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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26878
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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)
(626) 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 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 June 30, 1998, there were outstanding 48,597,000 shares of the
Registrants' Ordinary Shares, par value $0.01 per share.
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--June 30, 1998 and March 1
31, 1998........................................................
Condensed Consolidated Statements of Operations--Three Months
Ended June 30, 1998 and 1997.................................... 2
Condensed Consolidated Statements of Cash Flows--Three Months
Ended June 30, 1998 and 1997.................................... 3
Notes to Condensed Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of Financial Condition and 5
Results of Operations...........................................
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 10
SIGNATURES...................................................... 13
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH
1998 31, 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $175,606 $153,517
Marketable securities................................... -- 4,343
Prepaid expenses and other current assets............... 5,620 5,580
-------- --------
Total current assets.................................. 181,226 163,440
Property and equipment, net............................... 3,385 3,769
Intangible assets, net.................................... 16,126 16,543
Other assets.............................................. 2,325 2,326
-------- --------
$203,062 $186,078
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................... $ 27,154 $ 29,766
Current portion of deferred revenue..................... 29,527 23,228
-------- --------
Total current liabilities............................. 56,681 52,994
Deferred revenue, less current portion.................... 7,590 14,877
Deferred income taxes..................................... 15,925 13,664
Other liabilities......................................... 1,307 1,061
Shareholders' equity:
Ordinary Shares and additional paid-in capital.......... 201,699 197,695
Accumulated deficit..................................... (79,955) (94,081)
Accumulated other comprehensive loss.................... (185) (132)
-------- --------
Net shareholders' equity.............................. 121,559 103,482
-------- --------
$203,062 $186,078
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
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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,
-------------------
1998 1997
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Revenues................................................... $ 33,899 $25,625
Operating costs and expenses:
Selling and marketing.................................... 7,697 7,443
Research and development................................. 3,381 3,497
General and administrative............................... 4,945 4,590
Merger costs............................................. -- 11,713
--------- ---------
Operating income (loss).................................... 17,876 (1,618)
Other income, net.......................................... 2,018 1,546
--------- ---------
Income (loss) before income taxes.......................... 19,894 (72)
Income taxes............................................... 5,768 3,149
--------- ---------
Net income (loss).......................................... $14,126 $ (3,221)
========= =========
Basic earnings (loss) per share............................ $ 0.29 $ (0.07)
========= =========
Diluted earnings (loss) per share.......................... $ 0.26 $ (0.07)
========= =========
Weighted average shares outstanding........................ 48,460 46,843
Dilutive effect of:
Stock options............................................ 6,363 --
Warrants................................................. 432 --
--------- ---------
Weighted average shares outstanding, assuming dilution..... 55,255 46,843
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1998 1997
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Cash flows from operating activities:
Net income (loss)....................................... $ 14,126 $(3,221)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 1,155 897
Deferred income taxes................................. 2,261 1,778
Amortization of unearned compensation................. -- 209
Tax benefit associated with stock options............. 1,200 --
Changes in assets and liabilities..................... (3,393) 10,275
--------- --------
Net cash provided by operating activities......... 15,349 9,938
--------- --------
Cash flows from investing activities:
Net maturities of marketable securities................. 4,343 30,834
Additions to property and equipment..................... (70) (200)
Additions to intangible assets.......................... (284) (1,762)
--------- --------
Net cash provided by investing activities......... 3,989 28,872
--------- --------
Cash flows from financing activities--proceeds from
exercise of stock options................................ 2,804 683
--------- --------
Effect of exchange rate changes on cash and cash
equivalents.............................................. (53) (15)
--------- --------
Net increase in cash and cash equivalents................. 22,089 39,478
Cash and cash equivalents at beginning of period.......... 153,517 59,909
--------- --------
Cash and cash equivalents at end of period................ $ 175,606 $ 99,387
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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GEMSTAR INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
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 thereto included in the Company's Annual Report on Form 10-K for the
year ended March 31, 1998.
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
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the entire year ending March 31, 1999.
(2) EARNINGS (LOSS) PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share ("SFAS No. 128") during fiscal year 1998
and has restated earnings (loss) per share information for all periods
presented to conform to the requirements of SFAS No. 128. Basic earnings
(loss) per share is computed using the weighted average number of Ordinary
Shares outstanding during the period. Diluted earnings (loss) per share
includes the dilutive effect of stock options and warrants using the treasury
stock method. Stock options and warrants to purchase 7.4 million and 1.8
million Ordinary Shares, respectively, were outstanding at June 30, 1997, but
were not included in the computation of diluted earnings (loss) per share for
the quarter ended June 30, 1997, because the Company had a net loss in that
period and therefore, the effect would be antidilutive.
(3) COMPREHENSIVE INCOME (LOSS)
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130") as of the
first quarter of fiscal year 1999. SFAS No. 130 establishes standards for
reporting and displaying comprehensive income (loss) and its components in
financial statements, however it has no impact on the Company's net income or
shareholders' equity. The components of comprehensive income (loss), net of
tax, are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
----------------
1998 1997
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<S> <C> <C>
Net income (loss)....................................... $14,126 $(3,221)
Change in cumulative translation adjustments............ (53) (15)
------- -------
Comprehensive income (loss)............................. $14,073 $(3,236)
======= =======
</TABLE>
Accumulated other comprehensive loss presented on the accompanying condensed
consolidated balance sheets consists of cumulative translation adjustments.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. The statement provides guidance on when costs incurred for
internal use computer software are to be capitalized, and on accounting for
the proceeds of computer software originally developed or obtained for
internal use subsequently marketed and sold to the public. It identifies the
characteristics of internal use software and states that internal costs
incurred for upgrades and enhancements should be expensed during the
preliminary project stage. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. The Company believes that adoption of this standard
will not have a significant effect on its consolidated results of operations.
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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 10-K for the year ended March 31, 1998, as
well as the "Certain Factors Affecting Business, Operating Results and
Financial Condition" section 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
The Company develops, markets and licenses proprietary technologies and
systems that simplify and enhance consumers' interaction with electronics
products and other platforms that deliver video, programming information and
other data. The Company seeks to have its technologies widely licensed,
incorporated and accepted as the technologies and systems of choice by
consumer electronics manufacturers; service providers such as owners or
operators of cable systems, telephone networks, Internet service providers,
direct broadcast satellite providers, wireless systems and other multi-channel
video programming distributors; software developers; and consumers.
The Company's first proprietary system, VCR Plus+, was introduced in 1990
and is widely accepted as a de facto industry standard for programming VCRs
and is currently incorporated into virtually every major brand of VCR sold
worldwide. VCR Plus+ enables consumers to record a television program by
simply entering a PlusCode Number (a proprietary one to eight digit number)
into a VCR or television equipped with the VCR Plus+ technology. PlusCode
Numbers are printed next to television program listings in over 1,800
publications worldwide, with a combined circulation of over 330 million.
The Company has also developed and acquired a large portfolio of
technologies and intellectual property necessary to implement interactive
program guides (the "Gemstar Guide Technology"), which enable consumers to
navigate through, sort, select and record television programming. The Gemstar
Guide Technology has been licensed for, or incorporated into, televisions,
VCRs, TV-VCR combination units, cable set top boxes, integrated satellite
receiver decoders, personal computers, PCTVs and Internet appliances. The
Company believes that with the increase in programming content and number of
accessible channels, the Gemstar Guide Technology will become an increasingly
important tool for assisting consumers in sorting, selecting, and recording
television programming. The Company further believes that its interactive
program guides will provide an attractive vehicle for the delivery of
advertising and other content to consumers.
The Company generates revenues through licensing of its technologies and
intellectual property to consumer electronics manufacturers, service
providers, software developers, microchip makers and Internet appliance
manufacturers, as well as to newspapers and television guide publishers
through a combination of up front, non-refundable license payments and per
unit license fees. Revenues from up front license fees are recognized ratably
over the term of the particular license and revenues from on-going per unit
license fees are recognized when payments are due, and generally, when
payments are actually received from licensee. In addition, the Company is
pursuing a recurring revenue model for its Gemstar Guide Technology wherein
the Company would receive revenues from the sale of advertising and promotion
displayed on the guides, from sponsorship of guide pages and from data
services and interactive transactions accessed through the guide, however, to
date, the Company has not derived any revenue from such model.
The Company believes that successful implementation of its technology into a
broad range of platforms requires the Company to coordinate the activities of
companies in many industries. Accordingly, the Company seeks long-term
relationships with a broad range of consumer electronics and other
manufactures, television broadcasters, cable companies and software
developers. The Company has entered into three strategic
5
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relationships to cover multiple interactive program guide platforms. In
November 1997, the Company signed a multi-year agreement with Thomson Consumer
Electronics, Inc. ("Thomson"), the United States' largest manufacturer and
marketer of television receivers and related video products which Thomson
sells under the RCA, ProScan and GE brand names. Pursuant to the agreement,
the Company granted Thomson a multi-year, multi-million dollar license of the
Gemstar Guide Technology and the parties agreed to cooperate in establishing
the Gemstar Guide Technology as the industry standard in North and South
America and to explore further opportunities presented by the interactive
program guide platform primarily in the area of consumer electronics. In
January 1998, the Company entered into a cross-licensing agreement with
Microsoft Corporation ("Microsoft") pursuant to which Microsoft agreed to
license the Gemstar Guide Technology as part of its TV Viewer feature in the
Windows 98 operating system and in all Microsoft products worldwide that
incorporate interactive program guides. In July 1998, the Company announced an
agreement with Microsoft which provides for closer cooperation in areas of
technical, marketing and advertising sales related to interactive program
guides. Also in July 1998, the Company concluded a multi-element strategic
agreement with NBC which provides for data carriage for the Company's
interactive program guide, support for a new brand of service to be made
available on the Company's GUIDE Plus+ Gold product, an investment by NBC in a
Gemstar-controlled subsidiary aimed at exploring advertising opportunities,
and NBC becoming a charter advertiser on the Company's interactive program
guide.
The Company's licensees include Aiwa, Akai, Cox, Daewoo, Funai, GTE,
Hitachi, Hughes Network Systems, JVC, LG Electronics (Goldstar), Matsushita
(Panasonic, Quasar), MediaOne, Microsoft, Mitsubishi, Orion, Philips
(Magnavox, Philips), Samsung, Sanyo, Scientific-Atlanta, Sharp, Shintom, Sony,
Southern New England Telephone, Thomson (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 10-K for the year ended March
31, 1998.
Revenues for the quarter ended June 30, 1998 were $33.9 million, an increase
of 32% when compared with revenues for the year-ago period of $25.6 million.
This increase was due primarily to the continued growth in worldwide licensing
income from the Company's proprietary technologies and intellectual properties
in the interactive program guide and VCR Plus+ fields.
Total operating expenses for the quarter ended June 30, 1998 were $16.0
million, comprised of selling and marketing expenses of $7.7 million, research
and development expenses of $3.4 million and general and administrative
expenses of $4.9 million. Compared with the year-ago period, excluding the
one-time merger costs, total operating expenses for the current quarter
increased 3%. The increase in operating expenses was more than offset by the
increase in revenues, resulting in an increase in operating margins to 53% for
the quarter ended June 30, 1998.
As a result of the acquisition of StarSight Telecast, Inc., the Company
recorded merger related costs totaling $11.7 million in the quarter ended June
30, 1997. These costs were comprised of fees for financial advisors, attorneys
and accountants; severance and other transaction costs.
Income tax expense was $5.8 million for the quarter ended June 30, 1998 and
$3.1 million for the year-ago period. The Company's effective tax rate was 29%
for the current quarter. 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 income
before income taxes may vary from year to year.
6
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents totaling
$175.6 million. Net cash provided by operating activities was $15.3 million
and $9.9 million for the three months ended June 30, 1998 and 1997,
respectively. The increase in net cash provided by operating activities was
primarily the result of increased earnings and the timing of payments. Net
cash provided by investing activities was $4.0 million for the quarter ended
June 30, 1998, comprised of proceeds from net maturities of marketable
securities of $4.3 million offset by additions to property and equipment and
intangible assets of $354,000. Net cash provided by financing activities was
$2.8 million for the quarter ended June 30, 1998, comprised of proceeds from
stock option exercises.
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 few years.
The Company believes that the anticipated cash flows from operations, and
existing cash and cash equivalents balances, will be sufficient to satisfy its
expected working capital and capital expenditure requirements in the
foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements are discussed in the Notes to Condensed
Consolidated Financial Statements.
CERTAIN FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
The Company's operating performance each quarter is subject to various risks
and uncertainties as discussed in the Company's Annual Report on Form 10-K for
the year ended March 31, 1998. This report on Form 10-Q should be read in
conjunction with the "Certain Factors Affecting Business, Operating Results
and Financial Condition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections contained in the
Annual Report on Form 10-K.
Dependence on Single Product Category: Uncertainty of Acceptance of New
Products; Rapid Technological Change. Until fiscal year 1997, the Company's
historical revenues have been primarily derived from license fees for its VCR
Plus+ technology, consisting of per unit license fees from VCR and television
manufacturers, and to a lesser extent, license fees for PlusCode Number
publication rights from newspapers and other publications. While VCR Plus+
license fees have increased significantly in each year since the Company's
inception, future growth of revenues derived from VCR Plus+ may be limited by
the fact that virtually all major VCR and television manufacturers have
licensed the VCR Plus+ technology, and the fact that the Company has already
expanded into most major markets worldwide. Any further growth in VCR Plus+
license revenues will come only from further penetration of increasingly
saturated markets. Accordingly, the Company's future success depends to a
significant extent upon its ability to develop, market and license emerging
and new products and services, including the Gemstar Guide Technology and the
Company's interactive program guide systems. The Company has only a limited
history on which to base an evaluation of its interactive program guide
business and prospects. The market for the consumer electronics products such
as interactive program guides is characterized by rapidly changing
technologies, short product life cycles, the frequent introduction of new
products and evolving industry standards. Moreover, consumer demand for new
product categories such as interactive program guides is inherently uncertain.
There can be no assurance that the Company will successfully develop, market
and license the Gemstar Guide Technology and the Company's interactive program
guide systems, that the Company will ever achieve significant revenues or
operating income from its interactive program guide business or, if
significant revenues are achieved, that they can be sustained. The failure of
the Company's interactive program guides to be accepted by consumers could
have a material adverse effect on the Company's business prospects, financial
condition and results of operations.
7
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Moreover, the life cycle of the Gemstar Guide Technology and any future
products and services may be limited by the emergence of new entertainment
products and technologies, changes in consumer preferences and other factors.
The Company's future performance will depend on its ability to continue to
consistently (i) identify emerging technological trends in its market, (ii)
identify changing consumer needs, desires or tastes, (iii) develop and
maintain competitive technology, including new product and service offerings,
(iv) improve the performance, features and reliability of its products and
services, particularly in response to technological change and competitive
offerings, and (v) bring technology to market quickly at cost-effective
prices. There can be no assurance that the Company will be successful in
developing and marketing new products and services that respond to
technological and competitive developments and changing customer needs, or
that such products and services will gain market acceptance and be
incorporated into the technology or products of third parties. Any significant
delay or failure to develop new or enhanced technologies, including new
product and service offerings, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Associated with Strategic Relationships. Part of the Company's
business strategy is to enter into strategic or other similar collaborative
relationships with consumer electronics manufacturers, service providers,
software developers and other partners in order to offer products and services
to a larger customer base than could be reached through the Company's own
sales and marketing efforts. For instance, the Company has recently entered
into certain strategic relationships relating to the Gemstar Guide Technology,
including a multi-year agreement with Thomson, a cross-licensing agreement
with Microsoft for inclusion of the Gemstar Guide Technology in specified
Microsoft products and a multi-element agreement with NBC. The Company
believes that such strategic relationships can accelerate the market
penetration of the Company's products and technologies while limiting the
Company's sales and marketing costs. However, there can be no assurance that
the Company will be able to expand or maintain its existing strategic
relationships or establish new strategic relationships on commercially
reasonable terms, if at all. If the Company is unable to maintain its existing
strategic relationships, or to establish similar strategic relationships with
respect to future products and services, it will be required to devote
substantially more resources to the distribution, sale and marketing of its
products and services. Any future inability of the Company to maintain its
strategic relationships or to enter into additional strategic relationships,
or the failure of one or more of the Company's strategic relationships to
result in the development and maintenance of a market for the Company's
products and services, could have a material adverse effect on the Company's
business, operating results and financial condition.
Seasonality and Variability of Results. The Company experiences variability
in its revenues and operating results on a quarterly basis as a result of many
factors. Most importantly, as consumer electronics manufacturers have
incorporated the Company's systems into an increasing numbers of products and
models, the Company's license revenues have displayed a seasonality typical of
the operating results of consumer electronics manufacturers. Shipments by
manufacturers of consumer electronics devices tend to be higher in the third
and 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 consumer electronics
devices incorporating its technology are shipped, licensing revenues are
typically higher during the Company's third and fourth fiscal 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 provide for
volume discounts based on the shipment volume in each year by a given
manufacturer, which can lower the average per unit license fee for a
manufacturer over the course of a year. The Company anticipates that its
revenues and operating results will also be affected by the timing of market
introductions and market acceptance of new systems. There can be no assurance,
however, that future systems developed by the Company, including the Company's
interactive program guides, will ever result in significant revenues or
profits. Further, if new systems achieve market acceptance, the timing of
manufacturers' implementation and shipments is uncertain and may result in
greater variability of the Company's quarterly and annual operating results.
8
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Another factor contributing to the variability in 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 same 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. 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 will continue on a quarterly or annual basis.
"Year 2000" Compliance. The Company is aware of and addressing issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "Year 2000" problem is complex, as many computer systems
will be affected in some way by the rollover of the two-digit year value to
00. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The "Year 2000" issue creates risk
for the Company from unforeseen problems in its own computer systems and from
third parties with whom the Company deals on financial and other transactions
worldwide. Failures of the Company's and/or third parties' computer systems
could have a material impact on the Company's ability to conduct its business.
The Company's financial information systems are believed to be "Year 2000"
compliant. The Company will be analyzing its remaining computer systems to
identify any potential "Year 2000" issues and will take appropriate corrective
action based on the results of such analysis. Management has not yet
determined the cost related to achieving "Year 2000" compliance.
9
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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<C> <S>
2.1** Parent Significant Shareholder Agreement, dated as of December 23,
1996, by and among StarSight Telecast, Inc., a California
corporation, and certain significant shareholders of Gemstar
International Group Limited.
2.2** Agreement and Plan of Merger, dated as of December 23, 1996, by and
among Gemstar International Group Limited, a British Virgin Islands
corporation, StarSight Telecast, Inc., a California corporation, and
G/S Acquisition Subsidiary, a California corporation.
3.1* Amended and Restated Memorandum of Association of the Company.
3.2* Amended and Restated Articles of Association of the Company.
10.1* Patent Assignment Agreement, dated as of March 15, 1994, between
Gemstar Development Corporation and Roy J. Mankovitz. (Confidential
treatment requested).
10.2* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Development Corporation. (Confidential treatment requested).
10.3* Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Holdings Limited. (Confidential treatment requested).
10.4* Contract Engineering Agreement (undated) between Hilite, Inc. and
Index Systems, Inc. (Confidential treatment requested).
10.5* Form of Option Exercise and Assignment Agreement, dated March 16,
1994, between Gemstar Development Corporation and each of Henry C.
Yuen, Wilson K.C. Cho and Daniel S.W. Kwoh.
10.6(a)* Exclusive Representation Agreement, dated July 30, 1990, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.6(b)* Exclusive Representation Agreement, dated May 20, 1991, between
Gemstar Development Corporation and United Feature Syndicate, Inc.,
together with First Amendment to Exclusive Representation Agreement,
dated March 4, 1994 (Confidential treatment requested).
10.6(c)* Exclusive Representation Agreement, dated March 21, 1994 between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested).
10.7* Registration Rights Agreement, dated August 16, 1995, between Gemstar
International Group Limited and the Shareholders of E Guide, Inc.
10.8** Company Significant Shareholder Agreement, dated as of December 23,
1996, by and among Gemstar International Group Limited, a British
Virgin Islands corporation, and certain significant shareholders of
StarSight Telecast, Inc.
10.9** Company Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation.
10.10** Parent Option Agreement, dated as of December 23, 1996, by and
between StarSight Telecast, Inc., a California corporation, and
Gemstar International Group Limited, a British Virgin Islands
corporation.
10.11*** TDN, Inc., Stockholders Agreement, dated as of October 31, 1997, by
and among TDN, Inc., a Delaware corporation, Gemstar Marketing,
Inc., a California corporation, and Thomson Consumer Electronics,
Inc., a Delaware corporation.
</TABLE>
10
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<TABLE>
<C> <S>
10.12*** Cost and Reimbursement Support Agreement, dated as of October 31,
1997, by and among TDN, Inc., a Delaware corporation, and Gemstar
International Group Limited.
10.13*** Definitive Agreement, dated as of January 9, 1998, by and among
Gemstar International Group Limited, StarSight Telecast, Inc., a
California corporation, and Microsoft Corporation, a Washington
corporation.
10.14*** Rescission Agreement, dated as of January 9, 1998, by and between
StarSight Telecast, Inc., a California corporation and Microsoft
Corporation, a Washington corporation.
10.15**** Joint Venture Formation and Stockholders Agreement, dated as of
January 19, 1998, by and among United Video Satellite Group, Inc.,
a Delaware corporation, Prevue Ventures, Inc., a Delaware
corporation, Gemstar International Group Limited, a British Virgin
Islands corporation, G-Sub Corporation, a Delaware corporation and
effective as of the closing, Interactive Prevue Guide, Inc., a
Delaware corporation.
10.16**** Warrant Agreement, dated as of January 19, 1998, by and among
Gemstar International Group Limited, a British Virgin Islands
corporation, United Video Satellite Group, Inc., a Delaware
corporation, and TCI Ventures Group, LLC, a Delaware limited
liability company.
27****** Financial Data Schedule.
99.1* 1994 Stock Incentive Plan, as amended.
99.2* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Henry C. Yuen, as amended.
(Confidential treatment requested).
99.3* Employment Agreement, dated August 1995, between Gemstar
International Group Limited and Thomas L.H. Lau.
99.4* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Daniel S.W. Kwoh, as amended.
(Confidential treatment requested).
99.5* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Roy J. Mankovitz, as amended.
(Confidential treatment requested).
99.6* Employment Agreement, dated August 16, 1995, between Pros
Technology Limited and Wilson K.C. Cho. (Confidential treatment
requested).
99.7* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Elsie Ma Leung, as amended.
99.8* Employment Agreement, dated April 1, 1994, between Gemstar
Development Corporation and Larry Goldberg, as amended.
99.9* Amendment to Subsection 1.4(a) of 1994 Stock Incentive Plan, as
amended.
99.10***** Amendment to 1994 Stock Incentive Plan, as amended, adopted on
March 12, 1998.
99.11***** Amended and Restated Employment Agreement, effective as of January
7, 1998, among Gemstar International Group Limited, Gemstar
Development Corporation and Henry C. Yuen.
99.12***** Amended and Restated Employment Agreement, dated as of March 31,
1998, among Gemstar International Group Limited, Gemstar
Development Corporation and Elsie Leung.
</TABLE>
- --------
* Previously filed as part of Form F-1 Registration Statement of the
Company (33-79016), which was declared effective on October 10, 1995,
and incorporated herein by reference.
** Previously filed as part of Form F-4 Registration Statement of the
Company (333-6790), which was declared effective on April 15, 1997, and
incorporated herein by reference.
*** Previously filed as part of Form 8-K dated January 12, 1998, as amended
on June 11, 1998, and incorporated herein by reference. Certain
information in this exhibit has been omitted pursuant to a request for
Confidential Treatment granted by the Securities and Exchange
Commission.
11
<PAGE>
**** Previously filed as part of Form 8-K dated February 6, 1998, as amended
on June 11, 1998, and incorporated herein by reference. Certain
information in this exhibit has been omitted pursuant to a request for
Confidential Treatment granted by the Securities and Exchange
Commission.
***** Previously filed as part of Form 10-K for the fiscal year ended March
31, 1998, and incorporated herein by reference. Certain information in
this exhibit has been omitted pursuant to a request for Confidential
Treatment which was filed with the Securities and Exchange Commission.
****** Filed herewith.
(b) Reports on Form 8-K
(1) The Company filed a report on Form 8-K/A, dated June 11, 1998, amending
its report on Form 8-K, dated January 12, 1998.
(2) The Company filed a report on Form 8-K/A, dated June 11, 1998, amending
its report on Form 8-K, dated February 6, 1998.
12
<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)
/s/ Elsie Leung
By: _________________________________
Elsie Leung
Chief Financial Officer
Date: August 14, 1998
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS INCLUDED IN THE COMANY'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998
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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 175,606
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 181,226
<PP&E> 13,333
<DEPRECIATION> 9,948
<TOTAL-ASSETS> 203,062
<CURRENT-LIABILITIES> 56,681
<BONDS> 0
0
0
<COMMON> 201,699
<OTHER-SE> (80,140)
<TOTAL-LIABILITY-AND-EQUITY> 203,062
<SALES> 0
<TOTAL-REVENUES> 33,899
<CGS> 0
<TOTAL-COSTS> 16,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 19,894
<INCOME-TAX> 5,768
<INCOME-CONTINUING> 14,126
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<CHANGES> 0
<NET-INCOME> 14,126
<EPS-PRIMARY> .29
<EPS-DILUTED> .26
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