SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE PERIOD ENDED JUNE 30, 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 August 11, 1998:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 24,246,374
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 - UNAUDITED
(In thousands, except per share amounts)
June 30, December 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 95,540 $ 30,752
Marketable securities, at fair value 84,768 112,334
Accounts receivable, net of allowance
for doubtful accounts 53,104 55,611
Prepaid expenses and other 12,291 9,842
Deferred tax asset 2,135 2,123
-------- --------
Total current assets 247,838 210,662
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 45,684 50,992
Goodwill, net of accumulated amortization 87,736 29,157
Other assets, net of accumulated
amortization 5,674 3,641
-------- --------
Total assets $386,932 $294,452
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,207 $ 5,894
Accrued liabilities 59,112 50,385
Note payable and current portion of
capital lease obligations and
long-term debt 7,038 10,957
-------- --------
69,357 67,236
Customer prepayments 115,514 91,266
-------- --------
Total current liabilities 184,871 158,502
Deferred compensation 668 871
Deferred tax liability 10,801 2,737
Capital lease obligations and
long-term debt 15,359 17,207
Minority interest 3,203 3,141
Stockholders' equity
Class A common stock, $.01 par value 243 244
Treasury stock (Class A), at cost -- (114)
Class B common stock, $.01 par value 124 124
Additional paid-in capital 34,170 39,226
Accumulated other comprehensive
earnings (loss), net of tax 3,814 (13)
Retained earnings 148,492 115,833
-------- --------
186,843 155,300
Minority interest deficit in Superstar/
Netlink Group LLC (14,813) (43,306)
-------- --------
Total stockholders' equity 172,030 111,994
-------- --------
Total liabilities and stockholders' equity $386,932 $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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Satellite services $129,651 $109,227 $251,277 $216,252
Advertising sales 9,982 7,879 19,109 14,151
Systems integration
services 9,595 10,995 19,159 20,574
-------- -------- -------- --------
149,228 128,101 289,545 250,977
Operating expenses:
Programming and
delivery 82,945 65,020 159,939 129,448
Selling, general
and administrative 35,208 37,668 73,154 74,140
Depreciation and
amortization 6,472 4,608 13,500 9,164
-------- -------- -------- --------
124,625 107,296 246,593 212,752
-------- -------- -------- --------
Operating income 24,603 20,805 42,952 38,225
Other income, net 1,192 1,311 16,952 1,807
-------- -------- -------- --------
Income before income
taxes and minority
interest 25,795 22,116 59,904 40,032
Provision for income
taxes (8,263) (6,364) (19,641) (11,776)
Minority interest
in earnings (3,787) (4,481) (7,604) (7,578)
-------- -------- -------- --------
Net income $ 13,745 $ 11,271 $ 32,659 $ 20,678
======== ======== ======== ========
Net income per share(1):
Basic $ 0.19 $ 0.15 $ 0.44 $ 0.28
Diluted 0.18 0.15 0.44 0.28
(1) Adjusted for two-for-one stock split (See Note 5).
See accompanying notes.
3
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UNITED VIDEO SATELLITE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended
June 30,
1998 1997
---- ----
Operating activities:
Net income $ 32,659 $ 20,678
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on issuance of equity by
subsidiary (14,700) --
Depreciation and amortization 13,500 9,164
Minority interest in earnings 7,604 7,578
Deferred income taxes 5,814 (296)
Amortization of bond premiums 964 207
Other 756 123
Changes in operating assets and
liabilities, net of the effect
of acquisitions:
Accounts receivable 9,075 9,290
Prepaid expenses and other (3,352) (3,996)
Accounts payable (2,733) (561)
Accrued liabilities 2,696 13,536
Customer prepayments 1,499 (12,546)
Other -- (427)
------- -------
Net cash provided by operating activities 53,782 42,750
Investing activities:
Capital expenditures (3,428) (3,604)
Purchases of marketable securities (72,398) (49,612)
Sales and maturities of marketable
securities 105,065 14,193
Other (2,826) 167
------- -------
Net cash provided by (used in)
investing activities 26,413 (38,856)
Financing activities:
Repayment of note payable, capital
lease obligations and long-term debt (5,767) (4,467)
Issuance of stock 841 2,101
Repurchase of stock (6,745) (2,078)
Distributions to minority interests (3,704) (11,000)
Other (32) 456
------- -------
Net cash used in financing activities (15,407) (14,988)
------- -------
Net increase (decrease) in cash and
cash equivalents 64,788 (11,094)
Cash and cash equivalents at beginning of
period 30,752 42,796
------- -------
Cash and cash equivalents at end of period $95,540 $31,702
======= =======
Supplemental disclosures of cash
flow information:
Interest paid $ 1,001 $ 1,189
Income taxes paid 12,817 9,775
See accompanying notes.
4
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 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 June 30, 1998
and 1997 was $17.2 million and $11.2 million, respectively, and for the
six months ended June 30, 1998 and 1997 was $36.5 million and $20.5
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,
with closing arguments and other administrative matters expected to be
completed by 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., 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 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.
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. Discussions to
resolve these matters are on going and will continue through discovery
and pre-trail preparation. 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. Turner Vision Transaction
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".
The following pro forma financial information reflects the
Company's results of operations for the six months ended June 30, 1998
and 1997 as though the retail operations of Turner Vision had been
acquired as of January 1, 1997, excluding the gain recognized by the
Company as a result of the transaction:
1998 1997
---- ----
Pro forma:
Revenues $297,300 $294,706
Net income 22,862 17,782
Net income per share(1):
Basic $ 0.31 $ 0.24
Diluted 0.31 0.24
(1) 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 $32,659 $20,678
======= =======
Weighted average
number of shares
of common stock
outstanding (1) 73,406 $0.44 73,137 $0.28
===== =====
Effect of dilutive
securities -
stock options (1) 1,098 653
------ ------
Weighted average
number of shares
of common stock
and dilutive
potential common
shares (1) 74,504 $0.44 73,790 $0.28
====== ===== ====== =====
(1) 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 the two-for-one split of the
Company's Class A Common Stock and Class B Common Stock previously
announced on February 18, 1998 would occur on August 20, 1998 to
stockholders of record at the close of business on August 10, 1998.
The split will be effected in the form of a stock dividend 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. All
references in the condensed consolidated financial statements to number
of shares and per share amounts have been adjusted to reflect the stock
split where indicated.
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 will be effected on a tax-free basis by UVSG
issuing 12,750,000 shares of Class B Common Stock, as adjusted for the
two-for-one stock split (See Note 5), (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, as adjusted for the two-for-one stock split.
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"). The consideration would be
in the form of approximately $430 million in new convertible preferred
stock of Primestar with the remainder in assumed liabilities. As a
result of their agreement with Primestar, the Company and Liberty have
restructured their transaction to permit the Primestar Transaction to
close before the entire Liberty Transaction closes. In such event, the
Company would acquire the Primestar preferred stock received by Liberty
in the Primestar Transaction in lieu of Liberty's approximate 40%
interest in SNG as announced in the Liberty Transaction. In the event
the Primestar Transaction does not occur, the Liberty Transaction is to
proceed as previously announced. On May 12, 1998, the Department of
Justice filed a civil antitrust action in United States District Court
seeking to block the sale of certain assets to Primestar suitable for
its direct broadcast satellite ("DBS") business. The Company is
evaluating this event and its impacts on Primestar and the previously
announced Primestar Transaction, but does not anticipate completing the
Primestar Transaction unless Primestar is successful in proceeding with
its business plans to launch a high power DBS service. Accordingly, no
assurance can be given that the Primestar Transaction will be
consummated or consummated on the terms previously described. (See Part
II, Item 1. Legal Proceedings of this Report).
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, as adjusted for the two-for-one
stock split, to be composed of, assuming the Liberty Transaction is
completed at the same time, 22,503,412 shares of Class A Common Stock,
as adjusted for the two-for-one stock split, and 37,496,588 shares of
Class B Common Stock, as adjusted for the two-for-one stock split. 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 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 six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
Amount % Amount % Amount % Amount %
------------------ ------------------ ------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Prevue Networks $ 18,691 12% $ 16,002 12% $ 36,158 12% $ 29,986 12%
Superstar (1) 107,093 72 88,026 69 206,803 71 174,259 70
UVTV 11,468 8 10,029 8 22,434 8 20,698 8
SSDS 9,595 6 10,995 9 19,159 7 21,092 8
SpaceCom 4,393 3 4,416 3 8,847 3 8,503 3
Other/Eliminations (2,012) (1) (1,367) (1) (3,856) (1) (3,561) (1)
-------- --- -------- --- -------- --- -------- ---
Total $149,228 100% $128,101 100% $289,545 100% $250,977 100%
======== === ======== === ======== === ======== ===
EBITDA (2):
Prevue Networks $ 7,475 24% $ 5,450 21% $ 11,700 21% $ 10,686 23%
Superstar (1) 13,968 45 11,812 47 26,575 47 22,063 47
UVTV 8,020 26 6,625 26 15,553 27 13,991 29
SSDS 390 1 480 2 1,034 2 (635) (1)
SpaceCom 1,357 4 1,292 5 2,722 5 2,146 4
Other/Eliminations (135) -- (246) (1) (1,132) (2) (862) (2)
-------- --- -------- --- -------- --- -------- ---
Total $ 31,075 100% $ 25,413 100% $ 56,452 100% $ 47,389 100%
======== === ======== === ======== === ======== ===
Operating income:
Prevue Networks $ 5,141 21% $ 3,347 16% $ 6,520 16% $ 6,520 17%
Superstar (1) 11,596 47 11,009 53 21,382 50 20,457 53
UVTV 7,419 30 6,027 29 14,364 33 12,797 33
SSDS (450) (2) (258) (1) (646) (1) (2,094) (5)
SpaceCom 1,033 4 926 4 2,053 5 1,407 4
Other/Eliminations (136) -- (246) (1) (1,135) (3) (862) (2)
-------- --- -------- --- -------- --- -------- ---
Total $ 24,603 100% $ 20,805 100% $ 42,952 100% $ 38,225 100%
======== === ======== === ======== === ======== ===
Consolidated depreciation
and amortization $ 6,472 $ 4,608 $ 13,500 $ 9,164
Consolidated capital
expenditures 2,199 1,939 3,428 3,604
Consolidated cash flows
from operations 13,244 17,226 53,782 42,750
</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 June 30, 1998 were $149.2
million, an increase of $21.1 million, or 16%, over the same period in
1997. For the six months ended June 30, 1998, revenues were $289.5
million, an increase of $38.6 million, or 15%, over the corresponding
1997 period. The increase in revenues for both the quarter and six-
month period was primarily due to $23.2 million of additional revenues
for the quarter and $38.4 million of additional revenues for the six-
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 and increased advertising
revenues by Prevue Networks. These increases were offset by a $3.4
million reduction in revenues for the quarter and a $6.5 million
reduction in revenues for the six-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 SSDS's revenue as a
result of the completion of certain major projects during 1998.
Operating expenses, excluding depreciation and amortization, were
$118.2 million for the quarter ended June 30, 1998, an increase of
$15.5 million, or 15%, when compared to $102.7 million for the same
period in 1997. For the six months ended June 30, 1998, operating
expenses, excluding depreciation and amortization, were $233.1 million,
an increase of $29.5 million, or 14%, 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 $20.8 million for the quarter and $34.8 million
for the six-month period attributable to Turner Vision, increased
personnel costs primarily attributable to the growth in Prevue Networks
and, for the six-month period, costs incurred to develop and launch the
new look of Prevue Channel. These increases were partially offset by a
$3.5 million decrease in operating expenses for the quarter and a $6.3
million decrease in operating expenses for the six-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
SSDS's expenses due to decreased personnel and project costs as a
result of the completion of certain major projects during 1998.
Depreciation and amortization during the second quarter of 1998
was $6.5 million, an increase of $1.9 million, or 40%, over the same
period in 1997. For the six months ended June 30, 1998, depreciation
and amortization increased $4.3 million, or 47%, over the same period
in 1997. The increase in depreciation and amortization in both the
quarter and six-month period in 1998 was primarily a result of
amortization of goodwill resulting from the acquisition of Turner
Vision coupled with higher depreciation resulting from the acquisition
of equipment to support the various Prevue products.
Other income during the second quarter of 1998 was $1.2 million,
relatively unchanged from the same period in 1997. For the six months
ended June 30, 1998, other income totaled $17.0 million compared to
$1.8 for the same period in 1997. Included in other income during the
1998 six-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 38% for the
six-month period ended June 30, 1998, relatively unchanged from 37% for
the same period in 1997.
Minority interest in earnings for the quarter and six-month period
ended June 30, 1998 of $3.8 million and $7.6 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 six months ended June 30, 1998
and 1997:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $18,691 $16,002 $36,158 $29,986
Operating expenses,
before depreciation
and amortization 11,216 10,552 24,458 19,300
------- ------- ------- -------
EBITDA 7,475 5,450 11,700 10,686
Depreciation and
amortization 2,334 2,103 4,766 4,166
------- ------- ------- -------
Operating income $ 5,141 $ 3,347 $ 6,934 $ 6,520
======= ======= ======= =======
EBITDA margin
percentage 40% 34% 32% 36%
Operating margin
percentage 28% 21% 19% 22%
Prevue Networks' revenues for the three months ended June 30, 1998
were $18.7 million, an increase of $2.7 million, or 17%, over the same
period in 1997. For the six months ended June 30, 1998, revenues were
$36.2 million, an increase of $6.2 million, or 21%, over the
corresponding 1997 period. The increase in revenues during both
periods was largely attributable to advertising revenues, which grew
$2.1 million, or 27%, over the second quarter of 1997 and $5.0 million,
or 35%, over the first six months of 1997 due to higher rates and
increases in commercial advertising sales. In addition, service fee
revenues attributable to Prevue Channel increased $400,000, or 8%, for
the quarter when compared to the same period in 1997 and $1.0 million,
or 10%, over the first six months of 1997. Sneak Prevue revenues were
relatively unchanged during the second quarter and first six months of
1998 compared to the same periods in 1997. Prevue Channel subscriber
counts increased by 3.0 million, or 6%, to 48.9 million as of June 30,
1998 compared to those as of June 30, 1997. Sneak Prevue subscribers
increased by 195,000, or 1%, to 35.2 million during the same period.
Operating expenses, excluding depreciation and amortization,
increased by $664,000, or 6%, during the second quarter of 1998 and by
$5.2 million, or 27%, for the first six 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 six-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.
Depreciation and amortization during the second quarter of 1998
was $2.3 million, an increase of $231,000, or 11%, over the same period
in 1997. For the six months ended June 30, 1998, depreciation and
amortization increased $600,000, or 14%, 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 six months ended June 30, 1998 and
1997:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $107,093 $88,026 $206,803 $174,259
Operating expenses,
before depreciation
and amortization 93,125 76,214 180,228 152,196
-------- ------- -------- --------
EBITDA 13,968 11,812 26,575 22,063
Depreciation and
amortization 2,372 803 5,193 1,606
-------- ------- -------- --------
Operating income $ 11,596 $11,009 $ 21,382 $ 20,457
======== ======= ======== ========
EBITDA margin
percentage 13% 13% 13% 13%
Operating margin
percentage 11% 13% 10% 12%
Revenues generated by Superstar for the three months ended June
30, 1998 were $107.1 million, an increase of $19.1 million, or 22%,
over the same period in 1997. For the six months ended June 30, 1998,
revenues were $206.8 million, an increase of $32.5 million, or 19%,
over the corresponding period in 1997. Revenues increased for both
periods due to $23.2 million of revenues for the quarter and $38.4
million of revenues for the six-month period which were attributable to
Turner Vision's retail C-band operations which were acquired by SNG
effective February 1, 1998 and increased C-band rates. These increases
were partially offset by a $3.4 million decrease in revenues for the
quarter and a $6.5 million decrease in revenues for the six-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 June 30, 1998 totaled
approximately 1.2 million, an increase of 41,000 during the quarter and
an increase of 318,000 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 June
30, 1998 and decreased 6% for the twelve-month period ended June 30,
1998. During the quarter ended June 30, 1998, the C-band industry
declined 2%, decreasing by 31,000 subscribers, and for the twelve month
period ended June 30, 1998, the industry decreased by 156,000
subscribers, or 7%.
Operating expenses, excluding depreciation and amortization, were
$93.1 million in the second quarter of 1998, an increase of $16.9
million, or 22%, compared to the same period in 1997. For the first
six months of 1998, operating expenses, excluding depreciation and
amortization, increased $28.0 million, or 18%, over the same period in
1997. 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 $20.8 million for the second quarter and $34.9 million for
the six months, which 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 $3.5 million for the
quarter and $6.3 million for the first six months of 1998.
Depreciation and amortization for the second quarter of 1998 was
$2.4 million, an increase of $1.6 million, or 195%, compared to the
same period in 1997. Depreciation and amortization for the first six
months of 1998 was $5.2 million, an increase of $3.6 million, or 223%,
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 April 23, 1998, the Company, Liberty and Turner Vision
announced the Primestar 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 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 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 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.
13
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months and six months ended June 30, 1998 and 1997:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Revenues $11,468 $10,029 $22,434 $20,698
Operating expenses,
before depreciation
and amortization 3,448 3,404 6,881 6,707
------- ------- ------- -------
EBITDA 8,020 6,625 15,553 13,991
Depreciation and
amortization 601 598 1,189 1,194
------- ------- ------- -------
Operating income $ 7,419 $ 6,027 $14,364 $12,797
======= ======= ======= =======
EBITDA margin
percentage 70% 66% 69% 68%
Operating margin
percentage 65% 60% 64% 62%
UVTV's revenues for the three months ended June 30, 1998 were
$11.5 million, an increase of $1.4 million, or 14%, from the same
period in 1997. For the six months ended June 30, 1998, revenues were
$22.4 million, an increase of $1.7 million, or 8%, from the
corresponding 1997 period. The increase in revenues in both periods is
primarily the result of increased UVTV/WGN subscribers of 2.0 million,
or 5%, for the quarter and 5.1 million, or 14%, for the twelve-month
period ended June 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
$544,000 and $1.2 million for the quarter and six-month period ended
June 30, 1998, respectively, over the same periods in 1997. The
remaining increase in revenues was primarily due to C-band license fees
that were increased to recover the expense of copyright fees which
increased January 1, 1998.
Operating expenses, excluding depreciation and amortization, were
$3.4 million during the second quarter of 1998, an increase of $44,000,
or 1%, from the second quarter of 1997. For the six months ended June
30, 1998, operating expenses, excluding depreciation and amortization,
were $6.9 million, an increase of $174,000, or 3%, 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 was partially offset by a decrease in compensation of
$221,000 for the quarter and $596,000 for the six-month period ended
June 30, 1998.
Depreciation and amortization for the second quarter and six
months ended June 30, 1998 was $601,000 and $1.2 million, respectively,
both relatively unchanged as compared to the same periods in 1997.
14
<PAGE>
SSDS
SSDS' revenues for the second quarter of 1998 were $9.6 million, a
decrease of $1.4 million, or 13%, compared to the second quarter of
1997. Revenues for the first six months of 1998 were $19.2 million, a
decrease of $1.9 million, or 9%, from the same period in 1997. The
decrease in revenues during both periods in 1998 compared to those of
1997 is primarily due to the completion of certain major projects
during the first six months of 1998 which has caused a decrease in
billable hours.
Operating expenses, before depreciation and amortization,
decreased during the second quarter of 1998 by $1.3 million, or 12%,
from the same period in 1997 to $9.2 million. For the six months ended
June 30, 1998, operating expenses, excluding depreciation and
amortization, were $18.1 million, a decrease of $3.6 million, or 17%,
from the same period in the prior year. The decrease in operating
expenses during both periods was primarily due to lower headcount and
project costs, which were caused by the completion of certain major
projects during 1998.
Depreciation and amortization expense during the second quarter of
1998 was $840,000, an increase of $102,000, or 14%, over the second
quarter of 1997. Depreciation expense during the six months ended June
30, 1998 increased by $221,000, 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 second quarter and six-
month period of both 1998 and 1997 is approximately $500,000 and $1.0
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 June 30, 1998 were
$4.4 million, relatively unchanged as compared to the same period in
1997. For the six months ended June 30, 1998, revenues were $8.8
million, an increase of $344,000, or 4%, over the corresponding 1997
period. The increase in revenues for the six 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 68% as of June 30,
1998, down 3% when compared to the same period in 1997.
Operating expenses, excluding depreciation and amortization, were
$3.0 million during the second quarter of 1998, a decrease of $88,000,
or 3%, compared to the same period in 1997. During the six months ended
June 30, 1998, operating expenses, excluding depreciation and
amortization, decreased $232,000, or 4%, from the corresponding 1997
period to $6.1 million. The decrease in operating expenses, before
depreciation and amortization, for both periods resulted primarily from
decreased personnel, marketing and transmission expenses.
Depreciation and amortization in the second quarter of 1998 was
$324,000, a decrease of $42,000, or 13%, compared to the same period in
1997. During the six months ended June 30, 1998, depreciation and
amortization decreased $70,000, or 9%, 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 six months of 1998, net cash flows from operating
activities were $53.8 million ($50.1 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 $32.7 million from the sale of marketable securities, were
used to fund the Company's debt payments by SSDS of $4.1 million, the
repurchase of common stock of $6.7 million, capital expenditures of
$3.4 million, other investments of $2.8 million and the reduction in
the Company's capitalized lease obligations of $1.7 million during the
six-month period.
At June 30, 1998, the Company's cash, cash equivalents and
marketable securities aggregated $180.3 million, an increase of $37.2
million over the balance as of December 31, 1997. The above total
includes $23.0 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 June 30, 1998, approximately $57.7 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
$7.0 million. Borrowings under this credit facility, which expires
October 31, 1998, bear interest at the bank's stated prime rate plus a
margin. The current credit facility replaced an existing credit
facility which expired June 30, 1998. Outstanding borrowings under the
credit facility as of June 30, 1998, were $2.9 million.
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 June 30, 1998, the unearned portion of all
prepayments totaled $115.5 million, of which approximately $102.8
million, or 89%, 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.
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 $18.5 million as of June 30, 1998, a
reduction of $1.7 million, or 8%, 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 $3.6 million.
The Company also leases various other satellite transponders accounted
for as operating leases. These operating leases accounted for
approximately $3.0 million in operating expenses, net of sublease
revenue, during the six months ended June 30, 1998.
Capital expenditures during the six months ended June 30, 1998 of
$3.4 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 has 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 six months ended June 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 October 1998, 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 1,000,000 shares of the
Company's Class A Common Stock using existing cash resources. During
the six months ended June 30, 1998, the Company repurchased 188,000
shares of stock for a total of $6.7 million. As of August 12, 1998,
the Company had repurchased approximately 378,000 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 programs necessary to address
the year 2000 issue. This issue affects computer systems that have
time-sensitive programs that may not properly recognize the year 2000
and could result in system failures or miscalculations. The Company
has completed a preliminary assessment of the impact of year 2000 and
is currently addressing its internal year 2000 issues with
modifications to existing programs and conversions to new programs.
None of the system modifications are considered by management to be
significant and for those systems being replaced, the Company had
already planned on replacing the system to improve operational
efficiencies and the ability to analyze information. The total cost of
converting all internal systems to achieve year 2000 compliance has not
been completely quantified, but it is not expected to be a material
cost to the Company. An evaluation of the impacts of year 2000 on the
computer systems of vendors upon which the Company places reliance is
in process with a goal of completion during 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, with closing arguments and other
administrative matters expected to be completed by November
1998. (See Note 2 to the Company's financial statements
included in this Report.)
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 seeks
to enjoin the defendants from proceeding with the Primestar
Transaction (See Note 6 to the Company's financial
statements included under Part I of this Report). On
May 12, 1998, the Department of Justice (the "DOJ") filed
a civil antitrust action in United States District Court
seeking to block the sale of certain assets to Primestar
suitable for its direct broadcast satellite business. The
Company is evaluating this event and its impacts on Primestar
and the previously announced Primestar Transaction, but does
not anticipate completing the Primestar Transaction unless
Primestar is successful in proceeding with its business plans
to launch a high power DBS service. Accordingly, no
assurance can be given that the Primestar Transaction will
be consummated or consummated on the terms previously
described. Consequently, the plaintiff has agreed that
the defendants need not respond to the complaint pending
resolution by Primestar of matters with the DOJ.
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 U.S. Patent 4,751,578
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
where StarSight and Prevue are parties to a pending action
involving the 121 Patent.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's annual meeting of
stockholders held on July 28, 1998, the Company submitted for
vote of the stockholders the following matters; 148,036,814
votes of the Company's Class A Common Stock and Class B
Common Stock were entitled to be voted at the meeting and
145,245,882 votes of the shares were present in person or
by proxy:
a) the election of directors to serve until the annual
meeting of stockholders in 1998. The nominees
recommended by management and the board of directors
were all elected.
Votes for the directors were as follows:
For Against
--- -------
Gary S. Howard 145,200,882 45,000
Peter C. Boylan III 145,200,882 45,000
Lawrence Flinn, Jr. 145,200,882 45,000
Robert R. Bennett 145,200,882 45,000
Leo J. Hindery, Jr. 145,200,882 45,000
Larry E. Romrell 145,200,882 45,000
J. David Wargo 145,200,882 45,000
b) the ratification and approval of the United Video
Satellite Group, Inc. Restated Certificate of
Incorporation, as amended (the "Charter Amendment").
The Charter Amendment was ratified and approved with
143,732,524 votes for, 1,511,704 votes against and 1,654
votes abstaining.
c) the ratification and approval of the United Video
Satellite Group, Inc. Stock Option Plan for Non-Employee
Directors, as amended (the "Directors Plan"). The
Directors Plan was ratified and approved with
144,999,508 votes for, 242,439 votes against and 3,935
votes abstaining.
d) the ratification of the selection by the Board of
Directors of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ending December 31,
1998. The selection was ratified with 145,241,960
votes for, 3,041 votes against and 881 votes abstaining.
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
On June 11, 1998, the Company filed a report on Form 8-K
announcing the signing of an agreement between
the Company and News Corp 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.) will be combined with
the Company.
No other reports on Form 8-K were filed during the second
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: August 14, 1998 By /s/ Peter C. Boylan III
-------------------------------
Peter C. Boylan III
President and
Chief Operating Officer
20
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME INCLUDED IN
THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 OF UNITED
VIDEO SATELLITE GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> UNITED VIDEO SATELLITE GROUP, INC.
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0
0
<COMMON> 367
<OTHER-SE> 171,663
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<SALES> 0
<TOTAL-REVENUES> 289,545
<CGS> 0
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<INCOME-TAX> 19,641
<INCOME-CONTINUING> 32,659
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<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
