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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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-26878
GEMSTAR-TV GUIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware 95-4782077
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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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)
Gemstar International Group Limited
(Former name, if changed since last report)
________________________________
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 July 31, 2000, there were outstanding 409,182,000 shares of the
registrant's Common Stock, par value $0.01 per share.
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GEMSTAR-TV GUIDE INTERNATIONAL, INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
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Condensed Consolidated Balance Sheets -- June 30, 2000 and March 31, 2000................. 1
Condensed Consolidated Statements of Income -- Three Months Ended June 30, 2000
and 1999.................................................................................. 2
Condensed Consolidated Statements of Cash Flows -- Three Months Ended June 30, 2000 and
1999...................................................................................... 3
Notes to Condensed Consolidated Financial Statements...................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 8
Item 6. Exhibits and Reports on Form 8-K.......................................................... 10
SIGNATURE................................................................................................ 11
Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GEMSTAR-TV GUIDE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands)
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June 30, March 31,
2000 2000
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents................................. $237,949 $237,046
Marketable securities..................................... 57,408 49,145
Receivables, net.......................................... 90,476 69,903
Prepaid expenses and other current assets................. 3,456 2,248
--------------- ---------------
Total current assets................................... 389,289 358,342
Property and equipment, net................................. 5,151 5,169
Intangible assets, net...................................... 20,659 18,929
Marketable securities and other investments................. 92,724 74,814
Other assets................................................ 15,882 9,917
--------------- ---------------
$523,705 $467,171
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 35,746 $ 41,004
Current portion of deferred revenue....................... 7,230 3,421
--------------- ---------------
Total current liabilities.............................. 42,976 44,425
Deferred revenue, less current portion...................... 236 268
Deferred income taxes....................................... 41,929 34,801
Other liabilities........................................... 2,193 2,020
Shareholders' equity:
Common Stock.............................................. 2,114 2,105
Additional paid-in capital................................ 346,321 333,667
Retained earnings......................................... 69,796 40,857
Accumulated other comprehensive income.................... 46,579 37,467
Treasury stock, at cost................................... (28,439) (28,439)
--------------- ---------------
Net shareholders' equity............................... 436,371 385,657
--------------- ---------------
$523,705 $467,171
=============== ===============
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See accompanying Notes to Condensed Consolidated Financial Statements.
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GEMSTAR-TV GUIDE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(In thousands, except per share data)
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Three Months Ended
June 30,
------------------------------
2000 1999
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Revenues.................................................. $ 63,230 $ 45,088
Operating costs and expenses:
Selling and marketing................................... 14,611 12,989
Research and development................................ 6,068 5,651
General and administrative.............................. 7,541 7,493
------------- -------------
Operating income.......................................... 35,010 18,955
Other income, net......................................... 4,633 2,745
------------- -------------
Income before income taxes................................ 39,643 21,700
Income taxes.............................................. 10,704 7,260
------------- -------------
Net income................................................ $ 28,939 $ 14,440
============= =============
Basic earnings per share.................................. $0.14 $0.07
============= =============
Diluted earnings per share................................ $0.12 $0.06
============= =============
Weighted average shares outstanding....................... 208,399 203,156
Dilutive effect of:
Stock options........................................... 41,727 39,415
Warrants................................................ -- 17
------------- -------------
Weighted average shares outstanding, assuming dilution.... 250,126 242,588
============= =============
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See accompanying Notes to Condensed Consolidated Financial Statements.
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GEMSTAR-TV GUIDE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
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Three Months Ended
June 30,
-----------------------------------
2000 1999
--------------- ---------------
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Cash flows from operating activities:
Net income..................................................................... $ 28,939 $ 14,440
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................... 1,417 1,395
Deferred income taxes....................................................... 1,403 (1,636)
Tax benefit associated with stock options................................... 7,500 7,050
Changes in assets and liabilities........................................... (29,009) 27,083
--------------- ---------------
Net cash provided by operating activities................................. 10,250 48,332
--------------- ---------------
Cash flows from investing activities:
Net purchases of marketable securities and other investments................... (11,280) (23,720)
Additions to property and equipment............................................ (471) (1,381)
Additions to intangible assets................................................. (2,658) (1,822)
--------------- ---------------
Net cash used in investing activities..................................... (14,409) (26,923)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of Common Stock......................................... -- 3,741
Proceeds from exercise of stock options........................................ 5,163 9,116
--------------- ---------------
Net cash provided by financing activities................................. 5,163 12,857
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents..................... (101) 30
--------------- ---------------
Net increase in cash and cash equivalents........................................ 903 34,296
Cash and cash equivalents at beginning of period................................. 237,046 185,723
Adjustment for change in SoftBook Press, Inc. year end........................... -- (2,162)
--------------- ---------------
Cash and cash equivalents at end of period....................................... $237,949 $217,857
=============== ===============
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See accompanying Notes to Condensed Consolidated Financial Statements.
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GEMSTAR-TV GUIDE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The Condensed Consolidated Financial Statements of Gemstar-TV Guide
International, Inc. (formerly Gemstar International Group Limited) and
subsidiaries (the "Company") 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 contained in the Company's Annual
Report on Form 10-K for the year ended March 31, 2000.
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, 2000 are not necessarily indicative of the results that
may be expected for the entire year ending March 31, 2001.
(2) Business Combinations
In January 2000, the Company completed mergers with two electronic-book
companies, NuvoMedia, Inc. ("NuvoMedia") and SoftBook Press, Inc. ("SoftBook").
Both mergers were accounted for under the pooling of interests method and,
accordingly, the consolidated financial statements for periods prior to the
mergers have been restated to include the results of operations, financial
position and cash flows of NuvoMedia and SoftBook.
In July 2000, the Company completed its merger with TV Guide, Inc. ("TV
Guide"). TV Guide shareholders received 0.6573 shares of Gemstar common stock
for each share of TV Guide Class A and B common stock, or approximately 200
million shares of Gemstar common stock. The transaction will be accounted for as
a purchase.
(3) Earnings Per Share
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share includes
the dilutive effect of stock options and warrants using the treasury stock
method.
(4) Stock Split
On December 13, 1999, the Company effected a two-for-one stock split in the
form of a stock dividend to holders of record as of November 29, 1999. All share
and per share amounts herein have been restated to reflect the effects of this
split.
(5) Comprehensive Income
The Company's comprehensive income consisted of net income, unrealized gains
on marketable securities and the equity adjustment from foreign currency
translation. Comprehensive income was $38,051,000 and $14,470,000 for the three
months ended June 30, 2000 and 1999, respectively. Accumulated other
comprehensive income presented on the accompanying condensed consolidated
balance sheets consists of unrealized gains on marketable securities and
cumulative translation adjustments.
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(6) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments and hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133.
In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133. As amended by SFAS No. 137, SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements.
SAB 101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements of all public registrants. Any change in the
Company's revenue recognition policy resulting from the implementation of SAB
101 would be reported as a change in accounting principle. In June 2000, the SEC
issued SAB 101B which delays the implementation date of SAB 101 until the fourth
fiscal quarter of fiscal years beginning after December 15, 1999.
In March 2000, the FASB issued FASB Interpretation No. 44 ("Interpretation No.
44"), an interpretation of APB Opinion No. 25, Accounting for Certain
Transactions involving Stock Compensation. Interpretation No. 44 is effective
after July 1, 2000, but certain conclusions in Interpretation No. 44 cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that Interpretation No. 44 covers events occurring during the
period after December 15, 1998, or January 12, 2000, but before the effective
date of July 1, 2000, the effects of applying Interpretation No. 44 are
recognized on a prospective basis from July 1, 2000.
While the Company has not fully assessed the impact of the adoption of these
recently issued accounting pronouncements, the Company believes that adoption of
these accounting pronouncements will not have a significant impact on the
Company.
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 the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section contained
in the Company's Annual Report on Form 10-K for the year ended March 31, 2000.
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 and interactive services provided thereon.
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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 pursues a licensing strategy for its VCR Plus+ system and Gemstar
Guide Technology wherein the Company is paid on-going per unit license fees and,
in certain instances, up-front and annual license fees. In addition, the Company
pursues a recurring revenue model for its proprietary Gemstar Guide Technology
wherein the Company receives revenues from the delivery of advertising and
promotion displayed on the guides, from sponsorship of guide pages and from data
services and interactive transactions accessed through the guide. To date the
Company has not realized significant revenues from advertising and sponsorship.
Revenues from on-going per unit license fees are earned based on units shipped
incorporating the Company's patented proprietary technologies and are recognized
in the period when the manufacturers' units shipped information is available to
the Company and collectibility is reasonably assured. Revenues from up-front
license fees and annual license fees are recognized ratably over the specified
term of the particular license.
Prior to its mergers with NuvoMedia and SoftBook in January 2000, the Company
was organized in a single operating segment for purposes of making operating
decisions and assessing performance, which was the licensing of its proprietary
technologies and systems. NuvoMedia and SoftBook were in the business of
manufacturing and distribution of electronic book hardware and content. Revenues
for the electronic book segment were immaterial for the periods presented.
Operating costs and expenses for the electronic book segment represented
approximately 25% and 27% of the consolidated operating costs and expenses for
the three months ended June 30, 2000 and 1999, respectively.
Results of Operations
Revenues for the quarter ended June 30, 2000 were $63.2 million, an increase
of 40% when compared with revenues for the year-ago period of $45.1 million. The
increase in revenues is due to the continued growth in worldwide licensing
income derived from the Company's proprietary technologies and intellectual
property associated with the electronic program guide, and to a lesser extent,
the VCR Plus+ system.
Total operating expenses for the quarter ended June 30, 2000 were $28.2
million, comprised of selling and marketing expenses of $14.6 million, research
and development expenses of $6.1 million, and general and administrative
expenses of $7.5 million. Compared with the year-ago period, total operating
expenses for the current quarter increased 8%. The increase in operating
expenses was due primarily to an increase in marketing and support costs
associated with the electronic program guide and the VCR Plus+ system. Operating
margins increased to 55% for the three months ended June 30, 2000 from 42% for
the year-ago period.
Income taxes were $10.7 million and $7.3 million for the three months ended
June 30, 2000 and 1999, respectively. The Company's effective tax rate was 27%
and 33% for the three months ended June 30, 2000 and 1999, respectively. 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, the availability of net operating loss carryforwards and the
availability of tax credits for taxes paid in certain jurisdictions. Because of
these factors, it is expected that the Company's future income taxes as a
percentage of income before income taxes may vary from year to year.
Liquidity and Capital Resources
At June 30, 2000, the Company had cash, cash equivalents and short-term
marketable securities totaling $295.4 million. Net cash provided by operating
activities was $10.3 million and $48.3 million for the three months ended June
20, 2000 and 1999, respectively. The decrease in net cash provided by operating
activities was primarily the result of an increase in receivables and a decrease
in deferred revenue received offset by an increase in net income. Net cash used
in investing activities was $14.4 million for the three months ended June 30,
2000, comprised of net
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purchases of marketable securities and other investments of $11.3 million and
additions to property and equipment and intangible assets of $3.1 million. Net
cash used in investing activities was $26.9 million for the three months ended
June 30, 1999, comprised of net purchases of marketable securities of $23.7
million and additions to property and equipment and intangible assets of $3.2
million. Proceeds from stock option exercises totaled $5.2 million and $9.1
million for the three months ended June 30, 2000 and 1999, respectively.
Proceeds from the issuance of common stock totaled $3.7 million for the three
months ended June 30, 1999.
In April 2000, the Company's Board of Directors authorized a stock repurchase
plan, but no shares have been repurchased pursuant to it, and it is not expected
that any shares will be repurchased.
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.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in the Notes to Condensed
Consolidated Financial Statements.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section and other portions of this report on Form 10-Q
contain various "forward-looking statements" 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. Statements containing expressions such as
"believes," "anticipates," "plans" or "expects" used in the Company's periodic
reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission
are intended to identify forward-looking statements. The Company cautions that
these and similar statements included in this report and in previously filed
periodic reports including reports filed on Forms 10-K and 10-Q are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statement, including, without
limitation, those referred to in the "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, 2000. 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 Company's Annual Report on Form 10-K for the year ended March 31, 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to the "Quantitative and Qualitative Disclosures About
Market Risk" section of the Company's Annual Report on Form 10-K for the year
ended March 31, 2000. We are not aware of any changes necessary to those
disclosures.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
On October 19, 1993, TV Guide, Inc. (formerly United Video Satellite Group,
Inc.) 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 TV Guide 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. On February 19, 1999, the Court issued an
interlocutory decision finding this patent enforceable over TV Guide's claim
that this patent was obtained through inequitable conduct. The Court has not yet
ruled on the remaining issues of validity or infringement of this patent. The
Court also ordered the parties to participate in settlement discussions. The
case has been administratively closed. On July 12, 2000, the Company completed
its merger with TV Guide and thus expects that this litigation will be formally
dismissed in the near term.
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 Corporation ("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 bifurcated into two phases. The first phase generally covers
issues related to GI's manufacture and sale of analog cable set-top boxes, while
the second phase generally covers issues related to GI's manufacture and sale of
digital cable and satellite set-top boxes as well as StarSight's claim for brand
damages. In October 1999, in connection with the first phase, the Arbitration
Panel issued a ruling against GI in favor of StarSight. In general, the
Arbitration Panel ruled that GI breached its contract with StarSight pertaining
to electronic program guides incorporated in GI analog set-top boxes and
misappropriated StarSight's trade secrets. In March 2000, the Arbitration Panel
provided the Company with its findings of liability and damages for Phase I. The
second phase of the arbitration, focusing on digital set-top boxes, is scheduled
to proceed later this year. On May 9, 2000, GI filed an action in the U.S.
District Court for the Eastern District of Pennsylvania under the Federal
Arbitration Act seeking to vacate or modify the Phase I arbitration award in
favor of StarSight on the grounds that the Arbitration Panel allegedly exceeded
the scope of its authority and/or allegedly disregarded the law in issuing its
award. On June 12, 2000, StarSight answered GI's complaint and counter-claimed
for confirmation of the award and the issuance of a judgment in its favor.
StarSight also moved to transfer this action to the U.S. District Court for the
Northern District of California. StarSight's motion to transfer was granted and
the case is now pending before the U.S. District Court for the Northern District
of California.
On July 24, 1998, the Company, together with SuperGuide Corporation and
StarSight, filed an action against TV Guide Networks, Inc. (formerly Prevue
Networks, Inc.) and, as amended, TCI Communications, Inc. in the U.S. District
Court for the Northern District of California. The suit seeks damages and
injunctive relief based upon the alleged infringement of two patents by
defendants' interactive program guide known as "TV Guide Interactive" (formerly
"Prevue Interactive"). This case was subsequently transferred to the U.S.
District Court for the Northern District of Oklahoma. On December 23, 1998, the
Company filed a motion 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. A hearing on the motion was held and in
April 1999, the Judicial Panel ordered that all of the actions pending outside
the Northern District of Georgia, except the action against TV Guide Networks,
Inc., be transferred to the Northern District of Georgia for coordinated or
consolidated pretrial proceedings with the action pending in that district (the
"MDL Transfer Order"). All cases subject to the MDL Transfer Order in the
Northern District of Georgia are now in pretrial
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proceedings. The District Court in Oklahoma ordered the parties in the action
against TV Guide Networks, Inc. to participate in settlement discussions. The
case has been administratively closed. On July 12, 2000, the Company completed
its merger with TV Guide and thus expects that this litigation will be formally
dismissed in the near term.
On November 30, 1998, the Company filed a patent infringement action against
GI in the U.S. 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
MDL Transfer Order.
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 U.S. District Court for the
Central District of California. The suit seeks damages and injunctive relief
based upon the alleged infringement of two patents by defendants' interactive
program guide. Pioneer has recently sought leave to file a counter-claim in
which it alleges the Company violated federal antitrust laws and misused certain
patents. This action is subject to the MDL Transfer Order.
On December 3, 1998, Scientific-Atlanta, Inc. ("SA") filed an action against
the Company in the U.S. District Court for the Northern District of Georgia.
The action alleges that the Company violated federal antitrust laws and misused
certain patents. SA seeks damages, injunctive relief and a declaration that the
certain patents are unenforceable, not infringed or invalid. This case is being
coordinated with the actions subject to the MDL Transfer Order.
On December 4, 1998, the Company filed a patent infringement action against SA
in the U.S. 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
MDL Transfer Order.
On January 21, 1999, Personalized Media Communications, LLC ("PMC") filed an
action against StarSight in the U.S. District Court for the Southern District of
New York seeking to rescind a patent license agreement between the parties. PMC
also seeks recovery of damages for the value of certain services it alleges were
performed under the license. In April 1999, StarSight filed a motion to stay the
action in the District Court and to compel arbitration pursuant to the
agreement. The motion to stay the action and compel arbitration is currently
pending before the District Court.
On April 22, 1999, SA filed an action against the Company in the U.S. District
Court for the Northern District of Georgia, alleging infringement of three
patents and seeking damages and injunctive relief. This case has been
consolidated with the action filed by SA against StarSight on July 23, 1999, and
the parties are currently in pretrial proceedings.
On June 25, 1999, SA filed an action against StarSight in the U.S. District
Court for the Northern District of Georgia, seeking a declaratory judgement of
invalidity and non-infringement of two patents. On August 2, 1999, StarSight
answered the complaint as to one of the patents and counterclaimed against SA
for infringement of this patent, seeking damages and injunctive relief. The
parties are currently in pretrial proceedings.
On July 23, 1999, SA filed an action against StarSight in the U.S. District
Court for the Northern District of Georgia, alleging infringement of three
patents and seeking damages and injunctive relief. This case has been
consolidated with the action filed by SA against the Company on April 22, 1999,
and the parties are currently in pretrial proceedings.
On January 19, 2000, StarSight filed a patent infringement action against TiVo
Inc. ("TiVo") in the U.S. District Court for the Northern District of
California. The suit claims, among other matters, that TiVo willfully infringed
certain StarSight intellectual property by virtue of TiVo's deployment,
marketing, offers to sell and sale of personalized video recorder devices
containing an unlicensed interactive program guide. StarSight is seeking an
injunction and monetary damages. The parties are now in pretrial proceedings.
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The U.S. Internal Revenue Service (the "IRS") has conducted an audit of the
federal tax returns for Gemstar Development Corporation ("GDC"), a U.S.
subsidiary of the Company, for the years ended March 31, 1991, 1992 and 1993.
The IRS has issued a 30-day letter to GDC in which it has proposed adjustments
to GDC's taxable income by reallocating income to GDC for revenue related to the
Company's VCR Plus+ technology. The Company has filed a protest with the IRS.
The Company believes that it has a reasonable basis for its tax position and
accordingly plans to vigorously defend its position. While there can be no
assurance as to the ultimate outcome of the audit, the Company believes that it
has made adequate provision in its consolidated financial statements with
respect to the proposed adjustments.
The Company and its subsidiaries are from time to time also involved in
routine legal matters incidental to their businesses. In the opinion of the
Company, the resolution of such matters will not have a material effect on the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
----------- -------------------------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended June
30, 2000.
10
<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-TV Guide International, Inc.
(Registrant)
By: /s/ Elsie Ma Leung
--------------------
Elsie Ma Leung
Chief Financial Officer
Date: August 14, 2000
11
