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Gemstar Agrees to $10-Million Settlement

June 24, 2004|Sallie Hofmeister | Times Staff Writer

Removing another obstacle on the road to its recovery, Gemstar-TV Guide International Inc. agreed Wednesday to pay $10 million to settle allegations by federal regulators that it overstated revenue.

The money will be distributed to shareholders hurt by the Los Angeles company's questionable accounting, according to the Securities and Exchange Commission, which had accused Gemstar of inflating revenue from 1999 through 2002.

The settlement is the latest problem resolved by a new management team installed in late 2002 after Gemstar's founder, Henry Yuen, was ousted.

The settlement "is a huge relief," said analyst John Tinker, who covers the company for ThinkEquity Partners in New York. "It puts this behind them."

In announcing the settlement, the SEC acknowledged the significant cooperation of Gemstar under the new team, led by Chief Executive Jeff Shell.

Gemstar, which publishes TV Guide and produces electronics guide software, has restated its financials three times since Shell took charge in late 2002, reversing revenue by a total of $377 million.

In settling with the SEC, the company didn't acknowledge any wrongdoing.

Yuen and Gemstar's chief financial officer, Elsie Leung, were forced out in late 2002 after the disclosure of Gemstar's accounting irregularities. Billions of dollars in shareholder value were subsequently wiped out as Gemstar's stock plunged.

The SEC filed charges against the two former Gemstar executives a year ago, alleging that they overstated revenue by at least $248 million.

That represents another hurdle for Gemstar: It is by law required to pay for the legal defense of the two former executives, who recently sued the company for paying their bills too slowly.

And soaring legal expenses have helped weigh down Gemstar's stock: Legal fees topped $77 million last year, higher than many analysts expected.

Gemstar stock rose 21 cents Wednesday, closing at $4.82 a share on Nasdaq. The shares, which hit an all-time high of $101.38 in 2000, are hovering near a 52-week low.

What's more, TV Guide has performed poorly, suffering from a decline in advertising and readership.

Gemstar must also resolve a lawsuit against Scientific-Atlanta Inc., which it has accused of infringing on its interactive programming guide in its cable set-top boxes.

Recently, in addition to resolving several other patent infringement lawsuits, the company paid $67.5 million to settle a group of shareholder lawsuits. Tinker said that with $500 million in cash on its books and the SEC liability removed, Gemstar could now consider making acquisitions and concentrate on undervalued assets such as the TV Guide channel, which is launching a makeover.

It has raided the ranks of E!, a rival entertainment channel that has suffered from management turmoil, and is now targeting the channel's talent. Gemstar is close to signing a multimillion-dollar deal with Joan and Melissa Rivers, the mother-daughter on-air team whose work on the red carpet of award shows has brought E! some of its top ratings.

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