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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 December 31, 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
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 December 31, 1998, there were outstanding 48,830,000 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-- December 31, 1998 and March 31, 1998.............. 1
Condensed Consolidated Statements of Operations--Three and Nine Months Ended
December 31, 1998 and 1997................................................................ 2
Condensed Consolidated Statements of Cash Flows-- Nine Months Ended December 31,
1998 and 1997............................................................................. 3
Notes to Condensed Consolidated Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....................................... 11
Item 6. Exhibits and Reports on Form 8-K.......................................................... 12
SIGNATURE................................................................................................ 15
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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>
December 31, March 31,
1998 1998
------------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $155,882 $153,517
Marketable securities.............................. 29,668 4,343
Prepaid expenses and other current assets.......... 8,420 5,580
-------- --------
Total current assets............................ 193,970 163,440
Property and equipment, net.......................... 2,988 3,769
Intangible assets, net............................... 15,962 16,543
Other assets......................................... 2,800 2,326
-------- --------
$215,720 $186,078
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 26,745 $ 29,766
Current portion of deferred revenue................ 19,723 23,228
-------- --------
Total current liabilities....................... 46,468 52,994
Deferred revenue, less current portion............... 1,634 14,877
Deferred income taxes................................ 21,707 13,664
Other liabilities.................................... 1,638 1,061
Shareholders' equity:
Ordinary Shares.................................... 495 484
Additional paid-in capital......................... 219,307 197,211
Accumulated deficit................................ (46,838) (94,081)
Accumulated other comprehensive loss............... (252) (132)
Treasury stock, at cost............................ (28,439) --
-------- --------
Net shareholders' equity........................ 144,273 103,482
-------- --------
$215,720 $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)
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Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
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Revenues.................................................. $41,495 $30,530 $112,426 $83,832
Operating costs and expenses:
Selling and marketing................................... 8,382 7,736 24,097 22,755
Research and development................................ 3,444 3,278 10,336 9,899
General and administrative.............................. 5,261 4,456 15,949 13,285
Nonrecurring expenses................................... -- -- 1,851 11,713
------- ------- -------- -------
Operating income.......................................... 24,408 15,060 60,193 26,180
Other income, net......................................... 2,070 2,032 6,346 5,118
------- ------- -------- -------
Income before income taxes................................ 26,478 17,092 66,539 31,298
Income taxes.............................................. 7,680 5,074 19,296 12,078
------- ------- -------- -------
Net income................................................ $18,798 $12,018 $ 47,243 $19,220
======= ======= ======== =======
Basic earnings per share.................................. $0.39 $0.25 $0.97 $0.41
======= ======= ======== =======
Diluted earnings per share................................ $0.33 $0.23 $0.85 $0.39
======= ======= ======== =======
Weighted average shares outstanding....................... 48,593 48,129 48,601 47,427
Dilutive effect of:
Stock options........................................... 7,823 2,635 6,832 2,146
Warrants................................................ 446 469 433 343
------- ------- -------- -------
Weighted average shares outstanding, assuming dilution.... 56,862 51,233 55,866 49,916
======= ======= ======== =======
</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)
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Nine Months Ended
December 31,
--------------------------
1998 1997
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Cash flows from operating activities:
Net income.................................................................. $ 47,243 $ 19,220
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................ 3,275 3,161
Deferred income taxes.................................................... 8,043 5,079
Amortization of unearned compensation.................................... -- 328
Tax benefit associated with stock options................................ 6,700 4,000
Changes in assets and liabilities........................................ (22,506) (3,362)
-------- --------
Net cash provided by operating activities.......................... 42,755 28,426
-------- --------
Cash flows from investing activities:
Net maturities (purchases) of marketable securities......................... (25,325) 27,612
Additions to property and equipment......................................... (377) (617)
Additions to intangible assets.............................................. (1,536) (11,282)
-------- --------
Net cash provided by (used in) investing activities................ (27,238) 15,713
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options..................................... 15,407 15,432
Purchases of treasury stock................................................. (28,439) --
-------- --------
Net cash provided by (used in) financing activities................ (13,032) 15,432
-------- --------
Effect of exchange rate changes on cash and cash equivalents.................. (120) (52)
-------- --------
Net increase in cash and cash equivalents..................................... 2,365 59,519
Cash and cash equivalents at beginning of period.............................. 153,517 59,909
-------- --------
Cash and cash equivalents at end of period.................................... $155,882 $119,428
======== ========
</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 December 31, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending March 31, 1999.
(2) Earnings 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 per share information for all periods presented to
conform to the requirements of SFAS No. 128. Basic earnings per share is
computed using the weighted average number of Ordinary Shares outstanding during
the period. Diluted earnings per share includes the dilutive effect of stock
options and warrants using the treasury stock method.
(3) Comprehensive Income
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 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, net of tax, are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------------
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income........................................... $18,798 $12,018 $47,243 $19,220
Change in cumulative translation adjustments......... 2 (52) (120) (52)
------- ------- ------- -------
Comprehensive income................................. $18,800 $11,966 $47,123 $19,168
======= ======= ======= =======
</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
4
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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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133") which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 is effective for all fiscal quarters beginning after June 15, 1999. The
Company does not have any derivative instruments or hedging activities and
accordingly, does not believe that adoption of SFAS No. 133 will have any
material effect on its financial position or results of operations.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
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.
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 licensees. The Company is pursuing an additional 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
manufacturers, television broadcasters, cable companies and software developers.
6
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Results of Operations
Revenues for the quarter ended December 31, 1998 were $41.5 million, an
increase of 36% when compared with revenues for the year-ago period of $30.5
million. Revenues for the nine months ended December 31, 1998 were $112.4
million, an increase of 34% when compared with revenues for the year-ago period
of $83.8 million. The increase in revenues was due primarily to the continued
growth in worldwide licensing income from the Company's proprietary technologies
and intellectual property in the electronic program guide and VCR Plus+ fields.
Total operating expenses for the quarter ended December 31, 1998 were $17.1
million, comprised of selling and marketing expenses of $8.4 million, research
and development expenses of $3.4 million, and general and administrative
expenses of $5.3 million. Compared with the year-ago period, total operating
expenses for the current quarter increased 10%. Total operating expenses,
excluding nonrecurring expenses, for the nine months ended December 31, 1998
were $50.4 million, comprised of selling and marketing expenses of $24.1
million, research and development expenses of $10.3 million, and general and
administrative expenses of $15.9 million. Compared with the year-ago period,
total operating expenses, excluding nonrecurring expenses, for the nine months
ended December 31, 1998 increased 10%. Operating margins, excluding nonrecurring
expenses, increased to 55% for the nine months ended December 31, 1998, from 45%
for the year-ago period.
The Company recorded nonrecurring expenses totaling $1.9 million in the
quarter ended September 30, 1998, related to the Company's defense against the
takeover attempt by United Video Satellite Group, Inc. These expenses were
comprised primarily of fees for financial advisors and attorneys. 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 taxes were $7.7 million for the quarter ended December 31, 1998 and
$5.1 million for the year-ago period. Income taxes were $19.3 million for the
nine months ended December 31, 1998 and $12.1 million for the year-ago period.
The Company's effective tax rate was 29% for the current quarter and the nine
months ended December 31, 1998. 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.
Liquidity and Capital Resources
At December 31, 1998, the Company had cash, cash equivalents and short-term
marketable securities totaling $185.6 million. Net cash provided by operating
activities was $42.8 million and $28.4 million for the nine months ended
December 31, 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 used in investing activities was $27.2 million for
the nine months ended December 31, 1998, comprised of net purchases of
marketable securities of $25.3 million and additions to property and equipment
and intangible assets of $1.9 million. Net cash used in financing activities was
$13 million for the nine months ended December 31, 1998, comprised of purchases
of treasury stock of $28.4 million offset by proceeds from stock option
exercises of $15.4 million.
In August 1998, the Company's board of directors authorized the repurchase by
the Company of up to $100 million of its Ordinary Shares. As of December 31,
1998, the Company has repurchased 697,000 Ordinary Shares for $28.4 million. The
Company does not have any material commitments for capital expenditures. The
Company believes that the anticipated cash flows from operations, and existing
cash, cash equivalents and short-term marketable securities balances, will be
sufficient to satisfy its expected working capital and capital expenditure
requirements in the foreseeable future.
7
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Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in the Notes to Condensed
Consolidated Financial Statements.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Significant uncertainty
exists concerning the potential effects associated with compliance.
Although the Company believes that its systems and products are Year 2000
compliant in all material respects, there can be no assurance that the Company's
current systems and products do not contain undetected errors or defects with
Year 2000 date functions that could result in a material adverse effect on the
Company's business, results of operations and financial condition.
Although the Company is not aware of any material operational issues or costs
associated with its internal systems for the Year 2000, there can be no
assurances that the Company will not experience unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems.
The Company's proprietary technologies and systems are licensed and
incorporated by third parties, such as consumer electronics manufacturers,
service providers and software developers into electronics products and
platforms that deliver video, programming information and other data. Failure of
such third party products, software or content to operate properly with regard
to the Year 2000 could require the Company to incur unanticipated expenses to
remedy any problems. There can be no assurance that the systems of other
companies on which the Company's products may rely will be Year 2000 compliant
or that such failure by other companies to become Year 2000 compliant would not
have an adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company utilizes third party equipment,
software and content that may not be Year 2000 compliant. Failure of such third
party equipment, software or content to operate properly with regard to the Year
2000 and thereafter, could require the Company to incur unanticipated expenses
to remedy any problems, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Cautionary Statement For Purposes Of The "Safe Harbor" Provisions Of The Private
Securities Litigation Reform Act Of 1995
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations and other portions of this report on Form 10-Q contain
various "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Company's expectations or beliefs
concerning future events, including the following: the statement that 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 statement that the Company believes that its
interactive program guides will provide an attractive vehicle for the delivery
of advertising and other content to consumers; the statement that 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; the statement that the Company believes that the anticipated cash
flows from operations, and existing cash, cash equivalents and short-term
marketable securities balances, will be sufficient to satisfy its expected
working capital and capital expenditure requirements in the foreseeable future;
and the statement that the Company's systems and products are believed to be
Year 2000 compliant in all material respects. In addition, statements containing
expressions such as
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"believes," "anticipates," "plans" or "expects" used in the Company's periodic
reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission
are intended to identify forward-looking statements. The Company cautions that
these and similar statements included in this report and in previously filed
periodic reports including reports filed on Forms 10-K and 10-Q are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statement, including, without
limitation, those referred to in the "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. 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 for the year ended March 31, 1998.
9
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In October 1993, United Video Satellite Group, Inc. ("United Video") and its
Tracker, Inc. subsidiary brought suit against StarSight Telecast, Inc.
("StarSight"), a now wholly owned subsidiary of the Company, in the United
States District Court for the Northern District of Oklahoma, seeking a
declaratory judgment that its interactive program guide products do not infringe
certain of StarSight's patents. StarSight 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 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 presented witnesses relating to the validity,
enforceability and infringement of this patent. Closing arguments with respect
to this patent were heard by the Court on November 12, 1998. To date there has
been no ruling from the Court on this issue.
On May 17, 1997, StarSight filed a Demand for Arbitration with the American
Arbitration Association in San Francisco, California, and by such action
commenced an arbitration action against General Instrument, Inc. ("GI"). The
claims in the arbitration center upon GI's alleged delay in deploying StarSight-
capable set-top boxes and GI's development of a competing interactive program
guide which allegedly uses StarSight patented technology, confidential
information and technical information in violation of a License and Technical
Assistance Agreement executed by the parties on October 1, 1992. The arbitration
is scheduled to commence on March 22, 1999 in San Francisco, California. GI has
filed a motion to postpone commencement of the arbitration. That motion has not
yet been ruled upon.
On August 5, 1997, TV Data Technologies, Inc. ("TV Data") filed a Demand for
Arbitration with the American Arbitration Association in San Francisco,
California and by such action commenced an arbitration against StarSight. The
claims in the arbitration centered on two agreements whereby TV Data was to
provide StarSight with certain television program listing data and television
and cable channel lineup information. Effective August 30, 1998, StarSight and
TV Data settled the dispute. The settlement provides for a continuation of the
business relationship between StarSight and TV Data, but did not require the
payment of any damages.
On July 24, 1998, the Company, together with SuperGuide Corporation and
StarSight, filed an action against Prevue Networks, Inc. and, as amended, TCI
Communications, Inc. in the United States District Court for the Northern
District of California (San Jose Division). The suit seeks damages and
injunctive relief based upon the alleged infringement of two patents by
defendants' interactive program guide known as "Preview Interactive." This case
was subsequently transferred to the United States District Court for the
Northern District of Oklahoma. On December 23, 1998, the Company filed a motion
("Motion To Consolidate") with the Judicial Panel on Multi-district Litigation
requesting that this case be consolidated with the Scientific Atlanta, GI and
Pioneer cases hereinafter described and transferred to a single Court through
the discovery phase of these cases. No hearing date has been set by the
Judicial Panel for the Motion To Consolidate.
On November 30, 1998, the Company filed a patent infringement action against
GI in the United States District Court for the Northern District of California.
The suit seeks damages and injunctive relief based upon the alleged infringement
of two patents by defendant's interactive program guide. This action is subject
to the Motion To Consolidate.
On December 1, 1998, the Company filed a patent infringement action against
Pioneer Electronic Corp., Pioneer North America, Inc. and Pioneer New Media
Technologies, Inc. (collectively "Pioneer") in the United States District Court
for the Central District of California. The suit seeks damages and injunctive
relief based upon
10
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the alleged infringement of two patents by defendants' interactive program
guide. This action is subject to the Motion To Consolidate.
On December 3, 1998, Scientific Atlanta, Inc. ("SA") filed an action against
the Company in the United States District Court for the Northern District of
Georgia. The action alleges that the Company violated federal anti-trust laws
and misused certain patents. SA seeks damages, injunctive relief and a
declaration that certain patents are unenforceable, not infringed or
invalid. This case is subject to the Motion To Consolidate. The Company filed a
motion to stay the proceedings pending the outcome of the Motion to Consolidate
and the Court granted the Company's motion.
On December 4, 1998, the Company filed a patent infringement action against SA
in the United States District Court for the Central District of California. The
suit seeks damages and injunctive relief based upon the alleged infringement of
two patents by defendant's interactive program guide. This action is subject to
the Motion To Consolidate.
On January 21, 1999, Personalized Media Communications, LLC ("PMC") filed an
action against StarSight in the United States District Court for the Southern
District of New York. The action alleges that a patent license agreement dated
March 2, 1994 is void and unenforceable. PMC also seeks recovery of damages for
the value of certain services it alleges were performed under the license.
StarSight has not yet responded to the Complaint.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on December 21, 1998.
The following actions were taken at this meeting:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
--- --------
<S> <C> <C>
(1) Election of three directors for terms to expire at the
2001 annual meeting.
Thomas L.H. Lau 39,284,706 143,996
Henry C. Yuen 39,300,006 128,696
Perry A. Lerner 39,381,606 47,096
Additional directors, whose terms of office as directors
continued after the meeting, are as follows:
Terms expiring at the 1999 annual meeting:
Larry Goldberg
Elsie Ma Leung
Douglas B. Macrae
George Smith
Terms expiring at the 2000 annual meeting:
George F. Carrier
James E. Meyer
Teruyuki Toyama
</TABLE>
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Abstained
--- ------- ---------
<S> <C> <C>
(2) Ratification of KPMG Peat Marwick LLP as the 39,393,131 28,426 7,145
Company's independent auditors for the fiscal year
ending March 31, 1999
</TABLE>
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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)
2.2 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. (2)
3.1 Amended and Restated Memorandum of Association of the Company. (5)
3.2 Amended and Restated Articles of Association of the Company. (5)
10.1 Patent Assignment Agreement, dated as of March 15, 1994, between
Gemstar Development Corporation and Roy J. Mankovitz. (Confidential
treatment requested). (1)
10.2 Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Development Corporation. (Confidential treatment requested).
(1)
10.3 Contract Engineering Agreement (undated) between Hilite, Inc. and
Gemstar Holdings Limited. (Confidential treatment requested). (1)
10.4 Contract Engineering Agreement (undated) between Hilite, Inc. and
Index Systems, Inc. (Confidential treatment requested). (1)
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 . (1)
10.6(a) Exclusive Representation Agreement, dated July 30, 1990, between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested). (1)
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). (1)
10.6(c) Exclusive Representation Agreement, dated March 21, 1994 between
Gemstar Development Corporation and United Feature Syndicate, Inc.
(Confidential treatment requested). (1)
10.7 Registration Rights Agreement, dated August 16, 1995, between Gemstar
International Group Limited and the Shareholders of E Guide, Inc. (1)
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. (2)
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. (2)
12
<PAGE>
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. (2)
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. (3)
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. (3)
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. (3)
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. (3)
27 Financial Data Schedule. (7)
99.1 1994 Stock Incentive Plan, as amended. (1)
99.2 Employment Agreement, dated April 1, 1994, between Gemstar Development
Corporation and Henry C. Yuen, as amended. (Confidential treatment
requested). (1)
99.3 Employment Agreement, dated August 1995, between Gemstar International
Group Limited and Thomas L.H. Lau. (1)
99.4 Employment Agreement, dated April 1, 1994, between Gemstar Development
Corporation and Daniel S.W. Kwoh, as amended. (Confidential treatment
requested). (1)
99.5 Employment Agreement, dated April 1, 1994, between Gemstar Development
Corporation and Roy J. Mankovitz, as amended. (Confidential treatment
requested). (1)
99.6 Employment Agreement, dated August 16, 1995, between Pros Technology
Limited and Wilson K.C. Cho. (Confidential treatment requested). (1)
99.7 Employment Agreement, dated April 1, 1994, between Gemstar Development
Corporation and Elsie Ma Leung, as amended. (1)
99.8 Employment Agreement, dated April 1, 1994, between Gemstar Development
Corporation and Larry Goldberg, as amended. (1)
99.9 Amendment to Subsection 1.4(a) of 1994 Stock Incentive Plan, as
amended. (1)
99.10 Amendment to 1994 Stock Incentive Plan, as amended, adopted on March
12, 1998. (4)
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. (6)
13
<PAGE>
99.12 Amended and Restated Employment Agreement, dated as of March 31, 1998,
among Gemstar International Group Limited, Gemstar Development
Corporation and Elsie Leung. (6)
(1) 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.
(2) 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.
(3) 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.
(4) Previously filed as part of Form 10-K for the fiscal year ended March 31,
1998, filed on June 29, 1998, and incorporated herein by reference.
(5) 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. Further amendments were filed in
connection with the Company's report on Form 8-K on July 13, 1998.
(6) Previously filed as part of Form 10-K/A for the fiscal year ended March 31,
1998, filed on November 17, 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.
(7) Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1998.
14
<PAGE>
SIGNATURE
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)
By: /s/ Elsie Leung
------------------------
Elsie Leung
Chief Financial Officer
Date: February 16, 1999
15
<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 COMPANY'S FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 155,882
<SECURITIES> 29,668
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 193,970
<PP&E> 13,147
<DEPRECIATION> 10,159
<TOTAL-ASSETS> 215,720
<CURRENT-LIABILITIES> 46,468
<BONDS> 0
0
0
<COMMON> 495
<OTHER-SE> 143,778
<TOTAL-LIABILITY-AND-EQUITY> 215,720
<SALES> 0
<TOTAL-REVENUES> 112,426
<CGS> 0
<TOTAL-COSTS> 50,382
<OTHER-EXPENSES> 1,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66,539
<INCOME-TAX> 19,296
<INCOME-CONTINUING> 47,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,243
<EPS-PRIMARY> .97
<EPS-DILUTED> .85
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