days past due, subject to certain conditions. The facility, which
formally expired on April 30, 1997, has remained in place pending
resolution of the terms for a revised agreement. Outstanding
borrowings under the credit facility as of March 31, 1997 were $4.8
million on a borrowing base of $5.9 million. Borrowings under this
credit facility bear interest at the bank's designated prime rate plus
a margin. Management believes it is possible SSDS will need to
increase the borrowing level under the credit facility or obtain
additional financing or capital to support its operations during 1997
and will likely have to renegotiate certain financial covenant ratios
under the existing facility to remain in compliance with the terms of a
new credit facility. Based on negotiations to date, Management
believes this will be accomplished.
The Company's $10.0 million revolving credit facility expired on
March 31, 1997. The Company does not intend to renew their facility,
but is considering entering into an expanded credit facility during
1997.
17
<PAGE>
The Company collects annually, in advance, a majority of its SNG
subscription fees and certain of its UVTV superstation and Prevue
Networks' revenues. As of March 31, 1997, the unearned portion of all
prepayments totaled $106.5 million, of which approximately $89.4
million, or 84%, was attributable to SNG. SNG 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 $22.7 million as of March 31, 1997, a
reduction of $793,000, 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 $3.3 million. The
Company also leases various other satellite transponders accounted for
as operating leases. These operating leases accounted for
approximately $1.5 million in operating expenses, net of sublease
revenue, during the three months ended March 31, 1997.
Capital expenditures during the three months ended March 31, 1997
of $1.7 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.
SNG makes monthly distributions to members of the venture of all
cash in excess of reasonable cash reserves established for anticipated
working capital requirements and capital expenditures. During the
three months ended March 31, 1997, cash distributions to minority
interests in SNG aggregated $7.0 million.
18
<PAGE>
The Company believes, except as discussed above for SSDS, that
currently available cash and cash equivalents, marketable securities
and cash flow generated from operations 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 Board of Directors has authorized the Company to repurchase
from time to time up to an aggregate of 1,000,000 shares of the
Company's Class A Common Stock using existing cash resources. Through
March 31, 1997, the Company had repurchased 124,000 shares of stock for
a total of $2.1 million.
The Company announced in December 1996 that the Board of Directors
had authorized management to pursue a potential spin-off of the
Company's 50% interest in SNG. Due to recently announced consolidations
in the DBS industry and complex tax matters, the Company currently no
longer plans to pursue this strategy.
The Company continues to explore 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 Company's plans
for the development of interactive and information services, the
availability of resources to fund operations and capital expenditures,
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 to effectively
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the first
quarter of 1997.
On May 8, 1997, the Company filed a report on Form 8-K
reporting a change in its independent auditors from Ernst
& Young LLP to KPMG Peat Marwick LLP which occurred on
May 1, 1997.
20
<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 13, 1997 By: /s/ Peter C. Boylan, III
-------------------------------
Peter C. Boylan, III
Executive Vice President and
Chief Operating Officer
21
<PAGE>
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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, 1997 OF UNITED
VIDEO SATELLITE GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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<NAME> UNITED VIDEO SATELLITE GROUP, INC.
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