Gemstar-TV Guide Announces Fourth Quarter and Full Year 2006 Results

Gemstar-TV Guide International, Inc. (NASDAQ:GMST) announced that for the year ended December 31, 2006, the Company reported consolidated revenues of $571.3 million compared with $604.2 million in 2005. Revenues for the Company’s Cable and Satellite and Consumer Electronics segments increased 11% and 13% respectively, versus 2005. Consolidated revenues for the fourth quarter of 2006 were $145.0 million, an increase of 12% versus the prior year’s quarter. Operating income for 2006 was $66.9 million, which included depreciation and amortization charges of $33.2 million, compared with an operating loss of $(35.7) million for 2005, which included depreciation and amortization charges of $29.2 million. The Company’s 2006 operating income was positively impacted by increased revenues in most of the Company’s business units and the reversal of accrued expenses due to the resolution of matters associated with two former officers of the Company, primarily in the fourth quarter. Net income for 2006 was $72.5 million, or $0.17 per share, compared with a net income of $54.8 million, or $0.13 per share in 2005. Net income for 2006 included the positive impact of $42.2 million related to the resolution of disputes involving two former officers of the Company. Net income for 2005 included the positive impact of $34.2 million from the Company’s discontinued SkyMall operations, and the recognition of a $40.4 million income tax benefit from continuing operations. Rich Battista, Gemstar-TV Guide CEO, commented, "We had a very productive fourth quarter, which finished off a solid year for the Company. In 2006, we were highly focused on improving performance in all of our businesses while building on the value of our assets. Signaling the growing importance of our intellectual property, both internationally and in emerging platforms, we signed new licensing agreements with industry leaders like BSkyB and Yahoo. TV Guide Magazine finished 2006 with a better than expected performance, and the year marked an end to an unfortunate chapter in the company’s history when we concluded disputes with two former corporate officers.” Mr. Battista continued, "In 2006, we created a product development and technology group to focus on developing cross-platform, next generation guidance tools and services for both traditional and digital media platforms, and we expect to bring new products to market in 2007. In today’s increasingly complex media landscape that has swiftly moved beyond linear television, our company’s multi-platform strategy is well-timed. As a result, we are well positioned for growth and I am confident we will succeed in continuing to build value for our shareholders." 2006 COMPANY HIGHLIGHTS -- Expanded patent licensing business internationally and to emerging platforms by signing new agreements with British Sky Broadcasting plc. in the UK, Presentcast in Japan, and Yahoo! worldwide. -- Entered into IPG license agreements with major customers including Charter Communications, Cox Communications, Panasonic, Philips, and Samsung. -- Established cross-platform product development and technology group to focus on next generation guidance products and services, expanding innovation and creating new offerings for emerging digital platforms. -- Significantly expanded footprint in digital platforms including Online, Broadband, VOD and Mobile. -- Re-launched www.tvguide.com; increased average monthly unique users by 20% to 3.1 million and annual page views by 36% to 676 million; acquisitions made with sites having an aggregate of 1.2 million average monthly unique users. -- TV Guide Broadband signed content distribution agreements with AOL, Google and Brightcove. -- TV Guide SPOT increased distribution by 69% to 26 million digital homes. -- TV Guide Mobile signed agreements with Cingular, Sprint, and Verizon. -- Reduced losses at TV Guide Magazine to $44 million, lower than our previous projections; latest MRI estimated weekly readership at 21.3 million, significantly higher than projected. -- Resolved legacy legal issues with two former officers, resulting in $42 million positive impact to earnings. FOURTH QUARTER AND FULL YEAR 2006 SEGMENT FINANCIAL PERFORMANCE The schedule below reflects Gemstar-TV Guide’s performance for the fourth quarters of 2006 and 2005 and for the years ended December 31, 2006, and 2005 by segment. The following segment information is presented and reconciled to consolidated income (loss) from continuing operations before income taxes. Certain prior period amounts, including the results of discontinued operations, have been reclassified to conform to the current presentation. More detailed information is contained in the Company’s Form 10-K for the year ended December 31, 2006, which was filed with the Securities Exchange Commission earlier today. GEMSTAR-TV GUIDE INTERNATIONAL, INC. CONSOLIDATED CONTINUING SEGMENT PERFORMANCE (1) (In thousands)   Three Months ended December 31, Year ended December 31,   2006  2005  2006  2005  Cable and Satellite: Revenues $ 80,725  $ 69,839  $ 302,183  $ 271,813  Operating expenses(2) 42,257  43,182  168,473  163,448  Adjusted EBITDA(3) 38,468  26,657  133,710  108,365    Publishing: Revenues 41,222  37,303  162,087  237,900  Operating expenses, exclusive of lease settlement(2) 54,405  80,331  208,382  331,343  Adjusted EBITDA(3) (13,183)   (43,028)   (46,295)   (93,443)   Consumer Electronics: Revenues 23,039  22,226  106,984  94,479  Operating expenses(2) 17,069  14,259  57,757  54,296  Adjusted EBITDA(3) 5,970  7,967  49,227  40,183    Corporate: Operating expenses, net(2) (8,589)   18,933  34,567  61,455  Adjusted EBITDA(3) 8,589  (18,933)   (34,567)   (61,455)   Consolidated: Revenues 144,986  129,368  571,254  604,192  Operating expenses(2) 105,142  156,705  469,179  610,542  Adjusted EBITDA(3) 39,844  (27,337)   102,075  (6,350)   Stock compensation (564)   (38)   (2,027)   (132) Depreciation and amortization (8,194)   (8,155)   (33,181)   (29,184) Operating income (loss) 31,086  (35,530)   66,867  (35,666) Interest income, net 8,036  4,564  26,602  15,544  Other income, net 420  661  757  337  Income (loss) from continuing operations before income taxes $ 39,542  $ (30,305)   $ 94,226  $ (19,785)   (1) Segment information is presented and reconciled to consolidated income (loss) from continuing operations before income taxes in accordance with SFAS No. 131. Intersegment revenues and expenses have been eliminated from segment financial information as transactions between reportable segments are excluded from the measure of segment profit and loss reviewed by the chief operating decision maker.   (2) Operating expenses means operating expenses, excluding stock compensation, depreciation and amortization and impairment of intangible assets.   (3) Adjusted EBITDA is defined as operating income (loss), excluding stock compensation, depreciation and amortization, and impairment of intangible assets. The Company believes Adjusted EBITDA to be relevant and useful information as Adjusted EBITDA is the primary measure used by our chief operating decision maker to evaluate the performance of and make decisions about resource allocation to the industry segments. Cable and Satellite Revenues for the fourth quarter ended December 31, 2006 were $80.7 million, an increase of 16% versus the prior year’s quarter. The increase was due to revenue increases of 28% at TV Guide Interactive, 18% at TVG Network, and 4% at TV Guide Channel. Adjusted EBITDA in the fourth quarter increased to $38.5 million, a 44% increase, versus the prior year’s quarter due to the increase in revenues noted above. Revenues for the full year ended December 31, 2006 were $302.2 million, which represented 53% of the Company’s total revenue. Revenues for 2006 increased 11% from revenues of $271.8 million in 2005. This was primarily due to: a 20% increase in TV Guide Interactive revenue; an 11% increase in TVG Network revenue due to increased wagering and licensing fees; and a 4% increase in TV Guide Channel revenue, primarily attributable to increased CPMs in national advertising revenue. Adjusted EBITDA in 2006 increased to $133.7 million, a 23% increase versus 2005. This was largely due to increased revenues mentioned above, offset primarily by anticipated higher programming and marketing expenses at the TV Guide Channel. Publishing Revenues for the fourth quarter ended December 31, 2006 were $41.2 million, an increase of 11% versus the prior year’s quarter. The increase was primarily due to an advertising revenue increase at TV Guide magazine. TV Guide Online increased revenues 36% versus the prior year’s quarter, driven by stronger advertising. Negative adjusted EBITDA in the fourth quarter was $(13.2) million, a 69% improvement versus the prior year’s quarter. This was primarily due to the increase in revenues noted above, and lower cost of production and operating expenses. In addition, the fourth quarter ended December 31, 2005, included $8.4 million in operating and shut-down costs related to the former Inside TV magazine. Revenues for the full year ended December 31, 2006 were $162.1 million, which represented 28% of the Company’s total revenue. Revenues for 2006 decreased 32% from revenues of $237.9 million in 2005. This was primarily due to anticipated decreases in advertising and circulation revenues as a result of launching the full-size magazine. Negative adjusted EBITDA in 2006 was reduced to $(46.3) million, an improvement of 50%, or $47.1 million, versus 2005. This substantial improvement was largely due to reduced expenses at TV Guide magazine resulting from the lower circulation base and the absence of $32.4 million in expenses related to the former Inside TV magazine. Consumer Electronics Revenues for the fourth quarter ended December 31, 2006 were $23.0 million, an increase of 4% versus the prior year’s quarter. The increase was primarily due to a 55% increase in IPG Patent License revenues and a 28% increase in IPG Technology revenues, offset by a 44% decrease in VCR Plus+ revenues. Adjusted EBITDA in the fourth quarter decreased to $6.0 million, a 25% decline versus the prior year’s quarter. The decrease was primarily due to decreased VCR Plus + revenues. Revenues for the full year ended December 31, 2006 were $107.0 million, which represented 19% of the Company’s total revenue. Revenues for 2006 increased 13% from revenues of $94.5 million in 2005. This increase was primarily due to a 55% increase in IPG patent revenues and a 46% increase in IPG Technology revenues. Partially offsetting this was a 15% decrease in VCR Plus+ revenues, due to a reduction in units shipped that incorporate VCR Plus+ technology, including the absence of reported units shipped from two manufacturers during most of 2006. Adjusted EBITDA in 2006 increased to $49.2 million, a 23% increase versus 2005, principally due to the revenues noted above. Corporate Adjusted EBITDA in the fourth quarter was $8.6 million compared with adjusted EBITDA of negative $(18.9) million in the prior year’s quarter. This improvement was primarily due to the reversal of $29.5 million in accrued expenses resulting from a favorable ruling on the Company’s arbitration with Mr. Yuen, a former officer of the Company. Adjusted EBITDA in 2006 was negative $(34.6) million compared with an adjusted EBITDA of negative $(61.5) million in 2005. This improvement was primarily due to the reversal of $40.1 million in accrued expenses relating to Ms. Leung and Mr. Yuen, two former officers of the Company, offset by increased strategic initiatives spending. CASH & LIQUIDITY The Company reported full year positive operating cash flow of $76 million, an increase of $198 million over 2005 due to an increase in operating income and income tax refunds in the current year versus payments in the prior year. At December 31, 2006, the Company’s cash, cash equivalents and current marketable securities were $513.6 million, excluding restricted cash of $31.8 million, an increase of $39.2 million versus the year ended December 31, 2005. Outstanding short- and long-term debt, made up entirely of capital lease obligations, were $12.7 million, compared with $13.3 million at year end 2005. CONFERENCE CALL Gemstar-TV Guide will host a conference call with the financial community today, Wednesday, February 28, 2007 at 2:00 p.m. PST (5:00 p.m. EST). Rich Battista, chief executive officer, and Bedi A. Singh, chief financial officer, will present management’s review of the fourth quarter and full year 2006, followed by a question and answer period. The conference call will be available on conference call lines and will be web cast. Investors and analysts may connect to the call by dialing (800) 299-7635 (domestic) or (617) 786-2901 (international). The pass code is "76088908". To listen via web cast, link to the Company's Web site: http://ir.gemstartvguide.com. Investors unable to listen to the call live may access an audio replay, which will be hosted for one week following the conclusion of the call. To access the replay, call (888) 286-8010 (domestic) or (617) 801-6888 (international). The pass code is "84969214". An audio archive will also be hosted on the Company’s investor relations Web site at http://ir.gemstartvguide.com. Replays will be available approximately two hours following the conclusion of the call. About Gemstar-TV Guide International, Inc. Gemstar-TV Guide International, Inc. (the "Company”) (NASDAQ: GMST) is a leading media, entertainment and technology company that develops, licenses, markets and distributes technologies, products and services targeted at the television guidance and 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. This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance or results to differ materially from those in the forward-looking statements, including risks and uncertainties related to the transformation of our TV Guide magazine publishing business; timely availability and market acceptance of products and services incorporating the Company's technologies and content; our investment in new and existing businesses, including TV Guide magazine, TV Guide Spot and TV Guide Mobile; the impact of competitive products, services and pricing; ongoing and potential future litigation; and the other risks detailed from time to time in the Company's SEC reports, including the most recent reports on Forms 10-K, 10-Q and 8-K, 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 Spot and TV Guide Mobile are trademarks or registered trademarks of Gemstar-TV Guide International, Inc. and/or its subsidiaries. The names of other companies, products and services used herein are for identification purposes only and may be trademarks of their respective owners. GEMSTAR-TV GUIDE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)   December 31,   2006  2005  ASSETS Current assets: Cash and cash equivalents $ 464,637  $ 465,131  Restricted cash 31,814  39,484  Marketable securities 48,938  9,253  Receivables, net 73,786  77,230  Deferred tax assets, net 13,491  21,305  Current income taxes receivable 49,588  50,204  Other current assets   18,329    29,348  Total current assets 700,583  691,955  Property and equipment, net 68,182  51,127  Indefinite-lived intangible assets 61,921  61,800  Finite-lived intangible assets, net 92,340  107,638  Goodwill 260,503  259,524  Income taxes receivable, long-term 22,731  55,629  Deferred tax assets, long-term 3,141  10,143  Other assets   14,336    21,866    $ 1,223,737  $ 1,259,682    LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 32,392  $ 29,111  Accrued liabilities 104,259  166,285  Income taxes payable —  3,259  Current portion of capital lease obligations 605  558  Current portion of deferred revenue   128,516    139,913  Total current liabilities 265,772  339,126  Long-term capital lease obligations, less current portion 12,111  12,715  Deferred revenue, less current portion 368,950  425,286  Other liabilities 123,779  109,349  Commitments and contingencies —  —  Stockholders’ equity: Preferred stock, par value $.01 per share; authorized 150,000 shares, none issued —  —  Common stock, par value $.01 per share; authorized 2,350,000 shares; 433,759 shares issued and 427,889 shares outstanding at December 31, 2006; 433,759 shares issued and 426,162 shares outstanding at December 31, 2005 4,337  4,337  Additional paid-in capital 8,456,117  8,465,785  Accumulated deficit (7,950,421) (8,022,885) Accumulated other comprehensive income, net of tax 665  477  Treasury stock, at cost; 5,870 shares at December 31, 2006 and 7,597 shares at December 31, 2005   (57,573)   (74,508)   Total stockholders’ equity   453,125    373,206    $ 1,223,737  $ 1,259,682    For additional information please see Notes to Consolidated Financial Statements in Form-10K. GEMSTAR-TV GUIDE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)   Three Months Ended December 31, Year Ended December 31, 2006  2005  2006  2005  (Unaudited) Revenues: Cable and Satellite $80,725  $69,839  $302,183  $271,813  Publishing 41,222  37,303  162,087  237,900  Consumer Electronics 23,039  22,226  106,984  94,479  144,986  129,368  571,254  604,192  Operating Expenses: Cable and Satellite 42,433  43,182  169,104  163,448  Publishing 54,502  80,331  208,732  331,343  Consumer Electronics 17,112  14,259  57,936  54,296  Corporate (8,341)   18,971  35,434  61,587  Operating expenses, exclusive of expenses shown below 105,706  156,743  471,206  610,674  Depreciation and amortization 8,194  8,155  33,181  29,184  113,900  164,898  504,387  639,858    Operating income (loss) 31,086  (35,530)   66,867  (35,666) Interest income, net 8,036  4,564  26,602  15,544  Other income, net 420  661  757  337  Income (loss) from continuing operations before income taxes 39,542  (30,305)   94,226  (19,785)   Income tax expense (benefit) 7,731  (13,512)   21,762  (40,395)         Income (loss) from continuing operations before taxes 31,811  (16,793)   72,464  20,610  Discontinued operations: Income from discontinued operations -  3,347    -  8,394  Gain on disposal of discontinued operations -  43,169  -  43,169  Income tax expense -  17,049  -  17,358  Income from discontinued operations -  29,467  -  34,205  Net income $31,811  $12,674  $72,464  $54,815    Basic and diluted per share: Income (loss) from continuing operations $0.07  (0.04)   $0.17  $0.05  Income from discontinued operations 0.00    0.07  -  0.08  Net income $0.07    $0.03  $0.17  $0.13  Weighted average shares outstanding: Basic 426,305  426,162  426,219  425,366  Diluted 426,420  426,264  426,288  426,240    See accompanying Notes to Consolidated Financial Statements in Form 10-K. GEMSTAR-TV GUIDE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)   Year ended December 31, 2006  2005  Cash flows from operating activities: Net income $ 72,464  $ 54,815  Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 33,181  30,140  Deferred income taxes 14,816  (55,859) Gain on disposal of discontinued operations -  (43,169) Stock compensation expense 2,027  132  Other 3,995  4,846  Changes in operating assets and liabilities: Receivables 4,010  28,107  Restricted cash 7,670  (604) Income taxes 30,255  (40,475) Other assets 14,958  6,939  Accounts payable, accrued liabilities and other liabilities (39,236)   (31,167) Deferred revenue (67,733)   (75,406) Net cash provided by (used in) operating activities 76,407  (121,701)   Cash flows from investing activities: Purchases of minority interests and investments (3,242)   -  Proceeds from dispositions of businesses -  43,257  Purchases of marketable securities (103,285)   (22,932) Sales and maturities of marketable securities 63,585  25,099  Proceeds from sale of assets 9  144  Additions to property and equipment (33,803)   (22,093) Net cash (used in) provided by investing activities (76,736)   23,475    Cash flows from financing activities: Repayments of capital lease obligations (557)   (516) Proceeds from exercise of stock options 226  5,662  Excess tax benefit from exercise of stock options 19  -  Net cash (used in) provided by financing activities (312)   5,146    Effect of exchange rate changes on cash and cash equivalents 147  (318) Net decrease in cash and cash equivalents (494)   (93,398) Cash and cash equivalents at beginning of period 465,131  558,529  Cash and cash equivalents at end of period $ 464,637  $ 465,131    Supplemental disclosures of cash flow information: Cash paid for income taxes $ 14,232  $ 93,643  Cash received from income tax refunds 52,434  -  Cash paid for interest 1,043  1,085    For additional information please see Notes to Consolidated Financial Statements in Form-10K. Cable and Satellite Revenue by Business Unit (in thousands):   Three months ended Full Year ended December 31, Change December 31, Change 2006  2005  Dollars Percent 2006  2005  Dollars Percent TV Guide Channel $ 32,233  $ 30,914  $ 1,319  4.3 % $ 129,249  $ 124,064  $ 5,185  4.2 % TV Guide Interactive 31,999  25,060  6,939  27.7 % 115,380  96,115  19,265  20.0 % TVG Network 16,365  13,831  2,534  18.3 % 57,175  51,552  5,623  10.9 % Other 128  34  94  276.5 % 379  82  297  362.2 % Total $ 80,725  $ 69,839  $ 10,886  15.6 % $ 302,183  $ 271,813  $ 30,370  11.2 % Publishing Revenue by Business Unit (in thousands):   Three months ended Full Year ended December 31, Change December 31, Change 2006  2005  Dollars Percent 2006  2005  Dollars Percent TV Guide Magazine(1) $ 36,715  $ 34,878  $ 1,837  5.3%   $ 149,929  $ 229,580  $ (79,651)   (34.7)% TV Guide Online 3,015  2,223  792  35.6%   10,246  8,006  2,240  28.0% Other 1,492  202  1,290  638.6%   1,912  314  1,598  508.9% Total $ 41,222  $ 37,303  $ 3,919  10.5%   $ 162,087  $ 237,900  $ (75,813)   (31.9)%     (1) TV Guide magazine revenues are reported net of rack costs, retail display allowances, distribution fees and initial placement order ("IPO”) fees. IPO fees are initial fees paid to retailers for front end display pocket space at check out counters. Consumer Electronics Revenue by Business Unit (in thousands):   Three months ended Full Year ended December 31, Change December 31, Change 2006  2005  Dollars Percent 2006  2005  Dollars Percent IPG Patent Licensing $10,592  $6,829  $3,763  55.1% $39,650    $25,606  $14,044  54.8 % IPG Technology 5,719  4,481  1,238  27.6% 25,506  17,451  8,055  46.2 % VCR Plus + 5,169  9,238  (4,069)   (44.0)%   36,237  42,375  (6,138)   (14.5)% Other 1,559  1,678  (119)   (7.1)%   5,591  9,047  (3,456)   (38.2)% Total $ 23,039  $ 22,226  813    3.7% $ 106,984  $ 94,479  $ 12,505  13.2 % ADDITIONAL SEGMENT OPERATING STATISTICS: Cable and Satellite Operating Statistics   As of December 31, 2006  2005  Subscriber Data (in thousands)(1) TV Guide Channel 79,717  77,353  TVG Network 19,400  18,000  Domestic Cable and Satellite Technology Licenses 49,461  40,467  International Cable and Satellite Technology Licenses 9,534  1,100  (1) Subscriber data represents:   --  Nielsen households for TV Guide Channel   --  Domestic households for TVG Network are based primarily on information provided by distributors   --  Domestic Cable and Satellite Technology Licenses is the number of subscribers that receive either our IPG or another party's IPG provided under a patent license agreement from us, based upon information reported by cable and satellite providers.   --  International Cable and Satellite Technology Licenses in the number of subscribers that receive either our IPG or another party's IPG provided under a patent license agreement from us, based upon information reported by cable and satellite providers. Publishing Operating Statistics:   (in thousands) TV Guide Magazine circulation(1): Q4, 2006 Q4, 2005 2006  2005  Newsstand(2) 257  401  285  330  Subscriptions 2,789  4,575  3,089  5,486  Sponsored/arrears 236  604  133  2,408  3,282  5,580  3,507  8,224    tvguide.com Unique Users(3) 3,620  2,833  3,099  2,589    (1) Average weekly circulation for the quarter and year ending December 31. 2005 quarter and annual numbers include 11 weeks of the new full-sized TV Guide magazine.   (2) Current period numbers include an estimate for returns. Prior period numbers are restated to reflect actual returns.   (3) Average monthly unique users as measured by Nielsen/Net Ratings