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 SEPTEMBER 30, 1998
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 November 3, 1998:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 47,931,448
Class B Common Stock $.01 Par Value 24,746,588
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except per share amounts)
September 30, December 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $104,836 $ 30,752
Marketable securities, at fair value 54,857 112,334
Accounts receivable, net of allowance
for doubtful accounts 55,648 55,611
Prepaid expenses and other 10,711 9,842
Deferred tax asset 2,135 2,123
-------- --------
Total current assets 228,187 210,662
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 45,245 50,992
Goodwill, net of accumulated amortization 113,240 29,157
Other assets, net of accumulated
amortization 15,013 3,641
-------- --------
Total assets $401,685 $294,452
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,859 $ 5,894
Accrued liabilities 55,913 50,385
Note payable and current portion of
capital lease obligations and
long-term debt 3,871 10,957
-------- --------
63,643 67,236
Customer prepayments 115,688 91,266
-------- --------
Total current liabilities 179,331 158,502
Deferred compensation 688 871
Deferred tax liability 15,149 2,737
Capital lease obligations and
long-term debt 13,967 17,207
Minority interest 3,370 3,141
Stockholders' equity
Class A common stock, $.01 par value 481 244
Treasury stock (Class A), at cost -- (114)
Class B common stock, $.01 par value 247 124
Additional paid-in capital 25,863 39,226
Accumulated other comprehensive
earnings (loss), net of tax 7,655 (13)
Retained earnings 162,945 115,833
-------- --------
197,191 155,300
Minority interest deficit in Superstar/
Netlink Group LLC (8,011) (43,306)
-------- --------
Total stockholders' equity 189,180 111,994
-------- --------
Total liabilities and stockholders' equity $401,685 $294,452
======== ========
See accompanying notes.
2
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Satellite services $132,990 $107,884 $384,267 $324,136
Advertising sales 9,762 7,594 28,871 21,745
Systems integration
services 10,880 10,427 30,039 31,001
-------- -------- -------- --------
153,632 125,905 443,177 376,882
Operating expenses:
Programming and
delivery 80,837 64,139 240,776 193,587
Selling, general
and administrative 36,495 34,510 109,649 108,650
Depreciation and
amortization 7,250 4,669 20,750 13,833
-------- -------- -------- --------
124,582 103,318 371,175 316,070
-------- -------- -------- --------
Operating income 29,050 22,587 72,002 60,812
Gain on issuance of
equity by subsidiary -- -- 14,700 --
Other income, net 1,066 1,255 3,318 3,048
-------- -------- -------- --------
Income before income
taxes and minority
interest 30,116 23,842 90,020 63,860
Provision for income
taxes (8,653) (7,207) (28,294) (18,983)
Minority interest
in earnings (6,997) (4,733) (14,601) (12,297)
-------- -------- -------- --------
Net income $ 14,466 $ 11,902 $ 47,125 $ 32,580
======== ======== ======== ========
Net income per share(1):
Basic $ 0.20 $ 0.16 $ 0.64 $ 0.44
Diluted 0.20 0.16 0.63 0.44
(1) 1997 amounts adjusted for two-for-one stock split (See Note 5).
See accompanying notes.
3
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Nine Months Ended
September 30,
1998 1997
---- ----
Operating activities:
Net income $ 47,125 $ 32,580
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on issuance of equity by
subsidiary (14,700) --
Depreciation and amortization 20,750 13,833
Minority interest in earnings 14,601 12,297
Deferred income taxes 7,915 (309)
Amortization of bond premiums 1,048 547
Other (411) 85
Changes in operating assets and
liabilities, net of the effect
of acquisitions:
Accounts receivable 7,474 10,738
Prepaid expenses and other (2,686) (2,739)
Accounts payable (3,104) (1,310)
Accrued liabilities (1,090) 9,825
Customer prepayments 1,673 (12,431)
Other -- (427)
------- -------
Net cash provided by operating activities 78,595 62,689
Investing activities:
Capital expenditures (6,457) (6,135)
Investments and acquisitions (38,651) --
Purchases of marketable securities (73,409) (81,692)
Sales and maturities of marketable
securities 141,978 26,233
Other 506 (548)
------- -------
Net cash provided by (used in)
investing activities 23,967 (62,142)
Financing activities:
Repayment of note payable, capital
lease obligations and long-term debt (10,326) (5,099)
Issuance of stock 876 2,553
Repurchase of stock (15,238) (2,078)
Distributions to minority interests (3,704) (15,000)
Other (86) 423
------- -------
Net cash used in financing activities (28,478) (19,201)
------- -------
Net increase (decrease) in cash and
cash equivalents 74,084 (18,654)
Cash and cash equivalents at beginning of
period 30,752 42,796
------- -------
Cash and cash equivalents at end of period $104,836 $ 24,142
======== ========
Supplemental disclosures of cash
flow information:
Interest paid $ 2,779 $ 1,569
Income taxes paid 18,664 15,880
See accompanying notes.
4
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 1998
1. Basis of Presentation
United Video Satellite Group, Inc. ("UVSG" or 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 majority of
the Company's operating income is earned through the sale of home
satellite dish services and satellite distribution of video and program
promotion services.
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 1997 financial
statements have been reclassified to conform with the 1998
presentation.
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, 1997.
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("Statement") No. 130,
Reporting Comprehensive Income. The Company has reclassified its prior
period condensed consolidated balance sheet to conform to the
requirements of Statement 130. Statement 130 requires that all items
which are components of comprehensive earnings or losses be reported in
a financial statement in the period in which they are recognized. The
Company has included unrealized holding gains and losses for available-
for-sale securities that are recorded directly in stockholders' equity
in other comprehensive earnings. Pursuant to Statement 130, these
items are reflected, net of related tax effects, as components of
comprehensive earnings and are included in accumulated other
comprehensive earnings in the Company's condensed consolidated balance
sheets. Comprehensive income for the three months ended September 30,
1998 and 1997 was $18.3 million and $11.9 million, respectively, and
for the nine months ended September 30, 1998 and 1997 was $54.8 million
and $32.5 million, respectively.
2. Contingencies
On October 8, 1993, the Company received correspondence from
attorneys representing StarSight Telecast, Inc. ("StarSight"), now a
wholly owned subsidiary of Gemstar International Group Limited
("Gemstar"), 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,
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. In
December 1995, StarSight moved to amend its complaint to assert
infringement of two additional patents. The Court subsequently granted
StarSight's motion, but stayed all proceedings as to those two patents.
The trial commenced on May 8, 1996 with respect to the validity,
infringement and inequitable conduct issues relative to the 121 Patent.
Discovery and trial of all other issues has been stayed. In January
1998, the Company and Gemstar announced the formation of a joint
venture, which transaction included the settlement of the Company's
litigation with StarSight. The deadline set for satisfaction of
certain closing conditions in the joint venture agreement passed
without satisfaction of those conditions. Accordingly, the litigation
was not dismissed. The trial on the 121 Patent concluded in July 1998,
and final closing arguments were heard by the Court on November 12,
1998. All other administrative matters are expected to be completed by
the end of November 1998. 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.
On July 24, 1998, StarSight and Gemstar filed a complaint for
patent infringement against Prevue Networks, Inc. ("Prevue"), a wholly
owned subsidiary of the Company, in the United States District Court
for the Northern District of California (San Jose Division). In their
complaint, StarSight and Gemstar allege that Prevue has been and is
infringing the 121 Patent and U.S. Patent 4,751,578 (the "578 Patent")
by making, using, selling and/or offering to sell systems and processes
which embody, incorporate or otherwise practice the inventions claimed
in those patents. StarSight and Gemstar seek preliminary and permanent
injunctive relief, damages (including treble damages for alleged
willful infringement) and attorneys' fees. On August 7, 1998, Prevue
moved to transfer the case to the Northern District of Oklahoma, where
StarSight and Prevue are parties to a pending action involving the 121
Patent. That motion has been argued and is pending. On September 30,
1998, Gemstar, StarSight and SuperGuide, Inc. ("SuperGuide") served a
First Amended Complaint adding SuperGuide as a Plaintiff with respect
to the 578 Patent and adding Tele-Communications, Inc. as a Defendant
and specifying the Prevue Interactive Guide as the allegedly infringing
product. On October 5, 1998, Prevue Networks served its answer to the
First Amended Complaint denying infringement of the 578 and 121 Patents
and asserting that both Patents are invalid, that Plaintiffs are barred
by latches and estoppel from asserting the Patents, and that the 121
Patent is unenforceable by reason of StarSight's inequitable conduct
and misuse of that Patent.
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. If the Company's motion is not granted, it
is anticipated that a trial date may be scheduled. While the Company
believes that this matter will not have a material adverse effect on
its business, financial position or results of operations, the ultimate
resolution, which may occur within one year, could result in a loss of
up to $3.9 million.
On June 2, 1997, a lawsuit was filed in the United States District
Court for the District of Connecticut against the Company by one of its
mass marketers for the Company's C-band service who claims, among other
matters, that additional amounts are owed in connection with its past
and current business relationship with the Company. On June 11, 1997,
the court denied the marketer's motion for a temporary restraining
order, and on October 10, 1997, denied the marketer's motion for a
preliminary injunction. The marketer initially appealed the latter
ruling to the United States Court of Appeals for the Second Circuit,
but, thereafter, voluntarily withdrew and dismissed the appeal with
prejudice on March 3, 1998. 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 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. Acquisitions
Effective February 1, 1998, Turner Vision, Inc. ("Turner Vision")
contributed its retail C-band home satellite dish business' assets,
obligations and operations to Superstar/Netlink Group LLC ("SNG") in
return for an approximate 20% interest in SNG, reducing the Company's
and Liberty Media Corporation's ("Liberty's") ownership interest in SNG
to approximately 40% each. The Company continues to manage SNG and
SNG's operating results continue to be consolidated with those of the
Company. Liberty is wholly owned by TCI.
The contribution was accounted for as a purchase of Turner
Vision's business by SNG. Assets contributed by Turner Vision to SNG
totaled $5.4 million and consisted primarily of $3.9 million of cash
and $1.5 million of accounts receivable. These assets were subject to
liabilities of $27.7 million, consisting primarily of $21.5 million of
customer prepayments and $6.2 million of accounts payable and accrued
liabilities. The purchase price of Turner Vision's business exceeded
the fair value of the underlying net assets acquired by approximately
$61.2 million, which amount was assigned to goodwill and is being
amortized over ten years. As a result of the transaction, the Company
recognized a gain of $14.7 million which is included in "Other Income".
On July 13, 1998, the Company increased its ownership interest in
ODS Technologies, LP ("ODS"), a privately held interactive gaming
company, to 98% by purchasing an 88% interest in ODS for approximately
$28.4 million in cash. The purchase price of the Company's ownership
interest in ODS exceeded the fair value of ODS's net assets acquired by
approximately $28.2 million, which was assigned to intangible assets
and is being amortized over 15 years.
The following pro forma financial information reflects the
Company's results of operations for the nine months ended September 30,
1998 and 1997 as though the retail operations of Turner Vision and ODS
had been acquired as of January 1, 1997, excluding the gain recognized
by the Company as a result of the Turner Vision transaction:
1998 1997
---- ----
Pro forma:
Revenues $451,355 $443,355
Net income 31,833 24,741
Net income per share(1):
Basic $ 0.43 $ 0.34
Diluted 0.43 0.33
(1) 1997 amounts adjusted for two-for-one stock split (See Note 5).
7
<PAGE>
4. Earnings Per Share
The following information reconciles the number of shares used to
compute basic earnings per share to those used to compute diluted
earnings per share (in thousands, except per share amounts):
1998 1997
-------------------- --------------------
Per Share Per Share
Amount Amount
--------- ---------
Net income $47,125 $32,580
======= =======
Weighted average
number of shares
of common stock
outstanding (1) 73,323 $0.64 73,268 $0.44
===== =====
Effect of dilutive
securities -
stock options (1) 976 679
------ ------
Weighted average
number of shares
of common stock
and dilutive
potential common
shares (1) 74,299 $0.63 73,947 $0.44
====== ===== ====== =====
(1) 1997 amounts adjusted for two-for-one stock split (See Note 5).
5. Stock Split
The Company's annual meeting of stockholders was held on July 28,
1998 at which time the stockholders approved an increase in the
authorized number of shares of the Company's Class A Common Stock from
60 million shares to 650 million shares and the Company's Class B
Common Stock from 30 million shares to 300 million shares. Subsequent
to the meeting, the Company announced that it would proceed with the
two-for-one split of the Company's Class A Common Stock and Class B
Common Stock previously announced on February 18, 1998. The stock
split was effected in the form of a stock dividend on August 20, 1998
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 August 10, 1998. All references in the condensed consolidated
financial statements to number of shares and per share amounts have
been adjusted to reflect the stock split.
6. Other Matters
On February 17, 1998, the Company announced plans to acquire
Liberty's approximate 40% interest in SNG as part of a transaction
subject to, among other things, stockholder approval. The transaction,
which also includes Liberty's business that distributes to cable
television systems and other multi-channel video distributors, four
network affiliates, one public broadcast station and one independent
television station, collectively known as Denver 6, and certain other
programming interests, is to be effected on a tax-free basis by UVSG
issuing 12,750,000 shares of Class B Common Stock (the "Liberty
Transaction"). The closing price of the Company's Class A Common Stock
on the date the parties to the transaction agreed in principle to the
described terms was $16.50 per share.
8
<PAGE>
On April 23, 1998, the Company, Liberty and Turner Vision
announced an agreement in principle with Primestar, Inc. ("Primestar")
for the sale of SNG to Primestar for approximately $480 million based
on the delivery of 1.2 million C-band subscribers at the close of the
transaction (the "Primestar Transaction"). On May 12, 1998, the
Department of Justice filed a civil antitrust action in United States
District Court seeking to block the acquisition by Primestar of certain
assets suitable for use in its direct broadcast satellite ("DBS")
business. On October 15, 1998, Primestar announced that the agreement
governing the acquisition had been terminated. In connection with
these events, the Company announced that it would not proceed with the
Primestar Transaction.
On June 11, 1998, the Company and The News Corporation Limited
("News Corp.") announced the signing of an agreement whereby News
Corporation's TV Guide properties (including TV Guide magazine, the
TVGEN entertainment web site and the then soon to be acquired cable
guide publisher TVSM, Inc.) are to be combined with the Company to
create a platform for offering television guide services to consumers
and advertisers. As part of this combination, a unit of News Corp.
will receive consideration consisting of $800 million in cash and 60
million shares of the Company's stock to be composed of, assuming the
Liberty Transaction is completed at the same time, 22,503,412 shares of
Class A Common Stock and 37,496,588 shares of Class B Common Stock. As
a result of the transaction, assuming the pending Liberty Transaction
is also completed, News Corp. will have an approximate 40% economic
interest in the Company, with TCI Ventures Group and Liberty having an
approximate 44% economic interest, and the other stockholders of the
Company having approximately 16%. Following the transaction, News
Corp. and the combination of TCI Ventures Group/Liberty will each have
approximately 48% of the voting power of the Company's outstanding
stock.
9
<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).
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 nine months ended September 30, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
Amount % Amount % Amount % Amount %
------------------ ------------------ ------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Prevue Networks $ 19,863 13% $ 15,607 12% $ 56,021 13% $ 45,593 12%
Superstar (1) 108,996 71 86,849 69 315,799 71 261,108 69
UVTV 11,392 7 10,179 8 33,826 7 30,877 8
SSDS 10,880 7 10,426 8 30,039 7 31,518 8
SpaceCom 4,252 3 4,370 4 13,099 3 12,873 4
Other/Eliminations (1,751) (1) (1,526) (1) (5,607) (1) (5,087) (1)
-------- --- -------- --- -------- --- -------- ---
Total $153,632 100% $125,905 100% $443,177 100% $376,882 100%
======== === ======== === ======== === ======== ===
EBITDA (2):
Prevue Networks $ 7,552 21% $ 5,636 21% $ 19,252 21% $ 16,322 22%
Superstar (1) 21,184 58 12,905 47 47,759 51 34,968 47
UVTV 8,203 23 7,229 27 23,756 26 21,220 28
SSDS 402 1 502 2 1,436 1 (133) --
SpaceCom 643 2 1,167 4 3,365 4 3,313 4
Other/Eliminations (1,684) (5) (183) (1) (2,816) (3) (1,045) (1)
-------- --- -------- --- -------- --- -------- ---
Total $ 36,300 100% $ 27,256 100% $ 92,752 100% $ 74,645 100%
======== === ======== === ======== === ======== ===
Operating income:
Prevue Networks $ 5,226 18% $ 3,475 15% $ 12,160 17% $ 9,995 16%
Superstar (1) 18,625 64 12,107 54 40,007 56 32,564 54
UVTV 7,554 26 6,631 29 21,918 31 19,428 32
SSDS (462) (2) (259) (1) (1,108) (2) (2,353) (4)
SpaceCom 257 1 816 4 2,310 3 2,223 4
Other/Eliminations (2,150) (7) (183) (1) (3,285) (5) (1,045) (2)
-------- --- -------- --- -------- --- -------- ---
Total $ 29,050 100% $ 22,587 100% $ 72,002 100% $ 60,812 100%
======== === ======== === ======== === ======== ===
Consolidated depreciation
and amortization $ 7,250 $ 4,669 $ 20,750 $ 13,833
Consolidated capital
expenditures 3,029 2,531 6,457 6,135
Consolidated cash flows
from operations 24,813 19,939 78,595 62,689
</TABLE>
(1) 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 February
1, 1998, these operating results include the retail operations of
Turner Vision.
(2) 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.
10
<PAGE>
Results of Operations
Consolidated
Revenues for the three months ended September 30, 1998 were $153.6
million, an increase of $27.7 million, or 22%, over the same period in
1997. For the nine months ended September 30, 1998, revenues were
$443.2 million, an increase of $66.3 million, or 18%, over the
corresponding 1997 period. The increase in revenues for both the
quarter and nine-month period was primarily due to $25.1 million of
additional revenues for the quarter and $63.5 million of additional
revenues for the nine-month period attributable to Turner Vision's
retail C-band operations which were combined with those of Superstar
Netlink Group LLC's ("SNG") operations effective February 1, 1998,
increased advertising revenues by Prevue Networks and increased
affiliate fees for video services provided by UVTV and resulting from
subscriber growth. These increases were offset by a $1.9 million
reduction in revenues for the quarter and a $8.4 million reduction in
revenues for the nine-month period which were a result of the
termination of Superstar's service agent agreements with program
suppliers in the DBS market. In addition, SSDS's revenue declined $1.5
million for the nine-month period as a result of the completion of
certain major projects during 1998.
Operating expenses, excluding depreciation and amortization, were
$117.3 million for the quarter ended September 30, 1998, an increase of
$18.7 million, or 19%, when compared to the same period in 1997. For
the nine months ended September 30, 1998, operating expenses, excluding
depreciation and amortization, were $350.4 million, an increase of
$48.2 million, or 16%, over the corresponding 1997 period. Operating
expenses, excluding depreciation and amortization, increased in both
periods when compared to the same periods in 1997 due to increased
costs of $21.3 million for the quarter and $56.2 million for the nine-
month period attributable to Turner Vision, increased personnel costs
primarily attributable to the growth in Prevue Networks and, for the
nine-month period, costs incurred to develop and launch the new look of
Prevue Channel. These increases were partially offset by a $1.3
million decrease in operating expenses for the quarter and a $7.6
million decrease in operating expenses for the nine-month period which
were a result of the termination of Superstar's service agent
agreements with program suppliers in the DBS market and a reduction in
C-band programming costs.
Depreciation and amortization during the third quarter of 1998 was
$7.3 million, an increase of $2.6 million, or 55%, over the same period
in 1997. For the nine months ended September 30, 1998, depreciation
and amortization increased $6.9 million, or 50%, over the same period
in 1997. The increase in depreciation and amortization in both the
quarter and nine-month period in 1998 was primarily a result of
amortization of goodwill resulting from the acquisition of Turner
Vision and, for the nine-month period, the acquisition of ODS
Technologies, LP, coupled with higher depreciation resulting from the
acquisition of equipment to support the various Prevue products.
Other income during the third quarter of 1998 was $1.1 million,
relatively unchanged from the same period in 1997. For the nine months
ended September 30, 1998, other income totaled $18.0 million compared
to $3.0 million for the same period in 1997. Included in other income
during the 1998 nine-month period is $14.7 million of gain associated
with the acquisition of Turner Vision (See Note 3 to the Company's
financial statements included in this Report).
The Company's effective tax rate, computed as the provision for
income taxes divided by income before income taxes and minority
interest, less that portion of minority interest in earnings
attributable to entities not subject to income taxes, was 37% for the
nine-month period ended September 30, 1998, unchanged from the same
period in 1997.
Minority interest in earnings for the quarter and nine-month
period ended September 30, 1998 of $7.0 million and $14.6 million,
respectively, represents that portion of earnings attributable to the
minority ownership in SNG, SSDS and Sneak Prevue LLC.
11
<PAGE>
Prevue Networks
The following table sets forth certain financial information for
Prevue Networks for the three months and nine months ended September
30, 1998 and 1997:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $19,863 $15,607 $56,021 $45,593
Operating expenses,
before depreciation
and amortization 12,311 9,971 36,769 29,271
------- ------- ------- -------
EBITDA 7,552 5,636 19,252 16,322
Depreciation and
amortization 2,326 2,161 7,092 6,327
------- ------- ------- -------
Operating income $ 5,226 $ 3,475 $12,160 $ 9,995
======= ======= ======= =======
EBITDA margin
percentage 38% 36% 34% 36%
Operating margin
percentage 26% 22% 22% 22%
Prevue Networks' revenues for the three months ended September 30,
1998 were $19.9 million, an increase of $4.3 million, or 27%, over the
same period in 1997. For the nine months ended September 30, 1998,
revenues were $56.0 million, an increase of $10.4 million, or 23%, over
the corresponding 1997 period. The increase in revenues during both
periods was largely attributable to advertising revenues, which grew
$2.2 million, or 29%, over the third quarter of 1997 and $7.3 million,
or 34%, over the first nine months of 1997 due to higher rates and
increases in commercial advertising sales. In addition, service fee
revenues attributable to Prevue Channel increased $500,000, or 10%, for
the quarter when compared to the same period in 1997 and $1.7 million,
or 12%, over the first nine months of 1997. Sneak Prevue revenues
increased $108,000, or 5%, for the quarter when compared to the same
period in 1997 and $400,000, or 6%, over the first nine months of 1997.
Prevue Channel subscriber counts increased by 2.5 million, or 5%, to
49.2 million as of September 30, 1998 compared to those as of September
30, 1997. Sneak Prevue subscribers decreased by 173,000, or less than
1%, to 35.0 million during the same period.
Operating expenses, excluding depreciation and amortization,
increased by $2.3 million, or 23%, during the third quarter of 1998 and
by $7.5 million, or 26%, for the first nine months of 1998 when
compared to the same periods in 1997. The increase in operating
expenses, before depreciation and amortization, in both periods was due
primarily to additional employees added to accommodate Prevue's growth
coupled, for the nine-month period, with approximately $2.3 million of
costs incurred in the first quarter of 1998 to develop and launch the
new look of Prevue Channel. Further increasing operating expenses was
$1.1 million of costs incurred in the third quarter of 1998 to promote
and produce two segments for the new fall programming combined with
costs incurred related to TV Guide branding.
Depreciation and amortization during the third quarter of 1998 was
$2.3 million, an increase of $165,000, or 8%, over the same period in
1997. For the nine months ended September 30, 1998, depreciation and
amortization increased $765,000, or 12%, over the same period in 1997.
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 and
increased equipment to support the increase in personnel.
12
<PAGE>
Superstar
The following table sets forth certain financial information for
Superstar for the three months and nine months ended September 30, 1998
and 1997:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $108,996 $ 86,849 $315,799 $261,108
Operating expenses,
before depreciation
and amortization 87,812 73,944 268,040 226,140
-------- ------- -------- --------
EBITDA 21,184 12,905 47,759 34,968
Depreciation and
amortization 2,559 798 7,752 2,404
-------- ------- -------- --------
Operating income $ 18,625 $12,107 $ 40,007 $ 32,564
======== ======= ======== ========
EBITDA margin
percentage 19% 15% 15% 13%
Operating margin
percentage 17% 14% 13% 12%
Revenues generated by Superstar for the three months ended
September 30, 1998 were $109.0 million, an increase of $22.1 million,
or 26%, over the same period in 1997. For the nine months ended
September 30, 1998, revenues were $315.8 million, an increase of $54.7
million, or 21%, over the corresponding period in 1997. Revenues
increased for both periods due to $25.1 million of revenues for the
quarter and $63.5 million of revenues for the nine-month period which
were attributable to Turner Vision's retail C-band operations which
were acquired by SNG effective February 1, 1998. This increase was
partially offset by a $1.9 million decrease in revenues for the quarter
and a $8.4 million decrease in revenues for the nine-month period which
was a result of the termination of Superstar's service agent agreements
with program suppliers in the DBS market. Retail subscribers purchasing
programming from SNG as of September 30, 1998 totaled approximately 1.2
million, a decrease of 23,000 during the quarter and an increase of
293,000 during the prior twelve months. The increase in retail
subscribers during the last twelve months includes approximately
310,000 subscribers acquired from Turner Vision on February 1, 1998 and
61,000 subscribers acquired from other C-band programmers during May
1998. Excluding the impact of acquired subscribers, retail subscribers
purchasing programming from SNG declined 2% for the quarter ended
September 30, 1998 and decreased 9% for the twelve-month period ended
September 30, 1998. During the quarter ended September 30, 1998, the C-
band industry declined 2%, decreasing by 49,000 subscribers, and for
the twelve month period ended September 30, 1998, the industry
decreased by 176,000 subscribers, or 8%.
Operating expenses, excluding depreciation and amortization, were
$87.8 million in the third quarter of 1998, an increase of $13.9
million, or 19%, compared to the same period in 1997. For the first
nine months of 1998, operating expenses, excluding depreciation and
amortization, increased $41.9 million, or 19%, over the same period in
1998. The increase in operating expenses, before depreciation and
amortization, for both periods of 1998 as compared to the previous
year's results was due primarily to expenses attributable to Turner
Vision of $21.3 million for the third quarter and $56.2 million for the
nine months. The increases were partially offset by a decrease in
operating expenses from the termination of Superstar's service agent
agreements with program suppliers in the DBS market of $1.3 million for
the quarter and $7.6 million for the first nine months of 1998, as well
as a reduction of programming fees due to renegotiated rates.
Depreciation and amortization for the third quarter of 1998 was
$2.6 million, an increase of $1.8 million, or 221%, compared to the
same period in 1997. Depreciation and amortization for the first nine
months of 1998 was $7.8 million, an increase of $5.3 million, or 222%,
compared to the same period in 1997. The increase in depreciation and
amortization for both periods was primarily the result of amortization
of goodwill resulting from the acquisition of Turner Vision.
On February 17, 1998, the Company announced the Liberty
Transaction (See Note 6 to the Company's financial statements included
in this Report).
On July 10, 1998, the United States District Court for the
Southern District of Florida issued a Preliminary Injunction ("Miami
Order") against PrimeTime 24, a distributor of east coast and west
coast network affiliates to the C-band and DBS markets. This
injunction stems from a lawsuit brought against PrimeTime 24 by CBS,
Inc. and its affiliates and Fox Broadcasting Company and its
affiliates. The injunction requires that within 90 days of the order,
PrimeTime 24 distributors deauthorize every CBS and Fox subscriber in
the Longley Rice Grade B Contour who has been authorized since March
11, 1997. SNG, as a reseller of PrimeTime 24, is currently working
toward compliance with the injunction. A similar decision was issued
by the United States District Court for the Middle District of North
Carolina affecting the distribution of the ABC Network signals in the
Raleigh-Durham area. The effective date of the Miami Order has been
extended to February 8, 1999. The Federal Communications Commission
(the "FCC") has received Petitions for Rulemaking to redefine the Grade
B contour for purposes of satellite network copyright compliance and
eligibility, and is expected to commence the Rulemaking, receive
comments and issue a ruling before the February effective date of the
Miami Order. In addition, EchoStar Communications Corporation, a DBS
provider, filed a complaint for declaratory judgement in the United
States District Court in Colorado to have the Grade B contours
redefined for satellite copyright purposes. The timing or outcome of
any decision in that proceeding cannot be predicted at this time.
Finally, various legislative proposals were introduced in Congress and
are expected to be reintroduced in 1999 that, if passed, will impact
satellite copyright eligibility and compliance. The Company believes
that these matters will not have a material adverse effect on its
financial position or results of operations. In addition, the Company
believes these orders will not result in subscriber loss to DBS, as DBS
distributors of PrimeTime 24 services are bound by the same order and
any changes in the Grade B contours for purposes of satellite copyright
should apply to all DBS and C-band distributors for all satellite-
delivered network signals.
13
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months and nine months ended September 30, 1998 and
1997:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $11,392 $10,179 $33,826 $30,877
Operating expenses,
before depreciation
and amortization 3,189 2,950 10,070 9,657
------- ------- ------- -------
EBITDA 8,203 7,229 23,756 21,220
Depreciation and
amortization 649 598 1,838 1,792
------- ------- ------- -------
Operating income $ 7,554 $ 6,631 $21,918 $19,428
======= ======= ======= =======
EBITDA margin
percentage 72% 71% 70% 69%
Operating margin
percentage 66% 65% 65% 63%
UVTV's revenues for the three months ended September 30, 1998 were
$11.4 million, an increase of $1.2 million, or 12%, from the same
period in 1997. For the nine months ended September 30, 1998, revenues
were $33.8 million, an increase of $2.9 million, or 10%, from the
corresponding 1997 period. The increase in revenues in both periods is
primarily the result of an increase in average UVTV/WGN cable and DBS
subscribers of 4.9 million, or 13%, for the quarter and 5.0 million, or
14%, for the nine-month period ended September 30, 1998. This growth
was primarily due to the impact from new cable and DBS system launches
and existing subscriber growth. The increase in subscribers resulted
in a revenue increase of $685,000 and $1.5 million for the quarter and
nine-month period ended September 30, 1998, respectively, over the same
periods in 1997. Cable rate increases also contributed to the revenue
growth. The remaining increase in revenues resulted from C-band license
fees that were increased to recover the expense of copyright fees which
increased January 1, 1998 and were partially offset by revenue
decreases related to the continued shrinkage of the C-band marketplace.
Operating expenses, excluding depreciation and amortization, were
$3.2 million during the third quarter of 1998, an increase of $239,000,
or 8%, from the third quarter of 1997. For the nine months ended
September 30, 1998, operating expenses, excluding depreciation and
amortization, were $10.1 million, an increase of $413,000, or 4%, from
the same period in 1997. The increase in operating expenses during
1998 in both periods results primarily from the increased copyright
fees discussed above which were partially offset by a decrease in
compensation of $102,000 for the quarter and $562,000 for the nine-
month period ended September 30, 1998 resulting from reduced
headcounts.
Depreciation and amortization for the quarter and nine months
ended September 30, 1998 was $649,000 and $1.8 million, respectively,
both relatively unchanged as compared to the same periods in 1997.
14
<PAGE>
SSDS
SSDS' revenues for the third quarter of 1998 were $10.9 million,
an increase of $454,000, or 4%, compared to the third quarter of 1997.
Revenues for the first nine months of 1998 were $30.0 million, a
decrease of $1.5 million, or 5%, from the same period in 1997. The
decrease in revenues during the first nine months of 1998 compared to
those of 1997 is primarily due to the completion of certain major
projects during the first nine months of 1998 which has caused a
decrease in billable hours.
Operating expenses, before depreciation and amortization,
increased during the third quarter of 1998 by $554,000, or 6%, from the
same period in 1997 to $10.5 million. The increase in operating costs
during the third quarter was due to additional purchased materials
related to one major project. For the nine months ended September 30,
1998, operating expenses, excluding depreciation and amortization, were
$28.6 million, a decrease of $3.0 million, or 10%, from the same period
in the prior year. The decrease in operating expenses during the first
nine months of 1998 was due primarily to lower headcount and project
costs, which were caused by the completion of certain major projects
during 1998.
Depreciation and amortization expense during the third quarter of
1998 was $864,000, an increase of $103,000, or 14%, over the third
quarter of 1997. Depreciation expense during the nine months ended
September 30, 1998 increased by $324,000, or 15%, over the same period
in 1997. The increase in 1998 was the result of ongoing infrastructure
equipment upgrades and new equipment to support the employees.
Included in depreciation and amortization expense in the third quarter
and nine-month period of both 1998 and 1997 is approximately $500,000
and $1.5 million, respectively, of amortization of goodwill resulting
from the Company's acquisition of SSDS in July 1995.
SpaceCom
SpaceCom's revenues for the three months ended September 30, 1998
were $4.3 million, relatively unchanged as compared to the same period
in 1997. For the nine months ended September 30, 1998, revenues were
$13.1 million, an increase of $226,000, or 2%, over the corresponding
1997 period. The increase in revenues for the nine month period were
attributable to increased demand for SpaceCom's satellite hardware and
an increase in HyperCubed service revenue. SpaceCom's transponders had
an average occupancy, based on potential revenue, of 69% as of
September 30, 1998, down 2% when compared to the same period in 1997.
Operating expenses, excluding depreciation and amortization, were
$3.6 million during the third quarter of 1998, an increase of $406,000,
or 13%, compared to the same period in 1997. During the nine months
ended September 30, 1998, operating expenses, excluding depreciation
and amortization, increased $174,000, or 2%, from the corresponding
1997 period to $9.7 million. The increase in operating expenses,
before depreciation and amortization, for both periods resulted
primarily from a one-time transmission expense associated with the
Galaxy IV failure.
Depreciation and amortization in the third quarter of 1998 was
$386,000, an increase of $35,000, or 10%, compared to the same period
in 1997. During the nine months ended September 30, 1998, depreciation
and amortization decreased $35,000, or 3%, from the corresponding 1997
period.
15
<PAGE>
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary
source of funds to finance operating needs and capital expenditures.
During the first nine months of 1998, net cash flows from operating
activities were $78.6 million ($74.9 million after distributions to
minority interests), reflecting the continued growth of the Company's
after-tax earnings. This cash, plus existing cash resources and net
proceeds of $68.6 million from the sale of marketable securities, were
used to fund the Company's debt payments by SSDS of $7.7 million, the
repurchase of common stock of $15.2 million, capital expenditures of
$6.5 million, other investments and acquisitions of $38.7 million and
the reduction in the Company's capitalized lease obligations of $2.6
million during the nine-month period.
At September 30, 1998, the Company's cash, cash equivalents and
marketable securities aggregated $159.7 million, an increase of $16.6
million over the balance as of December 31, 1997. The above total
includes $39.8 million of cash and cash equivalents held by SNG, in
which the Company has an approximate 40% ownership interest. The
Company has invested the majority of its cash available for current
operations in investment grade municipal governmental obligations. As
of September 30, 1998, approximately $54.9 million of such securities
had maturities greater than 90 days and were classified as available-
for-sale marketable securities along with investments made in certain
equity 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 the lesser of 80% of billed trade receivables of
SSDS outstanding less than 90 days, subject to certain conditions, or
$5.0 million. Borrowings under this credit facility, which expires
April 30, 1998, bear interest at the bank's stated prime rate plus a
margin. The current credit facility replaced an existing credit
facility which expired October 31, 1998. There were no outstanding
borrowings under the credit facility as of September 30, 1998.
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 September 30, 1998, the unearned portion of
all prepayments totaled $115.7 million, of which approximately $102.6
million, or 89%, was attributable to SNG. 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.
16
<PAGE>
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 $17.6 million as of September 30, 1998,
a reduction of $2.6 million, or 13%, 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 $3.7 million.
The Company also leases various other satellite transponders accounted
for as operating leases. These operating leases accounted for
approximately $4.5 million in operating expenses, net of sublease
revenue, during the nine months ended September 30, 1998.
Capital expenditures during the nine months ended September 30,
1998 of $6.5 million were principally attributable to the expansion of
the Company's teleport facilities, purchase of control units provided
to the Company's cable television customers and to data processing
equipment and systems and furniture, fixtures and facilities used by
the Company.
SNG generally makes monthly distributions to its members of all
cash in excess of reasonable cash reserves established for anticipated
working capital requirements and capital expenditures. However, in
anticipation of the possible transaction with Primestar, SNG had been
retaining cash in excess of its anticipated operating and capital needs
in order to build working capital to desired levels for the
transaction. During the nine months ended September 30, 1998, cash
distributions to minority interests in SNG aggregated $3.7 million.
The Company believes, except for the funds required to consummate
the transaction with News Corp. (See Note 6 to the Company's financial
statements included in this Report) and except as discussed above for
SSDS, which will be required to renew or replace its existing credit
facility in April 1999, 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 Company anticipates
it will require $600 million to $800 million of debt financing,
depending on available cash balances, to close the transaction with
News Corp. and that such financing will be obtained through a
commercial bank. Should the Company require additional financial
resources to execute its business plans, it will likely look to both
debt and equity as a source of funds.
The Board of Directors has authorized the Company to repurchase
from time to time up to an aggregate of 2,000,000 shares of the
Company's Class A Common Stock using existing cash resources. During
the nine months ended September 30, 1998, the Company repurchased
approximately 900,000 shares of stock for a total of $15.2 million. As
of October 29, 1998, the Company had repurchased approximately 1.3
million shares under the program.
The Company continues to explore opportunities to expand the
market share of its existing businesses, develop new products and
acquire interests in new businesses.
17
<PAGE>
Other Matters
In 1997, the Company began the process of identifying, evaluating
and implementing changes to its computer systems, applications and
certain equipment with embedded technology necessary to address the
year 2000 issue. The Company has established an enterprise-wide
program (the "Year 2000 Project") to prepare for the year 2000 and is
utilizing both internal and external resources to identify, correct and
test the systems for year 2000 compliance. The historical and
estimated future costs related to the year 2000 issues have not been
and are not expected to be a material cost to the Company.
The Year 2000 Project involves a four-phase approach to
determining the year 2000 readiness of the Company's systems, software
and equipment. This approach provides a detailed method for tracking
the evaluation, repair and testing of the Company's systems, software
and equipment. Phase 1, Assessment, involves the inventory of all
systems, software and equipment and the identification of any year 2000
issues. Phase 1 is scheduled for completion by December 1998. Phase 2,
Remediation, involves repairing, upgrading and/or replacing any non-
compliant equipment and systems. Phase 2 is scheduled for completion by
March 1999. Phase 3, Testing, involves testing the Company's systems,
software and equipment for year 2000 readiness, or in certain cases,
relying on test results provided to the Company. Phase 3 is scheduled
for completion by May 1999. Phase 4, Implementation, involves placing
compliant systems, software and equipment into production or service.
Phase 4 is scheduled for completion by July 1999. The completion dates
set forth above are based on the Company's current expectations.
However, due to the uncertainties inherent in year 2000 remediation,
there can be no assurance that the projects will be completed on such
dates.
As part of the Year 2000 Project, the Company with the assistance
of TCI is in the process of contacting its significant suppliers and
customers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their year 2000 compliance
issues. There can be no assurance that the systems of other companies
on which the Company's business relies will be timely converted or that
failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material
adverse effect on the Company and its operations.
The Company's failure to resolve year 2000 issues on or before
December 31, 1999 could result in system failures causing disruption in
routine business activities. Also, if critical systems related to the
Company's services are not successfully remediated, the Company could
face claims of breach of contract from customers, certain programming
providers and from other business that rely on the Company's
programming services. Additionally, failure of third parties upon whom
the Company relies to timely remediate their year 2000 issues could
result in disruption in the Company's daily operations and core
services. While the Company believes the Year 2000 Project will
adequately address the internal year 2000 issues, the overall risks
associated with the year 2000 issue remain difficult to accurately
describe and quantify until the Company obtains additional information
regarding the remediation activities of its third party suppliers and
customers. There can be no assurance that the year 2000 issue will not
have a material adverse effect on the Company and its operations.
The Company is in the process of developing contingency plans on
all critical processes to minimize the impact of any year 2000 related
interruption. These plans have been completed at a high level and the
detailed plans are expected to be in place prior to December 31, 1998.
In June 1997, the FASB issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information". Statement
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and
major customers. Statement No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be
restated. The Company plans to adopt Statement No. 131 for the year
ended December 31, 1998. The adoption of Statement No. 131 will have
no impact on the Company's consolidated results of operations,
financial position or cash flows.
Cautionary Statement
This report contains "forward looking statements" within the
meaning of the federal securities laws, including the Company's
evaluation of existing litigation, the Company's plans to acquire
certain assets and operations from Liberty and News Corp., the
Company's plans for the development of interactive and information
services, the sufficiency of existing and available transponder
capacity, 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 and home satellite dish 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, the willingness and ability of third parties to
consummate transactions and the Company's dependence upon intellectual
property rights, including the Company's ability to defend itself
against claims by others asserting infringement of their intellectual
property.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The trial governing the Company's litigation with StarSight
concluded in July 1998, and final closing arguments were
heard by the Court on November 12, 1998. All other
administrative matters are expected to be completed by the
end of November 1998. (See Note 2 to the Company's financial
statements included in this Report.)
On July 24, 1998, StarSight and Gemstar filed a complaint for
patent infringement against Prevue Networks, Inc. in the
United States District Court for the Northern District of
California (San Jose Division). In their complaint,
StarSight and Gemstar allege that Prevue has been and is
infringing the 121 Patent and the 578 Patent by making,
using, selling and/or offering to sell systems and processes
which embody, incorporate or otherwise practice the
inventions claimed in those patents. StarSight and Gemstar
seek preliminary and permanent injunctive relief, damages
(including treble damages for alleged willful infringement)
and attorneys' fees. On August 7, 1998, Prevue moved to
transfer the case to the Northern District of Oklahoma,
where StarSight and Prevue are parties to a pending action
involving the 121 Patent. That motion has been argued and is
pending. On September 30, 1998, Gemstar, StarSight and
SuperGuide, Inc. ("SuperGuide") served a First Amended
Complaint adding SuperGuide as a Plaintiff with
respect to the 578 Patent and adding Tele-Communications,
Inc. as a Defendant and specifying the Prevue Interactive
Guide as the allegedly infringing product. On October 5,
1998, Prevue Networks served its answer to the First Amended
Complaint denying infringement of the 578 and 121 Patents and
asserting that both Patents are invalid, that Plaintiffs are
barred by latches and estoppel from asserting the Patents,
and that the 121 Patent is unenforceable by reason of
StarSight's inequitable conduct and misuse of that Patent.
On May 13, 1998, a complaint was filed by a stockholder of
the Company in the Court of Chancery of the State of Delaware
in and for New Castle County, against the Company, Primestar
and certain of the Company's directors. The plaintiff sought
to enjoin the defendants from proceeding with the Primestar
Transaction. On May 12, 1998, the Department of Justice filed
a civil antitrust action in United States District Court
seeking to block the acquisition by Primestar of certain
assets suitable for use in its DBS business. On October 15,
1998, Primestar announced that the agreement governing the
acquisition had been terminated. In connection with these
events, the Company announced that it would not proceed with
the Primestar Transaction. Following these announcements, the
lawsuit was dismissed on November 10, 1998.
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
3.1 Certificate of Amendment of Restated Certificate
of Incorporation.
10.1 Amended and Restated Stock Option Plan For Non-
Employee Directors.
27 Financial Data Schedule
b) Reports on Form 8-K
On August 3, 1998, the Company filed a report on Form 8-K
reporting the stockholders of the Company had approved a
proposal to amend the Company's Restated Certificate of
Incorporation to increase the number of authorized shares
of Class A Common Stock and Class B Common Stock to
650,000,000 shares and 300,000,000 shares, respectively.
Additionally, the report stated that the Company would
complete its previously announced two for one split of
its Class A and Class B Common Stock by distributing 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 on August 20, 1998, to holders
of record on August 10, 1998.
No other reports on Form 8-K were filed during the third
quarter of 1998.
19
<PAGE>
SIGNATURE
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: November 16, 1998 By /s/ Peter C. Boylan III
--------------------------------
Peter C. Boylan III
President and
Chief Operating Officer
20
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
UNITED VIDEO SATELLITE GROUP, INC.
UNITED VIDEO SATELLITE GROUP, INC., a Delaware corporation (the
"Corporation"), hereby certifies that:
1. The amendment set forth herein was duly adopted in accordance
with Section 242 of the General Corporation Law of Delaware.
2. The first paragraph of the Corporation's Restated Certificate
of Incorporation, which immediately precedes Section A of Article IV,
is hereby amended to read in its entirety, as follows:
"ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock that the
Corporation shall have authority to issue is nine hundred fifty-two
million (952,000,000) shares, divided into the following classes: six
hundred fifty million (650,000,000) shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock"); three hundred million
(300,000,000) shares of Class B Common Stock, par value $.01 per share
("Class B Common Stock"); and two million (2,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock"). A
description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations
thereof, or the method of fixing and establishing the same, are as
hereinafter in this Article IV set forth."
3. All other remaining provisions of the Restated Certificate of
Incorporation not amended hereby shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by its Senior Vice President on this 28th day of July, 1998.
UNITED VIDEO SATELLITE GROUP, INC.
By: /s/ Charles Butler Ammann
-----------------------------
Charles Butler Ammann
Senior Vice President
[SEAL]
1
<PAGE>
EXHIBIT 10.1
UNITED VIDEO SATELLITE GROUP, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As Amended and Restated Effective July 28, 1998)
1
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Effective March 8, 1996, the Board of Directors (the "Board") of
United Video Satellite Group, Inc., a Delaware corporation (the
"Company"), established the current United Video Satellite Group, Inc.
Stock Option Plan for Non-Employee Directors (the "Plan"). The Plan is
hereby amended and restated in its entirety, generally effective
July 28, 1998 (the "Effective Date"), except as otherwise provided,
subject to approval of the Company's stockholders pursuant to Section
5.2, if required.
PURPOSES
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 Class A Common
Stock, $0.01 par value (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 and (b) is not an employee of the Company. For purposes of the
Plan, an employee is an individual whose wages are subject to the
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.
2
<PAGE>
ARTICLE II
OPTIONS
2.1 Participation. Each non-employee director on the Effective
Date and each non-employee director elected thereafter shall be
eligible to receive Options to purchase Stock in accordance with
Section 2.2 on the terms and conditions herein described.
2.2 Grant.
(a) Grant. The Board, in its sole discretion, may grant
Options to individual non-employee directors. The Board shall have
full discretion as to the number and date of the grant of Options and
may grant Options covering different numbers of shares of Stock to
different directors, subject to the provisions of Section 2.3(a).
(b) 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.
(c) 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 be eligible
to receive Options to purchase the number of shares of Stock determined
from time to time by the Board in its sole discretion, subject to
adjustment as provided in Article III. Such grants shall be effective
at the time 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 5.4) of the Stock on the
date of grant, subject to adjustment as provided in Article III.
(c) Duration of Options. Except as otherwise specified by
the Board in its sole discretion, 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.
3
<PAGE>
(d) Termination of Service, Death, Etc. Effective February
9, 1998, unless otherwise specified or permitted by the Board, 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
(or, in case of death thereafter, by the persons specified in
Section 2.3(d)(iii)) within one year following the date on which
the Holder ceased to be a director or within any extended period
that may be authorized by the Board in its sole discretion. 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, unless the Board, in its
sole discretion, permits: (A) accelerated vesting of some or all
of the remaining shares subject to the Option, or (B) continued
vesting of the remaining Shares subject to the Option under such
conditions as the Board may establish.
(iii) If the Holder dies during the Option Period while
still serving as a director or within the three-month period
referred to in Section 2.3(d)(iv) below, 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 one year following the
Holder's death or within any extended period that may be
authorized by the Board in its sole discretion. 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 of the
Holder's death, unless the Board, in its sole discretion, permits:
(A) accelerated vesting of some or all of the remaining shares
subject to the Option, or (B) continued vesting of the remaining
Shares subject to the Option under such conditions as the Board
may establish.
(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 or
within any extended period that may be authorized by the Board in
its sole discretion. 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, unless the Board, in its sole discretion, permits: (A)
accelerated vesting of some or all of the remaining shares subject
to the Option, or (B) continued vesting of the remaining Shares
subject to the Option under such conditions as the Board may
establish.
4
<PAGE>
(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.
Notwithstanding any other provision of the Plan, no Option granted
under this amended and restated plan may be exercised unless and until
the Plan is approved by the stockholders of the Company in accordance
with Section 5.2, if so required.
(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
designed 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 instructions 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 Holder for less than six months or such other
period as shall be sufficient for the Company to avoid, if
possible, the recognition of expense with respect to the Option
for accounting purposes.
(g) Service Required for Exercise. Except as set forth in
Sections 2.3(d), 4.3 and 4.4, and except as may otherwise be provided
by the Board, each Option shall 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. Unless otherwise specified
by the Board, 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, or as provided by the Board in its sole discretion, 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.
5
<PAGE>
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 250,000 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, together with shares used to pay the Option
exercise price, shall again be available for grant 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
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; and (b) 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. An Holder shall have none of the
rights of a stockholder with respect to the shares subject to an Option
until such shares are transferred to the Holder upon the exercise of
such Option. 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 such shares are so transferred.
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.
6
<PAGE>
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
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. 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
Securities Exchange Act of 1934 (the "Exchange Act") becomes the
beneficial owner (as defined in Rule 13d-3 under the 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.
7
<PAGE>
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 Company shall obtain the
approval of stockholders to any amendment or modification of the Plan
to the extent required by Rule 16b-3 under the Exchange Act (or any
successor applicable rule) ("Rule 16b-3") or by the listing
requirements of the National Association of Securities Dealers, Inc. 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.
5.4 Fair Market Value. The "Fair Market Value" of a share of
Stock shall be the last reported sale price of the Stock on the Nasdaq
National Market 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 the Nasdaq National Market 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 the Nasdaq Stock Market 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
in its sole discretion.
5.5 Section Headings. The Section headings are included herein
only for convenience, and they shall have no effect on the
interpretation of the Plan.
5.6 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.
UNITED VIDEO SATELLITE GROUP, INC.
ATTEST:
/s/Charles Butler Ammann By: /s/ Peter C. Boylan III
- -------------------------- ---------------------------
Secretary
8
<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 SEPTEMBER 30, 1998 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 104,836
<SECURITIES> 54,857
<RECEIVABLES> 57,477
<ALLOWANCES> 1,829
<INVENTORY> 0
<CURRENT-ASSETS> 228,187
<PP&E> 122,611
<DEPRECIATION> 77,366
<TOTAL-ASSETS> 401,685
<CURRENT-LIABILITIES> 179,331
<BONDS> 0
0
0
<COMMON> 728
<OTHER-SE> 188,452
<TOTAL-LIABILITY-AND-EQUITY> 401,685
<SALES> 0
<TOTAL-REVENUES> 443,177
<CGS> 0
<TOTAL-COSTS> 261,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 90,020
<INCOME-TAX> 28,294
<INCOME-CONTINUING> 47,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,125
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.63
</TABLE>
