SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE PERIOD ENDED MARCH 31, 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 May 8, 2000:
TITLE OF CLASS NUMBER OF SHARES
Class A Common Stock $.01 Par Value 154,878,584
Class B Common Stock $.01 Par Value 149,986,352
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TV GUIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except per share amounts)
March 31, December 31,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 100,925 $ 93,210
Marketable securities, at fair value 15,006 20,723
Accounts receivable, net of allowance
for doubtful accounts 274,687 293,331
Inventories and other 29,501 29,742
Deferred tax asset 5,480 4,296
-------- ----------
Total current assets 425,599 441,302
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 80,751 75,745
Intangible assets, net of accumulated
amortization 2,731,231 2,755,498
Other assets 57,325 42,274
---------- ----------
Total assets $3,294,906 $3,314,819
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,763 $ 72,570
Accrued liabilities 100,123 127,661
Note payable and current portion of
capital lease obligations 7,340 7,764
Customer prepayments and deferred
subscription revenue 294,135 290,400
---------- ----------
Total current liabilities 462,361 498,395
Deferred tax liability 637,776 647,084
Capital lease obligations and
long-term debt 648,241 624,290
Other long-term liabilities 62,992 62,319
Minority interest 6,078 5,016
Stockholders' equity:
Preferred stock, $.01 par value -- --
Class A common stock, $.01 par value 1,548 1,545
Class B common stock, $.01 par value 1,500 1,500
Additional paid-in capital 1,286,064 1,283,860
Accumulated other comprehensive
income, net of tax 5,904 9,306
Retained earnings 182,442 181,504
---------- ----------
Total stockholders' equity 1,477,458 1,477,715
---------- ----------
Total liabilities and stockholders'
equity $3,294,906 $3,314,819
========== ==========
See accompanying notes.
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TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In thousands, except per share amounts)
Three Months Ended
March 31,
2000 1999
---- ----
Revenues:
Satellite-delivered programming
services $117,026 $130,965
Magazine subscription and newsstand
sales 101,880 33,572
Advertising sales 68,689 25,872
Other 11,501 11,433
-------- --------
299,096 201,842
Operating expenses:
Programming, printing, distribution
and delivery 157,705 103,104
Selling, general and administrative 81,831 51,657
Depreciation and amortization 35,393 15,078
-------- --------
274,929 169,839
-------- --------
Operating income 24,167 32,003
Interest expense (13,311) (6,035)
Other income (expense), net (1,312) 307
-------- --------
Income before income taxes and
minority interest 9,544 26,275
Provision for income taxes (6,157) (9,778)
Minority interest in earnings (2,449) (3,736)
-------- --------
Net income $ 938 $ 12,761
======== ========
Earnings per share:
Basic $ 0.00 $ 0.06
Diluted 0.00 0.06
See accompanying notes.
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TV GUIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
Three Months Ended
March 31,
2000 1999
---- ----
Operating activities:
Net income $ 938 $ 12,761
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,393 15,078
Minority interest in earnings 2,449 3,736
Deferred income taxes (8,496) (2,400)
Other 420 1,266
Changes in operating assets and
liabilities, net of the effect
of acquisitions:
Accounts receivable 16,500 (18,452)
Inventories and other (133) (257)
Accounts payable (11,807) (8,447)
Accrued liabilities (27,434) 24,246
Customer prepayments 4,408 (1,375)
Other (2,451) (30)
-------- --------
Net cash provided by operating activities 9,787 26,126
Investing activities:
Investments and acquisitions, net of
cash acquired (13,994) (803,525)
Capital expenditures (12,295) (3,733)
Purchases of marketable securities -- (348)
Sales of marketable securities 697 4,812
Maturities of marketable securities -- 1,103
Other (1,429) (781)
-------- --------
Net cash used in investing activities (27,021) (802,472)
Financing activities:
Issuance of senior subordinated notes -- 400,000
Borrowings under bank credit facilities 25,000 195,300
Debt issuance costs -- (14,157)
Repayment of note payable and capital
lease obligations (1,473) (1,668)
Issuance of common stock 1,760 131,236
Contributions from Liberty Media-Netlink -- 7,971
Distributions to minority interests, net (335) --
Other (3) 128
-------- --------
Net cash provided by financing activities 24,949 718,810
-------- --------
Net increase (decrease) in cash and cash
equivalents 7,715 (57,536)
Cash and cash equivalents at beginning of
period 93,210 155,644
-------- --------
Cash and cash equivalents at end of period $100,925 $ 98,108
======== ========
Supplemental disclosures of cash
flow information:
Interest paid $ 21,189 $ 2,301
Income taxes paid 2,462 4,246
See accompanying notes.
4
<PAGE>
TV GUIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 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.
Liberty Media Corporation, a wholly owned subsidiary of AT&T Corp.
("Liberty Media"), and The News Corporation Limited ("News Corp.") each
directly or indirectly own 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
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2. Gemstar Merger
On October 4, 1999, the Company and Gemstar International Group
Limited ("Gemstar") announced that they had entered into a definitive
merger agreement under which the Company will become a wholly owned
subsidiary of Gemstar. Under the merger agreement, the Company's
stockholders will receive 0.6573 shares of Gemstar common stock for
each share of TV Guide Class A and Class B Common Stock. The exchange
ratio is not subject to adjustment. The transaction has been approved
by the stockholders of both companies, but has not closed pending
regulatory approvals.
3. 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.
There are no remaining significant preacquisition contingencies. 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
==========
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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 transactions, 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 three months ended March
31, 1999 as though the TV Guide Transaction had been completed as of
January 1, 1999 (in thousands, except per share amounts):
Revenues $ 320,699
Net income 14,790
Net income per share:
Basic 0.05
Diluted 0.05
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>
4. 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 March 31, 2000, the Company had available borrowing capacity under
the six-year revolving credit facility and 364-day revolving credit
facility of approximately $59.7 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.
As of March 31, 2000, SSDS had a revolving credit facility with a
bank that provided for borrowings up to the lesser of 80% of the billed
trade accounts receivable outstanding less than 90 days, subject to
certain conditions, or $5.0 million. Outstanding borrowings under the
credit facility were $3.3 million as of March 31, 2000 and are
classified as current liabilities. On April 21, 2000, SSDS sold its
client/server and web-based networks integration services division.
Proceeds from the sale were used to repay the outstanding borrowings
under the revolving credit facility and the facility expired.
8
<PAGE>
5. 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. The parties submitted post-trial papers in
September and October 1998, and presented closing arguments to the
Court on November 12, 1998. The case has been submitted to the Court
and the parties are awaiting a decision on the issues of infringement
and validity of the 121 Patent. 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 will become a wholly owned subsidiary of
Gemstar. The transaction was approved by the stockholders of both
companies on March 17, 2000, but has not closed pending regulatory
approvals. The Company expects that the litigation with Gemstar and
its affiliates will be dismissed in connection with the closing of the
transaction with Gemstar. In the meantime, this litigation has been
administratively terminated pursuant to an order entered by the Court
on November 24, 1999. If the transaction with Gemstar does not close,
the parties may reopen the proceedings upon a showing of good cause.
The parties are required to advise the Court as to the need to maintain
the administrative closure by August 24, 2000. If the transaction with
Gemstar does not close, there could be no assurance that this
litigation will be resolved without material adverse effect on the
business prospects of the Company and its subsidiaries and the future
financial position or results of the Company and its subsidiaries. The
Company has not provided for any potential loss as a result of this
litigation.
9
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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. As discussed
above, the Company expects that this litigation will be dismissed in
connection with the closing of the merger transaction with Gemstar. In
the meantime, this litigation has been administratively terminated
pursuant to an order entered by the Court on March 9, 2000. If the
transaction with Gemstar does not close, the parties may reopen the
proceedings upon a showing of good cause. The parties are required to
advise the Court as to the need to maintain the administrative closure
by August 24, 2000. If the transaction with Gemstar does not close,
there could be no assurance that this litigation will be resolved
without material adverse effect on the business prospects of the
Company and its subsidiaries and the future financial position or
results of operations of the Company and its subsidiaries. The Company
has not provided for any potential loss as a result of this litigation.
10
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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 $4.4 million.
By letter dated March 20, 2000 and in other correspondence and
discussions, the broadcast networks and their affiliates have made a
demand for damages against the Company for alleged violations of the
network service restrictions in the "red zone/green zone" plan that
limited the Company's Denver 6 service, and SNG's ability to sell those
network television station signals into certain markets. With the
passage of the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"),
the Company exercised the option of discontinuing the "red zone/green
zone" agreement and utilizing the exemption for C-band subscribers to
continue distributing distant network signals. The broadcasters have
asserted claims for liquidated damages and other damages as a result of
the Company's determination not to terminate Denver 6 distant network
signal subscribers during the time period from September 1999 through
and after the passage of SHVIA up to the notice of termination. The
Company and the broadcast networks and affiliates have commenced
settlement negotiations. Because these claims are preliminary and
discussions are ongoing, the Company cannot reasonably predict whether
there will be any damages awarded if the broadcast networks and
affiliates commence a proceeding against the Company.
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. 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. Discovery in this proceeding is in a
preliminary stage and ODS' and the Company's motion to dismiss the
lawsuit for subject matter jurisdiction is pending before the Court.
On May 3, 2000, an antitrust 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 alleging, among various counts, claims for violation of the
Robinson-Patman Act, for conspiracy among the defendants, for breach of
an exclusive territory agreement, for breach of implied covenants of
good faith and fair dealing, promissory estoppel, breach of fiduciary
duty, misappropriation of business property, tortious destruction of
business, breach of confidential relationship, several antitrust
counts, as well as counts relating to Unimag's SMARTS system, predatory
pricing, and deceptive trade practices in violation of Ohio law. 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 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.
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6. 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):
2000 1999
-------------------- --------------------
Per Share Per Share
Amount Amount
--------- ---------
Net income $ 938 $ 12,761
======= ========
Weighted average
number of shares
of common stock
outstanding 304,610 $0.00 215,210 $0.06
===== =====
Effect of dilutive
securities -
stock options 6,012 2,890
------- --------
Weighted average
number of shares
of common stock
and dilutive
potential common
shares 310,622 $0.00 218,100 $0.06
======= ===== ======= =====
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7. 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.
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 as of March 31, 2000 and for each of the three-
month periods ended March 31, 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 $ -- $ 7,662 $ 3,222 $ 234 $ 87,949 $ 12,032 $ 5,927 $ -- $ 117,026
Magazine subscription
and newsstand sales 101,880 -- -- -- -- -- -- -- 101,880
Advertising sales 51,934 16,441 314 -- -- -- -- -- 68,689
Other 5,162 -- 63 -- -- -- 6,276 -- 11,501
Intersegment revenues 1,886 -- -- -- -- 6,101 -- (7,987) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 160,862 24,103 3,599 234 87,949 18,133 12,203 (7,987) 299,096
Operating expenses,
excluding
depreciation
and amortization 119,151 14,613 9,993 11,865 69,723 8,494 13,684 (7,987) 239,536
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income (loss)
before depreciation
and amortization $ 41,711 $ 9,490 $ (6,394) $(11,631) $ 18,226 $ 9,639 $ (1,481) $ -- 59,560
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (35,393)
Interest expense (13,311)
Other expense, net (1,312)
----------
Income before income
taxes and minority
interest $ 9,544
==========
Capital expenditures $ 2,464 $ 8,754 $ 413 $ 100 $ -- $ 1 $ 563 $ -- $ 12,295
========== ======== ======== ======== ======== ======== ========= =========== ==========
Segment assets $2,926,481 $ 62,759 $ 25,938 $ 30,162 $143,153 $ 88,549 $ 124,320 $ (106,456) $3,294,906
========== ======== ======== ======== ======== ======== ========= =========== ==========
1999
Revenues from external
customers:
Satellite-delivered
programming services $ -- $ 8,133 $ 1,430 $ 113 $101,144 $ 15,215 $ 4,930 $ -- $ 130,965
Magazine subscription
and newsstand sales 33,572 -- -- -- -- -- -- -- 33,572
Advertising sales 14,258 11,530 84 -- -- -- -- -- 25,872
Other 1,527 -- 31 -- -- -- 9,875 -- 11,433
Intersegment revenues -- -- -- -- -- 6,561 -- (6,561) --
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Total revenues 49,357 19,663 1,545 113 101,144 21,776 14,805 (6,561) 201,842
Operating expenses,
excluding
depreciation
and amortization 34,631 10,912 7,418 2,701 81,452 10,018 14,190 (6,561) 154,761
---------- -------- -------- -------- -------- -------- --------- ----------- ----------
Operating income (loss)
before depreciation
and amortization $ 14,726 $ 8,751 $ (5,873) $ (2,588) $ 19,692 $ 11,758 $ 615 $ -- 47,081
========== ======== ======== ======== ======== ======== ========= ===========
Depreciation and
amortization (15,078)
Interest expense (6,035)
Other income, net 307
----------
Income before income
taxes and minority
interest $ 26,275
==========
Capital expenditures $ 573 $ 881 $ 611 $ 147 $ 384 $ 36 $ 1,101 $ -- $ 3,733
========== ======== ======== ======== ======== ======== ========= =========== ==========
</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.
13
<PAGE>
8. 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 March
31, 2000 and 1999 is $(2.5) million and $12.8 million, respectively.
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 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.
14
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
As of March 31, 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 $ -- $ 14,203 $ 86,722 $ -- $ 100,925
Marketable securities,
at fair value -- 15,006 -- -- 15,006
Accounts receivable,
net of allowance
for doubtful
accounts -- 246,262 28,425 -- 274,687
Accounts and notes
receivable from
affiliates -- 105,092 37 (105,129) --
Other current assets -- 27,955 7,026 -- 34,981
---------- ---------- -------- ----------- ----------
Total current
assets -- 408,518 122,210 (105,129) 425,599
Property, plant and
equipment, at cost,
net of accumulated
depreciation and
amortization -- 66,112 14,639 -- 80,751
Intangible assets, net
of accumulated
amortization -- 2,645,982 85,249 -- 2,731,231
Investment in
subsidiaries, at
equity 2,149,030 -- -- (2,149,030) --
Other assets 13,063 43,537 725 -- 57,325
---------- ---------- -------- ----------- ----------
Total assets $2,162,093 $3,164,149 $222,823 $(2,254,159) $3,294,906
========== ========== ======== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 58,536 $ 2,227 $ -- $ 60,763
Accounts and notes
payable to
affiliates 40,947 13 64,169 (105,129) --
Accrued liabilities 3,388 64,883 31,852 -- 100,123
Note payable and
current portion
of capital lease
obligations -- 4,087 3,253 -- 7,340
Customer prepayments
and deferred
subscription revenue -- 190,640 103,495 -- 294,135
---------- ---------- -------- ----------- ----------
Total current
liabilities 44,335 318,159 204,996 (105,129) 462,361
Deferred tax liability
and other long-term
liabilities -- 687,377 13,391 -- 700,768
Capital lease
obligations and
long-term debt 640,300 648,241 -- (640,300) 648,241
Minority interest -- -- 4,164 1,914 6,078
Stockholders' equity:
Common stock 3,048 37,222 211 (37,433) 3,048
Other stockholders'
equity 1,474,410 1,473,150 61 (1,473,211) 1,474,410
---------- ---------- -------- ----------- ----------
Total stock-
holders' equity 1,477,458 1,510,372 272 (1,510,644) 1,477,458
---------- ---------- -------- ----------- ----------
Total liabilities and
stockholders' equity $2,162,093 $3,164,149 $222,823 $(2,254,159) $3,294,906
========== ========== ======== =========== ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite delivered
programming services $ -- $ 26,296 $ 96,831 $ (6,101) $ 117,026
Magazine subscription
and newsstand sales -- 103,766 -- (1,886) 101,880
Advertising sales -- 68,689 -- -- 68,689
Other -- 5,225 6,276 -- 11,501
-------- -------- -------- --------- ----------
-- 203,976 103,107 (7,987) 299,096
Operating expenses:
Programming, printing,
distribution and
delivery -- 99,644 66,048 (7,987) 157,705
Selling, general and
administrative -- 48,293 33,538 -- 81,831
Depreciation and
amortization -- 30,298 5,095 -- 35,393
-------- -------- -------- --------- ----------
-- 178,235 104,681 (7,987) 274,929
-------- -------- -------- --------- ----------
Operating income -- 25,741 (1,574) -- 24,167
Interest expense (12,999) (13,215) (96) 12,999 (13,311)
Other income (expense),
net 13,937 (1,404) 92 (13,937) (1,312)
-------- -------- -------- --------- ----------
Income before income
taxes and minority
interest 938 11,122 (1,578) (938) 9,544
Provision for income
taxes -- (2,365) (3,792) -- (6,157)
Minority interest in
earnings -- -- (3,543) 1,094 (2,449)
-------- -------- -------- --------- ----------
Net income $ 938 $ 8,757 $ (8,913) $ 156 $ 938
======== ======== ======== ========= ==========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Satellite delivered
programming services $ -- $ 31,003 $106,523 $ (6,561) $130,965
Magazine subscription
and newsstand sales -- 33,572 -- -- 33,572
Advertising sales -- 23,618 2,254 -- 25,872
Other -- 1,558 9,875 -- 11,433
-------- -------- -------- --------- --------
-- 89,751 118,652 (6,561) 201,842
Operating expenses:
Programming, printing,
distribution and
delivery -- 35,810 73,855 (6,561) 103,104
Selling, general and
administrative -- 25,291 26,366 -- 51,657
Depreciation and
amortization -- 10,342 4,736 -- 15,078
-------- -------- -------- --------- --------
-- 71,443 104,957 (6,561) 169,839
-------- -------- -------- --------- --------
Operating income -- 18,308 13,695 -- 32,003
Interest expense (5,731) (6,014) (21) 5,731 (6,035)
Other income (expense),
net 18,492 180 127 (18,492) 307
-------- -------- -------- --------- --------
Income before income
taxes and minority
interest 12,761 12,474 13,801 (12,761) 26,275
Provision for income
taxes -- (3,975) (5,803) -- (9,778)
Minority interest in
earnings -- -- (3,936) 200 (3,736)
-------- -------- -------- --------- --------
Net income $ 12,761 $ 8,499 $ 4,062 $ (12,561) $ 12,761
======== ======== ======== ========= ========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
(In thousands)
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided
by operating
activities $ -- $ 8,953 $ 834 $ -- $ 9,787
Investing activities:
Investments and
acquisitions, net
of cash acquired -- (13,994) -- -- (13,994)
Capital expenditures -- (10,567) (1,728) -- (12,295)
Sales and maturities
of marketable
securities -- 697 -- -- 697
Other -- (1,429) -- -- (1,429)
--------- -------- -------- -------- ---------
Net cash used in
investing activities -- (25,293) (1,728) -- (27,021)
Financing activities:
Borrowings under
bank credit
facilities 25,000 -- -- -- 25,000
Repayment of note
payable and capital
lease obligations -- (978) (495) -- (1,473)
Common stock
transactions, net 1,760 -- -- -- 1,760
Distributions to
minority interests,
net -- -- (335) -- (335)
Intercompany
transfers (26,760) 21,662 5,098 -- --
Other -- -- (3) -- (3)
--------- -------- -------- -------- ---------
Net cash provided by
financing activities -- 20,684 4,265 -- 24,949
--------- -------- -------- -------- ---------
Net increase in cash
and cash equivalents -- 4,344 3,371 -- 7,715
Cash and cash
equivalents at
beginning of
period -- 9,859 83,351 -- 93,210
--------- -------- -------- -------- ---------
Cash and cash
equivalents at
end of period $ -- $ 14,203 $ 86,722 $ -- $ 100,925
========= ======== ======== ======== =========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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 $ -- $(14,500) $ 40,626 $ -- $ 26,126
Investing activities:
Investments and
acquisitions, net
of cash acquired (806,151) (3,801) 276 6,151 (803,525)
Capital expenditures -- (2,457) (1,279) 3 (3,733)
Purchases of market-
able securities -- (348) -- -- (348)
Sales and maturities
of marketable
securities -- 5,915 -- -- 5,915
Other -- (239) (523) (19) (781)
--------- -------- -------- -------- ---------
Net cash provided by
(used in) investing
activities (806,151) (930) (1,526) 6,135 (802,472)
Financing activities:
Issuance of senior
subordinated notes 400,000 -- -- -- 400,000
Borrowings under
bank credit
facilities 195,300 -- -- -- 195,300
Debt issuance costs (14,157) -- -- -- (14,157)
Repayment of note
payable and capital
lease obligations -- (913) (771) 16 (1,668)
Common stock
transactions, net 131,236 -- 6,151 (6,151) 131,236
Contributions from
Liberty Media-
Netlink -- 6,476 1,495 -- 7,971
Intercompany
transfers 93,772 (81,492) (12,280) -- --
Other -- -- 128 -- 128
--------- -------- -------- -------- ---------
Net cash provided by
(used in) financing
activities 806,151 (75,929) (5,277) (6,135) 718,810
--------- -------- -------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents -- (91,359) 33,823 -- (57,536)
Cash and cash
equivalents at
beginning of
period -- 104,148 51,496 -- 155,644
--------- -------- -------- -------- ---------
Cash and cash
equivalents at
end of period $ -- $ 12,789 $ 85,319 $ -- $ 98,108
========= ======== ======== ======== =========
</TABLE>
19
<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 ended March 31, 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.
Consolidated Guarantor Group (4)
------------ ------------------
Three Months Ended March 31,
---------------------------------------
2000 1999 (1) 2000 1999 (1)
------------------ ------------------
Amount Amount Amount Amount
------ ------ ------ ------
(In thousands)
Revenues:
TV Guide Magazine
Group $160,862 $ 49,357 $160,862 $ 49,357
TV Guide Television
Group 24,103 19,663 22,004 17,409
TV Guide Interactive
Group:
Guidance Products 3,599 1,545 2,977 1,209
ODS 234 113 -- --
-------- -------- ------- -------
3,833 1,658 2,977 1,209
United Video Group:
SNG 87,949 101,144 -- --
UVTV 18,133 21,776 18,133 21,776
Other 12,203 14,805 -- --
-------- -------- -------- --------
118,285 137,725 18,133 21,776
Eliminations (7,987) (6,561) -- --
-------- -------- -------- --------
Total $299,096 $201,842 $203,976 $ 89,751
======== ======== ======== ========
Operating income (loss):
TV Guide Magazine
Group $ 15,111 $ 7,188 $ 15,111 $ 7,188
TV Guide Television
Group 7,160 7,053 9,411 7,319
TV Guide Interactive
Group:
Guidance Products (7,573) (6,931) (7,635) (6,742)
ODS (12,297) (3,222) -- --
-------- ------- ------- -------
(19,870) (10,153) (7,635) (6,742)
United Video Group:
SNG 15,548 17,464 -- --
UVTV 8,854 11,124 8,854 11,124
Other (2,636) (673) -- (581)
-------- -------- -------- --------
21,766 27,915 8,854 10,543
-------- -------- -------- --------
Total $ 24,167 $ 32,003 $ 25,741 $ 18,308
======== ======== ======== ========
Consolidated depreciation
and amortization $ 35,393 $ 15,078 $ 30,298 $ 10,342
Consolidated capital
expenditures 12,295 3,733 10,567 2,457
Net cash provided by
(used in):
Operating activities 9,787 26,126 8,953 (14,500)
Investing activities (27,021) (802,472) (25,293) (807,081)
Financing activities 24,949 718,810 20,684 730,222
Other data:
EBITDA (2) $ 59,560 $ 47,081 $ 56,039 $ 28,650
Ratio of earnings to
fixed charges (3) 1.60 4.47 1.76 2.81
20
<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.
21
<PAGE>
Results of Operations
Consolidated
Revenues for the three months ended March 31, 2000 were $299.1
million, an increase of $97.3 million, or 48%, over the same period in
1999. The increase in revenues for the quarter was primarily due to
$111.5 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 $13.2 million
decrease in subscriber revenues earned by SNG and other revenue
declines.
Operating expenses, excluding depreciation and amortization, were
$239.5 million for the three months ended March 31, 2000, an increase
of $84.8 million, or 55%, when compared to the same period in 1999.
Operating expenses, excluding depreciation and amortization, increased
primarily due to increased operating costs of $84.5 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 first quarter of 2000 was
$35.4 million, an increase of $20.3 million, or 135%, over the same
period in 1999. The increase in depreciation and amortization in 2000
was primarily a result of amortization of intangible assets and other
depreciation resulting from the acquisition of TV Guide magazine
coupled with the acquisition of equipment to support the various TV
Guide Television Group and TV Guide Interactive Group products.
Interest expense during the first quarter of 2000 was $13.3
million, an increase of $7.3 million over the same period in 1999. The
increase in interest expense 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.
Other income (expense) for the quarter ended March 31, 2000
totaled $(1.3) million compared to $307,000 for the same period in
1999. Included in other expense in 2000 were $3.1 million of expenses
associated with the pending merger transaction with Gemstar.
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 93% for the
three-month period ended March 31, 2000 compared to 43% 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 ended March 31, 2000
of $2.4 million represents that portion of earnings attributable to the
minority ownership in SNG, SSDS, Infomedia S.A. and Sneak Prevue LLC.
22
<PAGE>
TV Guide Magazine Group
The following table sets forth certain financial information for
TV Guide Magazine Group for the three months ended March 31, 2000 and
1999:
Three Months Ended March 31,
2000 1999
---- ----
(In thousands)
Revenues $160,862 $168,214
Operating expenses 119,151 125,542
Depreciation 1,707 1,812
-------- --------
Operating income before
amortization $ 40,004 $ 40,860
======== ========
Operating margin percentage
(before amortization) 25% 24%
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 first three months of
2000 were $160.9 million, a decrease of $7.4 million, or 4%, from the
same period in 1999. The decrease in revenues during the first quarter
of 2000 was primarily due to a $3.6 million reduction in newsstand
sales coupled with a $1.5 million reduction in advertising revenue as a
result of the rate base reduction during 1999. Paid subscription
circulation for the magazine during the quarter ended March 31, 2000
was 9.1 million per week, a decrease of 487,000 copies, or 5%, from the
same quarter in the prior year. Newsstand sales for the magazine
averaged 1.8 million copies per week during the quarter ended March 31,
2000 compared to 2.3 million for the same quarter in the prior year.
Operating expenses, excluding depreciation and amortization, for
the first three months of 2000 were $119.2 million, a decrease of $6.4
million, or 5%, from the same period in 1999. The decrease in
operating expenses during the first quarter of 2000 was primarily due
to savings in manufacturing and distribution expenses resulting from
the reduction in the rate base during 1999.
Depreciation in the first quarter of 2000 was $1.7 million,
relatively unchanged compared to the same period in 1999.
23
<PAGE>
TV Guide Television Group
The following table sets forth certain financial information for
the TV Guide Television Group for the three months ended March 31, 2000
and 1999:
Three Months Ended March 31,
2000 1999
---- ----
(In thousands)
Revenues $24,103 $19,663
Operating expenses 14,613 10,912
Depreciation and amortization 2,330 1,698
------- -------
Operating income $ 7,160 $ 7,053
======= =======
Operating margin percentage 30% 36%
TV Guide Television Group's revenues for the three months ended
March 31, 2000 were $24.1 million, an increase of $4.4 million, or 23%,
over the same period in 1999. The increase in revenues was largely
attributable to advertising revenues, which grew $4.9 million, or 43%,
over the first quarter of 1999 due to higher rates and increased
infomercial time, partially offset by a $339,000 reduction in TV Guide
Channel service fee revenue. Domestically, TV Guide Channel subscriber
counts increased by 309,000, or 1%, to 50.3 million as of March 31,
2000 compared to those as of March 31, 1999. Sneak Prevue subscribers
decreased by 794,000, or 2%, to 33.5 million during the same period.
Operating expenses, excluding depreciation and amortization,
increased $3.7 million, or 34%, during the first quarter of 2000 when
compared to the same period in 1999. The increase in operating expenses
was due primarily to additional employees added to accommodate the TV
Guide Television Group's growth and product development and
enhancements coupled with an increase of $1.2 million of programming
costs incurred for new and expanded programming segments. These
amounts were offset in part by a decrease in marketing costs of $1.6
million 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 in the first quarter of 2000.
Depreciation and amortization during the first quarter of 2000 was
$2.3 million, an increase of $632,000, or 37%, over the same period in
1999. The increase in depreciation and amortization was a result of
the acquisition of additional customer control units and video
production equipment necessary to support the various TV Guide
Television Group products.
24
<PAGE>
TV Guide Interactive Group
Guidance Products
Revenues for the three months ended March 31, 2000 were $3.6
million, an increase of $2.1 million, or 133%, when compared to the
same period in 1999. The increase in revenue was due to increased
service fee revenue attributable to TV Guide Interactive of $1.4
million, or 233%, an increase in service fee revenue earned
internationally by TV Guide Worldwide of $393,000, or 47%, and an
increase in advertising revenue of $230,000, or 303%, for TV Guide
Online.
Operating expenses, before depreciation and amortization, for the
first quarter of 2000 were $10.0 million, an increase of $2.6 million,
or 35%, from the first quarter of 1999. The increase in operating
expenses was due primarily to additional employees added to accommodate
the growth in TV Guide Interactive, TV Guide Online and TV Guide
Worldwide, partially offset by a decrease in marketing costs of
$870,000 as a result of costs incurred to advertise and launch these
products under the TV Guide brand in the first quarter of 1999, which
were not incurred in the first quarter of 2000.
Depreciation and amortization for the first quarter of 2000 was
$1.2 million, relatively unchanged from $1.1 million for the first
quarter of 1999.
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 March 31, 2000 were $234,000,
an increase of $121,000, or 107%, when compared to the same period in
1999. Revenues for both periods reflect the early stages of
development of the TVG Network.
Operating expenses, before depreciation and amortization, were
$11.9 million in the first quarter of 2000, an increase of $9.2
million, or 339%, compared to the same period in 1999. The increase in
operating expenses during 2000 reflects the additional costs associated
with operating the network that were not incurred during the first
quarter of 1999.
Depreciation and amortization of $648,000 in the first quarter of
2000 was composed primarily of amortization of intangible assets
recorded as part of the 1998 acquisition of the controlling interest in
ODS.
25
<PAGE>
United Video Group
Superstar/Netlink Group, LLC
The following table sets forth certain financial information for
SNG for the three months ended March 31, 2000 and 1999:
Three Months Ended March 31,
2000 1999
---- ----
(In thousands)
Revenues $87,949 $101,144
Operating expenses 69,723 81,452
Depreciation and amortization 2,678 2,228
------- --------
Operating income $15,548 $ 17,464
======= ========
Operating margin percentage 18% 17%
Revenues generated by SNG for the three months ended March 31,
2000 were $87.9 million, a decrease of $13.2 million, or 13%, compared
to the same period in 1999. Revenue decreased for the three month
period primarily due to a decline in subscribers. Retail subscribers
purchasing programming from SNG as of March 31, 2000 totaled
approximately 857,000, a decrease of 95,000, or 10%, during the quarter
and a decrease of 246,000, or 22%, during the prior twelve months.
During the quarter ended March 31, 2000, the C-band industry declined
5%, decreasing by 87,000 subscribers, and for the twelve month period
ended March 31, 2000, the industry decreased by 276,000 subscribers, or
15%. SNG's subscriber decline results from both the general decline in
the industry and the impacts 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
$69.7 million in the first quarter of 2000, a decrease of $11.7
million, or 14%, compared to the same period in 1999. The decrease in
operating expenses in the first quarter of 2000 as compared to the
previous year's results 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 first three months of 2000
was $2.7 million, an increase of $450,000, or 20%, compared to the same
period in 1999. The increase was primarily due to a change in the
remaining estimated life of certain intangible assets associated with
the C-band business.
26
<PAGE>
UVTV
The following table sets forth certain financial information for
UVTV for the three months ended March 31, 2000 and 1999:
Three Months Ended March 31,
2000 1999
---- ----
(In thousands)
Revenues $18,133 $21,776
Operating expenses 8,494 10,018
Depreciation and amortization 785 634
------- -------
Operating income $ 8,854 $11,124
======= =======
Operating margin percentage 49% 51%
UVTV's revenues for the first three months of 2000 were $18.1
million, a decrease of $3.6 million, or 17%, when compared to the same
period in 1999. The decrease in revenue 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 March 31, 2000, UVTV/WGN subscribers were
47.6 million, an increase of 1.4 million, or 3%, from March 1999.
Operating expenses, excluding depreciation and amortization, were
$8.5 million, a decrease of $1.5 million, or 15%, when compared to the
same period in 1999. The decrease in operating expenses is 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 first quarter of 2000 was
$785,000 relatively unchanged compared to the same period in 1999.
27
<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 first quarter of 2000
were $12.2 million, a decrease of $2.6 million, or 18%, compared to the
first quarter of 1999. The decrease in revenues was primarily
attributable to a decrease in systems integration services revenue at
SSDS.
Operating expenses, excluding depreciation and amortization,
decreased by $506,000, or 4%, during the first quarter of 2000 to $13.7
million from the same period in 1999. The decrease in operating
expenses 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 in 2000 as a result of the sale.
28
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31, 2000, net cash flows from
operating activities were $9.8 million. This cash flow, plus existing
cash resources and borrowings of $25.0 million under revolving bank
credit facilities were used to fund the Company's investments of $14.0
million, capital expenditures of $12.3 million and net reduction in the
Company's note payable and capitalized lease obligations of $1.5
million.
At March 31, 2000, the Company's cash, cash equivalents and
marketable securities aggregated $115.9 million, an increase of $2.0
million from that as of December 31, 1999. The above total includes
$83.4 million of cash and cash equivalents held by SNG, in which the
Company had an approximate 80% ownership interest. As of March 31,
2000, $15.0 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.
29
<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 extended to mature 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
International Group Limited ("Gemstar") (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 March 31, 2000, the
Company had available borrowing capacity under the six-year revolving
credit facility and 364-day revolving credit facility of approximately
$60 million and $300 million, respectively.
The Company believes that, based on its current level of
operations, cash and cash equivalents, marketable securities and cash
generated from operations, together with expected availability under
the bank credit facilities, subject to the covenants therein, will be
sufficient to enable the Company to service indebtedness, make capital
expenditures and meet operating costs and expenses for the foreseeable
future. If and when appropriate, the Company or its affiliates may
elect to incur additional indebtedness or to raise equity in the public
or private markets; however, there can be no assurances that the
Company will be able to do so.
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 March 31, 2000, the Company had approximately $655.6 million
of long-term debt (including current portions) and unused borrowing
capacity under bank credit facilities of approximately $359.7 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.
30
<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.
As of March 31, 2000, SSDS had a revolving credit facility with a
bank that provided for borrowings up to the lesser of 80% of billed
trade receivables of SSDS outstanding less than 90 days, subject to
certain conditions, or $5.0 million. Outstanding borrowings under the
credit facility as of March 31, 2000 were $3.3 million. On April 21,
2000, SSDS sold its client/server and web-based network integration
services division. Proceeds from the sale were used to repay the
outstanding borrowings under the revolving credit facility and the
facility expired.
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 March 31, 2000,
the unearned portion of all prepayments (including non current portion)
totaled $356.8 million, of which approximately $249.5 million, or 70%,
was attributable to TV Guide magazine and approximately $101.4 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 $12.0 million as of March 31,
2000, a reduction of $978,000, or 8%, from the obligation existing at
the prior year's end. The Company expects to further reduce the lease
obligation during the next twelve months by approximately $4.1 million.
The Company also leases various other satellite transponders accounted
for as operating leases. These operating leases accounted for
approximately $3.9 million in operating expenses, net of sublease
revenue, during the three months ended March 31, 2000.
Capital expenditures during the three months ended March 31, 2000
of $12.3 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 quarter ended March 31, 2000, cash
distributions to minority interests in SNG aggregated $1.8 million.
31
<PAGE>
Current Developments
On March 17, 2000, the stockholders of TV Guide and Gemstar voted
to approve and adopt 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. Adoption of
the merger agreement constituted approval of the merger and the other
transactions contemplated by the merger agreement. As a result of the
merger, TV Guide will become a wholly owned subsidiary of Gemstar, and
TV Guide stockholders will receive 0.6573 of a share of Gemstar common
stock for each share of TV Guide common stock outstanding at the time
of the merger. TV Guide stockholders will own approximately 49.2% and
Gemstar stockholders will own approximately 50.8% of the outstanding
Gemstar common stock after the merger, based on the number of shares of
TV Guide common stock and Gemstar common stock outstanding on January
25, 2000. On a fully diluted basis (assuming the exercise of all
vested and unvested options), TV Guide stockholders will own
approximately 44.6% and Gemstar stockholders will own approximately
55.4% of the combined company's common stock after the merger, based on
the number of shares of TV Guide common stock and Gemstar common stock
and options to purchase such shares (both vested and unvested)
outstanding on January 25, 2000. Completion of the merger transaction
is subject to regulatory approval.
The indenture governing the Company's 8 1/8% senior subordinated
notes due 2009 contains provisions which, absent modification or waiver
of such provisions, would result in the Company being required to
repurchase the outstanding 8 1/8% senior subordinated notes, at the
option of the holders, following closing of the transaction with
Gemstar at a purchase price at 101% of principal plus accrued and
unpaid interest. The Company has 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.
32
<PAGE>
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: the
pending merger of the Company into a subsidiary of Gemstar, 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:
-- required regulatory approvals to complete certain transactions.
-- 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.
33
<PAGE>
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 March 31, 2000, the Company had $240 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 $2.4 million in interest expense and a
corresponding decrease or increase of $2.4 million in the Company's
cash flow.
34
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 5, 2000, the State of Illinois filed to appeal to the
Illinois Appellate Court, First Judicial District, the decision of the
Cook County Chancery Court awarding on March 13, 2000, as described in
Note 5 to the financial statements included herein, complete summary
judgment in favor of the Company.
On May 3, 2000, an antitrust 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 alleging, among various counts, claims for violation of the
Robinson-Patman Act, for conspiracy among the defendants, for breach of
an exclusive territory agreement, for breach of implied covenants of
good faith and fair dealing, promissory estoppel, breach of fiduciary
duty, misappropriation of business property, tortious destruction of
business, breach of confidential relationship, several antitrust
counts, as well as counts relating to Unimag's SMARTS system, predatory
pricing, and deceptive trade practices in violation of Ohio law. 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.
35
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's special meeting of stockholders
held on March 17, 2000, the Company submitted for vote of the
stockholders the following matters; 1,654,376,416 votes of the
Company's Class A Common Stock and Class B Common Stock were entitled
to be voted at the meeting and 1,585,283,618 votes of the shares were
present in person or by proxy:
a. Proposal to approve and adopt the Agreement and Plan of
Merger, dated as of October 4, 1999, as amended, among Gemstar
International Group Limited, G Acquisition Subsidiary Corp., a
wholly owned subsidiary of Gemstar, and TV Guide, Inc. The
proposal was approved with 1,585,187,509 votes for, 64,871
votes against and 31,238 votes abstaining.
b. Proposal to approve to amend the TV Guide, Inc. Equity
Incentive Plan to increase the number of shares of Class A
Common Stock available for issuance from 16,000,000 to
24,000,000 and to increase the maximum aggregate number of
shares of Class A Common Stock that may be granted under the
Plan to any one employee from 3,200,000 shares to 6,000,000.
The proposal was approved with 1,580,418,058 votes for,
4,786,838 votes against and 78,722 votes abstaining.
ITEM 5. OTHER INFORMATION
None
36
<PAGE>
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 February 8, 2000, the Company filed a report on Form 8-K
which included a copy of the Agreement and Plan of Merger,
dated as of October 4, 1999, among TV Guide, Gemstar and G
Acquisition Subsidiary Corp. and other associated documents.
No other reports on Form 8-K were filed during the first
quarter of 2000.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TV Guide, Inc.
(Registrant)
Date: May 12, 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,
38
<PAGE>
Exhibit 12.1
TV GUIDE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands, except for ratios)
(unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
Earnings Available for Fixed Charges:
Income before income taxes
and minority interest $ 9,544 $26,275
Interest and expense on
indebtedness 13,311 6,035
One-third of rental expense,
net of sub-leasing income,
for operating leases 2,500 1,547
------- -------
$25,355 $33,857
======= =======
Fixed Charges:
Interest and expense on
indebtedness $13,311 $ 6,035
One-third of rental expense,
net of sub-leasing income,
for operating leases 2,500 1,547
------- -------
$15,811 $ 7,582
======= =======
Ratio of earnings to fixed
charges 1.60 4.47
==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME INCLUDED IN
THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 OF TV
GUIDE, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000913061
<NAME> TV GUIDE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 100,925
<SECURITIES> 15,006
<RECEIVABLES> 293,794
<ALLOWANCES> 19,107
<INVENTORY> 0
<CURRENT-ASSETS> 425,599
<PP&E> 189,168
<DEPRECIATION> 108,417
<TOTAL-ASSETS> 3,294,906
<CURRENT-LIABILITIES> 462,361
<BONDS> 648,241
0
0
<COMMON> 3,048
<OTHER-SE> 1,474,410
<TOTAL-LIABILITY-AND-EQUITY> 3,294,906
<SALES> 0
<TOTAL-REVENUES> 299,096
<CGS> 0
<TOTAL-COSTS> 193,098
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<INTEREST-EXPENSE> 13,311
<INCOME-PRETAX> 9,544
<INCOME-TAX> 6,157
<INCOME-CONTINUING> 938
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