<PAGE>
UNITED STATES
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 Quarterly Period Ended June 30, 1997
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 0-26878
GEMSTAR INTERNATIONAL GROUP LIMITED
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
135 North Los Robles Avenue, Suite 800
Pasadena, California 91101
(Address of principal executive offices, including zip code)
(818) 792-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period 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 ___
-
As of July 31, 1997, there were outstanding 46,947,419 shares of the
Registrants' Ordinary Shares, par value $0.01 per share.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets --
June 30, 1997 and March 31, 1997................................. 1
Condensed consolidated statements of operations --
Three Months Ended June 30, 1997 and 1996........................ 2
Condensed consolidated statements of cash flows --
Three Months Ended June 30, 1997 and 1996....................... 3
Notes to condensed consolidated financial statements............ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 12
Item 4. Submission of matters to a vote of security-holders............... 15
Item 6. Exhibits and reports on Form 8-K.................................. 16
SIGNATURES........................................................ 17
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GEMSTAR INTERNATIONAL GROUP LIMITED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 99,387 $ 59,909
Marketable securities 19,647 48,946
Prepaid expenses and other current assets 5,748 6,442
--------- ---------
Total current assets 124,782 115,297
Property and equipment, net 4,829 5,126
Intangible assets, net 8,217 6,855
Marketable securities - 1,535
Other assets 2,600 2,463
--------- ---------
$ 140,428 $ 131,276
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 44,394 $ 43,141
Current portion of deferred revenue 29,788 18,180
--------- ---------
Total current liabilities 74,182 61,321
Deferred revenue, less current portion 7,857 11,077
Other liabilities 7,016 5,161
Shareholders' equity:
Ordinary Shares, par value $.01 per share. Authorized 500,000,000
shares; issued and outstanding 46,904,783 shares at June 30, 1997
and 46,800,876 shares at March 31, 1997 469 468
Additional paid-in capital 187,197 186,515
Accumulated deficit (136,009) (132,788)
Unearned compensation (179) (388)
Cumulative translation adjustments (105) (90)
--------- ---------
Net shareholders' equity 51,373 53,717
--------- ---------
$ 140,428 $ 131,276
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
June 30
--------------------
1997 1996
--------- --------
<S> <C> <C>
Revenues $ 25,625 $ 14.531
Operating costs and expenses:
Selling and marketing 7,443 11,774
Research and development 3,497 4,298
General and administrative 4,590 7,213
Merger costs 11,713 -
--------- --------
Loss from operations (1,618) (8,754)
Other income, net 1,546 1,079
--------- --------
Loss before income tax expense (72) (7,675)
Income tax expense 3,149 1,555
--------- --------
Net loss ($3,221) ($9,230)
========= ========
Net loss per share ($0.07) ($0.20)
========= ========
Weighted average shares outstanding 46,843 46,595
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
June 30
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($3,221) ($9,230)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of unearned compensation 209 538
Depreciation and amortization 897 1,115
Deferred income taxes 1,778 445
Changes in assets and liabilities:
Prepaid expenses and other assets 557 1,898
Accounts payable, accrued expenses and other liabilities 1,330 4,041
Deferred revenue 8,388 2,645
-------- --------
Net cash provided by operating activities 9,938 1,452
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (3,576) (19,744)
Proceeds from maturities of marketable securities 34,410 4,523
Additions to property and equipment (200) (339)
Additions to intangible assets (1,762) (211)
-------- --------
Net cash provided by (used in) investing activities 28,872 (15,771)
-------- --------
Cash flows from financing activities:
Proceeds from the issuance of Ordinary Shares, net - 32,545
Proceeds from the exercise of options for Ordinary Shares 683 290
-------- --------
Net cash provided by financing activities 683 32,835
-------- --------
Effect of exchange rate changes on cash and cash equivalents (15) (6)
-------- --------
Net increase in cash and cash equivalents 39,478 18,510
Cash and cash equivalents at beginning of period 59,909 69,365
Adjustment to conform StarSight Telecast, Inc.'s fiscal year - (7,147)
-------- --------
Cash and cash equivalents at end of period $ 99,387 $ 80,728
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
As more fully discussed in Note 3, in December 1996, the Company acquired
VideoGuide, Inc. ("VideoGuide") and in May 1997, the Company acquired StarSight
Telecast, Inc. ("StarSight Telecast"). Each transaction has been accounted for
under the pooling of interests method. Accordingly, the accompanying financial
statements have been restated to include the accounts and results of operations
of VideoGuide and StarSight Telecast.
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
Annual Report on Form 20-F for the year ended March 31, 1997.
The condensed consolidated financial statements reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows for such periods. The results of operations for the
three months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending March 31, 1998.
2. Net Loss Per Share
The net loss per share for all periods presented is based on the weighted
average number of Ordinary Shares outstanding during the period. No effect has
been given to unexercised stock options and warrants because the effect would be
antidilutive.
3. Business Combinations
Effective May 8, 1997, the Company acquired StarSight Telecast. StarSight
Telecast is the developer of and markets a subscription based interactive
program guide available in cable set-top boxes, televisions, VCRs, TVCRs and
satellite integrated descramblers. In addition, StarSight Telecast licenses its
intellectual property for non-StarSight-capable products which provide features
based on StarSight Telecast's proprietary technology and patented inventions.
The Company issued approximately 15.5 million Ordinary Shares for all of the
outstanding stock of StarSight Telecast and assumed outstanding StarSight
Telecast stock options and warrants which were converted to options and warrants
to purchase approximately 1.4 million and 1.8 million of the Company's Ordinary
Shares, respectively.
Effective December 12, 1996, the Company acquired VideoGuide for
approximately 475,000 Ordinary Shares of the Company and also assumed
outstanding VideoGuide stock options which converted into options to purchase
approximately 16,500 of the Company's Ordinary Shares.
The VideoGuide and StarSight Telecast acquisitions have each been accounted
for under the pooling of interests method and accordingly, the accompanying
financial statements have been restated to include the accounts and results of
operations of VideoGuide and StarSight Telecast for all periods prior to the
acquisitions.
StarSight Telecast had a calendar year end. In order to conform StarSight
Telecast's year end to Gemstar's fiscal year end, a charge was made to retained
earnings during the three months ended June 30, 1996 of $7,147,000. In addition,
the Company increased the net loss of StarSight Telecast by $369,000 for the
three months ended June 30, 1996 to conform accounting policies of StarSight
Telecast with those of the Company.
<PAGE>
4. Recent Accounting Pronouncements
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS No. 128), "Earnings per Share" (EPS). Under SFAS No.
128 the Company will be required to change the method currently used to compute
EPS and restate all prior periods. The Statement modifies the standards for
computing EPS in APB Opinion No. 15 "Earnings per Share" and makes them
comparable to international EPS standards. It also replaces the presentation of
primary EPS with a presentation of basic EPS and fully diluted EPS with diluted
EPS. Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of the common shares
outstanding for the period. Diluted EPS includes the potential dilution that
could occur from the exercise or conversion of securities or other contracts to
issue common stock. The Statement also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS No. 128 is effective for periods ending after December 15,
1997, including interim periods. The Company will adopt SFAS No. 128 in its
third quarter of fiscal year 1998.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words "believes",
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are referred to the "Certain Factors
Affecting Business, Operating Results and Financial Condition" section of the
Company's Annual Report on Form 20-F for the year ended March 31, 1997, as
well as the "Future Growth Subject to Risks", "Potential Volatility in Operating
Results," and "Volatility of Stock Price" sections contained in this report
which identify those important risk factors which could cause actual results to
differ from those contained in the forward-looking statements.
Overview
Since the launch of the VCR Plus+ system in November 1990 in the United
States, the Company has continued to focus on its mission of providing
technologies to make life easier for consumers all over the world. As of June
1997, the VCR Plus+ system is available in over 30 countries, and the combined
worldwide circulation of publications publishing the PlusCode numbers increased
to over 300 million. In 1997, the Company introduced Index Plus+, an interactive
on-screen directory of video-tape content by titles automatically captured from
the broadcast. The Company developed, and in 1997 introduced, TV Guide Plus+, a
subscription free interactive on-screen program guide built into televisions and
VCRs. As a result of its acquisitions of VideoGuide and StarSight Telecast, the
Company acquired additional proprietary technologies and patented inventions in
the interactive program guide area. The Company believes that the growth in the
number of television channels, along with the proliferation of viewing choices,
has created a need for an easy-to-use method of identifying, selecting and
recording television programs. The Company believes that as consumer needs for
improved television schedule information grows, the need for accurate and
convenient methods of program selection and recording will also grow. The
Company licenses its technology and intellectual property to various industry
sectors including consumer electronics (TV, VCR and TVCR), satellite, cable,
telco and personal computers. The Company believes that its interactive program
guide technology will be an important feature for all providers of analog and
digital video services to consumers. The Company's licensees include Aiwa, Akai,
Cox Communications, Daewoo, Funai, General Instrument, GTE Communication
Systems, Hitachi, Hughes Network Systems, JVC, LG Electronics (Goldstar),
Matsushita (Panasonic and Quasar), Microsoft Corporation, Mitsubishi, Orion,
Philips (Magnavox and Philips), Samsung, Sanyo, Scientific-Atlanta, Sharp,
Shintom, Sony, Thomson Consumer Electronics (GE, Proscan, RCA), Time Warner,
Toshiba, Uniden and Zenith.
Results of Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 20-F for the year
ended March 31, 1997. The acquisitions of VideoGuide and StarSight Telecast have
each been accounted for under the pooling of interests method, and accordingly,
the Company's condensed consolidated financial statements have been restated to
include VideoGuide and StarSight Telecast for all periods presented. A fair
measure of the Company's financial performance is to include VideoGuide and
StarSight Telecast results only for periods after the date of the actual
acquisition. Since the acquisition of VideoGuide did not become effective until
December 1996, and the acquisition of StarSight Telecast did not become
effective until May 1997, the Company will compare below its financial results
for the quarter ended June 30, 1997, which include both the VideoGuide and
StarSight Telecast operations, with the year-ago quarter results as reported by
the Company prior to all restatements.
STATEMENT OF OPERATIONS DATA
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
As Reported Pro Forma
Three months ended June 30 Three months ended June 30
-------------------------- --------------------------
1997(a) 1996(a) 1997(b) 1996(c)
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 25,625 $ 14,531 $ 25,625 $ 13,079
Operating costs and expenses:
Selling and Marketing 7,443 11,774 7,443 3,041
Research and development 3,497 4,298 3,497 2,486
General and administrative 4,590 7,213 4,590 2,704
Merger costs 11,713 - - -
--------- -------- -------- --------
Earnings (loss) from operations (1,618) (8,754) 10,095 4,848
Other income, net 1,546 1,079 1,546 913
--------- -------- -------- --------
Earnings (loss) before income tax expense (72) (7,675) 11,641 5,761
Income tax expense 3,149 1,555 3,149 1,555
--------- -------- -------- --------
Net earnings (loss) ($3,221) ($9,230) $ 8,492 $ 4,206
========= ======== ======== ========
</TABLE>
(a) Includes VideoGuide and StarSight Telecast.
(b) Includes VideoGuide and StarSight Telecast but excludes merger costs
related to the acquisition of StarSight Telecast.
(c) Excludes VideoGuide and StarSight Telecast.
Revenues for the quarter ended June 30, 1997 were $25.6 million. Operating
income was $10.1 million before merger related costs associated with the
acquisition of StarSight Telecast of $11.7 million. Before the merger costs, net
income was $8.5 million.
For the quarter ended June 30, 1996, prior to restatements, the Company
reported revenues of $13.1 million, operating income of $4.8 million and net
income of $4.2 million.
As a result of the acquisitions of VideoGuide and StarSight Telecast, the
financial results for the quarter ended June 30, 1996 were restated to show
revenues of $14.5 million, an operating loss of $8.8 million and a net loss of
$9.2 million.
As reported revenues for the three months ended June 30, 1997 were $25.6
million which represents an increase of 95% when compared to the year-ago
quarter prior to restatement and an increase of 77% when compared to year-ago
revenues after restatement. Revenues contributed by VideoGuide and StarSight
Telecast were not significant to the results of operations for the three months
ended June 30, 1996. The growth in revenues is attributable to the expansion of
the Company's opportunities from consumer electronics into the cable, satellite
and personal computer industries, the continued increase in license income for
VCR Plus+ and license income associated with the Company's electronic program
guide technology and intellectual property. Subscription income from the
VideoGuide and StarSight systems were not significant.
For the quarter ended June 30, 1997 selling and marketing expenses were
$7.4 million, research and development expenses were $3.5 million and general
and administrative expenses were $4.6 million. Compared with the year-ago
quarter results, restated to include the VideoGuide and StarSight Telecast
operations, the current financial quarter results represent a 37% decrease in
selling and marketing expenses, a 19% decrease in research and development
expenses and a 36% decrease in general and administrative expenses. These
decreases are a result of the synergy achieved by the combination with the
StarSight Telecast and VideoGuide operations.
Compared with the year-ago quarter results, prior to restatement for the
VideoGuide and StarSight Telecast operations, selling and marketing expenses
increased by 147%, research and development expenses increased by 40% and
general and administrative expenses increased by 70%. These increases are
consistent with a larger operation resulting from the acquisitions of VideoGuide
and StarSight Telecast. The 89% increase in these three expense categories
combined were more than offset by a 95% increase in revenues.
<PAGE>
As a result of the acquisition of StarSight Telecast, the Company recorded
merger related costs totaling $11.7 million in the quarter ended June 30, 1997.
These costs were comprised of fees of financial advisors, attorneys and
accountants, severance related costs, and other transaction costs.
Income tax expense was $3.1 million for the quarter ended June 30, 1997.
The expected tax benefit was limited due to uncertainty regarding realization of
net operating loss carryforwards, tax credit carryforwards, and temporary
differences between the tax basis of assets and liabilities and their reported
amounts. Excluding merger related costs, the Company's effective tax rate for
the quarter ended June 30, 1997 was 27%. The overall effective tax rate reported
by the Company in any single period is impacted by, among other things, the
country in which earnings or losses arise, applicable statutory tax rates and
withholding tax requirements for particular countries, and the availability of
tax credits for taxes paid in certain jurisdictions. Because of these factors,
it is expected that the Company's future tax expense as a percentage of earnings
before income taxes may vary from year to year.
<PAGE>
Future Growth Subject to Risks
The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed in the Company's Annual Report on Form 20-F
for the year ended March 31, 1997 and the Company's Registration Statement on
Form F-4 (Registration Statement No. 333-6790, the "Form F-4"). This report on
Form 10-Q should be read in conjunction with such Annual Report and Form F-4,
particularly "Certain Factors Affecting Business, Operating Results and
Financial Condition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Annual Report on Form 20-F
and "Risk Factors" contained in Form F-4.
The Company's growth is dependent upon market growth for its technologies
and systems and its ability to enhance its existing products and introduce new
products and services on a timely basis. One way the Company has addressed the
need to develop new products and services and to enter new markets is through
its acquisitions. Acquisitions involve numerous risks, including difficulties in
assimilation of the operations, technologies and products of the acquired
companies; risks of entering markets in which the Company has no or limited
direct prior experience and where competitors in such markets have stronger
market positions; and the potential loss of key employees of the acquired
company. The Company must also maintain its ability to manage any such growth
effectively. Failure to manage growth effectively and successfully integrate
acquisitions made by the Company could adversely effect the Company's business
and operating results.
The markets for the Company's products and services are characterized by
rapidly changing technology, evolving industry standards, frequent new product
or service introductions and short product life cycles. There can be no
assurance that the Company will successfully identify new product or service
opportunities and develop and bring new products or services to market in a
timely manner, or that products, services and technologies developed by others
will not render the Company's products, services or technologies obsolete or
non-competitive. The failure of the Company's new product, service or technology
development efforts could have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
Potential Volatility in Operating Results
The Company expects that, in the future, it will continue to experience
variability in its revenues and operating results on a quarterly basis as a
result of a number of factors. As manufacturers have incorporated the Company's
technologies into products, the Company's license revenues have displayed a
seasonality typical of those consumer electronics products manufacturers.
Shipments by manufacturers of VCRs and televisions in general, and therefore
VCRs and televisions incorporating the Company's VCR Plus+ or TV GUIDE Plus+
technologies, tend to be higher in the third or fourth calendar quarters, or the
Company's second and third fiscal quarters. However, because the Company
generally receives license revenues within 90 days after the end of the quarter
in which the VCR or television incorporating its technology is shipped,
licensing revenues are typically higher during the Company's third and fourth
quarters. In addition, manufacturers' shipments vary from quarter to quarter
depending on a number of factors, including retail inventory levels and retail
promotional activities. As a result, the Company may experience variability in
its quarterly license revenues affecting period to period comparability and
performance. The Company's license revenues are also affected by the volume of
shipments by manufacturers. The Company's license agreements with consumer
electronics manufacturers provide for volume discounts based on the shipment
volume in each calendar year by a given manufacturer, which can lower the
average per unit license fee for the manufacturer over the year. As VCR Plus+
incorporation volume increases, the Company has experienced declining average
per unit license fees due to volume discounts provided for in license agreements
and expects this trend to continue. The Company anticipates that its revenues
and operating results will be affected by the timing of market introductions and
market acceptance of new systems such as Index Plus+ and Guide Plus+. There can
be no assurance that Index Plus+, Guide Plus+ or other future systems developed
by the Company will ever result in significant revenues or profits. Further, if
these new systems achieve acceptance, the timing of manufacturers'
implementation of shipments is uncertain and may result in greater variability
of the Company's quarterly and annual operating results. In addition there can
be no assurance that the licensing of the Company's intellectual property will
result in significant revenues or profits. The Company's licensing revenues from
non-consumer electronics sectors, such as cable, satellite, telco and personal
computers may, generally, experience less seasonal variability.
Another factor contributing to the variability of the Company's quarterly
operating results is the increase in the Company's marketing and advertising
expenditures in preparation for new product launches and in the Company's third
fiscal quarter during the fall holiday season. The Company's planned operating
expenditures each quarter are based, in part, on the Company's expectation as to
future revenues in the quarter. In addition, many of the Company's expenditures
are fixed costs. If revenues do not meet expectations in any given quarter,
operating results for the quarter may be materially adversely affected. In
addition, the Company's annual and quarterly results may be affected by
competition, general economic downturns and the mix of licensing revenues. As a
result, the Company believes that period to period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. There can be no assurance that the Company's
historic revenue growth or its profitability (prior to the restatement for the
acquisitions) will continue on a quarterly or annual basis.
To support and further the Company's licensing
<PAGE>
business and other business segments, the Company is pursuing U.S. and
international protection for its proprietary information, technology and
inventions. The Company intends to continue to explore additional opportunities
to exploit the Company's intellectual property. However, there can be no
assurance that the Company will be successful in its ability to continue to
enter into favorable license arrangements, the lack of which could have a
material adverse effect on the business, operating results and financial
condition of the Company.
The Company conducts business on a global basis. Accordingly, the
Company's future results could be adversely affected by a variety of
uncontrollable and changing factors, including foreign currency exchange rates,
regulatory, political or economic conditions in a specific country or region,
trade protection measures and other regulatory requirements, among other
factors.
Volatility of Stock Price
The Company's Ordinary Shares have experienced substantial price
volatility. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies in particular and have often been unrelated to the operating
performance of any specific company. These factors, as well as general economic
and political conditions, may adversely affect the market price of the Company's
Ordinary Shares in the future.
Liquidity and Capital Resources
At June 30, 1997, the Company had cash, cash equivalents and marketable
securities totaling $119 million. Net cash provided by operating activities were
$9.9 million for the three months ended June 30, 1997, as compared to $1.5
million, for the as reported year-ago quarter. The increase in cash provided by
operating activities was primarily the result of increased payments from
licensing revenues. Net cash provided by investing activities were $28.9
million which was primarily attributable to cash received from maturities of
marketable securities. The Company also used cash of $2 million for additions to
equipment and intangible assets.
The Company does not have any material commitments for capital
expenditures. However, the Company expects to incur significant marketing
expenditures to launch new systems and to market new services and expects to
incur significant research and development, and general and administrative
expenses relating to these new systems and services over the next two to three
years.
The Company believes that the anticipated cash flows from operations, and
existing cash, cash equivalents and marketable securities balances, will be
sufficient to satisfy its expected working capital and capital expenditure
requirements through fiscal 1998.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings
Prior to the merger with StarSight Telecast, the Company was a party
in a consolidated lawsuit filed in the Northern District of California in which
the adverse party was StarSight Telecast.
As a result of the merger and upon motion of the parties, on July 3,
1997 the District Court for the Northern District of California, San Jose
Division, dismissed all claims and counterclaims between the Company and
StarSight Telecast with prejudice for lack of subject matter jurisdiction. The
Company and StarSight Telecast were also parties to a lawsuit consolidated with
the dismissed action for discovery and pre-trial purposes. In June 1997, all
parties to this consolidated lawsuit entered into a stipulation to dismiss this
action with prejudice as to all claims and counterclaims. It is anticipated that
the District Court will enter its order dismissing all such claims and
counterclaims in the near future.
United Video Litigation
In October 1993, United Video and its Tracker, Inc. subsidiary brought
suit against StarSight Telecast in the U.S. District Court for the Northern
District of Oklahoma, seeking a declaratory judgment that its interactive
program guide products do not infringe certain of StarSight Telecast's patents.
StarSight Telecast counterclaimed charging infringement of one of the patents.
Through subsequent procedural motions, the lawsuit expanded to include a total
of ten patents to which StarSight Telecast has rights and to federal antitrust
claims. The Court has deferred consideration of all of the other claims and
counterclaims pending the resolution of the infringement, validity and
enforceability issues of one of the patents. A phased bench trial began on May
8, 1996, with United Video essentially presenting its case in chief on the
validity and enforceability issues related to this patent. In subsequent
proceedings, StarSight Telecast has presented witnesses relating to the
validity, enforceability and infringement of this patent.
<PAGE>
To date there has been no ruling from the Court on this issue.
Scientific-Atlanta Arbitration and Litigation
In 1995, StarSight Telecast brought an arbitration action against
Scientific-Atlanta concerning Scientific-Atlanta's alleged delay in the
deployment of StarSight-capable-set-top boxes and its development of a competing
electronic program guide allegedly using StarSight Telecast technology in
violation of its licensing agreement with StarSight Telecast. Thereafter,
Scientific-Atlanta filed a lawsuit in the U.S. District Court for the Northern
District of Georgia (the "Atlanta Suit") in February 1996, against StarSight
Telecast and Philips alleging that StarSight Telecast's stand alone StarSight
receiver infringed on three U.S. Patents owned by Scientific-Atlanta. StarSight
Telecast filed a demand on April 30, 1996 for arbitration on the issue of
whether StarSight Telecast is licensed to use Scientific-Atlanta's Patents. The
judge in the Atlanta Suit delayed the proceedings pending the outcome of the
April 30, 1996 arbitration. On July 23, 1996,
<PAGE>
the American Arbitration Association ("AAA") awarded StarSight Telecast $15
million in monetary damages plus attorneys fees and arbitration costs against
Scientific-Atlanta. In addition, to the monetary reward, StarSight Telecast was
granted injunctive relief prohibiting Scientific-Atlanta, except under certain
limited conditions, from accepting any new customer orders for any products
incorporating the interactive electronic program guide that utilizes any
information derived either directly or indirectly from StarSight Telecast for a
period of three years beginning from the date of the award. On December 11,
1996, the U.S. District Court for the Northern District of California confirmed
the AAA panel award of $15 million plus attorneys fees and arbitration costs. In
addition, the Court confirmed the AAA panel's injunction prohibiting Scientific-
Atlanta for a period of three years from shipping to third parties any consumer
product incorporating an interactive program guide, except for orders already
committed to in writing as of July 23, 1996, the date of the AAA panel ruling.
On December 24, 1996, Scientific-Atlanta appealed $10 million of the award to
the U.S. District Court of Appeals for the Ninth Circuit.
Subsequently, StarSight Telecast received payment of $5,000,000 plus
reimbursement of legal fees in the amount of $2,485,000 and entered into a
License and Settlement Agreement resolving all outstanding disputes previously
reported between the parties and establishing a new marketing relationship.
General Instrument Arbitration
In May 1996, StarSight Telecast brought an arbitration action against
General Instrument Corporation concerning General Instrument Corporation's
alleged delay in deployment of StarSight-capable set-top boxes and its
development of a competing electronic program guide allegedly using StarSight
Telecast's technology in violation of its agreement with StarSight Telecast. To
date the arbitrator(s) have not been selected and no discovery or hearing dates
have been set.
<PAGE>
Item 4. Submission of Matters to a Vote of Securityholders
The Company's annual meeting of shareholders was held on May 1, 1997. The
following actions were taken at this meeting:.
<TABLE>
<CAPTION>
Votes Votes Votes
Matter For Against Abstained
------ ----- ------- ---------
<S> <C> <C> <C>
(a) Issuance 22,592,951 60,000 -0-
of the Company's Ordinary Shares pursuant to
the terms of the Agreement and Plan of Merger,
dated as of December 23, 1996, entered into by
and among the Company, G/S Acquisition
Subsidiary, a newly formed, wholly owned
subsidiary of the Company and StarSight
Telecast
(b) Approval of an 20,479,851 2,173,100 -0-
Amendment to the Company's 1994 Stock
Incentive Plan, as amended to increase the
number of Ordinary Shares reserved for
issuance thereunder from 6,000,000 to
9,500,000 shares (an increase of 3,500,000).
(c) Election of Directors
Dr. George F. Carrier 22,652,951 -0- -0-
Teruyuki Toyama 22,652,951 -0- -0-
Additional Directors, whose terms of office as
Directors continued after the meeting, are as
follows:
Terms expiring in 1998:
Thomas Lau
Henry C. Yuen
Elsie Leung
Terms expiring in 1999:
Roy Mankovitz
Larry Goldberg
(d) Ratification of 22,652,951 -0- -0-
KPMG Peat Marwick LLP as the
Company's independent auditors
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Report on Form 8-K
The Company filed one report on Form 8-K during the quarter. ended
June 30, 1997. The filing was on May 22, 1997. The item reported
was the merger with StarSight Telecast.
<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.
GEMSTAR INTERNATIONAL GROUP LIMITED
(Registrant)
Date: August 14, 1997 By: /s/ Larry Goldberg
------------------
Larry Goldberg
Secretary and Corporate Counsel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 99,387
<SECURITIES> 19,647
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 124,782
<PP&E> 13,007
<DEPRECIATION> 8,178
<TOTAL-ASSETS> 140,428
<CURRENT-LIABILITIES> 74,182
<BONDS> 0
<COMMON> 187,666
0
0
<OTHER-SE> (136,293)
<TOTAL-LIABILITY-AND-EQUITY> 140,428
<SALES> 0
<TOTAL-REVENUES> 25,625
<CGS> 0
<TOTAL-COSTS> 15,530
<OTHER-EXPENSES> 11,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (72)
<INCOME-TAX> 3,149
<INCOME-CONTINUING> (3,221)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,221)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
