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Gemstar-TV Guide Announces Second Quarter Results
Business Editors
LOS ANGELES--(BUSINESS WIRE)--Aug. 14, 2003--Gemstar-TV Guide International, Inc. (NASDAQ: GMST) ("Gemstar-TV Guide" or the "Company") announced that for the second quarter ended June 30, 2003, the Company had a net loss of $22.5 million, or $(0.06) per diluted share. This compares to a net loss of $886.0 million, or $(2.15) per diluted share in the second quarter of 2002. The net loss in the second quarter of 2002 includes a $1,294.3 million pretax charge for the impairment of certain intangible assets. Second quarter revenues decreased by $33.2 million, or 12.8% to $226.1 million, down from $259.3 million in the comparable prior year quarter.
Operating loss for the second quarter ended June 30, 2003 was $25.0 million, which includes a credit of $6.7 million, primarily for the reversal of previously recorded stock compensation charges and amortization and depreciation charges of $64.8 million. Operating loss for the second quarter ended June 30, 2002 was $1,346.5 million, which includes the impairment charge of certain intangible assets of $1,294.3 million noted above, amortization and depreciation charges of $108.9 million and stock compensation charges of $1.4 million.
Gemstar-TV Guide Chief Executive Officer Jeff Shell said, "The second quarter results mirror those of the first quarter of this year, and reflect the continued challenges facing Gemstar-TV Guide. The Company's new management team is executing revised operating strategies across each business, a process that will take some time.
"We are beginning to see some positive results from our efforts: improved advertising sales at TV Guide magazine and Channel, strengthening operating performance at our TV Games business, and accelerating momentum in our TV Guide On Screen and G-Guide businesses. At the same time, we face a number of challenges. Most notable are continued revenue declines in TV Guide magazine circulation, strong competition for our TV Guide Interactive business, and continuing substantial legal costs resulting primarily from our patent-related litigation, other litigation and the SEC's ongoing investigation. Fortunately, we expect to generate sufficient operating cash flow to continue making capital expenditures and debt repayments, while at the same time enabling us to make the investments required to fulfill our operating and financial goals."
For the first half of 2003, the Company had a net loss of $67.9 million, or $(0.17) per diluted share compared to a net loss of $5,121.7 million, or $(12.40) per diluted share in the prior year period. Revenues for the first half of 2003 decreased by $65.8 million, or 12.7% to $454.0 million, down from $519.8 million in the prior year period.
Certain Key Second Quarter 2003 Developments
-- The Company signed a multi-year license agreement with Thomson to incorporate the Company's TV Guide On Screen technology into Thomson's RCA-brand television sets and digital recording devices as well as other Thomson-manufactured consumer electronic devices. The agreement also includes a patent license that enables Thomson to continue incorporating Gemstar-TV Guide's intellectual property into certain Thomson-manufactured satellite receivers in North America, and resolves all outstanding arbitration and litigation between the two companies.
-- The Company entered into a new collaborative business relationship with TiVo. As a part of the agreement, TiVo licenses Gemstar-TV Guide intellectual property, while the Company provides TV Guide branded content to TiVo. The companies also agreed to dismiss all pending litigation.
-- The Company reached an agreement with its syndicate bank group to amend the terms of its term loan and revolving credit facility. This key step amended certain covenants in the credit agreements to address a potential compliance issue and to provide the Company with additional flexibility under the agreements.
Segment Performance
The schedule below reflects Gemstar-TV Guide's performance for the quarters ended June 30, 2003 and 2002 by segment (please also see the Company's Form 10-Q filed today which contains more detailed information, such as revenue by business unit, on each segment):
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Quarters Ended June 30, 2003 and 2002
Consolidated and Segment Performance (1)
Three Months Ended
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(in thousands)
6/30/2003 6/30/2002
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Publishing Segment:
Revenues $107,127 $117,123
Operating Expenses (2) 99,608 110,773
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Adjusted EBITDA (3) $7,519 $6,350
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Cable and Satellite Segment:
Revenues $87,961 $104,453
Operating Expenses (2) 54,415 61,307
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Adjusted EBITDA (3) $33,546 $43,146
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CE Licensing Segment:
Revenues $30,993 $37,717
Operating Expenses (2) 14,523 15,372
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Adjusted EBITDA (3) $16,470 $22,345
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Corporate Segment:
Operating Expenses (2) $24,465 $13,782
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Adjusted EBITDA (3) $(24,465) $(13,782)
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Consolidated:
Revenues $226,081 $259,293
Operating Expenses (2) 193,011 201,234
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Adjusted EBITDA (3) $33,070 $58,059
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Stock compensation 6,732 (1,368)
Depreciation and amortization (64,770) (108,924)
Impairment of intangible assets - (1,294,301)
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Operating loss (24,968) (1,346,534)
Interest expense (1,773) (2,931)
Other expense, net (2,314) (1,462)
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Loss before income taxes and cumulative
effect of an accounting change $(29,055) $(1,350,927)
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(1) The following presentation presents information on the Company's reportable industry segments in accordance with SFAS No. 131.
(2) Operating expenses means operating expenses, excluding stock compensation, depreciation and amortization and impairment of intangible assets.
(3) Adjusted EBITDA is defined as operating (loss) income, excluding stock compensation, depreciation and amortization and impairment of intangible assets. Due to purchase accounting related to our mergers with TV Guide on July 12, 2000 and SkyMall on July 18, 2001, the results of operations reflect significant increases in amortization of finite lived intangible assets. The Company believes Adjusted EBITDA to be relevant and useful information as Adjusted EBITDA is the primary measure used by our management to measure the operating profits or losses of our business. Adjusted EBITDA does not take into account substantial costs of doing business, such as income taxes and interest expense. While many in the financial community consider this term to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, operating income (loss), net income (loss), cash flow provided by (used in) operating activities and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are presented in the financial statements included in this report.
Publishing Segment
For the three months ended June 30, 2003, revenues for the Publishing Segment were $107.1 million, a decrease of $10.0 million or 8.5% from revenues of $117.1 million in the prior year quarter. This decrease in revenues is primarily due to declines in newstand and subscriber circulation revenue at TV Guide magazine of $12.2 million offset by increased sales at SkyMall of $1.7 million.
TV Guide magazine continues to face declines in paid circulation revenues due to a lower overall subscriber base and reduced newsstand sales. As previously announced, the Company intends to make an investment of approximately $20.0 million in the magazine business primarily in the third and fourth quarters of 2003. This investment in editorial content and design, as well as marketing and promotion, is intended to increase circulation and advertising revenues in late 2003 and early 2004. Through June 30, 2003, the Company has spent approximately $1.3 million of that investment.
For the three months ended June 30, 2003, Adjusted EBITDA for the Publishing Segment was $7.5 million, an increase of $1.1 million from Adjusted EBITDA of $6.4 million in the prior year quarter. This increase is attributable to improved results at SkyMall, expenses of $9.3 million from the magazine distribution business which ceased operations in the second quarter of 2002 (such expenses did not occur in 2003), and decreases in the cost of magazine production, primarily from reduced paper, printing and postage expenses. These increases were offset by the revenue decline of $12.2 million and the investment of $1.3 million noted above at the magazine.
During the second quarter of 2003, the Company recorded a $0.6 million charge, related primarily to severance payments, for the shutdown of its eBook operation. While the Company will recognize remaining licensing revenue of approximately $1.2 million in each of the third and fourth quarters of 2003, as well as some additional expenses, the Company does not expect to record any significant revenues or expenses related to its eBook business after 2003. The operating loss for eBook was consistent between the periods, as cost reductions in the second quarter of 2003 offset the shutdown charge recorded in the same quarter.
Cable and Satellite Segment
For the three months ended June 30, 2003, revenues for the Cable and Satellite Segment were $88.0 million, a decrease of $16.5 million or 15.8%, from revenues of $104.5 million in the prior year quarter. This decrease in revenues is primarily attributable to decreased subscriber and conversion revenues at SNG, including operations of UVTV and Spacecom, of $17.8 million and decreased advertising and subscriber revenue at TV Guide Interactive of $2.8 million. These declines were offset by a $3.9 million increase in wagering and licensing revenue at TV Games Network ("TVG").
The C-band direct-to-home satellite market, in which SNG operates, continues to decline due to the growth of newer generation DSS systems and continued cable system expansions. Moreover, SNG's decline has been accelerated by the Company's subscriber conversion program with DISH network. The Company converted approximately 17,000 subscribers in the second quarter of 2003 versus approximately 19,000 in the first quarter of 2003 and approximately 20,000 in the second quarter of 2002. At June 30, 2003, SNG provided service to 295,000 C-band subscribers, a decrease of 8.1% from the 321,000 subscribers served by SNG as of March 31, 2003 and a decrease of 32.4% from the 436,000 subscribers served by SNG at June 30, 2002. The Company expects the declines in the subscriber base of the C-band industry and the DISH network conversions, and the resulting impact on revenues in this segment, to continue.
The decrease in TV Guide Interactive revenues of $2.8 million is due to a $1.3 million reduction in advertising revenue and a $1.5 million decrease in subscriber revenue. This decrease in subscriber revenue was the result of lower average license fees due to the acquisition of one of the Company's licensees by another lower paying licensee. TV Guide Interactive added more than 600,000 subscribers during the quarter.
The $3.9 million increase in revenues at TVG reflects the addition of a licensee in May of 2002, increased wagering volumes due to new market and distribution launches and strong wagering activity in the seasonally strong second quarter. At June 30, 2003, TVG was available in approximately 11.1 million domestic satellite and cable homes.
For the three months ended June 30, 2003, Adjusted EBITDA for the Cable and Satellite Segment was $33.5 million, a decrease of $9.6 million or 22.3% from Adjusted EBITDA of $43.1 million in the prior year quarter. The decline is primarily attributable to the revenue declines noted above at SNG and TV Guide Interactive, as well as increased expenses at TV Guide Interactive related to significant product improvements currently in development that are expected to be deployed early next year. These declines were offset by improved results at TVG and decreases in expenses primarily due to reduced programming fees at SNG associated with the decrease in the number of C-band subscribers.
Consumer Electronics Licensing Segment
For the three months ended June 30, 2003, revenues for the Consumer Electronics Licensing (CE Licensing) Segment were $31.0 million, a decrease of $6.7 million or 17.8%, from revenues of $37.7 million in the prior year quarter. Revenues in both periods include significant settlement amounts from manufacturers that related to prior service periods. Settlement amounts included in revenue in the second quarter of 2003 were $9.8 million and related to the new license agreement with Thomson and settlement amounts included in revenue in the second quarter of 2002 were $13.3 million and primarily related to new license agreements in the Company's VCR Plus+ business. In addition, part of the Thomson settlement was recorded as a bad debt recovery of $4.8 million in the second quarter of 2003. These settlement amounts may not recur in future periods.
The Company expects VCR Plus+ shipments and corresponding revenues to continue to moderately decline during the remainder of 2003 and beyond. Revenues for the GUIDE Plus+ business, which includes TV Guide On Screen and G-Guide, are likely to slowly accelerate as products incorporating the Company's technologies are introduced into various markets, although these increases in revenue are not likely to offset the VCR Plus+ declines in the near term. As previously announced, the Company entered into multi-product agreements with Thomson, Philips Electronics, Sharp Corporation and Samsung Electronics, and a proposed new launch by Sony in Japan. The Company is also currently in negotiations, as well as engaged in advanced product and engineering discussions, with a number of additional manufacturers. Included in GUIDE Plus+ revenues for the second quarter of both 2003 and 2002 is $4.4 million in amortization of license fees paid up front in prior years relating to long-term licensing agreements.
For the three months ended June 30, 2003, Adjusted EBITDA for the CE Licensing Segment was $16.5 million, a decrease of $5.9 million or 26.3% from Adjusted EBITDA of $22.3 million in the prior year quarter. The decrease is attributable to the revenue decline of $6.7 million noted above and to higher legal costs of $4.8 million related to patent prosecution and litigation costs. These declines were primarily offset by the bad debt recovery noted above of $4.8 million.
As part of the multi-year licensing agreement signed with Thomson, the parties settled past obligations between the two companies. The agreement resolved outstanding payments due for the second quarter of 2003 and for certain prior service periods. Revenues recognized in the CE Segment in the second quarter of 2003 relating to this agreement were $11.3 million, of which $7.5 million was non-cash and related to the reversal of certain liabilities established by the Company in prior periods. In addition, the bad debt recovery of $4.8 million noted above also related to this agreement with Thomson. Of the $11.3 million of revenue recognized in the second quarter of 2003, $9.8 million related to prior service periods. In the near-term, future quarterly revenues from Thomson are expected to be lower under the terms of the new agreement as licensing revenues will be based on a sliding scale of per unit fees tied to the cumulative number of units shipped rather than a fixed annual amount. Furthermore, there is no minimum on the number of units required to be incorporated with the Company's technology under the new agreement.
Corporate Segment
For the three months ended June 30, 2003, Adjusted EBITDA for the Corporate Segment was $(24.5) million, a decline of $10.7 million from Adjusted EBITDA of $(13.8) million in the prior year quarter. This decline is attributable to increases in legal expenses, including those related to the SEC's ongoing investigation, as well as increased insurance premiums and increased audit and other professional fees.
Discussion of Cash and Liquidity Position
As of June 30, 2003, the Company's cash, cash equivalents and current marketable securities were $294.1 million, excluding restricted cash of $37.4 million. Outstanding debt and capital lease obligations--both short-term and long-term--were $185.1 million at the end of the quarter, resulting in cash and cash equivalents and current marketable securities in excess of debt and capital lease obligations of $109.0 million, excluding the $37.4 million of restricted cash. During the second quarter, the Company repaid $48.0 million in debt and capital lease obligations and paid its previously accrued obligation of $39.5 million related to the settlement of matters between DIVA Systems Corporation and the Company.
In addition, during the second quarter of 2003, the Company received an income tax refund of $16.1 million and reduced other receivables by approximately $7.4 million due to better collection results on accounts receivable. Subsequent to June 30, 2003, the Company paid $3.2 million in connection with a termination and release agreement with Fantasy Sports Properties, Inc. and paid its previously settled and accrued obligation to the Department of Justice of $5.7 million.
About Gemstar-TV Guide International, Inc.
Gemstar-TV Guide International, Inc., is a leading media and technology company that develops, licenses, markets and distributes technologies, products and services targeted at the television guidance and home entertainment needs of consumers worldwide. The Company's businesses include: television media and publishing properties; interactive program guide services and products; and technology and intellectual property licensing. Additional information about the Company can be found at www.gemstartvguide.com.
Except for historical information contained herein, the matters discussed in this news release contain forward-looking statements including expectations about increased TV Guide magazine circulation and advertising revenue in 2004 as a result of investments in editorial improvements and enhanced marketing efforts. These statements involve risks and uncertainties, including risks and uncertainties related to the Company's transition to a new management and corporate governance structure; an ongoing SEC investigation and pending litigation; the timely availability and acceptance of new products; the impact of competitive products and pricing; and the other risks detailed from time to time in the Company's SEC reports, including the most recent reports on Forms 10-K, 8-K and 10-Q, each as it may be amended from time to time. The Company assumes no obligation to update these forward-looking statements.
Note to Editors: Gemstar, TV Guide, TV Guide Interactive, TV Guide On Screen, G-Guide, VCR Plus+, GUIDE Plus+, TVG Network, SkyMall and Gemstar eBook are trademarks or registered trademarks of Gemstar-TV Guide International, Inc. and/or its affiliates. The names of other companies and products used herein are for identification purposes only and may be trademarks of their respective owners. -0-
GEMSTAR-TV GUIDE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
2003 2002
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 294,003 $ 350,262
Restricted cash 37,352 37,068
Marketable securities 74 11,456
Accounts receivable, net 128,891 152,522
Deferred tax asset, net 56,221 41,438
Other current assets 26,337 25,202
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Total current assets 542,878 617,948
Property and equipment, net 53,108 60,334
Indefinite-lived intangible assets 316,273 316,273
Finite-lived intangible assets, net 229,083 347,551
Goodwill 589,845 589,845
Investments 2,415 2,403
Other assets 127,551 154,820
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$ 1,861,153 $ 2,089,174
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 224,857 $ 292,427
Current portion of long-term debt and
capital lease obligations 45,425 92,348
Current portion of deferred revenue 198,721 219,417
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Total current liabilities 469,003 604,192
Deferred tax liability, net 225,622 242,823
Long-term debt and capital lease
obligations, less current portion 139,719 163,861
Deferred revenue, less current portion 149,898 163,584
Other liabilities 21,493 20,244
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share 4,182 4,182
Additional paid-in capital 8,425,245 8,422,797
Accumulated deficit (7,473,737) (7,405,841)
Accumulated other comprehensive
income, net of tax 168 4,204
Unearned compensation (2,174) (32,606)
Treasury stock, at cost (98,266) (98,266)
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Total stockholders' equity 855,418 894,470
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$ 1,861,153 $ 2,089,174
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GEMSTAR-TV GUIDE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
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2003 2002 2003 2002
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Revenues:
Publishing $ 107,127 $ 117,123 $ 216,114 $ 240,133
Cable and satellite 87,961 104,453 172,994 210,038
Consumer electronics
licensing 30,993 37,717 64,856 69,603
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226,081 259,293 453,964 519,774
Operating expenses:
Operating expenses,
exclusive of
expenses shown below 193,011 201,234 389,740 408,431
Stock compensation (6,732) 1,368 32,863 18,494
Depreciation and
amortization 64,770 108,924 130,432 215,199
Impairment of
intangible assets - 1,294,301 - 1,305,339
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251,049 1,605,827 553,035 1,947,463
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Operating loss (24,968) (1,346,534) (99,071) (1,427,689)
Interest expense (1,773) (2,931) (3,726) (5,591)
Other expense, net (2,314) (1,462) (1,566) (8,765)
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Loss before income
taxes and
cumulative
effect of an
accounting change (29,055) (1,350,927) (104,363) (1,442,045)
Income tax benefit (6,521) (464,944) (36,467) (508,424)
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Loss before
cumulative effect
of an accounting
change (22,534) (885,983) (67,896) (933,621)
Cumulative effect
of an accounting
change, net of tax - - - (4,188,037)
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Net loss $ (22,534) $ (885,983) $ (67,896) $(5,121,658)
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Basic and diluted
loss per share:
Loss before
cumulative
effect of an
accounting change $ (0.06) $ (2.15) $ (0.17) $ (2.26)
Cumulative effect
of an accounting
change, net of tax - - - (10.14)
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Net loss $ (0.06) $ (2.15) $ (0.17) $ (12.40)
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Weighted average
shares outstanding
- basic and diluted 408,158 411,348 408,157 413,067
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GEMSTAR-TV GUIDE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands, except per share data)
Six Months Ended
June 30,
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2003 2002
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Cash flows from operating activities:
Net loss $ (67,896) $(5,121,658)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Cumulative effect of an accounting
change, net of tax - 4,188,037
Depreciation and amortization 130,432 215,199
Deferred income taxes (35,432) (541,899)
Tax benefit associated with
stock options - 1,651
Stock compensation expense 32,863 18,494
Impairment of intangible assets - 1,305,339
Investment write-down - 17,676
Gains on sale of marketable securities (2,755) -
Loss on asset dispositions 256 499
Changes in operating assets and
liabilities:
Receivables 23,870 115,161
Other assets 25,704 (3,226)
Accounts payable, accrued
expenses and other liabilities (62,446) (22,923)
Deferred revenue (34,382) (35,304)
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Net cash provided by operating
activities 10,214 137,046
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Cash flows from investing activities:
Purchases of marketable securities - (22,337)
Sales and maturities of marketable
securities 12,730 46,279
Proceeds from sale of assets 836 2
Additions to property and equipment (5,820) (4,656)
Additions to intangible assets - (2,270)
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Net cash provided by investing
activities 7,746 17,018
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Cash flows from financing activities:
Repayments under bank credit facility
and term loan (70,000) (30,000)
Repayment of capital lease obligations (1,065) (993)
Purchases of treasury stock - (63,423)
Proceeds from exercise of stock options 17 1,268
Distributions to minority interests (3,874) (9,583)
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Net cash used in financing
activities (74,922) (102,731)
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Effect of exchange rate changes on cash
and cash equivalents 703 390
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Net (decrease) increase in
cash and cash equivalents (56,259) 51,723
Cash and cash equivalents at beginning of
period 350,262 349,250
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Cash and cash equivalents at end of period $ 294,003 $ 400,973
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Supplemental disclosures of cash flow
information:
Cash paid for income taxes $ 2,814 $ 26,134
Cash paid for interest 3,428 4,851
Additional Cable and Satellite Segment Operating Statistics
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Subscriber Data
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(in thousands) Q1'02 Q2'02 Q3'02 Q4'02 Q1'03 Q2'03
----- ----- ------ ----- ----- -----
TV Guide Channel (Nielsen) 57,800 59,200 58,000 57,950 56,400 56,120
TV Guide Channel Int'l 2,642 2,415 1,882 1,861 1,740 1,740
TV Guide Interactive 8,226 8,910 9,374 10,009 10,213 10,835
TV Guide Interactive Int'l 610 647 652 664 709 754
TVG Network 7,400 7,800 8,000 8,400 8,700 11,100
Superstar/Netlink 477 436 399 361 321 295
SNG DISH Conversions 27 20 25 23 19 17
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CONTACT: Gemstar-TV Guide International, Inc.
Michael Benevento (Analysts), Christine Levesque (Media),
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