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Original Source: FD (FAIR DISCLOSURE) WIRE
. Robert Carl, Gemstar-TV Guide International, Inc., Director, IR . Jeff Shell, Gemstar-TV Guide International, Inc., CEO . Brian Urban, Gemstar-TV Guide International, Inc., CFO
GMST announced 1Q04 revenues for ongoing businesses of $195.2m, up $16.7m from 1Q03. Operating income from continuing operations was $26.6m, compared to a 1Q03 operating loss of $86.4m. GMST has reset its guidance for the balance of 2004, adjusting its 2004 operating income guidance to $20-50m, down from $44-69m. Q&A Focus: guidance, magazine, iGuide, legal expenses, and Magna.
A. Key Data From Call 1. Revenues for ongoing businesses in 1Q = $195.2m, up $16.7m from 1Q03. 2. Cash and cash equivalents and marketable securities, less outstanding indebtedness = $341.1m.
3. 1Q04, co. incurred $3.1m in capex.
S1. 1Q04 Overview (J.S.) 1. 1Q Was Very Eventful: 1. Co. concluded critical transactions. 2. Co. resolved a number of legal matters, including most significant shareholder lawsuit and outstanding litigation with Pioneer and EchoStar. 3. Entered into long term licensing and distribution agreements with Comcast and EchoStar. 4. Completed sale of non-core and declining SNG businesses.
5. Joined with Comcast to develop industry-leading interactive
program guide. 2. 1Q Included a Number of Positive Operational and Financial Developments across Portfolio Businesses: 1. For first time in recent years, total revenue increased YoverY.
2. For second consecutive quarter, subscriber growth at TV Guide
magazine. 3. Continued positive trends in conventional advertising at the magazine, as well as in traffic and ad revenue at TV Guide online. 4. In cable and satellite division, excluding discontinued operations, co. generated higher revenue and profit vs. same period in 2003, and with strong momentum in each business.
5. In CE [phonetic] business, Guide Plus revenues growing
increasingly and increasingly offsetting declines in VCR Plus
revenues. 6. Corporate costs beginning to decline vs. 2003.
7. Co. anticipates results for this year will also include
negative results related to challenges at TV Guide magazine
and legal costs from ongoing legal proceedings. 1. Also evident in 1Q results. 2. Magazine continues to have significant declines in newsstands performance and softness in program-related advertising.
3. While legal costs have begun to decline, total legal costs
remain significant, driven by remaining ongoing corporate intellectual property litigation matters and legal costs being incurred by former officers and directors of co. 3. Guidance: 1. Partly due negative factors, co. is reducing guidance for 2004. 2. While co. is lowering guidance for year, it does not believe factors primarily driving reduction for 2004 will negatively impact expectations for growth over long term.
S2. 1Q04 Financial Results (B.U.) 1. Unique Quarter: 1. Significant IPG license and distribution agreement completed in late March and early April with Comcast and EchoStar. 1. Related tax treatment from receiving large upfront cash payments from those transactions.
2. Sale of Superstar/Netlink UVTV distribution services and Spacecom businesses (SNG Businesses) to EchoStar. 3. These have given rise to unique income statement and balance sheet treatments.
2. Changes in Balance Sheet and Income Statement: 1. Agreement with Comcast included one-time cash payment by Comcast of $250m at closing on March 31. 2. In March, co. announced agreement with EchoStar, which also included long term non-exclusive patent license. 3. Co. agreed to sell SNG Businesses to EchoStar.
1. EchoStar paid one-time cash payment of $246m, which included $46m from Superstar, C Ban [phonetic], and UVTV distribution services businesses. 2. Sale of Spacecom businesses expected to occur May, 2004, subject to certain regulatory approval, at which time co. will receive additional $2m from EchoStar. 3. Deferred Revenue:
1. Balance sheet showed significant increase in deferred revenue
at March 31, 2004. 1. Due to fact that $250m received from Comcast has been included in that caption. 2. Co. now has deferred short and long term revenue at March 31, 2004, of $512.5m. 1. Amount will increase significantly in 2Q04 due to upfront license fee received in early April from EchoStar. 2. Upfront licensing fees, totaling $440m, less certain adjustments, will be amortized into income on a straight-line basis over term of respective license
agreements. 4. SNG Businesses: 1. Due to sale of SNG businesses, amounts for SNG businesses, previously reported as part of cable and satellite segment, now shown as discontinued operations for all periods presented in statement of operation. 2. Revenues of $35.2m and $49.4m for three months ended March 31,
2004, and 2003 respectively. 3. Income from operations = $14.3m.
1. Included no depreciation and amortization charges in 1Q04
vs. $9.8m, which included depreciation and amortization charges of $9.9m, in 1Q03. 5. Sale of SNG Businesses: 1. Co. also reported loss on sale of SNG Businesses of $28.9m. 1. Mainly due to writeoff of remaining goodwill and intangible assets related to businesses sold. 2. Since sale did not close prior to March 31, 2004, assets and liabilities relating to sale have been consolidated and shown separately as either assets held for sale or liabilities
related to assets held for sale on balance sheet at March 31,
2004. 6. Income Tax: 1. $440m in upfront patent and license distribution fees received from Comcast and EchoStar is a taxable event in 2004. 2. Co. made some minor income tax payments in 1Q04, but expects to pay approx. $140m in federal and state income taxes over remainder of the year. 3. Income tax accounting complicated. 1. A significant portion of the $140m expected income tax payment will be recorded as deferred tax assets on balance sheet. 2. Accounting rules do not allow co. with recent history of taxable losses to assume there will be future taxable income to support carrying deferred taxes as an asset on balance sheet. 1. Therefore, co. is required to record a valuation allowance against deferred tax asset. 2. Valuation allowance causes significant increase in income tax expense for 2004 and drives effective tax rate for 2004 to approx. 151.5%. 3. Computed rate was applied in 1Q and will be applied to remaining quarters of year. 4. In the event co. records taxable income in future, valuation allowance could be reversed at a future date. 4. On a normalized basis, effective tax rate would likely be 39-42%. 7. Revenue: 1. Revenues for ongoing businesses in 1Q = $195.2m, up $16.7m from 1Q03.
1. Increase primarily due to settlement with Pioneer that resulted in one-time payment of $14m and settlement with Samsung that accounted for additional one-time payment of $5.4m. 2. Co. generates revenue from three primary sources, each contributing about a third of consolidated revenue: 1. In 1Q04, excluding one-time payments, approx. 28% related to subscriptions and licenses. 2. 30% from circulation. 3. 34% advertising. 8. Operating Income: 1. In 1Q04, continuing operations reported operating income of $26.6m. 1. Included stock compensation, depreciation and amortization
expenses of $8.8m and one-time payment of $19.4m received from Pioneer and Samsung. 2. In 1Q03, operating loss was $86.4m, which included $95.3m in stock compensation, depreciation, and amortization expenses. 2. For 1Q, continuing operations reported a loss of $0.03 per diluted share or $13.4m. 1. Loss included significantly higher effective tax rate. 2. Compares to loss of $0.13 per diluted share or $51.4m in 1Q03, where co. saw income tax benefit of $33.8m.
3. Taking into account discontinued operations of SNG businesses,
net loss for 1Q04 was $0.09 per diluted share or $39.8m vs.
net loss of $0.11 per diluted share or $45.4m in 1Q03 9. Cash:
1. Co. ended 1Q with cash and cash equivalents and marketable
securities, less outstanding indebtedness, of $341.1m. 1. Amount does not include $80.2m in restricted cash. 2. Subsequent to end of quarter, co. brought in additional $236m in cash from EchoStar deal. 3. In April 2004, co. repaid outstanding principal amount of $138.4m under …