SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE PERIOD ENDED SEPTEMBER 30, 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 November 14, 2000:
TITLE OF CLASS NUMBER OF SHARES
Common Stock $.01 Par Value 100
1
<PAGE>
TV GUIDE, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets . . . . . . 3
Condensed Consolidated Statements of
Operations . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of
Cash Flows . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . 26
Item 3. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 34
Item 2. Changes in Securities . . . . . . . . . . . . . . 35
Item 3. Defaults Upon Senior Securities . . . . . . . . . 35
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 35
Item 5. Other Information . . . . . . . . . . . . . . . . 35
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 35
Signature . . . . . . . . . . . . . . . . . . . . . . . . . 36
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TV GUIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In millions)
September 30, December 31,
2000 1999
Successor Predecessor
Company Company
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 91.0 $ 93.2
Marketable securities, at fair value 7.1 20.7
Accounts receivable, net 250.5 293.3
Deferred tax asset 15.7 4.3
Inventories and other current
assets 39.4 29.8
--------- --------
Total current assets 403.7 441.3
Property, plant and equipment, net 82.1 75.7
Intangible assets, net 9,622.1 2,755.5
Other assets 158.6 42.3
--------- --------
Total assets $10,266.5 $3,314.8
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40.7 $ 72.6
Accrued liabilities 130.6 127.6
Note payable and current portion of
capital lease obligations 3.5 7.8
Customer prepayments and deferred
revenue 294.3 290.4
--------- --------
Total current liabilities 469.1 498.4
Deferred tax liability 1,402.0 647.1
Capital lease obligations and
long-term debt 662.0 624.3
Other long-term liabilities 62.1 62.3
Minority interest 5.1 5.0
Stockholders' equity:
Common stock, $.01 par value -- 3.0
Additional paid in capital 7,891.7 1,283.9
Unearned compensation (79.5) --
Retained earnings
(accumulated deficit) (145.2) 181.5
Accumulated other comprehensive
income, net of tax (0.8) 9.3
--------- --------
Total stockholders' equity 7,666.2 1,477.7
--------- --------
Total liabilities and stockholders'
equity $10,266.5 $3,314.8
========= ========
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In millions)
Period From Period From
July 13, 2000 Period From Three Months July 13, 2000 Period From Nine Months
to July 1, 2000 Ended to January 1, 2000 Ended
September 30, to September 30, September 30, to September 30,
2000 July 12, 2000 1999 2000 July 12, 2000 1999
Successor Predecessor Predecessor Successor Predecessor Predecessor
Company Company Company Company Company Company
------------- ------------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 243.6 $ 31.2 $302.6 $ 243.6 $623.3 $817.4
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization 189.6 48.6 249.7 189.6 523.8 650.8
Stock compensation
expense 8.6 14.6 -- 8.6 14.6 --
Depreciation and
amortization 204.9 4.7 34.7 204.9 76.2 86.0
------- ------ ------ ------- ------ ------
403.1 67.9 284.4 403.1 614.6 736.8
------- ------ ------ ------- ------ ------
Operating income
(loss) (159.5) (36.7) 18.2 (159.5) 8.7 80.6
------- ------ ------ ------- ------ ------
Interest expense (11.8) (1.8) (12.3) (11.8) (28.9) (30.7)
Other income (expense),
net 1.0 (5.6) 1.7 1.0 (3.8) 3.2
------- ------ ------ ------- ------ ------
Income (loss) before
income taxes and
minority interest (170.3) (44.1) 7.6 (170.3) (24.0) 53.1
Benefit (provision)
for income taxes 28.8 10.3 (3.5) 28.8 (1.1) (19.1)
Minority interest in
earnings (3.7) (0.6) (2.8) (3.7) (7.7) (10.1)
------- ------ ------ ------- ------ ------
Net income (loss) $(145.2) $(34.4) $ 1.3 $(145.2) $(32.8) $ 23.9
======= ====== ====== ======= ====== ======
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In millions)
Period From Period From
July 13, 2000 January 1, 2000 Nine Months
to to ended
September 30, 2000 July 12, 2000 September 30, 1999
Successor Company Predecessor Company Predecessor Company
------------------ ------------------- -------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $(145.2) $ (32.8) $ 23.9
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 204.9 76.2 86.0
Minority interest in
earnings 3.7 7.7 10.1
Deferred income taxes (37.5) (26.9) (22.5)
Stock compensation
expense 8.6 14.6 --
Other 0.6 0.7 2.7
Changes in operating
assets and liabilities,
net of the effect of
acquisitions and
disposals:
Accounts receivable 33.8 (3.3) (68.3)
Inventories and other
current assets (0.1) (10.8) 8.1
Accounts payable (9.1) (22.0) 0.8
Accrued liabilities (40.3) 30.3 29.1
Customer prepayments
and deferred
revenues 9.7 (5.8) (26.6)
Other (0.5) (1.6) --
------- ------- -------
Net cash provided by
operating activities 28.6 26.3 43.3
Investing activities:
Investments and
acquisitions, net of
cash acquired (1.1) (58.8) (815.9)
Sale of assets -- 13.5 --
Capital expenditures (8.6) (20.9) (21.3)
Purchases of marketable
securities -- -- (3.5)
Sales of marketable
securities -- 0.7 4.8
Maturities of marketable
securities -- -- 1.1
Other (0.3) (0.7) (1.7)
------- ------- -------
Net cash used in investing
activities (10.0) (66.2) (836.5)
Financing activities:
Issuance of senior
subordinated notes -- -- 400.0
Repayment of senior
subordinated notes (331.9) -- --
Borrowings under bank
credit facilities 313.4 55.0 215.3
Debt issuance costs -- -- (15.6)
Repayment of note payable
and capital lease
obligations (0.7) (5.7) (1.1)
Issuance of common stock -- 2.6 132.6
Contributions from
Liberty Media-Netlink -- -- 8.0
Distributions to minority
interests, net (3.6) (5.8) (7.5)
Other (4.2) -- (0.4)
------- ------- -------
Net cash provided by
(used in) financing
activities (27.0) 46.1 731.3
------- ------- -------
Net increase (decrease)
in cash and cash
equivalents (8.4) 6.2 (61.9)
Cash and cash equivalents
at beginning of period 99.4 93.2 155.6
------- ------- -------
Cash and cash equivalents
at end of period $ 91.0 $ 99.4 $ 93.7
======= ======= =======
Supplemental disclosures
of cash flow information:
Interest paid $ 22.8 $ 26.3 $ 10.6
Income taxes paid 1.6 27.1 46.2
</TABLE>
See accompanying notes.
5
<PAGE>
TV GUIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2000
1. Organization and Basis of Presentation
TV Guide, Inc. ("TV Guide" or the "Company") is an international
technology and media 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. Following
the merger, the capital stock of TV Guide ceased to be publicly traded.
However, the Company's senior subordinated notes continue to be
outstanding and the Company will continue to file reports with the
Securities and Exchange Commission for so long as appropriate.
For accounting purposes, the merger is being accounted for as of
July 12, 2000 using the purchase method. Accordingly, the condensed
consolidated financial statements for periods after that date reflect
the push-down of the purchase price allocations (based on preliminary
estimates and subject to adjustment) made by Gemstar to the assets and
liabilities of the Company and, therefore, are not comparable to those
before the acquisition. The condensed consolidated financial
statements for the periods after July 12, 2000 are labeled Successor
Company. Statements for periods prior to July 12, 2000 are based on
the historical accounts of the Company and are labeled Predecessor
Company.
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.
6
<PAGE>
2. Investments and Acquisitions
TV Guide Transaction
On March 1, 1999, the Company acquired from a subsidiary of The
News Corporation Limited ("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 shares of TV Guide common stock and
$800 million in cash as consideration. In addition, the subsidiary of
News Corp. acquired additional shares of TV Guide common stock for
approximately $131 million in cash. 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 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, severance and contract
termination costs.
Upon closing of the above transaction, the Company's name was
changed from United Video Satellite Group, Inc. to TV Guide, Inc.
Liberty Transaction
On March 1, 1999, the Company issued to Liberty Media Corporation
("Liberty Media") shares of 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. The Liberty Transaction has been
accounted for as a combination of entities under common control,
similar to a pooling of interests.
7
<PAGE>
3. Credit Arrangements
TV Guide has a $300 million six-year revolving credit facility
expiring in February 2005 and a $300 million 364-day revolving credit
facility expiring in February 2001 with a group of banks. Borrowings
under the credit facilities bear interest (7.7% at September 30, 2000)
either at the banks' prime rate or LIBOR, both plus a margin based on a
sliding scale tied to the Company's leverage ratio, as defined in the
facilities. The credit facilities are subject to prepayment or
reduction at any time without penalty. As of September 30, 2000, the
Company had available borrowing capacity under the six-year revolving
credit facility of approximately $16.3 million and no available
borrowing capacity under the 364-day revolving credit facility. Any
outstanding borrowings under the 364-day revolving credit facility on
February 24, 2001 convert to a four-year amortizing term loan. In
addition, the Company has outstanding as of September 30, 2000, $71.4
million in 8 1/8% senior subordinated notes due 2009.
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 or to transfer cash upstream to Gemstar. 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.
On September 15, 2000, the Company repurchased for cash $328.6
million of its outstanding $400 million in 8 1/8% senior subordinated
notes at 101% of the outstanding principal amount of the notes plus
accrued interest. The offer to repurchase the notes was required
pursuant to the terms of the indenture governing the notes as a result
of the change in control of the Company by reason of its acquisition by
Gemstar. The repurchase was funded through a combination of available
cash and borrowings under the bank credit facilities.
8
<PAGE>
4. Legal Proceedings
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 excise taxes from its
customers during the period August 1985 through June 1994 and remitted
such receipts to the State. In addition, the State has assessed
penalties and interest on such allegedly due excise taxes. The Company
believes it has a reasonable basis for its position and disagrees with
the State's position. 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 certain amounts, which
represent 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 funds paid 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.
On October 4, 1999, a former employee of ODS Technologies, L.P.
("ODS"), filed a complaint against ODS in the Los Angeles Superior
Court asserting causes of action for breach of contract and declaratory
relief relating to the employee's employment agreement with ODS and
seeking damages. The trial commenced in November 2000. 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.
9
<PAGE>
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
monetary damages, plus treble and punitive damages, attorneys' fees and
costs. On August 31, 2000, Unimag filed an amended complaint, (i)
adding TV Guide Distribution, Inc. as a named defendant, (ii) adding
six other national distributors as defendants, and (iii) adding claims
for unjust enrichment and violation of the New York Franchise Sales
Tax. 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 and August 2000, the Company was served with more than
twenty class action complaints filed primarily 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 actions 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.
10
<PAGE>
5. Segment Information
Effective July 12, 2000, the Company restructured its businesses
into four groups for financial reporting purposes: the Technology and
Licensing Sector, which is responsible for the development, licensing
and protection of intellectual property and proprietary technology; the
Company's technology includes the interactive program guide ("IPG")
marketed by TV Guide Interactive and TV Guide International; the
Interactive Platform Sector, which owns, operates and derives recurring
income from advertising, interactive services and e-commerce on the
Company's proprietary IPG platforms; the Media and Services Sector,
which operates TV Guide magazines, TV Guide Channel, and other
television media properties, and which includes a media sales group
that services all of the Company's media platforms; and the Investments
and Holdings Sector, which operates a variety of businesses including
the startup Television Games Network. Segment information reported in
prior years has been reclassified to conform with the current year
presentation.
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 stock
compensation expense and 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 the period from July 13, 2000 to September
30, 2000, the period July 1, 2000 to July 12, 2000, the three months
ended September 30, 1999, the period from January 1, 2000 to July 12,
2000, and the nine months ended September 30, 1999, is as follows:
<TABLE>
<CAPTION>
PERIOD FROM JULY 13, 2000 TO SEPTEMBER 30, 2000
SUCCESSOR COMPANY
(In millions)
Technology Media Investments
and Interactive and and
Licensing Platforms Services Holdings
Sector Sector Sector Sector Eliminations Consolidated
---------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3.2 $ 1.1 $ 153.9 $ 87.1 $ (1.7) $ 243.6
Expenses 4.6 9.6 107.7 69.4 (1.7) 189.6
----- -------- -------- ------ ------- ---------
EBITDA $(1.4) $ (8.5) $ 46.2 $ 17.7 $ -- 54.0
===== ======== ======== ====== =======
Stock compensation (8.6)
Depreciation and
amortization (204.9)
Interest expense (11.8)
Other income, net 1.0
---------
Income (loss) before
income taxes and
minority interest $ (170.3)
=========
Capital expenditures $ -- $ 0.3 $ 7.2 $ 1.1 $ -- $ 8.6
===== ======== ======== ====== ======= =========
Total assets $ -- $6,024.8 $3,436.5 $937.9 $(132.7) $10,266.5
===== ======== ======== ====== ======= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM JULY 1, 2000 to JULY 12, 2000
PREDECESSOR COMPANY
(In millions)
Technology Media Investments
and Interactive and and
Licensing Platforms Services Holdings
Sector Sector Sector Sector Eliminations Consolidated
---------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $0.6 $ 0.1 $18.0 $ 12.8 $(0.3) $ 31.2
Expenses 0.3 1.2 14.6 32.8 (0.3) 48.6
---- ----- ----- ------ ----- ------
EBITDA $0.3 $(1.1) $ 3.4 $(20.0) $ -- (17.4)
==== ===== ===== ====== =====
Stock compensation (14.6)
Depreciation and
amortization (4.7)
Interest expense (1.8)
Other expense, net (5.6)
------
Income (loss) before
income taxes and
minority interest $(44.1)
======
Capital expenditures $ -- $ -- $ -- $ -- $ -- $ --
==== ===== ===== ====== ===== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
PREDECESSOR COMPANY
(In millions)
Technology Media Investments
and Interactive and and
Licensing Platforms Services Holdings
Sector Sector Sector Sector Eliminations Consolidated
---------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2.0 $ 0.3 $175.0 $126.6 $(1.3) $302.6
Expenses 3.7 6.0 130.9 110.4 (1.3) 249.7
----- ----- ------ ------ ----- ------
EBITDA $(1.7) $(5.7) $ 44.1 $ 16.2 $ -- 52.9
===== ===== ====== ====== =====
Stock compensation --
Depreciation and
amortization (34.7)
Interest expense (12.3)
Other income, net 1.7
------
Income before income
taxes and minority
interest $ 7.6
======
Capital expenditures $ -- $ -- $ 6.0 $ 2.4 $ -- $ 8.4
===== ===== ====== ====== ===== ======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 2000 to JULY 12, 2000
PREDECESSOR COMPANY
(In millions)
Technology Media Investments
and Interactive and and
Licensing Platforms Services Holdings
Sector Sector Sector Sector Eliminations Consolidated
---------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7.0 $ 1.1 $383.2 $235.9 $(3.9) $623.3
Expenses 10.5 15.6 282.4 219.2 (3.9) 523.8
----- ------ ------ ------ ----- ------
EBITDA $(3.5) $(14.5) $100.8 $ 16.7 $ -- 99.5
===== ====== ====== ====== =====
Stock compensation (14.6)
Depreciation and
amortization (76.2)
Interest expense (28.9)
Other expense, net (3.8)
------
Income (loss) before
income taxes and
minority interest $(24.0)
======
Capital expenditures $ -- $ 1.0 $ 18.3 $ 1.6 $ -- $ 20.9
===== ====== ====== ====== ===== ======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
PREDECESSOR COMPANY
(In millions)
Technology Media Investments
and Interactive and and
Licensing Platforms Services Holdings
Sector Sector Sector Sector Eliminations Consolidated
---------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 4.2 $ 0.9 $425.9 $387.7 $(1.3) $817.4
Expenses 10.4 16.3 310.2 315.2 (1.3) 650.8
----- ------ ------ ------ ----- ------
EBITDA $(6.2) $(15.4) $115.7 $ 72.5 $ -- 166.6
===== ====== ====== ====== =====
Stock compensation --
Depreciation and
amortization (86.0)
Interest expense (30.7)
Other income, net 3.2
------
Income before income
taxes and minority
interest $ 53.1
======
Capital expenditures $ -- $ 0.1 $ 14.5 $ 6.7 $ -- $ 21.3
===== ====== ====== ====== ===== ======
</TABLE>
15
<PAGE>
6. 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 period from July 13, 2000
to September 30, 2000, July 1, 2000 to July 12, 2000 and for the three
months ended September 30, 1999 was $(146.0) million, $(36.1) million
and $4.7 million, respectively, and for the period from January 1, 2000
to July 12, 2000 and for the nine months ended September 30, 1999 was
$(38.2) million and $27.5 million, respectively.
7. Supplemental Guarantor Information
The Company has outstanding $71.4 million in aggregate principal
amount of its senior subordinated notes (the "Notes") due 2009. 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 the Company 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.
16
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF SEPTEMBER 30, 2000
SUCCESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ -- $ 23.0 $ 68.0 $ -- $ 91.0
Marketable securities,
at fair value -- -- 7.1 -- 7.1
Accounts receivable,
net -- 227.3 23.2 -- 250.5
Accounts and notes
receivable from
affiliates -- 144.8 2.0 (146.8) --
Deferred tax asset -- 13.9 1.8 -- 15.7
Inventories and other
current assets -- 33.0 6.4 -- 39.4
--------- --------- --------- --------- ---------
Total current
assets -- 442.0 108.5 (146.8) 403.7
Property, plant and
equipment, net -- 69.6 12.5 -- 82.1
Intangible assets, net -- 9,185.2 436.9 -- 9,622.1
Investment in
subsidiaries, at equity 8,349.7 -- -- (8,349.7) --
Other assets -- 137.1 21.5 -- 158.6
--------- --------- --------- --------- ---------
Total assets $ 8,349.7 $ 9,833.9 $ 579.4 $(8,496.5) $10,266.5
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 38.9 $ 1.8 $ -- $ 40.7
Accounts and notes
payable to affiliates 25.9 1.3 119.6 (146.8) --
Accrued liabilities 2.4 85.4 42.8 -- 130.6
Note payable and current
portion of capital
lease obligations -- 3.2 0.3 -- 3.5
Customer prepayments
and deferred revenue -- 196.2 98.1 -- 294.3
--------- --------- --------- --------- ---------
Total current
liabilities 28.3 325.0 262.6 (146.8) 469.1
Deferred tax liability -- 1,328.7 73.3 -- 1,402.0
Capital lease
obligations and
long-term debt 655.2 662.0 -- (655.2) 662.0
Other long-term
liabilities -- 61.9 0.2 -- 62.1
Minority interest -- -- 4.3 0.8 5.1
Stockholders' equity:
Common stock -- -- -- -- --
Other stockholders'
equity 7,666.2 7,456.3 239.0 (7,695.3) 7,666.2
--------- --------- --------- --------- ---------
Total stockholders'
equity 7,666.2 7,456.3 239.0 (7,695.3) 7,666.2
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity $ 8,349.7 $ 9,833.9 $ 579.4 $(8,496.5) $10,266.5
========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
PERIOD FROM JULY 13, 2000 TO SEPTEMBER 30, 2000
SUCCESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 171.5 $ 78.5 $ (6.4) $ 243.6
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization -- 129.9 66.1 (6.4) 189.6
Stock compensation
expense -- 8.6 -- -- 8.6
Depreciation and
amortization -- 184.3 20.6 -- 204.9
------- ------- ------- ------- -------
-- 322.8 86.7 (6.4) 403.1
------- ------- ------- ------- -------
Operating income (loss) -- (151.3) (8.2) -- (159.5)
Interest expense (11.6) (11.8) -- 11.6 (11.8)
Other income
(expense), net (133.6) 1.5 (0.5) 133.6 1.0
------- ------- ------- ------- -------
Income (loss) before
income taxes and
minority interest (145.2) (161.6) (8.7) 145.2 (170.3)
Benefit (provision)
for income taxes -- 31.4 (2.6) -- 28.8
Minority interest in
earnings -- -- (3.9) 0.2 (3.7)
------- ------- ------- ------- -------
Net income (loss) $(145.2) $(130.2) $ (15.2) $ 145.4 $(145.2)
======= ======= ======= ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
PERIOD FROM JULY 1, 2000 TO JULY 12, 2000
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 20.8 $ 11.3 $ (0.9) $ 31.2
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization -- 27.2 22.3 (0.9) 48.6
Stock compensation
expense -- 14.6 -- -- 14.6
Depreciation and
amortization -- 4.0 0.7 -- 4.7
------ ------ ------ ------ ------
-- 45.8 23.0 (0.9) 67.9
------ ------ ------ ------ ------
Operating income (loss) -- (25.0) (11.7) -- (36.7)
Interest expense (1.8) (1.8) -- 1.8 (1.8)
Other expense, net (32.6) (5.6) -- 32.6 (5.6)
------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest (34.4) (32.4) (11.7) 34.4 (44.1)
Benefit (provision)
for income taxes -- 10.9 (0.6) -- 10.3
Minority interest in
earnings -- -- (0.6) -- (0.6)
------ ------ ------ ------ ------
Net income (loss) $(34.4) $(21.5) $(12.9) $ 34.4 $(34.4)
====== ====== ====== ====== ======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $195.2 $114.8 $ (7.4) $302.6
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization -- 148.9 108.2 (7.4) 249.7
Stock compensation
expense -- -- -- -- --
Depreciation and
amortization -- 30.1 4.6 -- 34.7
------ ------ ------ ------ ------
-- 179.0 112.8 (7.4) 284.4
------ ------ ------ ------ ------
Operating income -- 16.2 2.0 -- 18.2
Interest expense (12.0) (12.2) -- 11.9 (12.3)
Other income, net 13.3 1.2 0.5 (13.3) 1.7
------ ------ ------ ------ ------
Income before income
taxes and minority
interest 1.3 5.2 2.5 (1.4) 7.6
Benefit (provision)
for income taxes -- 1.1 (4.6) -- (3.5)
Minority interest in
earnings -- -- (3.4) 0.6 (2.8)
------ ------ ------ ------ ------
Net income (loss) $ 1.3 $ 6.3 $ (5.5) $ (0.8) $ 1.3
====== ====== ====== ====== ======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 2000 TO JULY 12, 2000
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $426.6 $212.1 $(15.4) $623.3
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization -- 330.0 209.2 (15.4) 523.8
Stock compensation
expense -- 14.6 -- -- 14.6
Depreciation and
amortization -- 65.2 11.0 -- 76.2
------ ------ ------ ------ ------
-- 409.8 220.2 (15.4) 614.6
------ ------ ------ ------ ------
Operating income (loss) -- 16.8 (8.1) -- 8.7
Interest expense (28.4) (28.8) (0.1) 28.4 (28.9)
Other income
(expense), net (4.4) (6.1) 2.3 4.4 (3.8)
------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest (32.8) (18.1) (5.9) 32.8 (24.0)
Benefit (provision)
for income taxes -- 10.7 (11.8) -- (1.1)
Minority interest in
earnings -- -- (7.4) (0.3) (7.7)
------ ------ ------ ------ ------
Net income (loss) $(32.8) $ (7.4) $(25.1) $ 32.5 $(32.8)
====== ====== ====== ====== ======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $487.4 $350.7 $(20.7) $817.4
Operating expenses:
Operating expenses,
excluding stock
compensation and
depreciation and
amortization -- 360.0 311.5 (20.7) 650.8
Stock compensation
expense -- -- -- -- --
Depreciation and
amortization -- 72.0 14.0 -- 86.0
------ ------ ------ ------ ------
-- 432.0 325.5 (20.7) 736.8
------ ------ ------ ------ ------
Operating income -- 55.4 25.2 -- 80.6
Interest expense (29.8) (30.5) (0.1) 29.7 (30.7)
Other income, net 53.7 1.9 1.3 (53.7) 3.2
------ ------ ------ ------ ------
Income before income
taxes and minority
interest 23.9 26.8 26.4 (24.0) 53.1
Provision for income
taxes -- (3.4) (15.7) -- (19.1)
Minority interest in
earnings -- -- (11.2) 1.1 (10.1)
------ ------ ------ ------ ------
Net income (loss) $ 23.9 $ 23.4 $ (0.5) $(22.9) $ 23.9
====== ====== ====== ====== ======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
PERIOD FROM JULY 13, 2000 THROUGH SEPTEMBER 30, 2000
SUCCESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities $ -- $ 34.5 $ (5.9) $ -- $ 28.6
Investing activities:
Investments and
acquisitions, net of
cash acquired -- -- (1.1) -- (1.1)
Capital expenditures -- (8.0) (0.6) -- (8.6)
Purchase of marketable
securities -- -- -- -- --
Sales and maturities of
marketable securities -- -- -- -- --
Other -- (0.5) 0.2 -- (0.3)
------- ------- ------- ------- -------
Net cash used in
investing activities -- (8.5) (1.5) -- (10.0)
Financing activities:
Repayment of senior
subordinated notes (331.9) -- -- -- (331.9)
Borrowings under bank
credit facilities 313.4 -- -- -- 313.4
Repayment of note
payable and capital
lease obligations -- (0.7) -- -- (0.7)
Issuance of common
stock -- -- -- -- --
Distributions to
minority interests, net -- -- (3.6) -- (3.6)
Intercompany transfers 18.5 (17.2) (1.3) -- --
Other -- -- (4.2) -- (4.2)
------- ------- ------- ------- -------
Net cash used in
financing activities -- (17.9) (9.1) -- (27.0)
------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents -- 8.1 (16.5) -- (8.4)
Cash and cash
equivalents at
beginning of period -- 14.9 84.5 -- 99.4
------- ------- ------- ------- -------
Cash and cash
equivalents at end
of period $ -- $ 23.0 $ 68.0 $ -- $ 91.0
======= ======= ======= ======= =======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 2000 THROUGH JULY 12, 2000
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ -- $ 1.6 $ 24.7 $ -- $ 26.3
Investing activities:
Investments and
acquisitions, net of
cash acquired -- (48.8) (20.3) 10.3 (58.8)
Sale of assets -- 10.3 13.5 (10.3) 13.5
Capital expenditures -- (19.3) (1.6) -- (20.9)
Purchase of marketable
securities -- -- (5.7) 5.7 --
Sales and maturities of
marketable securities -- 6.4 -- (5.7) 0.7
Other -- (1.0) 0.3 -- (0.7)
------- ------- ------- ------- -------
Net cash used in
investing activities -- (52.4) (13.8) -- (66.2)
Financing activities:
Borrowings under bank
credit facilities 55.0 -- -- -- 55.0
Repayment of note
payable and capital
lease obligations -- (2.0) (3.7) -- (5.7)
Issuance of common
stock 2.6 -- -- -- 2.6
Distributions to
minority interests, net -- -- (5.8) -- (5.8)
Intercompany transfers (57.6) 57.8 (0.2) -- --
Other -- -- -- -- --
------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities -- 55.8 (9.7) -- 46.1
------- ------- ------- ------- -------
Net increase in cash
and cash equivalents -- 5.0 1.2 -- 6.2
Cash and cash
equivalents at
beginning of period -- 9.9 83.3 -- 93.2
------- ------- ------- ------- -------
Cash and cash
equivalents at end
of period $ -- $ 14.9 $ 84.5 $ -- $ 99.4
======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
PREDECESSOR COMPANY
(In millions)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities $ -- $ (39.7) $ 82.9 $ 0.1 $ 43.3
Investing activities:
Investments and
acquisitions, net of
cash acquired (808.0) (16.2) 0.3 8.0 (815.9)
Capital expenditures -- (16.0) (5.4) 0.1 (21.3)
Purchase of marketable
securities -- (3.5) -- -- (3.5)
Sales and maturities of
marketable securities -- 5.9 -- -- 5.9
Other -- 1.5 (3.0) (0.2) (1.7)
------- ------- ------- ------- -------
Net cash used in
investing activities (808.0) (28.3) (8.1) 7.9 (836.5)
Financing activities:
Issuance of senior
subordinated notes 400.0 -- -- -- 400.0
Borrowings under bank
credit facilities 215.3 -- -- -- 215.3
Debt issuance costs (15.6) -- -- -- (15.6)
Borrowings (repayments)
of note payable and
capital lease
obligations -- (2.8) 1.7 -- (1.1)
Common stock transactions,
net 132.6 -- 8.0 (8.0) 132.6
Contributions from
Liberty Media-Netlink -- 6.5 1.5 -- 8.0
Distributions to
minority interests -- -- (7.5) -- (7.5)
Intercompany transfers 75.7 (27.3) (48.4) -- --
Other -- -- (0.4) -- (0.4)
------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities 808.0 (23.6) (45.1) (8.0) 731.3
------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents -- (91.6) 29.7 -- (61.9)
Cash and cash
equivalents at
beginning of period -- 104.1 51.5 -- 155.6
------- ------- ------- ------- -------
Cash and cash
equivalents at end
of period $ -- $ 12.5 $ 81.2 $ -- $ 93.7
======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar-TV Guide International, Inc. (formerly Gemstar International
Group Limited)("Gemstar"). For accounting purposes, the merger is
being accounted for as of July 12, 2000 using the purchase method.
Accordingly, financial information for periods after that date reflect
the push-down of the purchase price allocations (based on preliminary
estimates and subject to adjustment) made by Gemstar to the assets and
liabilities of the Company and, therefore, are not comparable to those
before the acquisition. The condensed consolidated financial
statements for the periods after July 12, 2000 are labeled Successor
Company. Statements for periods prior to July 12, 2000 are based on the
historical accounts of the Company and are labeled Predecessor Company.
The following table sets forth certain unaudited financial
information for the Company and the businesses operated by it during
periods in the three months and nine months ended September 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>
Period From Period From
July 13, 2000 Period From Three Months July 13, 2000 Period From Nine Months
to July 1, 2000 Ended to January 1, 2000 Ended
September 30, to September 30, September 30, to September 30,
2000 July 12, 2000 1999 2000 July 12, 2000 1999
Successor Predecessor Predecessor Successor Predecessor Predecessor
Company (1) Company Company Company (1) Company Company
------------- ------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income statement data:
Consolidated revenues $ 243.6 $ 31.2 $302.6 $ 243.6 $623.3 $ 817.4
Consolidated operating
income (loss) (159.5) (36.7) 18.2 (159.5) 8.7 80.6
Consolidated
depreciation and
amortization 204.9 4.7 34.7 204.9 76.2 86.0
Cash flow data:
Consolidated capital
expenditures $ 8.6 $ -- $ 8.4 $ 8.6 $ 20.9 $ 21.3
Net cash provided by
(used in):
Operating activities 28.6 -- 15.7 28.6 26.3 43.3
Investing activities (10.0) -- (27.2) (10.0) (66.2) (836.5)
Financing activities (27.0) (1.0) 27.6 (27.0) 46.1 731.3
Other data:
EBITDA (2)(4) $ 54.0 $(17.4) $ 52.9 $ 54.0 $ 99.5 $ 166.6
Ratio of earnings to
fixed charges (3) See Note (6) See Note (7) 1.53 See Note (6) See Note (7) 2.45
</TABLE>
26
<PAGE>
The following table sets forth certain unaudited financial
information for the Company and its restricted subsidiaries that
guarantee the 8 1/8% senior subordinated notes. The Company has one
domestic subsidiary and one partially owned foreign subsidiary that are
restricted subsidiaries under the indenture but are not guarantors of
the notes.
<TABLE>
<CAPTION>
Period From Period From
July 13, 2000 Period From Three Months July 13, 2000 Period From Nine Months
to July 1, 2000 Ended to January 1, 2000 Ended
September 30, to September 30, September 30, to September 30,
2000 July 12, 2000 1999 2000 July 12, 2000 1999
Successor Predecessor Predecessor Successor Predecessor Predecessor
Company (1) Company Company Company (1) Company Company
------------- ------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income statement data:
Consolidated revenues $ 171.5 $ 20.8 $195.2 $ 171.5 $426.6 $ 487.4
Consolidated operating
income (loss) (151.3) (25.0) 16.2 (151.3) 16.8 55.4
Consolidated
depreciation and
amortization 184.3 4.0 30.1 184.3 65.2 72.0
Cash flow data:
Consolidated capital
expenditures $ 8.0 $ -- $ 6.4 $ 8.0 $ 19.3 $ 16.0
Net cash provided by
(used in):
Operating activities 34.5 6.0 8.5 34.5 1.6 (39.7)
Investing activities (8.5) -- (27.1) (8.5) (52.4) (836.3)
Financing activities (17.9) (6.0) 28.2 (17.9) 55.8 784.4
Other data:
EBITDA (2)(4) $ 41.6 $ (6.4) $ 46.3 $ 41.6 $ 96.6 $127.4
Ratio of earnings to
fixed charges (3)(5) See Note (6) See Note (7) 1.39 See Note (6) See Note (7) 1.80
</TABLE>
27
<PAGE>
(1) On July 12, 2000, the Company was acquired in a transaction
accounted for as a purchase. Accordingly, the financial
information for periods after that date reflect the push-down of
the purchase price allocations (based on preliminary estimates and
subject to adjustment) to the assets and liabilities of the
Company.
(2) EBITDA means operating income before stock compensation expense
and depreciation and amortization. EBITDA is presented
supplementally as the Company believes EBITDA is a standard
measure commonly reported and widely used by analysts, investors
and others associated with its 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) EBITDA for the periods July 1, 2000 through July 12, 2000 and
January 1, 2000 through July 12, 2000 includes certain non-
recurring charges relating to compensation costs that occurred as
a result of the merger with Gemstar.
(5) 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.
(6) Earnings for the period from July 13, 2000 to September 30, 2000
reflect the increase in amortization of intangible assets
resulting from the impacts of push-down accounting related to the
acquisition of the Company by Gemstar. As a result of this non-
cash charge, earnings as calculated, were not sufficient to cover
fixed charges by $170.3 million ($161.6 million Guarantor).
(7) Earnings for the periods July 1, 2000 through July 12, 2000 and
January 1, 2000 through July 12, 2000 include certain
non-recurring charges relating to compensation and other costs
that occurred as a result of the merger with Gemstar and
amortization of intangible assets recorded in the TV Guide
Transaction. As a result, earnings were not sufficient to cover
fixed charges for these periods by $44.1 million ($32.4 million
Guarantor) and $24.0 million ($18.1 million Guarantor),
respectively.
28
<PAGE>
Results of Operations
Consolidated
On July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar. For accounting purposes, the merger is being accounted for as
of July 12, 2000 using the purchase method. Accordingly, financial
information for periods after that date reflect the push-down of the
purchase price allocation (based on preliminary estimates and subject
to adjustment) made by Gemstar to the assets and liabilities of the
Company.
The following discussion combines the operating results and cash
flows for the period July 13, 2000 through September 30, 2000 with each
of the periods July 1, 2000 through July 12, 2000 and January 1, 2000
through July 12, 2000 for comparison to the corresponding three-month
and nine-month periods in 1999, respectively.
Revenues for the three months ended September 30, 2000 were $274.8
million, a decrease of $27.8 million, or 9%, compared to the same
period in 1999. For the nine months ended September 30, 2000, revenues
were $866.9 million, an increase of $49.5 million, or 6%, over the
corresponding 1999 period. The decrease in revenues for the quarter
results primarily from lower revenues in the Investments and Holdings
Sector, resulting, primarily, from the continued decline in the C-band
market, accelerated due to the conversion agreement with Echostar, and
in the Media and Services Sector, resulting from a reduction in
revenues for the TV Guide magazines, partially offset by increased
revenues from TV Guide Channel. The increase in revenues for the nine-
month period was primarily due to $118.9 million of additional revenues
attributable to TV Guide magazine, which was acquired by the Company on
March 1, 1999, partially offset by reduced revenues in the Investments
and Holdings and Media and Services Sectors.
Operating expenses, excluding stock compensation and depreciation
and amortization, were $238.2 million for the quarter ended September
30, 2000, a decrease of $11.5 million, or 5%, when compared to the same
period in 1999. For the nine months ended September 30, 2000,
operating expenses, excluding stock compensation and depreciation and
amortization, were $713.4 million, an increase of $62.6 million, or
10%, over the corresponding 1999 period. The decrease in operating
expenses, excluding stock compensation and depreciation and
amortization, for the quarter results primarily from expense reductions
in both the C-band and magazine businesses, partially offset by certain
non-recurring compensation expense associated with the Gemstar merger.
The increase in operating expenses, excluding stock compensation
expense and depreciation and amortization for the nine-month period was
primarily due to increased operating costs of $90.9 million
attributable to TV Guide magazine and non-recurring compensation
expense associated with the Gemstar merger, partially offset by expense
reductions in both the C-band and magazine businesses.
Stock compensation expense for the period July 13, 2000 through
September 30, 2000 reflects amortization of the portion of the purchase
price of TV Guide assigned to unearned compensation expense for
unvested TV Guide stock options assumed by Gemstar in its acquisition
of TV Guide. Stock compensation expense in prior periods represents non-
cash expense resulting from stock option arrangements.
Depreciation and amortization during the third quarter of 2000 was
$209.6 million, an increase of $174.9 million compared to the third
quarter of 1999. For the nine months ended September 30, 2000,
depreciation and amortization was $281.1 million, an increase of $195.1
million over the corresponding 1999 period. The increase in
depreciation and amortization for both the three and nine-month periods
was primarily a result of amortization of intangible assets and other
depreciation resulting from the impacts of push-down accounting related
to the acquisition of the Company by Gemstar.
Interest expense was $13.6 million and $40.7 million for the three
and nine-months ended September 30, 2000, respectively, compared to
$12.3 million and $30.7 million, respectively, for the same periods in
1999. The increase in interest during both the three and nine-month
periods was attributable to higher average debt levels coupled with
higher interest rates.
Minority interest in earnings for the quarter and nine-month
periods ended September 30, 2000 of $4.3 million and $11.4 million,
respectively, represents primarily that portion of earnings
attributable to the minority ownership in Superstar/Netlink Group, LLC.
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Liquidity and Capital Resources
For the nine months ended September 30, 2000, net cash flows from
operating activities were $54.9 million. This cash flow, plus existing
cash resources and borrowings of $368.4 million under revolving bank
credit facilities were used to fund the Company's repurchase of $331.9
million (purchased at 101% of the outstanding principal balance plus
accrued interest) of the Company's 8 1/8% senior subordinated notes,
investments of $59.9 million and capital expenditures of $29.5 million.
At September 30, 2000, the Company's cash, cash equivalents and
marketable securities aggregated $98.1 million, a decrease of $15.8
million from that as of December 31, 1999. This total includes $61.8
million of cash and cash equivalents held by SNG, in which the Company
had an approximate 80% ownership interest. As of September 30, 2000,
$7.1 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.
The Company has a $300 million six-year revolving credit facility
expiring in February 2005 and a $300 million 364-day revolving credit
facility expiring in February 2001 with a group of banks. Borrowings
under the credit facilities bear interest (7.7% at September 30, 2000)
either at the banks' 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. The credit facilities are subject to prepayment or reduction
at any time without penalty. As of September 30, 2000, the Company had
available borrowing capacity under the six-year revolving credit
facility of approximately $16.3 million and no available borrowing
capacity under the 364-day revolving credit facility. Any outstanding
borrowings under the 364-day revolving credit facility on February 24,
2001 convert to a four-year amortizing term loan. In addition, the
Company has outstanding as of September 30, 2000, $71.4 million in
8 1/8% senior subordinated notes due 2009.
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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 and
certain of its subsidiaries from engaging in certain transactions,
including the following: borrowing additional money, paying dividends
or other distributions to the Company, 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.
Although the Company has not assumed these obligations or become
subject to their provisions, these restrictions could affect the
Company's ability to actively manage its businesses or limit its
ability to obtain financing for working capital, capital expenditures,
acquisitions and other purposes.
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, Superstar/Netlink Group subscription fees
and certain of its UVTV superstation and TV Guide Channel revenues. As
of September 30, 2000, the unearned portion of all prepayments
(including non current portion) totaled $356.3 million, of which
approximately $253.5 million, or 71%, was attributable to TV Guide
magazine and approximately $96.1 million, or 27%, was attributable to
Superstar/Netlink Group. 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 $10.0 million as of September
30, 2000. The Company expects to further reduce the lease obligation
during the next twelve months by approximately $3.2 million. The
Company also leases various other satellite transponders accounted for
as operating leases. These operating leases accounted for
approximately $12.0 million in operating expenses, net of sublease
revenue, during the nine months ended September 30, 2000.
Capital expenditures during the nine months ended September 30,
2000 of $29.5 million were principally attributable to the purchase of
control units provided to TV Guide Channel's cable television
customers, building improvements, 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, Superstar/Netlink Group makes periodic
cash distributions to its members. During the nine months ended
September 30, 2000, cash distributions to minority interests in
Superstar/Netlink Group aggregated $11.6 million.
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Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
The foregoing "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section and other portions of this
report on Form 10-Q contain various "forward-looking statements" which
represent the Company's expectations or beliefs concerning future
events. Statements containing expressions such as "believes,"
"anticipates," "plans" or "expects" used in the Company's periodic
reports on Forms 10-K and 10-Q filed with the Securities and Exchange
Commission are intended to identify forward-looking statements. The
Company cautions that these and similar statements included in this
report and in previously filed periodic reports including reports filed
on Forms 10-K and 10-Q are further qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statement, including, without limitation, those
referred to in the "Risk Factors" section of Gemstar's Report on Form 8-
K/A filed on August 11, 2000. 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 is exposed to the impact of interest rate changes and
changes in the market values of its investments. The Company's exposure
to market rate risk for changes in interest rates relates primarily to
its investment portfolio and variable rate debt issued under TV Guide's
$300 million six-year revolving credit facility and $300 million 364-
day revolving credit facility. The Company has not used derivative
financial instruments in its investment portfolio or to hedge for
interest rate fluctuations on its debt. The Company invests its excess
cash in debt instruments of the U.S. Government and its agencies, and
in high-quality corporate issuers and, by policy, limits the amount of
credit exposure to any one issuer. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, the
Company's future investment income may fall short of expectations due
to changes in interest rates or the Company may suffer losses in
principal if forced to sell securities which have declined in market
value due to changes in interest rates. Because the interest rates on
the credit facilities are variable, based upon the banks' prime rate or
LIBOR, the Company's interest expense and cash flow are impacted by
interest rate fluctuations. At September 30, 2000, the Company had
$583.7 million in outstanding borrowings under the credit facilities.
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 $5.8 million in interest expense and a
corresponding decrease or increase of $5.8 million in the Company's
operating cash flow.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
monetary damages, plus treble and punitive damages, attorneys' fees and
costs. On August 31, 2000, Unimag filed an amended complaint, (i)
adding TV Guide Distribution, Inc. as a named defendant, (ii) adding
six other national distributors as defendants, and (iii) adding claims
for unjust enrichment and violation of the New York Franchise Sales
Tax. 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 and August 2000, the Company was served with more than
twenty class action complaints filed primarily 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 July 12, 2000, the Company became a wholly owned subsidiary of
Gemstar. The litigation between the Company and Gemstar and its
affiliates was formally dismissed in October 2000.
See the Company's Quarterly Reports on Form 10-Q for the March 31
and June 30, 2000 periods for a discussion of material developments
affecting legal proceedings to which the Company is a party.
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ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
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
On August 14, 2000, the Company filed a report on Form 8-K
which provided notice of the change in control of the Company
resulting from the completion of the previously announced
merger with Gemstar.
No other reports on Form 8-K were filed during the third
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: November 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
36
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