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, 2000
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
TV GUIDE, 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 14, 2000:
TITLE OF CLASS NUMBER OF SHARES
Common Stock $.01 Par Value 100
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TV GUIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except per share amounts)
June 30, December 31,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 100,421 $ 93,210
Marketable securities, at fair value 14,518 20,723
Accounts receivable, net of allowance
for doubtful accounts 258,283 293,331
Inventories and other 39,713 29,742
Deferred tax asset 5,480 4,296
-------- ----------
Total current assets 418,415 441,302
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 81,384 75,745
Intangible assets, net of accumulated
amortization 2,700,305 2,755,498
Other assets 99,670 42,274
---------- ----------
Total assets $3,299,774 $3,314,819
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,786 $ 72,570
Accrued liabilities 104,626 127,661
Note payable and current portion of
capital lease obligations 4,132 7,764
Customer prepayments and deferred
subscription revenue 293,952 290,400
---------- ----------
Total current liabilities 452,496 498,395
Deferred tax liability 629,628 647,084
Capital lease obligations and
long-term debt 677,201 624,290
Other long-term liabilities 52,777 62,319
Minority interest 7,400 5,016
Stockholders' equity:
Preferred stock, $.01 par value -- --
Class A common stock, $.01 par value 1,549 1,545
Class B common stock, $.01 par value 1,500 1,500
Additional paid-in capital 1,288,544 1,283,860
Accumulated other comprehensive
income, net of tax 5,595 9,306
Retained earnings 183,084 181,504
---------- ----------
Total stockholders' equity 1,480,272 1,477,715
---------- ----------
Total liabilities and stockholders'
equity $3,299,774 $3,314,819
========== ==========
See accompanying notes.
2
<PAGE>
TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Satellite-delivered
programming services $118,345 $129,997 $235,371 $260,962
Magazine subscription
and newsstand sales 98,479 103,853 200,359 137,425
Advertising sales 65,484 63,382 134,173 89,254
Other 10,637 15,734 22,138 27,167
-------- -------- -------- --------
292,945 312,966 592,041 514,808
Operating expenses:
Programming, printing,
distribution and
delivery 156,385 172,538 314,090 275,642
Selling, general
and administrative 79,233 73,860 161,064 125,517
Depreciation and
amortization 36,083 36,204 71,476 51,282
-------- -------- -------- --------
271,701 282,602 546,630 452,441
-------- ------- -------- --------
Operating income 21,244 30,364 45,411 62,367
Interest expense (13,791) (12,318) (27,102) (18,353)
Other income, net 3,121 1,208 1,809 1,515
-------- ------- -------- --------
Income before income
taxes and minority
interest 10,574 19,254 20,118 45,529
Provision for income
taxes (5,306) (5,868) (11,463) (15,646)
Minority interest in
earnings (4,626) (3,549) (7,075) (7,285)
-------- -------- -------- --------
Net income $ 642 $ 9,837 $ 1,580 $ 22,598
======== ======== ======== ========
Earnings per share:
Basic $ 0.00 $ 0.03 $ 0.01 $ 0.09
Diluted 0.00 0.03 0.01 0.09
See accompanying notes.
3
<PAGE>
TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Six Months Ended
June 30,
2000 1999
---- ----
Operating activities:
Net income $ 1,580 $ 22,598
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 71,476 51,282
Minority interest in earnings 7,075 7,285
Deferred income taxes (16,464) (14,784)
Other 860 1,794
Changes in operating assets and
liabilities, net of the effect
of acquisitions and disposals:
Accounts receivable 27,870 (56,583)
Inventories and other (10,821) 5,538
Accounts payable (22,008) (2,311)
Accrued liabilities (25,894) 33,684
Customer prepayments (5,848) (20,833)
Other (1,513) (53)
-------- --------
Net cash provided by operating activities 26,313 27,617
Investing activities:
Investments and acquisitions, net of
cash acquired (58,761) (799,725)
Sale of assets 13,500 --
Capital expenditures (20,908) (12,929)
Purchases of marketable securities -- (348)
Sales of marketable securities 697 4,812
Maturities of marketable securities -- 1,104
Other (742) (2,185)
-------- --------
Net cash used in investing activities (66,214) (809,271)
Financing activities:
Issuance of senior subordinated notes -- 400,000
Borrowings under bank credit facilities 55,000 185,300
Debt issuance costs -- (15,464)
Repayment of note payable and capital
lease obligations (5,721) (797)
Issuance of common stock 2,625 131,796
Contributions from Liberty Media-Netlink -- 7,971
Distributions to minority interests, net (4,786) (4,690)
Other (6) (369)
-------- --------
Net cash provided by financing activities 47,112 703,747
-------- --------
Net increase (decrease) in cash and cash
equivalents 7,211 (77,907)
Cash and cash equivalents at beginning of
period 93,210 155,644
-------- --------
Cash and cash equivalents at end of period $100,421 $ 77,737
======== ========
Supplemental disclosures of cash
flow information:
Interest paid $ 26,302 $ 7,363
Income taxes paid 27,115 29,559
See accompanying notes.
4
<PAGE>
TV GUIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 30, 2000
1. Organization and Basis of Presentation
TV Guide, Inc. ("TV Guide" or the "Company") is an international
media and communications company that provides print and electronic
program listings guides and program promotion services to households
via magazine subscriptions, newsstands, cable television systems,
direct-to-home satellite providers and the Internet; distributes
programming to cable television systems and direct-to-home satellite
providers; markets satellite-delivered programming to C-band satellite
dish owners; and provides satellite transmission services for private
networks. The majority of the Company's operating income is earned
through the sale and distribution of program listings guides and
program promotion services, the sale of home satellite dish services
and satellite distribution of video services.
On July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar-TV Guide International, Inc. (formerly Gemstar International
Group Limited) ("Gemstar") pursuant to an Agreement and Plan of Merger,
dated as of October 4, 1999, as amended. TV Guide stockholders
received 0.6573 of a share of Gemstar common stock for each share of TV
Guide common stock outstanding at the time of the merger. Immediately
prior to the merger, Liberty Media Corporation, a wholly owned
subsidiary of AT&T Corp. ("Liberty Media"), and The News Corporation
Limited ("News Corp.") each directly or indirectly owned approximately
44% of the issued and outstanding common stock of TV Guide representing
approximately 98% (approximately 49% each) of the total voting power of
TV Guide common stock.
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 financial statement items for prior periods have been
reclassified to conform to the 2000 presentation.
The condensed consolidated financial statements should be read in
conjunction with the historical consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
5
<PAGE>
2. Investments and Acquisitions
TV Guide Transaction
On March 1, 1999, the Company acquired from a subsidiary of News
Corp. the stock of certain corporations (the "TV Guide Transaction")
that publish TV Guide magazine and other printed television program
listings guides and distribute, through the Internet, an entertainment
service known as TV Guide Online (formerly TV Guide Entertainment
Network or TVGEN). A subsidiary of News Corp. received 45,006,824
shares of TV Guide Class A Common Stock, 74,993,176 shares of TV Guide
Class B Common Stock and $800 million in cash as consideration. In
addition, the subsidiary of News Corp. acquired 13,068,216 additional
shares of TV Guide Class A Common Stock for approximately $131 million
in cash to equalize the TV Guide Class A Common Stock ownership of
Liberty Media and its affiliates and News Corp. and its affiliates. The
$800 million cash consideration portion of the transaction was funded
from existing cash balances, the issuance of $400 million in 8 1/8%
senior subordinated notes due 2009, bank borrowings of approximately
$185 million drawn under a new bank credit facility and proceeds from
the issuance of equity to the subsidiary of News Corp. The TV Guide
Transaction was accounted for as a purchase. Accordingly, the
consolidated financial statements include the results of operations of
the TV Guide magazine businesses from March 1, 1999.
The purchase price for the TV Guide Transaction was $1.9 billion,
consisting of the shares of TV Guide Class A and Class B Common Stock
issued to a subsidiary of News Corp. at $9.32 per share, the average
market price of the Company's common stock for a few days before and
after the agreement on the TV Guide Transaction was reached and
announced, $800 million in cash and certain transaction costs. The
cost of the acquisition also included approximately $6.4 million of
severance and contract termination costs, all of which have been paid.
The purchase price was allocated to identifiable tangible and
intangible assets and liabilities as follows with the excess of the
purchase price over such identifiable assets and liabilities allocated
to goodwill (in thousands).
Assets:
Current assets $ 188,161
Property, plant and equipment 10,000
Intangible assets 2,734,356
Other assets 6,163
----------
2,938,680
Liabilities:
Current liabilities 307,682
Deferred tax liability 650,985
Other long-term liabilities 57,482
----------
Net purchase price $1,922,531
==========
6
<PAGE>
Intangible assets relating to the TV Guide Transaction are
comprised of the following amounts and lives (in thousands):
Acquired subscriber accounts $ 108,800 3 years
Trademarks and patents $ 390,600 17-40 years
Publishing rights $1,265,900 40 years
Goodwill $ 969,056 40 years
Upon closing of the above transaction, the Company's name was
changed from United Video Satellite Group, Inc. to TV Guide, Inc.
The following unaudited pro forma financial information reflects
the Company's results of operations for the six months ended June 30,
1999 as though the TV Guide Transaction had been completed as of
January 1, 1999 (in thousands, except per share amounts):
Revenues $633,665
Net income 22,349
Net income per share:
Basic $ 0.07
Diluted 0.07
Liberty Transaction
On March 1, 1999, the Company issued to Liberty Media 25,500,000
shares of Class B Common Stock in exchange for all of the outstanding
shares of each of three subsidiaries of Liberty Media (the "Liberty
Transaction") that together owned approximately 40% of Superstar/
Netlink Group, LLC ("SNG")(bringing the Company's ownership interest in
SNG to approximately 80%), a business that provides satellite-
transmitted programming services known as the "Denver 6" and a business
that sells programming packages to SMATV systems that serve hotels and
multi-unit dwellings. These consolidated financial statements give
retroactive effect to the Liberty Transaction, which has been accounted
for as a combination of entities under common control, similar to a
pooling of interests, from January 25, 1996, the date the Company and
the Liberty Media businesses were first under common control.
7
<PAGE>
3. Credit Arrangements
On March 1, 1999, the Company issued $400 million in 8 1/8% senior
subordinated notes due 2009 and entered into a $300 million six-year
revolving credit facility and a $300 million 364-day revolving credit
facility with a group of banks. Proceeds from the issuance of the
senior subordinated notes and borrowings of approximately $185 million
under the six-year revolving credit facility were used to fund a
portion of the cash consideration for the TV Guide Transaction. The
364-day revolving credit facility has been extended to mature February
24, 2001, when borrowings outstanding under the credit facility convert
to a four-year term loan. Borrowings under the credit facilities bear
interest either at the bank's prime rate or LIBOR, both plus a margin
based on a sliding scale tied to the Company's leverage ratio, as
defined in the facility. For the first year of the credit facilities,
the LIBOR margin was fixed at a minimum of 1.25%. The credit facilities
are subject to prepayment or reduction at any time without penalty. As
of June 30, 2000, the Company had available borrowing capacity under
the six-year revolving credit facility and 364-day revolving credit
facility of approximately $29.7 million and $300.0 million,
respectively.
The indenture for the notes and the Company's bank credit
facilities impose certain operating and financial restrictions on the
Company. These restrictions include the designation of certain of the
Company's subsidiaries as "restricted" for certain financing and
operating matters which may significantly limit the ability of the
Company to execute transactions, including the transfer of cash,
between subsidiaries in the restricted group and subsidiaries in the
unrestricted group. The subsidiaries in the unrestricted group are not
subject to certain covenants in the indenture for the notes and may
incur indebtedness, grant liens on their assets and sell all or a
portion of their assets, among other things, without complying with the
restrictions in the indenture.
In accordance with the terms of its senior subordinated notes, on
August 10, 2000, the Company commenced an offer to purchase for cash
all of such notes. See Note 8.
8
<PAGE>
4. Legal Proceedings
On October 8, 1993, the Company received correspondence from
StarSight Telecast, Inc. ("StarSight"), now a wholly owned subsidiary
of 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 schedule
services, alleging that the Company is or may be infringing StarSight
issued patents, including U.S. Patent No. 4,706,121 and then-pending
Reexamination Certificate B1 4,706,121 (collectively, the "121
Patent"), and claims of its pending patent applications, and
threatening the Company with enforcement litigation. On October 19,
1993, the Company filed an action in the U.S. District Court for the
Northern District of Oklahoma seeking a Declaratory Judgment to the
effect that the services offered by the Company do not infringe the
three United States patents issued to StarSight, including the 121
Patent. On October 22, 1993, StarSight filed a separate action in the
United States District Court for the Northern District of California,
alleging that certain of the Company's interactive services infringe
the 121 Patent. This action was dismissed by StarSight on May 25, 1994.
On July 6, 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 seeking damages and injunctive relief. 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 other two patents
identified in the original complaint and the five patents licensed to
StarSight are not infringed by the Company. On March 20, 1995,
StarSight filed an Answer to the Amended and Supplemental Complaint,
reasserting its charge of infringement of the 121 Patent. In December
1995, StarSight moved to file an amended answer to assert infringement
of two additional patents. The Court subsequently granted StarSight's
motion, but stayed all proceedings as to those two patents. Trial of
validity and inequitable conduct unenforceability of the 121 Patent,
and alleged infringement by the Prevue Express product of the 121
Patent, commenced May 8, 1996. Proceedings on all issues other than
liability with respect to the 121 Patent had been stayed. Over the
course of the subsequent two and one-half years, the Court heard
approximately 20 days of testimony, which concluded on July 7, 1998.
The trial was continued at various times at the parties' request to
allow the parties to assess the litigation and consider settlement
possibilities. Although the parties announced a settlement as part of a
business deal on January 20, 1998, it was never finalized, and no
settlement was reached at that time. The parties submitted post-trial
papers in September and October 1998, and presented closing arguments
to the Court on November 12, 1998. Shortly before the closing
arguments, on November 9, 1998, StarSight moved to dismiss the case
asserting that the Company had abandoned the Prevue Express product at
issue in the case and that the Court therefore lacked subject matter
jurisdiction over the matter. The Company opposed the motion on
November 12, 1998. The Court did not issue a decision on that motion.
On February 19, 1999, the Court entered Partial Findings of Fact and
Conclusions of Law determining that the 121 Patent is not unenforceable
by reason of inequitable conduct. The Court referred the case to a
Magistrate Judge for settlement conference purposes prior to the Court
entering additional findings of fact and conclusions of law with
respect to the remaining issues tried. On October 4, 1999, the Company
and Gemstar announced that they had entered into a definitive merger
agreement under which the Company would become a wholly owned
subsidiary of Gemstar. The transaction was approved by the stockholders
of both companies on March 17, 2000 and closed on July 12, 2000, thus
effectively terminating this dispute and litigation with Gemstar. This
litigation had been administratively terminated pursuant to an order
entered by the Court on November 24, 1999. The Company expects that
this litigation will be formally dismissed in the near term.
9
<PAGE>
On July 24, 1998, Gemstar and StarSight filed an action in the
U.S. District Court for the Northern District of California asserting
infringement by the Company's TV Guide Networks, Inc. subsidiary
(formerly Prevue Networks, Inc.) of the 121 Patent and U.S. Patent No.
4,751,578 (the "578 patent") seeking damages and injunctive relief. The
original Complaint did not specify a product accused of infringement.
On September 30, 1998, Gemstar and StarSight filed an Amended Complaint
adding SuperGuide Corporation ("SuperGuide") as a plaintiff, Tele-
Communications, Inc. ("TCI") as a defendant, and specifying TV Guide
Interactive as the allegedly infringing product. TCI Communications,
Inc. was subsequently substituted for TCI. TV Guide Networks answered
the Amended Complaint on October 15, 1998, asserting the defenses of
non-infringement, invalidity and estoppel with respect to both the 121
and 578 Patents, and inequitable conduct unenforceability with respect
to the 121 Patent. In addition, TV Guide Networks asserted that
StarSight had violated the antitrust laws. On August 7, 1998, TV Guide
Networks moved to transfer this action to the U.S. District Court for
the Northern District of Oklahoma. On February 2, 1999, the California
Court granted TV Guide Networks' motion to transfer. On December 23,
1998, Gemstar, StarSight and SuperGuide filed a motion before the
Judicial Panel on Multidistrict Litigation ("JPML") to consolidate and
transfer for pretrial proceedings this action and four other patent
infringement lawsuits Gemstar and its affiliated companies have pending
with manufacturers of cable television set-top boxes. In their motion,
Gemstar and its affiliates suggested either the Central or Northern
District of California as the appropriate venue for pretrial
proceedings. TV Guide Networks opposed the motion for consolidation. On
April 26, 1999, the JPML denied the motion to transfer the action
pending in the Northern District of Oklahoma to another district court
for pretrial proceedings. The JPML also ordered that the cases against
the manufacturers of cable set-top boxes be transferred to the Northern
District of Georgia for pretrial proceedings. On March 22, 1999, the
transferred case in the Northern District of Oklahoma was referred to a
Magistrate Judge for settlement conference purposes. The closing of
the merger transaction with Gemstar on July 12, 2000 effectively
terminated this dispute and litigation with Gemstar and StarSight.
This litigation had been administratively terminated pursuant to an
order entered by the Court on March 9, 2000. The Company expects that
the litigation will be formally dismissed in the near term.
10
<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, the State has assessed penalties and interest
of approximately $900,000. The Company, after consulting with outside
counsel, strongly disagrees with the State's position. The Company has
provided a reserve of $275,000 for certain matters associated with the
State's claim. No provision has been made in the Company's financial
statements for the remainder of the State's claim and the Company has
not collected from its customers or 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. On March 13, 2000,
the Company was awarded complete summary judgment in its favor. On May
5, 2000, the State appealed that judgment to the Illinois Appellate
Court, First Judicial District, where the matter is pending. While the
Company believes that this matter will not have a material adverse
effect on its business, financial position or results of operations, a
complete reversal of the summary judgment could result in a loss of up
to $4.6 million.
On October 4, 1999, a former employee of ODS Technologies, L.P.
("ODS"), filed a complaint against that Company in the Los Angeles
Superior Court asserting causes of action for breach of contract and
declaratory relief relating to his employment agreement with ODS and
seeking damages. The matter is set for trial in October 2000. The
Company currently has pending a motion for summary judgment to dismiss
the lawsuit. Although discovery has not been completed, the Company
believes the claims are without merit and will vigorously defend the
action in court.
On October 18, 1999, another former employee of ODS filed a
complaint against ODS and the Company in a Florida federal court, which
complaint was amended on November 12, 1999, asserting causes of action
for violations of certain federal statutes governing pension plans and
for equitable estoppel. The amended complaint seeks an unspecified
amount of damages for benefits allegedly due to the plaintiff under his
employment agreement with ODS. The Company currently has pending a
motion for summary judgment to dismiss the lawsuit. Although discovery
has not been completed, the Company believes the claims are without
merit and will vigorously defend the action in court.
On May 3, 2000, a complaint was filed against Murdoch Magazines
Distribution, Inc. (now named TV Guide Distribution, Inc.), and other
parties by United Magazine Company, Inc. ("Unimag") and its
subsidiaries in the U.S. District Court for the Southern District of
New York. The complaint alleges claims against Murdoch Magazines for
violation of the Robinson-Patman Act, breach of implied covenants of
good faith and fair dealing, promissory estoppel, breach of fiduciary
duty, misappropriation of business property and trade secrets, tortious
destruction of business, breach of confidential relationship and
violation of federal and state antitrust laws. The complaint seeks
$275 million in damages, plus treble and punitive damages, attorneys'
fees and costs. Although this lawsuit has just been filed and the
claims are preliminary, the Company believes the claims are without
merit and will vigorously defend the action in court. The Company has
filed a motion to dismiss all of the claims asserted against it.
During July 2000, the Company was served with three class action
complaints filed in the United States District Court for the Southern
District of New York on behalf of magazine subscribers. The Company
has reason to believe that several additional lawsuits of similar legal
claims and allegations may possibly be served upon the Company. These
complaints allege that the Company, the Magazine Publishers Association
("MPA"), and twelve other publishers of consumer magazines have
violated federal antitrust laws by conspiring to limit the discounting
of magazine subscription prices by means of rules adopted by the MPA
and the Audit Bureau of Circulation. The plaintiffs seek injunctive
relief, unspecified damages (trebled), and attorneys' fees and costs.
Although these lawsuits have just been filed and the claims are
preliminary, the Company believes the claims are without merit and will
vigorously defend the action in court.
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.
11
<PAGE>
5. 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):
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
2000 1999 2000 1999
---- ---- ---- ----
Per Share Per Share Per Share Per Share
Amount Amount Amount Amount
-------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
Net income $ 642 $ 9,837 $ 1,580 $ 22,598
======== ======== ======== ========
Weighted average
number of shares
of common stock
outstanding 304,869 $0.00 304,086 $0.03 304,739 $0.01 259,648 $0.09
===== ===== ===== =====
Effect of dilutive
securities -
stock options 4,681 4,334 5,355 3,605
-------- --------- -------- --------
Weighted average
number of shares
of common stock
and dilutive
potential
common shares 309,550 $0.00 308,420 $0.03 310,094 $0.01 263,253 $0.09
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
12
<PAGE>
6. Segment Information
Effective January 1, 2000, the Company restructured its businesses
into four groups for internal reporting purposes: TV Guide Magazine
Group, TV Guide Television Group, TV Guide Interactive Group and United
Video Group. The Company has six reportable segments: print program
listings guide services (TV Guide Magazine Group); passive program
promotion and guide services (TV Guide Television Group); interactive
program promotion and guide services (Guidance Products) and
interactive sports entertainment services (ODS), which are included in
the TV Guide Interactive Group; home satellite dish services (SNG),
and satellite distribution of video entertainment services (UVTV),
which are included in the United Video Group. Segment information
reported in prior years has been reclassified to conform with the
current year presentation. TV Guide Magazine Group distributes TV Guide
magazine to households and newsstands and provides customized monthly
program guides for cable and satellite operators. TV Guide Television
Group markets TV Guide Channel and other passive programming guide and
promotion channels and services to cable television systems. TV Guide
Interactive Group markets TV Guide Interactive and other interactive
programming guide and promotion channels and services to cable
television systems and other multi-channel video programming
distributors both domestically and internationally and operates TV
Guide Online, an Internet-based program listings guide, and ODS, which
produces and distributes to programming distributors the TVG Network.
United Video Group includes SNG, which markets and distributes
programming to the C-band direct-to-home satellite dish subscriber
market, and UVTV, which markets and distributes to programming
distributors certain video and audio services. United Video Group also
operates businesses that provide software development and systems
integration services and satellite transmission services for private
networks and holds certain other investments. On April 21, 2000, the
business that provides software development and systems integration
services was sold.
The Company's reportable segments are strategic business units
that offer different products and services. The reportable segments
are measured based on EBITDA (operating income before depreciation and
amortization) including allocated corporate expenses. The Company
accounts for inter-segment sales as if the sales were made to third
parties at market prices.
Segment information for each of the quarters ended June 30, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
TV Guide
TV Interactive TV Guide United United United
Guide TV Guide Group- Interactive Video Video Video
Magazine Television Guidance Group- Group- Group- Group-
Group Group Products ODS SNG UVTV Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
Revenues from external
customers:
Satellite-delivered
programming services $ -- $ 6,190 $ 5,152 $ 391 $ 81,401 $ 14,096 $ 11,115 $ -- $ 118,345
Magazine subscription
and newsstand sales 98,479 -- -- -- -- -- -- -- 98,479
Advertising sales 47,226 17,730 528 -- -- -- -- -- 65,484
Other 6,965 -- 88 -- -- -- 3,584 -- 10,637
Intersegment revenues 1,765 -- -- -- -- 4,757 -- (6,522) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 154,435 23,920 5,768 391 81,401 18,853 14,699 (6,522) 292,945
Operating expenses,
excluding
depreciation
and amortization 118,828 14,406 14,652 13,297 61,980 8,739 10,238 (6,522) 235,618
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income (loss)
before depreciation
and amortization $ 35,607 $ 9,514 $ (8,884) $(12,906) $ 19,421 $ 10,114 $ 4,461 $ -- 57,327
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (36,083)
Interest expense (13,791)
Other income, net 3,121
----------
Income before income
taxes and minority
interest $ 10,574
==========
Capital expenditures $ 2,039 $ 4,953 $ 564 $ 198 $ -- $ -- $ 859 $ -- $ 8,613
========== ======== ======== ======== ======== ======== ========= =========== ==========
Segment assets $2,905,062 $ 68,692 $ 12,211 $ 30,798 $128,465 $ 77,333 $ 190,384 $ (113,171) $3,299,774
========== ======== ======== ======== ======== ======== ========= =========== ==========
1999
Revenues from external
customers:
Satellite-delivered
programming services $ -- $ 8,022 $ 2,520 $ 159 $ 96,681 $ 15,474 $ 7,141 $ -- $ 129,997
Magazine subscription
and newsstand sales 103,853 -- -- -- -- -- -- -- 103,853
Advertising sales 51,844 11,137 401 -- -- -- -- -- 63,382
Other 5,258 -- 35 -- -- -- 10,441 -- 15,734
Intersegment revenues -- -- -- -- -- 6,761 -- (6,761) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 160,955 19,159 2,956 159 96,681 22,235 17,582 (6,761) 312,966
Operating expenses,
excluding
depreciation
and amortization 123,510 10,424 7,822 7,293 77,471 11,255 15,384 (6,761) 246,398
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income (loss)
before depreciation
and amortization $ 37,445 $ 8,735 $ (4,866) $ (7,134) $ 19,210 $ 10,980 $ 2,198 $ -- 66,568
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (36,204)
Interest expense (12,318)
Other income, net 1,208
----------
Income before income
taxes and minority
interest $ 19,254
==========
Capital expenditures $ 3,345 $ 2,689 $ 121 $ 816 $ 165 $ 43 $ 2,017 $ -- $ 9,196
========== ======== ======== ======== ======== ======== ========= =========== ==========
</TABLE>
13
<PAGE>
Segment information for each of the six-month periods ended June
30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
TV Guide
TV Interactive TV Guide United United United
Guide TV Guide Group- Interactive Video Video Video
Magazine Television Guidance Group- Group- Group- Group-
Group Group Products ODS SNG UVTV Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
Revenues from external
customers:
Satellite-delivered
programming services $ -- $ 13,852 $ 8,374 $ 625 $169,350 $ 26,128 $ 17,042 $ -- $ 235,371
Magazine subscription
and newsstand sales 200,359 -- -- -- -- -- -- -- 200,359
Advertising sales 99,160 34,171 842 -- -- -- -- -- 134,173
Other 12,127 -- 151 -- -- -- 9,860 -- 22,138
Intersegment revenues 3,651 -- -- -- -- 10,858 -- (14,509) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 315,297 48,023 9,367 625 169,350 36,986 26,902 (14,509) 592,041
Operating expenses,
excluding
depreciation
and amortization 237,979 29,019 24,645 25,162 131,703 17,233 23,922 (14,509) 475,154
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income
(loss) before
depreciation
and amortization $ 77,318 $ 19,004 $(15,278) $(24,537) $ 37,647 $ 19,753 $ 2,980 $ -- 116,887
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (71,476)
Interest expense (27,102)
Other income, net 1,809
----------
Income before income
taxes and minority
interest $ 20,118
==========
Capital expenditures $ 4,503 $ 13,707 $ 977 $ 298 $ -- $ 1 $ 1,422 $ -- $ 20,908
========== ======== ======== ======== ======== ======== ========= =========== ==========
1999
Revenues from external
customers:
Satellite-delivered
programming services $ -- $ 16,155 $ 3,950 $ 272 $197,825 $ 30,689 $ 12,071 $ -- $ 260,962
Magazine subscription
and newsstand sales 137,425 -- -- -- -- -- -- -- 137,425
Advertising sales 66,102 22,667 485 -- -- -- -- -- 89,254
Other 6,785 -- 66 -- -- -- 20,316 -- 27,167
Intersegment revenues -- -- -- -- -- 13,322 -- (13,322) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 210,312 38,822 4,501 272 197,825 44,011 32,387 (13,322) 514,808
Operating expenses,
excluding
depreciation
and amortization 158,141 21,336 15,240 9,994 158,923 21,273 29,574 (13,322) 401,159
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income (loss)
before depreciation
and amortization $ 52,171 $ 17,486 $(10,739) $ (9,722) $ 38,902 $ 22,738 $ 2,813 $ -- 113,649
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (51,282)
Interest expense (18,353)
Other income, net 1,515
----------
Income before income
taxes and minority
interest $ 45,529
==========
Capital expenditures $ 3,918 $ 3,570 $ 732 $ 963 $ 549 $ 79 $ 3,118 $ -- $ 12,929
========== ======== ======== ======== ======== ======== ========= =========== ==========
</TABLE>
Revenue from other non-reportable operating segments primarily
includes revenue derived from system integration and software
development services and from satellite transmission services.
Eliminations include inter-segment revenues and expenses and inter-
segment payables and receivables.
14
<PAGE>
7. Comprehensive Income
Comprehensive income comprises net income plus unrealized holding
gains and losses on available-for-sale securities, net of related tax
effects. Comprehensive income (loss) for the three months ended June
30, 2000 and 1999 was $333,000 and $10.0 million, respectively, and for
the six months ended June 30, 2000 and 1999 was $(2.1) million and
$22.8 million, respectively.
8. Subsequent Events-Gemstar Merger
On July 12, 2000, the Company and Gemstar completed their
previously announced merger under which the Company became a wholly
owned subsidiary of Gemstar. TV Guide stockholders received 0.6573 of
a share of Gemstar common stock for each share of TV Guide common stock
outstanding at the time of the merger.
On August 10, 2000, the Company commenced an offer to purchase for
cash all of its outstanding 8 1/8% senior subordinated notes. The
offer, which expires on September 15, 2000, unless extended, was made
as a result of the change in control of TV Guide by reason of its
acquisition by Gemstar and is required pursuant to the terms of the
indenture governing the notes.
9. Supplemental Guarantor Information
In connection with the TV Guide Transaction, the Company issued
$400 million in aggregate principal amount of its senior subordinated
notes (the "Notes") due 2009, which are not redeemable until 2004. A
group of the Company's subsidiaries (the "Guarantors") guarantee the
senior subordinated indebtedness. Supplemental condensed combining
financial information of the Company, the Guarantors and the remainder
of the Company's consolidated group (the "Non-Guarantors") is presented
below.
Investments in the Non-Guarantors by their parent companies that
are part of TV Guide and the Guarantors are presented under the equity
method of accounting in the combining financial information. The
principal elimination entries eliminate intercompany sales and
purchases of video products, intercompany interest income and expense,
equity in earnings of subsidiaries and investments in and amounts due
to and from subsidiaries.
Because of the factual basis underlying the obligations created
pursuant to a senior secured credit facility and other obligations that
may constitute senior indebtedness of the Guarantors of the senior
subordinated notes, it is not possible to predict how a court in
bankruptcy would accord priorities among the obligations of the Company
and its subsidiaries.
As a result of the merger of the Company and Gemstar, the holders
of the Notes have the right to require the Company to repurchase all or
part of the Notes owned by each noteholder at a purchase price equal to
101% of the principal amount of the Notes plus accrued and unpaid
interest. See Note 8.
15
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF JUNE 30, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ -- $ 14,915 $ 85,506 $ -- $ 100,421
Marketable securities,
at fair value -- 12 14,506 -- 14,518
Accounts receivable,
net of allowance
for doubtful
accounts -- 241,565 16,718 -- 258,283
Accounts and notes
receivable from
affiliates 1,883 102,542 1,226 (105,651) --
Other current assets -- 37,383 7,810 -- 45,193
---------- ---------- -------- ----------- ----------
Total current
assets 1,883 396,417 125,766 (105,651) 418,415
Property, plant and
equipment, at cost,
net of accumulated
depreciation and
amortization -- 68,470 12,914 -- 81,384
Intangible assets, net
of accumulated
amortization -- 2,620,900 79,405 -- 2,700,305
Investment in
subsidiaries, at
equity 2,147,778 -- -- (2,147,778) --
Other assets 12,547 66,643 20,480 -- 99,670
---------- ---------- -------- ----------- ----------
Total assets $2,162,208 $3,152,430 $238,565 $(2,253,429) $3,299,774
========== ========== ======== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 48,060 $ 1,726 $ -- $ 49,786
Accounts and notes
payable to
affiliates -- 39 105,612 (105,651) --
Accrued liabilities 11,636 60,327 32,663 -- 104,626
Current portion
of capital lease
obligations -- 4,132 -- -- 4,132
Customer prepayments
and deferred
subscription revenue -- 196,060 97,892 -- 293,952
---------- ---------- -------- ----------- ----------
Total current
liabilities 11,636 308,618 237,893 (105,651) 452,496
Deferred tax liability
and other long-term
liabilities -- 669,011 13,394 -- 682,405
Capital lease
obligations and
long-term debt 670,300 677,201 -- (670,300) 677,201
Minority interest -- -- 4,500 2,900 7,400
Stockholders' equity:
Common stock 3,049 37,224 211 (37,435) 3,049
Other stockholders'
equity 1,477,223 1,460,376 (17,433) (1,442,943) 1,477,223
---------- ---------- -------- ----------- ----------
Total stock-
holders' equity 1,480,272 1,497,600 (17,222) (1,480,378) 1,480,272
---------- ---------- -------- ----------- ----------
Total liabilities and
stockholders' equity $2,162,208 $3,152,430 $238,565 $(2,253,429) $3,299,774
========== ========== ======== =========== ==========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
QUARTER ENDED JUNE 30, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite-delivered
programming services $ -- $ 29,003 $ 94,099 $ (4,757) $118,345
Magazine subscription
and newsstand sales -- 100,244 -- (1,765) 98,479
Advertising sales -- 65,484 -- -- 65,484
Other -- 7,054 3,583 -- 10,637
-------- -------- -------- -------- --------
-- 201,785 97,682 (6,522) 292,945
Operating expenses:
Programming, printing,
distribution and
delivery -- 102,438 60,469 (6,522) 156,385
Selling, general and
administrative -- 52,402 26,831 -- 79,233
Depreciation and
amortization -- 30,924 5,159 -- 36,083
-------- -------- -------- -------- --------
-- 185,764 92,459 (6,522) 271,701
-------- -------- -------- -------- --------
Operating income -- 16,021 5,223 -- 21,244
Interest expense (13,565) (13,765) (26) 13,565 (13,791)
Other income, net 14,207 889 2,232 (14,207) 3,121
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest 642 3,145 7,429 (642) 10,574
Provision for income
taxes -- 2,144 (7,450) -- (5,306)
Minority interest in
earnings -- -- (3,284) (1,342) (4,626)
-------- -------- -------- -------- --------
Net income $ 642 $ 5,289 $ (3,305) $ (1,984) $ 642
======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite-delivered
programming services $ -- $ 55,299 $190,930 $(10,858) $235,371
Magazine subscription
and newsstand sales -- 204,010 -- (3,651) 200,359
Advertising sales -- 134,173 -- -- 134,173
Other -- 12,279 9,859 -- 22,138
-------- -------- -------- -------- --------
-- 405,761 200,789 (14,509) 592,041
Operating expenses:
Programming, printing,
distribution and
delivery -- 202,082 126,517 (14,509) 314,090
Selling, general and
administrative -- 100,695 60,369 -- 161,064
Depreciation and
amortization -- 61,222 10,254 -- 71,476
-------- -------- -------- -------- --------
-- 363,999 197,140 (14,509) 546,630
-------- -------- -------- -------- --------
Operating income -- 41,762 3,649 -- 45,411
Interest expense (26,564) (26,980) (122) 26,564 (27,102)
Other income
(expense), net 28,144 (515) 2,324 (28,144) 1,809
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest 1,580 14,267 5,851 (1,580) 20,118
Provision for income
taxes -- (221) (11,242) -- (11,463)
Minority interest in
earnings -- -- (6,827) (248) (7,075)
-------- -------- -------- -------- --------
Net income $ 1,580 $ 14,046 $(12,218) $ (1,828) $ 1,580
======== ======== ======== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
QUARTER ENDED JUNE 30, 1999
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite-delivered
programming services $ -- $ 29,944 $106,814 $ (6,761) $129,997
Magazine subscription
and newsstand sales -- 103,853 -- -- 103,853
Advertising sales -- 63,382 -- -- 63,382
Other -- 5,293 10,441 -- 15,734
-------- -------- -------- -------- --------
-- 202,472 117,255 (6,761) 312,966
Operating expenses:
Programming, printing,
distribution and
delivery -- 104,819 74,480 (6,761) 172,538
Selling, general and
administrative -- 45,217 28,643 -- 73,860
Depreciation and
amortization -- 31,588 4,616 -- 36,204
-------- -------- -------- -------- --------
-- 181,624 107,739 (6,761) 282,602
-------- -------- -------- -------- --------
Operating income -- 20,848 9,516 -- 30,364
Interest expense (12,014) (12,281) (37) 12,014 (12,318)
Other income, net 21,851 497 711 (21,851) 1,208
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest 9,837 9,064 10,190 (9,837) 19,254
Provision for income
taxes -- (506) (5,362) -- (5,868)
Minority interest in
earnings -- -- (3,875) 326 (3,549)
-------- -------- -------- -------- --------
Net income $ 9,837 $ 8,558 $ 953 $ (9,511) $ 9,837
======== ======== ======== ======== ========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite-delivered
programming services $ -- $ 58,759 $215,397 $(13,322) $260,834
Magazine subscription
and newsstand sales -- 137,425 -- -- 137,425
Advertising sales -- 89,254 -- -- 89,254
Other -- 6,785 20,510 -- 27,295
------- -------- -------- -------- --------
-- 292,223 235,907 (13,322) 514,808
Operating expenses:
Programming, printing,
distribution and
delivery -- 140,629 148,335 (13,322) 275,642
Selling, general and
administrative -- 70,508 55,009 -- 125,517
Depreciation and
amortization -- 41,930 9,352 -- 51,282
------- -------- -------- -------- --------
-- 253,067 212,696 (13,322) 452,441
------- -------- -------- -------- --------
Operating income -- 39,156 23,211 -- 62,367
Interest expense (17,745) (18,295) (58) 17,745 (18,353)
Other income, net 40,343 677 838 (40,343) 1,515
------- -------- -------- -------- --------
Income before income
taxes and minority
interest 22,598 21,538 23,991 (22,598) 45,529
Provision for income
taxes -- (4,481) (11,165) -- (15,646)
Minority interest in
earnings -- -- (7,811) 526 (7,285)
------- -------- -------- -------- --------
Net income $22,598 $ 17,057 $ 5,015 $(22,072) $ 22,598
======= ======== ======== ======== ========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in)
operating activities $ -- $ (4,366) $ 30,713 $ (34) $ 26,313
Investing activities:
Investments and
acquisitions -- (48,761) (20,300) 10,300 (58,761)
Capital expenditures -- (19,293) (1,649) 34 (20,908)
Sale of assets -- 10,300 13,500 (10,300) 13,500
Purchases of market-
able securities -- -- (5,700) 5,700 --
Sales and maturities
of marketable
securities -- 6,397 -- (5,700) 697
Other -- (1,002) 260 -- (742)
--------- -------- -------- -------- ---------
Net cash used in
investing
activities -- (52,359) (13,889) 34 (66,214)
Financing activities:
Borrowings under
bank credit
facilities 55,000 -- -- -- 55,000
Repayment of note
payable and capital
lease obligations -- (1,973) (3,748) -- (5,721)
Common stock
transactions, net 2,625 -- -- -- 2,625
Distributions to minority
interests, net -- -- (4,786) (4,786)
Intercompany
transfers (57,625) 63,758 (6,133) -- --
Other -- (4) (2) -- (6)
--------- -------- -------- -------- ---------
Net cash provided by
(used in)
financing activities -- 61,781 (14,669) -- 47,112
--------- -------- -------- -------- ---------
Net increase in cash
and cash equivalents -- 5,056 2,155 -- 7,211
Cash and cash
equivalents at
beginning of
period -- 9,859 83,351 -- 93,210
--------- -------- -------- -------- ---------
Cash and cash
equivalents at
end of period $ -- $ 14,915 $ 85,506 $ -- $ 100,421
========= ======== ======== ======== =========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in)
operating activities $ -- $ (48,203) $ 75,857 $ (37) $ 27,617
Investing activities:
Investments and
acquisitions, net
of cash acquired (806,585) -- 275 6,585 (799,725)
Capital expenditures -- (9,567) (3,450) 88 (12,929)
Purchases of market-
able securities -- (348) -- -- (348)
Sales and maturities
of marketable
securities -- 5,916 -- -- 5,916
Other -- 1,337 (3,438) (84) (2,185)
--------- --------- --------- -------- ---------
Net cash used in
investing
activities (806,585) (2,662) (6,613) 6,589 (809,271)
Financing activities:
Issuance of senior
subordinated notes 400,000 -- -- -- 400,000
Borrowings under
bank credit
facilities 185,300 -- -- -- 185,300
Debt issuance
costs (15,464) -- -- -- (15,464)
Borrowings
(repayments) of
note payable and
capital lease
obligations -- (1,841) 1,011 33 (797)
Common stock
transactions, net 131,796 -- 6,585 (6,585) 131,796
Contributions from
Liberty Media-
Netlink -- 6,476 1,495 -- 7,971
Distributions to
minority interests -- -- (4,690) -- (4,690)
Intercompany
transfers 104,953 (55,052) (49,901) -- --
Other -- -- (369) -- (369)
--------- --------- --------- -------- ---------
Net cash provided by
(used in) financing
activities 806,585 (50,417) (45,869) (6,552) 703,747
--------- --------- --------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents -- (101,282) 23,375 -- (77,907)
Cash and cash
equivalents at
beginning of
period -- 104,148 51,496 -- 155,644
--------- --------- --------- -------- ---------
Cash and cash
equivalents at
end of period $ -- $ 2,866 $ 74,871 $ -- $ 77,737
========= ========= ========= ======== =========
</TABLE>
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company categorizes its businesses into four groups: TV Guide
Magazine Group, which distributes TV Guide magazine to households and
newsstands and provides customized monthly program guides for cable and
satellite operators; TV Guide Television Group, which markets passive
programming guide and promotion channels and services to cable
television systems; TV Guide Interactive Group, which markets
interactive program promotion and guide services (Guidance Products)
and interactive sports entertainment services (ODS) to cable television
systems and other multi-channel video programming distributors; and
United Video Group, which markets and distributes programming to the C-
band direct-to-home satellite dish subscriber market (SNG), markets and
distributes to programming distributors certain video and audio
services (UVTV), provides software development and system integration
services and satellite transmission services for private networks and
holds certain other investments. The following table sets forth
certain unaudited financial information for the Company and the
businesses operated by it during the three months and six months ended
June 30, 2000 and 1999. Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in this report
should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1999.
<TABLE>
<CAPTION>
Consolidated Guarantor Group (4) Consolidated Guarantor Group (4)
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999 2000 1999 (1) 2000 1999 (1)
---- ------- ---- ------- ---- ------- ---- -------
Amount Amount Amount Amount Amount Amount Amount Amount
------------------- ------------------- ------------------- --------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
TV Guide Magazine Group $154,435 $160,955 $154,435 $160,955 $315,297 $210,312 $315,297 $210,312
TV Guide Television
Group 23,920 19,159 23,082 16,912 48,023 38,822 45,086 34,321
TV Guide Interactive
Group:
Guidance Products 5,768 2,956 5,415 2,370 9,367 4,501 8,392 3,579
ODS 391 159 -- -- 625 272 -- --
-------- -------- -------- -------- -------- -------- -------- --------
6,159 3,115 5,415 2,370 9,992 4,773 8,392 3,579
-------- -------- -------- -------- -------- -------- -------- --------
United Video Group:
SNG 81,401 96,681 -- -- 169,350 197,825 -- --
UVTV 18,853 22,235 18,853 22,235 36,986 44,011 36,986 44,011
Other 14,699 17,582 -- -- 26,902 32,387 -- --
-------- -------- -------- -------- -------- -------- -------- --------
114,953 136,498 18,853 22,235 233,238 274,223 36,986 44,011
-------- -------- -------- -------- -------- -------- -------- --------
Eliminations (6,522) (6,761) -- -- (14,509) (13,322) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total $292,945 $312,966 $201,785 $202,472 $592,041 $514,808 $405,761 $292,223
======== ======== ======== ======== ======== ======== ======== ========
Operating income (loss):
TV Guide Magazine Group $ 8,864 $ 8,740 $ 8,864 $ 8,740 $ 23,975 $ 15,928 $ 23,975 $ 15,928
TV Guide Television
Group 6,966 7,130 7,799 7,893 14,126 14,183 17,210 15,213
TV Guide Interactive
Group:
Guidance Products (10,185) (5,980) (9,969) (5,960) (17,758) (12,911) (17,604) (12,702)
ODS (13,633) (7,744) -- -- (25,930) (10,966) -- --
-------- -------- -------- -------- -------- -------- -------- --------
(23,818) (13,724) (9,969) (5,960) (43,688) (23,877) (17,604) (12,702)
-------- -------- -------- -------- -------- -------- -------- --------
United Video Group:
SNG 16,543 16,985 -- -- 32,091 34,449 -- --
UVTV 9,327 10,316 9,327 10,316 18,181 21,440 18,181 21,440
Other 3,362 917 -- (141) 726 244 -- (723)
-------- -------- -------- -------- -------- -------- -------- --------
29,232 28,218 9,327 10,175 50,998 56,133 18,181 20,717
-------- -------- -------- -------- -------- -------- -------- --------
Total $ 21,244 $ 30,364 $ 16,021 $ 20,848 $ 45,411 $ 62,367 $ 41,762 $ 39,156
======== ======== ======== ======== ======== ======== ======== ========
Consolidated depreciation
and amortization $ 36,083 $ 36,204 $ 30,924 $ 31,588 $ 71,476 $ 51,282 $ 61,222 $ 41,930
Consolidated capital
expenditures 8,613 9,196 8,726 7,110 20,908 12,929 19,293 9,567
Net cash provided by
(used in):
Operating activities 16,526 1,491 (13,319) (33,703) 26,313 27,617 (4,366) (48,203)
Investing activities (39,193) (6,799) (27,066) (2,166) (66,214) (809,271) (52,359) (809,247)
Financing activities 22,163 (15,063) 41,097 25,946 47,112 703,747 61,781 756,168
Other data:
EBITDA (2) $ 57,327 $ 66,568 $ 46,945 $ 52,436 $116,887 $113,649 $102,984 $ 81,086
Ratio of earnings to
fixed charges (3) 1.65 2.33 1.21 1.66 1.63 3.06 1.48 2.04
</TABLE>
23
<PAGE>
(1) Effective March 1, 1999, the Company's consolidated operating
results include the operating results of certain corporations
which own and publish TV Guide magazine, publish cable-based
television listing guides, operate the web site now known as TV
Guide Online and hold certain other assets. These corporations
were acquired from an indirect subsidiary of News Corp. in a
transaction accounted for as a purchase.
(2) EBITDA means operating income before depreciation and
amortization. EBITDA is presented supplementally as the
Company believes it is a widely used financial indicator of a
leveraged company's ability to service and incur indebtedness.
The Company believes EBITDA is a standard measure commonly
reported and widely used by analysts, investors and others
associated with the media and entertainment industry. However,
EBITDA does not take into account substantial costs of doing
business, such as income taxes and interest expense. While many in
the financial community consider EBITDA to be an important measure
of comparative operating performance, it should be considered in
addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other
measures of financial performance prepared in accordance with
generally accepted accounting principles that are presented in the
financial statements included in this report. Additionally, the
Company's calculation of EBITDA may be different than the
calculation used by other companies and, therefore, comparability
may be affected.
(3) For the ratio of earnings to fixed charges calculations, earnings
available for fixed charges consists of earnings before income
taxes and minority interests in earnings of consolidated
subsidiaries plus fixed charges. Fixed charges consist of interest
on debt and that portion of rental expense the Company believes to
be representative of interest.
(4) Represents the combined results of the Company and its restricted
subsidiaries that guarantee the 8 1/8% senior subordinated notes.
The Company has one partially owned domestic subsidiary and one
partially owned foreign subsidiary that are restricted
subsidiaries under the indenture but are not guarantors of the
notes. For purposes of the calculation of the ratio of earnings
to fixed charges, equity in earnings and losses of the Company's
subsidiaries which do not guarantee the 8 1/8% senior
subordinated notes have been excluded.
24
<PAGE>
Results of Operations
Consolidated
Revenues for the three months ended June 30, 2000 were $292.9
million, a decrease of $20.0 million, or 6%, compared to the same
period in 1999. For the six months ended June 30, 2000, revenues were
$592.0 million, an increase of $77.2 million, or 15%, over the
corresponding 1999 period. The decrease in revenues for the quarter
was primarily due to a $15.3 million decrease in subscriber revenues
earned by SNG, a $8.3 million decrease in subscription and newsstand
sales and advertising revenues earned by TV Guide magazine, and other
revenue declines, partially offset by increased service fee and
advertising revenues for TV Guide Interactive and TV Guide Channel,
respectively. The increase in revenues for the six-month period was
primarily due to $105.0 million of additional revenues attributable to
TV Guide magazine, which was acquired by the Company on March 1, 1999,
and increased service fee and advertising revenues for TV Guide
Interactive and TV Guide Channel, respectively, partially offset by a
$28.5 million decrease in subscriber revenues earned by SNG and other
revenue declines.
Operating expenses, excluding depreciation and amortization, were
$235.6 million for the quarter ended June 30, 2000, a decrease of $10.8
million, or 4%, when compared to the same period in 1999. For the six
months ended June 30, 2000, operating expenses, excluding depreciation
and amortization, were $475.2 million, an increase of $74.0 million, or
18%, over the corresponding 1999 period. The decrease in operating
expenses for the quarter was primarily due to a $15.5 million decrease
in costs to operate SNG. The increase in operating expenses for the
six-month period was primarily due to increased operating costs of
$79.8 million attributable to TV Guide magazine, coupled with increased
costs associated with development of the various TV Guide Interactive
guidance products and the TVG Network, partially offset by lower costs
to operate SNG.
Depreciation and amortization during the second quarter of 2000
was $36.1 million, relatively unchanged from $36.2 million during the
second quarter of 1999. For the six months ended June 30, 2000,
depreciation and amortization was $71.5 million, an increase of $20.2
million, or 39%, over the corresponding 1999 period. The increase in
depreciation and amortization for the six-month period was primarily a
result of amortization of intangible assets and other depreciation
resulting from the acquisition of TV Guide magazine.
Interest expense during the second quarter of 2000 was $13.8
million, an increase of $1.5 million over the same period in 1999.
Interest expense during the six months ended June 30, 1999 was $27.1
million, an increase of $8.7 million, or 48%, over the same period in
1999. The increase in interest expense during the quarter was
primarily attributable to increased debt levels coupled with higher
interest rates. The increase in interest expense during the six-month
period was attributable to increased debt levels resulting primarily
from the issuance of $400 million of senior subordinated notes and $185
million of bank debt to fund a portion of the TV Guide Transaction on
March 1, 1999, coupled with higher interest rates.
Other income totaled $3.1 million for the quarter, an increase of
$1.9 million over the same period in 1999 and $1.8 million for the six-
month period, an increase of $294,000 over the corresponding period in
1999. Included in other expense in 2000 were $3.9 million of expenses
associated with the merger transaction with Gemstar, which were
primarily incurred in the first quarter.
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 85% for the
six-month period ended June 30, 2000 compared to 41% for the same
period in 1999. The increase in the effective rate was due to the
increase in non-deductible goodwill amortization as a result of the TV
Guide acquisition.
Minority interest in earnings for the quarter and six-month period
ended June 30, 2000 of $4.6 million and $7.1 million, respectively,
represents that portion of earnings attributable to the minority
ownership in SNG, SSDS and Infomedia S.A.
25
<PAGE>
TV Guide Magazine Group
The following table sets forth certain financial information for
TV Guide Magazine Group for the three months and six months ended June
30, 2000 and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues $154,435 $160,955 $315,297 $329,169
Operating expenses 118,828 123,510 237,979 249,053
Depreciation 1,841 1,902 3,548 3,714
-------- -------- -------- --------
Operating income
before amortization $ 33,766 $ 35,543 $ 73,770 $ 76,402
======== ======== ======== ========
Operating margin
percentage (before
amortization) 22% 22% 23% 23%
The results of operations of TV Guide Magazine Group have been
consolidated with the results of operations of the Company for
reporting purposes subsequent to March 1, 1999, the date the Company
acquired TV Guide magazine. The above table and following discussion
are based on financial information of TV Guide Magazine Group, both
prior to and subsequent to its March 1, 1999 acquisition date and do
not include the amortization of intangible assets resulting from the
acquisition or that was reflected in its historical financial
statements.
TV Guide Magazine Group's revenues for the three months ended June
30, 2000 were $154.4 million, a decrease of $6.5 million, or 4%, from
the same period in 1999. For the six months ended June 30, 2000,
revenues were $315.3 million, a decrease of $13.9 million, or 4%, from
the corresponding 1999 period. The decrease in revenues during both
periods of 2000 was primarily due to decreases in subscription and
newsstand sales of $3.7 million for the quarter and $7.2 million for
the six-month period coupled with reductions in advertising revenue of
$4.6 million and $6.1 million for the quarter and six-month period,
respectively, resulting from the rate base reduction during 1999. Paid
subscription circulation for the magazine during the quarter and six-
month period ended June 30, 2000 was 9.2 million and 9.1 million per
week, respectively, a decrease of 373,000 copies, or 4%, for the
quarter and a decrease of 431,000 copies, or 5%, for the six-month
period, from the corresponding periods in the prior year. Newsstand
sales for the magazine averaged 1.5 million copies per week during the
quarter ended June 30, 2000 compared to 2.1 million for the same
quarter in the prior year.
Operating expenses, excluding depreciation and amortization, for
the second quarter of 2000 were $118.8 million, a decrease of $4.7
million, or 4%, from the same period in 1999. For the six months ended
June 30, 2000, operating expenses, excluding depreciation and
amortization, were $238.0 million, a decrease of $11.1 million, or 4%,
compared to the same period in 1999. The decrease in operating
expenses for both periods is primarily due to savings in manufacturing
and distribution expenses resulting from the reduction in the rate base
during 1999.
Depreciation in the second quarter and six months ended June 30,
2000 was $1.8 million and $3.5 million, respectively, both relatively
unchanged compared to the same periods in 1999.
26
<PAGE>
TV Guide Television Group
The following table sets forth certain financial information for
the TV Guide Television Group for the three months and six months ended
June 30, 2000 and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues $23,920 $19,159 $48,023 $38,822
Operating expenses 14,406 10,424 29,019 21,336
Depreciation and
amortization 2,548 1,605 4,878 3,303
------- ------- ------- -------
Operating income $ 6,966 $ 7,130 $14,126 $14,183
======= ======= ======= =======
Operating margin
percentage 29% 37% 29% 37%
TV Guide Television Group's revenues for the three months ended
June 30, 2000 were $23.9 million, an increase of $4.8 million, or 25%,
over the same period in 1999. For the six months ended June 30, 2000,
revenues were $48.0 million, an increase of $9.2 million, or 24%, over
the same period in 1999. The increase in revenues for both periods was
largely attributable to advertising revenues, which grew $6.6 million,
or 59%, over the second quarter of 1999 and $11.5 million, or 51%, over
the first six months of 1999 due to higher rates and increased
infomercial time. These increases were partially offset by reductions
in TV Guide Channel and Sneak Prevue service fee revenue of $1.8
million during the second quarter and $2.3 million during the first six
months of 2000 due to lower rates on TV Guide Channel and increased
accounts receivable reserves. Domestically, TV Guide Channel subscriber
counts increased by 257,000, or 1%, to 49.7 million as of June 30, 2000
compared to those as of June 30, 1999. Sneak Prevue subscribers
increased by 220,000, or 1%, to 33.5 million during the same period.
Operating expenses, excluding depreciation and amortization,
increased $4.0 million, or 38%, during the second quarter of 2000 and
$7.7 million, or 36%, for the six-month period when compared to the
same periods in 1999. The increase in operating expenses for both
periods was due primarily to additional employees added to accommodate
the TV Guide Television Group's growth and product development and
enhancements coupled with increased programming costs incurred for new
and expanded programming segments. The increase in operating expenses
for the six months ending June 30, 2000 was partially offset by a
$675,000 reduction in marketing costs as a result of costs incurred to
advertise and launch the rebranded TV Guide Channel in the first
quarter of 1999, which were not incurred during 2000.
Depreciation and amortization during the second quarter of 2000
was $2.5 million, an increase of $943,000, or 59%, over the same period
in 1999. For the six months ended June 30, 2000, depreciation and
amortization increased $1.6 million, or 48%, over the same period in
1999. The increase in depreciation and amortization for both periods
was a result of the acquisition of additional customer control units
and video production equipment necessary to support the various TV
Guide Television Group products.
27
<PAGE>
TV Guide Interactive Group
Guidance Products
Revenues for the three months ended June 30, 2000 were $5.8
million, an increase of $2.8 million, or 95%, when compared to the same
period in 1999. For the six months ended June 30, 2000, revenues were
$9.4 million, an increase of $4.9 million, or 108%, over the same
period in 1999. The increase in revenue during both periods was
primarily due to increased service fee revenue attributable to TV Guide
Interactive of $2.6 million and $4.0 million for the second quarter and
first six months, respectively, when compared to the same periods in
1999. TV Guide Worldwide's service fee revenue was relatively
unchanged during the second quarter and increased by $388,000 in the
first six months of 2000 when compared to the same periods in 1999. TV
Guide Online's advertising revenue increased by $115,000 and $344,000
during the second quarter and first six months of 2000 when compared to
the same periods in 1999.
Operating expenses, excluding depreciation and amortization, for
the second quarter of 2000 were $14.7 million, an increase of $6.8
million, or 87%, from the second quarter of 1999. For the six months
ended June 30, 2000, operating expenses, excluding depreciation and
amortization, were $24.6 million, an increase of $9.4 million, or 62%,
over the same period in 1999. The increase in operating expenses
during both periods was primarily due to increased technology costs and
additional employees added to accommodate the growth in TV Guide
Interactive, TV Guide Online and TV Guide Worldwide.
Depreciation and amortization for the second quarter of 2000 was
$1.3 million, an increase of $187,000, or 17%, when compared to the
same period in 1999. For the six months ended June 30, 2000,
depreciation and amortization was $2.5 million, an increase of
$308,000, or 14%, over the corresponding 1999 period. The increase in
depreciation and amortization for both periods was primarily due to the
acquisition of video production equipment necessary to support the TV
Guide Interactive Group.
ODS Technologies, L.P.
ODS Technologies, L.P. produces, markets and distributes TVG
Network, a network focused on the horse racing industry. TVG Network
was launched in July 1999.
Revenues for the three months ended June 30, 2000 were $391,000,
an increase of $232,000, or 146%, when compared to the same period in
1999. For the six months ended June 30, 2000, revenues were $625,000,
an increase of $353,000, or 130%, over the corresponding 1999 period.
Revenues for both periods reflect the early stages of development of
the TVG Network.
Operating expenses, excluding depreciation and amortization, were
$13.3 million in the second quarter of 2000, an increase of $6.0
million, or 82%, compared to the same period in 1999. For the six
months ended June 30, 2000, operating expenses, excluding depreciation
and amortization, were $25.2 million, an increase of $15.2 million, or
152%, over the same period in 1999. The increase in operating expenses
for both periods reflects the additional costs associated with
operating the network that were not incurred during the first six
months of 1999.
Depreciation and amortization of $727,000 in the second quarter of
2000 and $1.4 million for the first six months of 2000 was composed
primarily of amortization of intangible assets recorded as part of the
1998 acquisition of the controlling interest in ODS.
28
<PAGE>
United Video Group
Superstar/Netlink Group, LLC
The following table sets forth certain financial information for
SNG for the three months and six months ended June 30, 2000 and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues $81,401 $ 96,681 $169,350 $197,825
Operating expenses 61,980 77,471 131,703 158,923
Depreciation and
amortization 2,878 2,225 5,556 4,453
------- -------- -------- --------
Operating income $16,543 $ 16,985 $ 32,091 $ 34,449
======= ======== ======== ========
Operating margin
percentage 20% 18% 19% 17%
Revenues generated by SNG for the three months ended June 30, 2000
were $81.4 million, a decrease of $15.3 million, or 16%, compared to
the same period in 1999. For the six months ended June 30, 2000,
revenues were $169.4 million, a decrease of $28.5 million, or 14%,
compared to the corresponding period in 1999. Revenue decreased for
both periods primarily due to a decline in subscribers. Retail
subscribers purchasing programming from SNG as of June 30, 2000 totaled
approximately 786,000, a decrease of 71,000, or 8%, during the quarter
and a decrease of 267,000, or 25%, during the prior twelve months.
During the quarter ended June 30, 2000, the C-band industry declined
5%, decreasing by 85,000 subscribers, and for the twelve month period
ended June 30, 2000, the industry decreased by 307,000 subscribers, or
17%. SNG's subscriber decline results from both the general decline in
the industry and the impact from conversion of subscribers to direct
broadcast satellite programming under the Company's marketing alliance
agreement with Echostar Satellite Corporation and is expected to
continue.
Operating expenses, excluding depreciation and amortization, were
$62.0 million in the second quarter of 2000, a decrease of $15.5
million, or 20%, compared to the same period in 1999. For the first
six months of 2000, operating expenses, excluding depreciation and
amortization, decreased $27.2 million, or 17%, compared to the same
period in 1999. The decrease in operating expenses for both periods as
compared to the corresponding periods in the prior year was due
primarily to an overall reduction of expenses related to the general
subscriber decline and programming fees associated with those
subscribers.
Depreciation and amortization for the second quarter of 2000 was
$2.9 million, an increase of $653,000, or 29%, compared to the same
period in 1999. For the six months ended June 30, 2000, depreciation
and amortization was $5.6 million, an increase of $1.1 million, or 25%,
over the corresponding 1999 period. The increase for both periods was
primarily due to a change in the remaining estimated life of certain
intangible assets associated with the C-band business.
29
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months and six months ended June 30, 2000 and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Revenues $18,853 $22,235 $36,986 $44,011
Operating expenses 8,739 11,255 17,233 21,273
Depreciation and
amortization 787 664 1,572 1,298
------- ------- ------- -------
Operating income $ 9,327 $10,316 $18,181 $21,440
======= ======= ======= =======
Operating margin
percentage 49% 46% 49% 49%
UVTV's revenues for the three months ended June 30, 2000 were
$18.9 million, a decrease of $3.4 million, or 15%, when compared to the
same period in 1999. For the six months ended June 30, 2000, revenues
were $37.0 million, a decrease of $7.0 million, or 16%, from the
corresponding period in 1999. The decrease in revenue for both periods
was primarily attributable to the continued decline in C-band customers
coupled with decreased cable rates for superstations resulting from the
continued consolidation of the cable industry, partially offset by an
increase in direct broadcast satellite customers. As of June 30, 2000,
UVTV/WGN subscribers totaled 48.1 million, an increase of 1.5 million,
or 3%, from June 1999.
Operating expenses, excluding depreciation and amortization, were
$8.7 million during the second quarter of 2000, a decrease of $2.5
million, or 22%, from the second quarter of 1999. For the six months
ended June 30, 2000, operating expenses, excluding depreciation and
amortization were $17.2 million, a decrease of $4.0 million, or 19%,
from the corresponding 1999 period. The decrease in operating expenses
for both periods was primarily the result of decreased copyright
expense associated with both lower copyright rates and the decline in
the C-band industry.
Depreciation and amortization in the second quarter of 2000 was
$787,000, an increase of $123,000, or 19%, over the same period in
1999. For the six months ended June 30, 2000, depreciation and
amortization increased $274,000, or 21%, over the same period in 1999.
30
<PAGE>
Other
The remaining operations of the United Video Group consist
primarily of those of SSDS, TV Guide Enterprise Solutions ("TVGES") and
SpaceCom Systems.
Revenues for this group of businesses in the second quarter of
2000 were $14.7 million, a decrease of $2.9 million, or 16%, compared
to the second quarter of 1999. For the six months ended June 30, 2000,
revenues were $26.9 million, a decrease of $5.5 million, or 17%,
compared to the corresponding 1999 period. The decrease in revenues
for both periods was primarily attributable to a decrease in systems
integration services revenue at SSDS.
Operating expenses, excluding depreciation and amortization,
decreased by $5.1 million, or 33%, during the second quarter of 2000 to
$10.2 million from the same period in 1999. Operating expenses,
excluding depreciation and amortization, decreased $5.7 million, or
19%, during the first six months of 2000 to $23.9 million from the same
period in 1999. The decrease in operating expenses for both periods
was primarily attributable to the decrease in SSDS revenue noted above.
On February 28, 2000, SSDS entered into an agreement to sell its
client/server and web-based networks integration services division and
on April 21, 2000, the transaction was consummated. No gain or loss
was recognized as a result of the sale.
31
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 2000, net cash flows from
operating activities were $26.3 million. This cash flow, plus existing
cash resources, borrowings of $55.0 million under revolving bank credit
facilities, and proceeds of $13.5 million from the sale of the
integrated services division of SSDS were used to fund the Company's
investments of $58.8 million, capital expenditures of $20.9 million and
reduction in the Company's note payable and capitalized lease
obligations of $5.7 million.
At June 30, 2000, the Company's cash, cash equivalents and
marketable securities aggregated $114.9 million, an increase of $1.0
million from that as of December 31, 1999. The above total includes
$71.9 million of cash and cash equivalents held by SNG, in which the
Company had an approximate 80% ownership interest. As of June 30,
2000, $14.5 million of such securities were equity securities and were
classified as available-for-sale marketable securities. The Company's
policy pertaining to the temporary investment of cash available for
operations currently prohibits exposure to interest rate fluctuations
for periods in excess of 18 months.
On March 1, 1999, the Company acquired from Liberty Media the
stock of three of its subsidiaries that indirectly owned approximately
40% of SNG (bringing the Company's ownership interest in SNG to
approximately 80%) and Liberty Media's Netlink Wholesale Division,
which includes a business that provides the Denver 6 services and a
separate business that sells programming packages to satellite master
antenna television systems serving hotels and multi-unit dwellings in
exchange for 25,500,000 shares of TV Guide Class B Common Stock (the
"Liberty Transaction").
Also on March 1, 1999, immediately after closing the Liberty
Transaction, the Company acquired from a subsidiary of News Corp. the
stock of certain corporations (the "TV Guide Transaction") that publish
TV Guide Magazine and other printed television program listings guides
and distribute, through the Internet, an entertainment service known as
TV Guide Online (formerly TV Guide Entertainment Network or TVGEN). The
subsidiary of News Corp. received 45,006,824 shares of TV Guide Class A
Common Stock, 74,993,176 shares of TV Guide Class B Common Stock and
$800 million in cash as consideration. In addition, the subsidiary of
News Corp. acquired 13,068,216 additional shares of TV Guide Class A
Common Stock for approximately $131 million in cash to equalize the TVG
Class A Common Stock ownership of Liberty Media and its affiliates and
News Corp. and its affiliates.
32
<PAGE>
On March 1, 1999, the Company issued $400 million in 8 1/8% senior
subordinated notes due 2009 and entered into a $300 million six-year
revolving credit facility and a $300 million 364-day revolving credit
facility with a group of banks. Proceeds from the issuance of the
senior subordinated notes and borrowings of approximately $185 million
under the six-year revolving credit facility were used to fund a
portion of the TV Guide Transaction cash consideration. The 364-day
revolving credit facility has been amended to extend its maturity date
to February 24, 2001, when borrowings outstanding under the facility
convert to a four-year term loan, and to allow for the merger
transaction with Gemstar-TV Guide International, Inc. (formerly Gemstar
International Group Limited)("Gemstar"). In accordance with the terms
of its senior subordinated notes, on August 10, 2000, the Company
commenced an offer to purchase for cash all of such notes. (See
"Current Developments"). Borrowings under the credit facilities bear
interest either at the bank's prime rate or LIBOR, both plus a margin
based on a sliding scale tied to the Company's leverage ratio, as
defined in the facility. For the first year of the credit facilities,
the LIBOR margin was fixed at a minimum of 1.25%. The credit facilities
are subject to prepayment or reduction at any time without penalty. As
of June 30, 2000, the Company had available borrowing capacity under
the six-year revolving credit facility and 364-day revolving credit
facility of approximately $29.7 million and $300.0 million,
respectively.
The bank credit facilities and the indenture governing the notes
impose significant operating and financial restrictions on the Company.
These restrictions may significantly limit or prohibit the Company from
engaging in certain transactions, including the following: borrowing
additional money, paying dividends or other distributions to
stockholders, allowing restricted subsidiaries to guarantee other debt,
limiting the ability of restricted subsidiaries to make payments to the
Company and other restricted subsidiaries, creating liens on assets,
selling assets, entering into transactions with affiliates, and
engaging in certain mergers or consolidations. In addition, the
indenture limits the Company's ability and the ability of restricted
subsidiaries to make investments, but only if the credit ratings on the
notes fall below certain levels. These restrictions could limit the
Company's ability to obtain financing for working capital, capital
expenditures, acquisitions, debt service requirements and other
purposes. The restrictions may also affect the Company's ability to
actively manage its businesses, including entering into joint ventures
that advance the Company's strategy.
As of June 30, 2000, the Company had approximately $681.3 million
of long-term debt (including current portions) and unused borrowing
capacity under bank credit facilities of approximately $329.7 million
(subject to customary borrowing conditions). In addition, subject to
restrictions contained in the bank credit facilities and the indenture
governing the notes, the Company may borrow more money for working
capital, capital expenditures, acquisitions and other purposes. The
Company's significant indebtedness could have important consequences.
For example, the Company's ability to obtain any necessary financing in
the future for working capital, capital expenditures, acquisitions,
debt service requirements and other purposes may be limited; a large
portion of the cash flow of the Company's subsidiaries must be
dedicated to the payment of interest on debt and will not be available
for financing operations and other business activities; the level of
debt and the covenants governing such debt could limit the Company's
flexibility in planning for, or reacting to, changes in the Company's
business because certain financing options may be limited or
prohibited; the Company's degree of leverage may be more than that of
competitors, which may place the Company at a competitive disadvantage;
and the Company's level of debt may make the Company more vulnerable in
the event of a downturn in the Company's business or the economy in
general.
33
<PAGE>
The Company's ability to meet debt service obligations and
specified financial ratios and tests will depend on future performance.
The Company's future performance, in turn, will be subject to general
economic conditions and to financial, business and other factors
affecting operations, many of which are beyond its control. In the
event of a default under the bank credit facilities, the lenders could
terminate their commitments and declare all amounts borrowed, together
with accrued interest and other fees, to be due and payable. Borrowings
under other debt instruments that contain cross-acceleration or cross-
default provisions may also be accelerated and become due and payable.
If any of these events should occur, the Company may not be able to pay
such amounts.
The Company collects in advance a majority of its TV Guide
magazine subscription fees, SNG subscription fees and certain of its
UVTV superstation and TV Guide Channel revenues. As of June 30, 2000,
the unearned portion of all prepayments (including non current portion)
totaled $346.6 million, of which approximately $245.0 million, or 71%,
was attributable to TV Guide magazine and approximately $95.8 million,
or 28%, was attributable to SNG. The Company's liability for prepaid
magazine subscriptions is limited to the unearned prepayments in the
event customers cancel their subscriptions. The Company's liability for
other prepayments is limited to a refund of unearned prepayments in the
event that the Company is unable to provide service. No material
refunds have been paid to date.
Under the terms of the capital leases for two satellite
transponders placed in service in 1992, the Company was obligated for
net minimum lease payments aggregating $11.0 million as of June 30,
2000, a reduction of approximately $2.0 million, or 15%, 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 $4.1 million. The Company also leases various other
satellite transponders accounted for as operating leases. These
operating leases accounted for approximately $7.9 million in operating
expenses, net of sublease revenue, during the six months ended June 30,
2000.
Capital expenditures during the six months ended June 30, 2000 of
$20.9 million were principally attributable to the purchase of control
units provided to TV Guide Channel's cable television customers, data
processing equipment and systems and furniture, fixtures and facilities
used by the Company.
At the discretion of its management committee and in keeping with
certain Company debt covenants, SNG makes periodic cash distributions
to its members. During the six months ended June 30, 2000, cash
distributions to minority interests in SNG aggregated $6.7 million.
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Current Developments
On July 12, 2000, the Company and Gemstar completed their
previously announced merger pursuant to the Agreement and Plan of
Merger, dated as of October 4, 1999, as amended, among Gemstar, G
Acquisition Subsidiary Corp., a wholly owned subsidiary of Gemstar, and
TV Guide. As a result of the merger, TV Guide became a wholly owned
subsidiary of Gemstar, and TV Guide stockholders received 0.6573 of a
share of Gemstar common stock for each share of TV Guide common stock
outstanding at the time of the merger.
The indenture governing the Company's 8 1/8% senior subordinated
notes due 2009 contains provisions which require the Company to
repurchase the outstanding 8 1/8% senior subordinated notes as a result
of the merger with Gemstar, at the option of the holders, at a purchase
price at 101% of principal plus accrued and unpaid interest. On August
10, 2000, the Company commenced an offer, which expires on September
15, 2000, unless extended, to purchase the notes for cash. The Company
had previously amended the agreements governing its bank credit
facilities to allow the transaction with Gemstar to occur without
requiring repayment of the outstanding borrowings under the bank credit
facilities and to extend the availability of the 364-day, $300 million
facility, originally expiring on March 1, 2000, through February 24,
2001. The Company continues to assess its options with respect to
financing the repurchase of its subordinated notes, but expects that
the repurchase will be funded through a combination of existing cash,
borrowings under the bank credit facility and, subject to Gemstar's
approval, Gemstar's available cash.
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Cautionary Statement
This report contains certain "forward-looking statements" within
the meaning of federal securities laws about the Company's financial
condition, results of operations and business. Such forward-looking
statements may include, among other things, statements concerning:
future acquisitions, changes in net revenues from the Company's
businesses, the impact of governmental regulations, competitive
conditions in industries in which the Company does business, liquidity
and future capital expenditures, the outcome of certain litigation,
alternative sources of supplies and services needed by the Company and
developments in the Company's interactive guide businesses. These
forward-looking statements are subject to numerous assumptions, risks
and uncertainties that may cause the Company's actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the
Company in those statements. The important factors that could prevent
the Company from achieving its stated goals include, but are not
limited to, the following:
-- continued declines in circulation and operating profits for TV
Guide Magazine,
-- continued declines in the C-band market and operating profits
for SNG,
-- changes in the regulation of the cable television and/or
satellite industries adverse to the Company's services,
-- loss of the cable and/or satellite compulsory licenses provided
by federal law,
-- the willingness of cable and satellite 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 to protect the Company's intellectual property
rights, and defend against claims by others asserting
infringement of their intellectual property rights,
-- a reduction in demand for advertising and competition from other
media companies for audience and advertising revenues,
-- changes in paper prices or postal rates, and
-- adequacy of capital resources to allow the Company to execute
its business plans.
Because forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those
expressed or implied by such statements. The cautionary statements
contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking
statements that the Company or persons acting on the Company's behalf
may issue. The Company undertakes no obligation to review or confirm
analysts' expectations or estimates or to release publicly any
revisions to any forward-looking statements to reflect events or
circumstances after the date of this report or to reflect the
occurrence of unanticipated events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to interest rate changes is primarily
related to its variable rate debt issued under TV Guide's $300 million
six-year revolving credit facility and $300 million 364-day revolving
credit facility, which were entered into in conjunction with the TV
Guide Transaction. Borrowings under the 364-day revolving credit
facility convert to a four-year term loan at maturity, which has been
extended to February 24, 2001. Because the interest rates on these
facilities are variable, based upon the bank's prime rate or LIBOR, the
Company's interest expense and cash flow are affected by interest rate
fluctuations. At June 30, 2000, the Company had $270.3 million
outstanding under the six-year revolving credit facility and no
borrowings outstanding under the 364-day revolving credit facility. If
interest rates were to increase or decrease by 100 basis points, the
result, based upon the existing outstanding debt, would be an annual
increase or decrease of $2.7 million in interest expense and a
corresponding decrease or increase of $2.7 million in the Company's
cash flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During July 2000, the Company was served with three class action
complaints filed in the United States District Court for the Southern
District of New York on behalf of magazine subscribers. The Company
has reason to believe that two or three additional lawsuits of similar
legal claims and allegations may possibly be served upon the Company.
These complaints allege that the Company, the Magazine Publishers
Association ("MPA") and twelve other publishers of consumer magazines
have violated federal antitrust laws by conspiring to limit the
discounting of magazine subscription prices by means of rules adopted
by the MPA and the Audit Bureau of Circulation. The plaintiffs seek
injunctive relief, unspecified damages (trebled), and attorneys' fees
and costs. Although these lawsuits have just been filed and the claims
are preliminary, the Company believes the claims are without merit and
will vigorously defend the action in court.
On June 22, 2000, the Company settled all claims made by the
broadcast networks and their affiliates for alleged violations of the
network service restrictions in the "red zone/green zone" plan which
were brought to the Company's attention during the first quarter. The
settlement had no significant impact on the operating results of the
Company.
On July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar. The Company expects that the litigation between the Company
and Gemstar and its affiliates will be formally dismissed in the near
term. See Legal Proceedings in the Notes to the Condensed Consolidated
Financial Statements.
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ITEM 2. CHANGES IN SECURITIES
On July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar pursuant to an Agreement and Plan of Merger dated as of October
4, 1999, as amended. TV Guide stockholders received 0.6573 of a share
of Gemstar common stock for each share of TV Guide common stock
outstanding at the time of the merger.
The Company currently has outstanding 100 shares of common stock
which are held by Gemstar.
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
Exhibit
No. Exhibit Description
12.1** Computation of Ratio of Earnings to Fixed Charges
27.1** Financial Data Schedule
---------------
** Filed herewith
b. Reports on Form 8-K
No reports on Form 8-K were filed during the second
quarter of 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TV Guide, Inc.
(Registrant)
Date: August 14, 2000 By: /s/ Peter C. Boylan III
-------------------------------
Peter C. Boylan III
President and
Chief Operating Officer
By: /s/ Craig M. Waggy
------------------------------
Craig M. Waggy
Senior Vice President and
Chief Financial Officer
39
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