===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF1934
For the fiscal year ended December 31, 2000
/ / 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 0-20939
CNET Networks, Inc.
(Exact Name of registrant as specified in its charter)
Delaware 13-3696170
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Chestnut Street
San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 364-8000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Title of class
Common Stock, $0.0001 par value
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the 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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /X/
The aggregate market value of common stock held by non-affiliates, based
on the closing price at which the stock was sold, at March 30, 2001
approximated $1.1 billion.
The total number of shares outstanding of the issuer's common stock (its
only class of equity securities), as of March 30, 2001 was 136,189,844
Information is incorporated by reference into Part III of this
Form 10-K from the registrant's definitive proxy statement for its
2001 annual meeting of stockholders, which will be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
===============================================================================
PART I
Item 1. Business
OVERVIEW
CNET Networks, Inc., the global source of technology and commerce-
related information, data, exchanges and services, produces a branded
Internet network, a print publication, a computer product database and
television and radio programming for both consumers and businesses.
Using unbiased content as our platform, CNET Networks has built
marketplaces for technology and consumer products, and, through our
CNET Data Services subsidiary, is the primary provider of information
powering the computer and electronics sales and distribution channels.
The Company's Internet operations are comprised of our Internet
network, CNET Data Services and CNET ChannelOnline businesses. The
Company's Internet network -- including CNET.com, ZDNet.com,
mySimon.com, and its dozens of sub-brands -- serves millions of users
each day. Our global media network includes an Internet presence in
over 25 countries. CNET Data Services (CDS) licenses access to its
multi-lingual product database to U.S. and European online computer
retailers, resellers and e-commerce companies, and ended the year with
approximately 135 licensing agreements. CNET ChannelOnline is a Web
browser-based application provided to Value Added Resellers (VARs) and
coupled with CDS' data to streamline business and technology transactions
in a centralized product procurement marketplace. At December 31, 2000,
CNET ChannelOnline's VAR customer base included approximately 400
unique users enabling over $2.0 billion in annualized commerce
transactions through the subscription service.
The Company's broadcast and publishing operations are comprised of
television, radio and print businesses. The Company's News.com
television programming airs on CNBC on Saturday and Sunday afternoons.
CNET Radio airs in the San Francisco Bay Area on KNEW 910 AM. CNET
Networks' Computer Shopper magazine boasts a circulation of more than
500,000 and continues as the largest selling computer publication on
newsstands.
We seek to use our editorial, technical, and programming expertise
and our product databases to provide news, product information,
product reviews, prices and availability to help business and
consumers make informed technology and non-technology buying
decisions. Based on the volume of traffic over our branded online
network, we have established a leadership position in our market. In
2000, CNET Networks' millions of online users viewed more than 12.2
billion pages, on a full year, combined basis, including CNET.com,
ZDNET.com and mySimon.com, making CNET Networks the most used
source for computer and technology information.
CNET Networks' products and services provide a platform for
advertisers to create brand awareness and sell products to our large,
tech-savvy audience. At the end of 2000, we had relationships with
approximately 1,400 advertisers. The Company is also actively
providing information and services to business to enable and enhance
online retailing of computer and technology products. Our products
and services are designed to inform buyers and link them with sellers
of products and services to create a dynamic, efficient marketplace.
We earn revenues from:
- - sales of digital marketing, banner and sponsorship advertisements on
our internet network
- - fees based on the number of CNET.com, ZDNet.com and mySimon.com users
who click on an advertisement or text link to visit the websites of
our merchant partners, which we refer to as "leads"
- - revenues from licensing our original content
- - revenues from licensing our CDS product database
- - revenues from subscriptions to our ChannelOnline product procurement service
- - advertising sales and licensing fees from our print publication,
television and radio programming
MARKET OPPORTUNITY
The Internet has emerged as a global medium, enabling millions of
people to share information, communicate, and conduct business
electronically. The growth in Internet users, combined with the Web's
reach has created a powerful channel for conducting commerce,
marketing and advertising. We believe that there is a significant
opportunity for a Company to act as a trusted, value-added online
intermediary to connect buyers and sellers.
CNET Networks' content, products and services are substantially
focused on the technology sector due to its characteristics and size.
We believe that buyers of technology products typically research
product capabilities and compare prices before making a purchase
decision. Due to its interactive nature, the Web has emerged as a
medium that allows buyers to complete that research. At the same
time, advertisers can more easily deliver targeted messages to these
buyers.
The global information technology sector, which is primarily made up
of PCs, software, peripheral, consumer electronics, wireless services
and information technology services, was estimated to represent
approximately $950 billion in 2000 according to International Data
Corporation. In addition, CMR estimates that technology-related
companies spent $15.6 billion on offline advertising in 2000, with
$7.5 billion, or 50% of that spent on print. This category is
expected to grow to $1.3 trillion in 2003. We believe our revenue
opportunity is tied to the amount spent marketing to generate these
sales.
CUSTOMERS
For each of the years ended December 31, 2000 and 1999, there were no
customers that contributed more than 10% of the Company's revenues.
For the year ended December 31, 1998, one customer, USA Networks,
accounted for approximately 10% of the Company's revenues.
SOME MAJOR DEVELOPMENTS
CNET Networks has historically focused on the technology sector for
the reasons just described. The Company's February 2000 acquisition
of mySimon strengthens our position in the technology sector and
expands our business model to other categories. mySimon's breadth of
product categories and merchant search capabilities simplifies and
organizes the e-commerce landscape by offering a single destination
devoted to informing online shoppers in every category.
On October 17, 2000, CNET Networks consummated its acquisition of
ZDNet Inc. with ZDNet surviving as a wholly owned subsidiary of
CNET Networks. As a result of the merger, each share of ZD common
stock was converted into 0.3397 shares of CNET common stock and each
share of ZDNet common stock was converted into 0.5932 shares of CNET
common stock. The merger created a top-ten global Web property and
the leading online provider of technology information and services for
buyers, sellers and suppliers, with a presence in 25 countries and 16
languages. By combining the complementary strengths and management
teams of the two leading interactive technology companies,
we believe that the merger will enable us to broaden our audience
of users, realize opportunities to enhance content and services,
leverage our strengths to enhance revenue and EBITDA, and
capitalize on potential business development opportunities.
On July 14, 2000, the Company announced that it acquired Apollo
Solutions, Inc., which provides a Web-based application where Value
Added Resellers (VARs), IT consultants and resellers can access real-
time product information, pricing, and availability from multiple
manufacturers and distributors. This acquisition resulted in the
formation of our CNET ChannelOnline product.
On December 12, 2000, CNET Networks announced that it has made a cash
investment of $6 million to buy the 81 percent interest in its joint
venture with Asiacontent.com and gain ownership of seven CNET Web
sites throughout Asia, which included CNET sites in Singapore, Hong
Kong, Malaysia, Taiwan, People's Republic of China, India and Korea.
CNET NETWORKS MEDIA
This division includes all aspects of the US-based ZDNet and CNET
media brands, providing a trusted source of information and services
to individuals and businesses of all sizes, empowering them to make
informed buying decisions for technology products and services.
Our online network offers information and commerce services
focused on computing and technology to millions of users each day
under the CNET and ZDNet brands. It is the leading online source
of information for people who to learn what is new in technology,
what to buy, where to buy it and how to use it. It also includes
our two award winning news sites, news.com and zdnn.com, both of
which focus on the latest beaking news and in-depth coverage of
the technology industry.
mySimon (www.mysimon.com) was the leading comparison-shopping Web site
in December 2000 according to Media Metrix. mySimon's easy-to-use
Internet shopping service helps consumers find the best values for
anything sold on the Web. mySimon searches hundreds of millions of
products at more than 2,600 stores online.
Computer Shopper magazine is the leading offline source of advice for
buyers of technology products and services. As the largest selling
computer publication on the newsstand, and with a circulation of over
500,000 per month, Computer Shopper magazine offers about 75 product
reviews each month and features articles to help buyers shop for
technology products - online and off.
Our television show, CNET News.com, was launched in October 1999 to
strengthen our brand and compliment our online network. This one-hour
program is broadcast on CNBC. CNET Media Productions, a video
production service, leverages the Company's television resources to
create promotional programming for hi-tech companies including
marketing, public relations, and product review programs.
On January 27, 2000, CNET Networks and AMFM launched CNET Radio, the
first all-technology radio format. CNET Radio is currently broadcast
in the San Francisco Bay Area on KNEW 910 AM. The two companies share
in advertising sales. We also stream a live audio feed of the
broadcast on www.cnetradio.com. The AMFM Radio Group is the largest
radio broadcaster in the U.S., with more than 440 stations in 100
markets reaching a weekly listener base of approximately 64 million
people.
GLOBAL MEDIA
One of the most successful global companies in the Internet space,
CNET Networks has an Internet presence in more than 25 countries,
including wholly owned operations in Australia, China, France,
Germany, Hong Kong, Singapore and the United Kingdom, as well as a
number of joint ventures and licensees around the world. In
aggregate, CNET Networks' international Web sites delivered
approximately 5.4 million average daily page views in the fourth
quarter, up 125 percent from the same quarter of 1999 and representing
12 percent of CNET Networks' total, world-wide page views.
SHOPPING/COMMERCE SERVICES
As part of the Company's Internet network, we provide shopping
services designed to link buyers and sellers of technology products
and services. We help businesses and consumers decide what products to
buy by providing news, reviews, recommendations and product
information. We also help consumers decide where to buy products by
providing real-time prices from competing vendors, merchant ratings,
product availability and shipping costs.
Our shopping services are very efficient marketplaces for sellers of
technology and non-technology products and services trying to reach a
targeted audience of potential buyers. Our shopping services integrate
product and price information from large online retailers, direct
manufacturers and value added resellers (VARs), making CNET Networks
the largest and most complete technology marketplace in the world.
CNET Networks provides sales leads in exchange for a per-lead fee.
During the fourth quarter, the Company estimated that we enabled $700
million in online commerce by delivering over 40 million leads to our
merchant partners.
We believe our innovative shopping services are valuable to consumers
because they provide unbiased information and choice. These shopping
services are valuable to merchants and advertisers because they
provide a platform for creating brand awareness and generating sales
leads. Finally, these services are valuable to CNET Networks and its
shareholders because the fees generated from sales leads are elastic
with the amount of traffic on our site.
CHANNEL SERVICES
CNET Data Services (CDS) has developed a multi-language, multi-market
database containing over 600,000 stock keeping units (SKUs) and
related product images, descriptions and specifications. The data is
available on a licensing basis to online computer retailers, wholesale
distributors, VARs, computer dealers, manufacturers, IT consultants,
systems integrators and other vendors. The service includes
management, maintenance and dynamic updating of database content. As
of December 2000, CDS had signed approximately 135 licenses for its data
with more than 70 U.S. and European online retailers, resellers, wholesale
distributors and e-commerce content providers. Representative
customers include Comark, Commerce One, Dell Computers, Hewlett-
Packard, Ingram Micro, and Yahoo!, among many others.
These relationships position CNET Networks as an integral link in the
chain of business-to-business transactions between computer/technology
resellers and wholesale distributors, and further solidifies our role
as the leading content provider for technology products for both
business buyers and consumers.
CNET ChannelOnline is a leading online IT marketplace that connects
resellers, distributors, and manufacturers and enables them to conduct
online commerce from a single point of access. This subscription-based
ASP platform is powered by our CDS product catalog, allowing customers
to view and compare detailed product specifications, real-time pricing
and availability from multiple distributors, procure products from
suppliers, and connect to corporate customers through customized
extranets. At the end of 2000, CNET ChannelOnline was serving
approximately 400 customers with over 3,000 unique users utilizing the
Company's product procurement services to generate over $2.0 billion
in annualized revenue.
OUR OTHER VENTURES/INVESTMENTS
In exchange for our contribution of our effective 40% interest in
Snap.com into NBC Internet, Inc. (Nasdaq: NBCI) in 1999, we received
approximately 7.1 million shares of NBCI common stock. On February 3,
2000, we engaged in the public sale of 650,000 of our shares of NBC
Internet, Inc. Our remaining interest is 6.5 million shares, of which
1.25 million shares have been pledged in an offering of a Trust
Automatic Common Exchange Security.
As of December 31, 2000, CNET also owned a portion of the following
publicly traded companies:
- - Approximately 682,000 shares of Vignette Corporation (Nasdaq:VIGN),
a manufacturer of Web publishing software
- - Approximately 1,532,000 shares of Mail.com (Nasdaq: MAIL), an e-mail
provider
- - Approximately 1,086,000 shares of Deltathree (Nasdaq: DDDC), a global
Internet Protocol telephony provider
- - Approximately 102,065 shares of Openwave Systems Inc. (Nasdaq: OPWV),
a global Internet telephone provider
- - Approximately 139,000 shares of Siebel Systems, Inc. (Nasdaq:
SEBL), an eBusiness applications provider
In total, CNET had publicly traded securities valued at approximately
$60 million at December 31, 2000. We have also made investments in
several other privately held technology companies with whom we have
business relations. We intend to continue to monetize our investments
over time to create value for shareholders, to build our cash
position, and to fund the Company's growth.
RECENT DEVELOPMENTS
On January 23, 2001, CNET Networks announced it has amended its
content licensing and print publishing contracts with Ziff Davis Media
Inc., reducing the scope, duration and financial commitment of its
previous agreements. Under the revised contracts, which became
effective March 1, 2001, CNET Networks and Ziff Davis Media will share
online rights to content from 11 Ziff Davis Media print magazines for
one year. In addition, Ziff Davis Media will continue to provide
production and circulation services for CNET Networks' Computer
Shopper magazine for up to two years. The changes to the content
license reduce the duration of the previous agreement from five years
to two, terminating on March 1, 2002, and allow for the use of the
magazine content by Ziff Davis Media and by ZDNet and CNET. CNET
Networks will pay Ziff Davis Media a termination fee in exchange
for elimination of all royalty obligations going forward and in
connection with elimination of the annual $5 million fee owed to
Ziff Davis Media under the Computer Shopper agreement.
OUTLOOK
On March 6, 2001, the Company provided revised financial guidance for
the first quarter ending March 31, 2001, estimating that revenue would
be between $75 million and $80 million. Based on the revised revenue
guidance, we expect an EBITDA (Earnings before interest, taxes,
depreciation and amortization expense) loss in the first quarter of
between $5 million and $12 million. CNET Networks expected to provide
updated financial guidance for the remainder of 2001 during its next
quarterly earnings report scheduled for May 1, 2001.
TECHNOLOGY
In 2001, CNET Networks plans to develop a global, standardized web
site delivery platform. By creating this standard platform, CNET
Networks will optimize its ability to simultaneously perform global
product introductions. The Company also expects to create cost
efficiencies by eliminating the need to have redundant Information
Technology resources around the world.
MARKETING
We design our marketing activities to promote our multiple brands and
to attract users, viewers and listeners to our online network, print
publication, and television and radio programming. Our marketing
programs include participation in trade shows, conferences, speaking
engagements, print, television, radio and Internet advertising
campaigns. In 2000, we spent approximately $65.8 million to market
and/or advertise the Company's brands and services through broad media
outlets including television, radio, print, outdoor and online
advertising in a number of major markets and targets information
technology professionals, product purchase decision makers and
technology enthusiasts. We expect to continue to market our brands,
products and services in the future.
COMPETITION
Competition among content and service providers is intense and is
expected to increase significantly in the future. Our operations
compete against a variety of firms that provide content through one or
more media, such as print, broadcast, cable television and the
Internet. As with any other content or service provider, we compete
generally with other content and service providers for the time and
attention of consumers and for advertising revenues. To compete
successfully, we must provide sufficiently compelling and popular
content and services to attract Internet users, television viewers and
radio listeners and to attract advertisers hoping to reach such
audiences.
Within the content niche of information technology and the Internet,
we compete in particular with the publishers of computer-oriented
magazines and Internet services, such as:
- - United Business Media
- - International Data Group
- - Internet.com
- - Ziff Davis Media
In the overall market for Internet users, we compete with other
Internet content and service providers, including Web directories,
search engines, shareware archives, sites that offer original
editorial content, commercial online services, e-commerce sites and
solution providers, and sites maintained by Internet service
providers.
EMPLOYEES
At December 31, 2000, CNET Networks had approximately 1,900 employees
on a worldwide basis. The Company announced in February 2001 that it
planned to eliminate duplication in certain businesses and discontinue
certain non-growth or unprofitable businesses. The implementation of
these decisions reduced the Company's global workforce by
approximately 10 percent.
SEGMENT REPORTING
Information regarding revenues, gross profit (loss) and assets of
CNET's segments is set forth in the consolidated financial statements
included in Item 8 and Note 10 of Notes to the consolidated financial
statements.
CAUTIONARY STATEMENT REGARDING FACTORS THAT MAY AFFECT OUR BUSINESS
AND OUR FUTURE RESULTS
Our disclosure and analysis in this report contains "forward-
looking statements". Forward-looking statements are any statements
about our future that are not statements of historical fact. Examples
of forward-looking statements include projections of earnings, revenues
or other financial items, statements of the plans and objectives of
management for future operations, statements concerning proposed new
products or services, statements regarding future economic conditions
or performance, and any statement of assumptions underlying any of the
foregoing. In some cases, you can identify these statements by the use
of words such as "may", "will", "expects", "should", "believes",
"predicts", "plans", "anticipates", "estimates", "potential", "continue"
or the negative of these terms, or any other words of similar meaning.
These statements are only predictions. Any or all of our forward-
looking statements in this report and in any other public statements
we make may turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in the discussion in this report
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual events or results
may differ materially.
These forward-looking statements are made only as of the date of
this report, and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any
further disclosures we make on related subjects in our 10-Q and 8-K
reports to the SEC. Also note that we provide the following
cautionary discussion of risks, uncertainties and possibly inaccurate
assumptions relevant to our businesses. These are factors that we
think could cause our actual results to differ materially from
expected and historical results. Other factors besides those listed
here could also adversely affect the Company. This discussion is
provided as permitted by the Private Securities Litigation Reform Act
of 1995.
RISK FACTORS
CNET NETWORKS HAS A LIMITED OPERATING HISTORY AND A HISTORY OF
OPERATING LOSSES, WHICH MAKES YOUR EVALUATION OF CNET DIFFICULT. WE
CANNOT ASSURE YOU THAT CNET WILL REPORT NET INCOME IN THE FUTURE.
CNET has a limited operating history. CNET's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in developing industries, particularly
companies in the relatively new and rapidly evolving market for
Internet products, content and services. These risks include:
- an evolving business model
- uncertain acceptance of new services
- competition
- management of growth
We cannot assure you that CNET will succeed in addressing these risks.
If CNET fails to do so, its revenues and operating results could be
materially reduced.
Additionally, CNET's limited operating history, the evolving nature of
the Internet and the emerging nature of the markets in which it
competes makes prediction of future operating results difficult or
impossible. We cannot assure you that CNET's revenues will increase or
continue at their current level or that it will generate positive cash
flow from operations in future periods.
CNET has incurred significant operating losses since inception.
Although CNET has achieved operating profitability in some reporting
periods, it has experienced operating losses in subsequent periods,
including in the first quarter of 2001. CNET may incur additional
losses in the future. CNET has significant amortization of goodwill
created in the ZD merger as well as from its acquisition of mySimon,
Inc. Even if CNET achieves operating profitability, it is unlikely to
generate profits after inclusion of the goodwill amortization until
the goodwill is fully amortized. CNET cannot be certain that it will
achieve, sustain or increase profitability in the future, with or
without goodwill amortization. Any failure to significantly increase
its revenue would materially adversely affect CNET's business,
operating results and financial condition.
CNET MAY EXPERIENCE FLUCTUATIONS IN OPERATING RESULTS AND MAY NOT BE
ABLE TO ADJUST SPENDING IN TIME TO COMPENSATE FOR ANY UNEXPECTED
REVENUE SHORTFALL.
CNET may experience fluctuations in its revenues as a result of a
variety of factors, many of which are outside its control. For
example, CNET experienced a decrease in revenue in the first quarter
of 2001 compared to expectations due to a slowdown in spending by many
advertisers, especially technology advertisers, who experienced a
slowdown in sales during the same period. It is not clear how long
this slowdown will last, and similar slowdowns could occur in the
future.
CNET may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to planned expenditures could
materially reduce CNET's operating results and materially and
adversely affect its financial condition.
Factors that may adversely affect operating results include:
- demand for advertising
- the addition or loss of advertisers, and the size and timing of the
advertising purchases of individual advertisers
- seasonal trends in Internet use and advertising, including the
weighting of much advertising spending toward the fourth quarter
- the amount and timing of capital expenditures and other costs,
including marketing costs, relating to CNET's Internet, television and
radio operations and costs relating to the expansion of CNET's
operations and the introduction of new sites and services
- competition
- CNET's ability to manage effectively its development of new business
segments and markets
- CNET's ability to successfully manage the integration of operations
and technology acquisitions and other business combinations
- CNET's ability to upgrade and develop its systems and infrastructure
- technical difficulties, system downtime, Internet brownouts or
denial of service or other similar attacks
- general economic conditions, as well as economic conditions specific
to advertising, the Internet and Internet media
Due to all of the foregoing factors, CNET's operating results may fall
below its expectations or the expectations of securities analysts or
investors. If this happens, the trading price of CNET's common stock
would likely be materially and adversely affected.
CNET'S INTERNET, TELEVISION AND RADIO CONTENT AND SERVICES MAY NOT
ACHIEVE CONTINUED ACCEPTANCE, WHICH COULD ADVERSELY AFFECT ITS
PROFITABILITY.
CNET's future success depends upon its ability to deliver original and
compelling content and services that attract and retain users. We
cannot assure you that CNET's content and services will be attractive
to a sufficient number of users to generate revenues sufficient to
sustain operations. In addition, we cannot assure you that any new
content or services will be developed in a timely or cost-effective
manner.
The successful development and production of content and services is
subject to numerous uncertainties, including the ability to:
- anticipate and successfully respond to rapidly changing consumer
tastes and preferences
- obtain favorable distribution rights
- fund new program development
- attract and retain qualified editors, producers, writers, technical
personnel and television and radio hosts
If CNET is unable to develop content and services that allow it to
attract, retain and expand a loyal user base that is attractive to
advertisers and sellers of technology products, CNET will be unable to
generate revenue.
COMPETITION IS INTENSE AND IS EXPECTED TO INCREASE SIGNIFICANTLY.
CNET'S FAILURE TO COMPETE SUCCESSFULLY COULD ADVERSELY AFFECT ITS
PROSPECTS AND FINANCIAL RESULTS.
The market for Internet content and services is new, intensely
competitive and rapidly evolving and we expect the competition to
increase significantly. It is not difficult to enter this market and
current and new competitors can launch new Internet sites at
relatively low cost. CNET derives its revenue primarily from
advertising, for which it competes with various media including
newspapers, television, radio and various Internet sites that offer
consumers information similar to that to be provided by CNET. We
cannot assure you that CNET will compete successfully with current or
future competitors. Moreover, increased competition could result in
price reductions, reduced margins or loss of market share, any of
which could have a material adverse effect on our future revenue and
profits.
If CNET does not compete successfully for new users and advertisers,
its financial results may be materially and adversely affected.
TO REMAIN COMPETITIVE, CNET MUST EXPAND ITS OPERATIONS. FAILURE TO
EFFECTIVELY MANAGE GROWTH COULD RESULT IN CNET'S INABILITY TO SUPPORT
AND MAINTAIN ITS OPERATIONS.
CNET has rapidly and significantly expanded its operations. We
anticipate that further expansion of CNET's operations may be required
in order to address potential market opportunities, including
continued expansion of CNET's operations internationally as well as in
its "channel" initiatives as described in the "Business" section. This
rapid growth has placed, and we expect it to continue to place, a
significant strain on our management, operational and financial
resources. We cannot assure you that:
- CNET's current personnel, systems, procedures and controls will
be adequate to support CNET's future operations
- management will be able to identify, hire, train, motivate or manage
required personnel
- management will be able to successfully identify and exploit
existing and potential market opportunities
In addition, CNET could experience a materially negative impact on
earnings as a result of expenses associated with growing its
operations, whether through internal development or through
acquisitions.
IF CNET IS UNABLE TO ATTRACT NEW CUSTOMERS TO ITS SUPPLY CHANNEL
BUSINESSES, IT COULD FAIL TO ACHIEVE EXPECTATIONS FOR REVENUE GROWTH.
CNET's expectations for revenue growth depend in part upon growth in
its businesses that do not derive revenues from advertising. These
include its "channel" business initiatives aimed at supplying data to
and creating marketplaces for the IT supply channel CNET's ability to
meet expectations for revenue growth may depend in part upon its
ability achieve new licenses for the data product and to obtain new
customers to the ChannelOnline product. If CNET is unable to attract
new customers to these channel products, it could fail to achieve its
revenue growth expectations.
IF CNET'S INTERNET USER BASE DOES NOT CONTINUE TO GROW, IT MAY FAIL TO
ACHIEVE EXPECTATIONS FOR REVENUE GROWTH.
The rapid growth in the use of and interest in the Internet is a
recent phenomenon. We cannot assure you that acceptance and use of the
Internet will continue to develop or that CNET will be able to attract
a sufficient number of users to support growth expectations for its
business. If use of the Internet does not continue to grow or grows
more slowly than expected, if CNET does not attract more users despite
Internet growth, or if the Internet infrastructure does not
effectively support growth that may occur, CNET's revenues and
financial condition would be materially and adversely affected.
CNET DEPENDS ON ADVERTISING AS A PRINCIPAL SOURCE OF ITS REVENUE.
CNET'S FINANCIAL RESULTS WILL BE ADVERSELY AFFECTED IF IT FAILS TO
SUSTAIN ADVERTISING REVENUES OR LEAD FEES.
CNET's revenues are derived in large part from the sale of advertising
and other fees, such as lead fees, from sellers of technology products
on their Internet. It is expected that CNET will continue to derive a
significant portion of its revenue from these services. Most of CNET's
advertising contracts will be subject to termination by the customer
at any time on very short notice or it may be difficult to obtain
performance from advertisers who have longer term contracts. If CNET
loses advertising customers, fails to attract new customers or is
forced to reduce advertising rates in order to retain or attract
customers, its revenues and financial condition will be materially and
adversely affected. CNET's ability to generate advertising revenue
will depend on several factors, including:
- - macroeconomic factors such as the general condition of the economy
and consumer spending, which drive advertising purchases
- - the continued development of the Internet as an advertising medium
- - the pricing of advertising on other Internet sites
- - the amount of traffic on CNET's network of sites
- - pricing pressures, delays and new product launches
- - CNET's ability to achieve, demonstrate and maintain attractive user
demographics
- - CNET's ability to develop and retain a skilled advertising sales
force.
CNET DEPENDS ON, AND RECEIVES A SIGNIFICANT PERCENTAGE OF ITS REVENUE
FROM, A LIMITED NUMBER OF ADVERTISERS.
A relatively small number of advertisers contribute a significant
percentage of CNET's revenue. These advertising clients, may not
continue to use CNET's services to the same extent, or at all, in the
future. A significant reduction in advertising by one or more of
CNET's largest advertisers could have a material adverse effect on
CNET's profits and liquidity.
CNET'S ADVERTISING AND OTHER OPERATING REVENUES MAY BE SUBJECT TO
SEASONALITY AND CYCLICALITY, WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON ITS REVENUES AND OPERATING RESULTS.
We believe that advertising sales in traditional media, such as
television, are generally lower in the first and third calendar
quarters of each year than in other quarters and that advertising
expenditures fluctuate significantly with economic cycles. We believe
that the same seasonality and cyclicality trends have become more
pronounced for Internet advertising. Seasonality and cyclicality in
advertising expenditures generally, or with respect to Internet-based
advertising specifically, could have a material adverse effect on
CNET's business, prospects, financial condition and operating results
because advertising expenditures will account for substantially all of
CNET's revenues. CNET may also experience seasonality in its
operating results, particularly in connection with its shopping
services, which may reflect seasonal trends in the retail industry.
The level of consumer retail spending generally decreases in the first
and third calendar quarters.
INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY AFFECT
CNET'S ABILITY TO OPERATE.
CNET's success depends to a large extent on the continued services of
Shelby W. Bonnie, Dan Rosensweig and the other members of CNET's
senior management team. CNET's success is also dependent on our
ability to identify, attract, retain and motivate other highly skilled
officers, key employees and personnel in a very competitive job
environment. CNET does not have long-term employment agreements with
any of its key personnel and does not maintain "key person" life
insurance policies on any of its officers or other employees.
CNET MAY NEED TO SPEND SIGNIFICANTLY MORE MONEY ON ADVERTISING IN THE
FUTURE.
We cannot assure you that our advertising campaigns, or any other
advertising campaign CNET may launch in the future, will be effective.
To remain competitive, CNET may need to spend significantly more money
on advertising in the future and such additional costs could
materially and adversely affect CNET's profits.
CNET'S ABILITY TO ACHIEVE ITS LONG TERM OPERATING MARGIN TARGETS
DEPENDS ON ITS SUCCESSFUL DEPLOYMENT OF COMMON DATA, INFORMATION, AD
DELIVERY AND COMMERCE PLATFORMS
In order to achieve improvements in its long-term operating margins,
CNET has undertaken a significant capital project to unify the data,
information, ad delivery and commerce platforms throughout its
Internet network. If CNET is not able to successfully complete this
process, it could experience significant expense as well as a failure
to improve efficiencies in its business, which could prevent it from
reaching its long-term operating margin targets.
CNET DEPENDS ON ARRANGEMENTS WITH THIRD PARTIES FOR INTERNET
TRAFFIC TO ITS SITES AND ITS FAILURE TO DEVELOP AND MAINTAIN
RELATIONSHIPS WITH THIRD PARTIES COULD ADVERSELY AFFECT CNET'S
FINANCIAL CONDITION.
CNET relies on the cooperation of owners and operators of other
Internet sites with whom it has syndication and other arrangements to
generate traffic for their Internet sites. CNET's ability to maintain
these relationships will continue to be critical to the success of
CNET's Internet operations. If CNET is unable to develop and maintain
satisfactory relationships with such third parties on acceptable
commercial terms, or if CNET's competitors are better able to
capitalize on these relationships, CNET's financial condition and
operating results will be materially and adversely affected.
CNET MAY HAVE DIFFICULTIES WITH ITS ACQUISITIONS AND INVESTMENTS,
WHICH COULD ADVERSELY AFFECT ITS GROWTH AND FINANCIAL CONDITION.
From time to time, CNET may consider new business opportunities and
ventures, including acquisitions, in a broad range of areas. Any
decision by CNET to pursue a significant business expansion or new
business opportunity would be accompanied by risks, including, among
others:
- - requiring CNET to invest a substantial amount of capital, which
could have a material adverse effect on its financial condition and
its ability to implement its existing business strategy
- - requiring CNET to issue additional equity interests, which would be
dilutive to its current stockholders
- - placing additional, substantial burdens on CNET's management
personnel and our financial and operational systems
- - the difficulty of assimilating the operations, technology and
personnel of the combined companies
- - the potential disruption of our ongoing business
- - the possible inability to retain key technical and managerial
personnel
- - additional expenses associated with amortization of goodwill and
other purchased intangible assets
- - additional operating losses and expenses associated with the
activities and expansion of acquired businesses
- - the possible impairment of relationships with existing employees and
advertising customers
In addition, we cannot assure you that CNET will be successful in
overcoming these risks or any other problems encountered in connection
with any transaction or that any transaction will be profitable.
CNET PLANS TO EXPAND ITS INTERNATIONAL OPERATIONS AND MAY ENCOUNTER A
NUMBER OF PROBLEMS DOING SO. THERE ARE ALSO A NUMBER OF RISKS
ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD ADVERSELY AFFECT
CNET'S BUSINESS. EXPANSION OF INTERNATIONAL OPERATIONS.
One component of CNET's growth strategy will be to further expand into
international markets. CNET's international operations will be
expanded into markets where technology and online industries are less
well developed than in the U.S., which may adversely affect CNET's
results of operations.
There are certain risks inherent in doing business in international
markets, such as the following:
- - uncertainty of product acceptance by different cultures
- - unforseen changes in regulatory requirements
- - difficulties in staffing and managing multinational operations
- - state-imposed restrictions on the repatriation of funds
- - currency fluctuations
- - difficulties in finding appropriate foreign licensees or joint
venture partners
- - potential adverse tax consequences
There is a risk that such factors will have an adverse effect on
CNET's ability to successfully operate internationally and on its
profits and liquidity.
CNET MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN DOMAIN NAMES, WHICH COULD
ADVERSELY AFFECT ITS ABILITY TO OPERATE ITS ONLINE SITES.
CNET currently holds various Web domain names relating to its brand
and sites. The acquisition and maintenance of domain names generally
is regulated by government agencies and their designees. The
regulation of domain names in the United States and in foreign
countries is subject to change. We cannot assure you that CNET will be
able to acquire or maintain relevant domain names in all countries
where it will conduct business. Any inability to acquire or maintain
domain names could have a material adverse effect on CNET's business.
CHANGES IN REGULATIONS COULD ADVERSELY AFFECT THE WAY THAT CNET
OPERATES.
It is possible that new laws and regulations in the U.S. and elsewhere
will be adopted covering issues affecting CNET's business, including:
- - privacy
- - copyrights, trademarks and domain names
- - obscene or indecent communications
- - pricing, characteristics and quality of Internet products and
services
Increased government regulation, or the application of existing laws
to online activities, could:
- - decrease the growth of the Internet
- - reduce CNET's revenues
- - increase CNET's operating expenses
- - expose CNET to significant liabilities
Any of these occurrences could have a material adverse effect on
CNET's profits and liquidity.
We cannot be sure what effect any future material noncompliance by
CNET with these laws and regulations or any material changes in these
laws and regulations could have on CNET's business.
CNET MAY HAVE CAPACITY CONSTRAINTS AND MAY BE SUBJECT TO SYSTEM
DISRUPTIONS, WHICH COULD ADVERSELY AFFECT ITS REVENUES.
CNET's ability to attract and maintain relationships with users,
advertisers, merchants and strategic partners will depend on the
satisfactory performance, reliability and availability of its Internet
channels and network infrastructure. CNET's Internet advertising
revenues relate directly to the number of advertisements delivered to
its users. System interruptions or delays that result in the
unavailability of Internet channels or slower response times for users
would reduce the number of advertisements and sales leads delivered to
such users and reduce the attractiveness of CNET's Internet channels
to users, strategic partners and advertisers or reduce the number of
impressions delivered and thereby reduce revenue. CNET has experienced
periodic system interruptions in the past and will continue to suffer
future interruptions from time to time whether due to natural
disaster, telecommunications failure, other system failure, rolling
blackouts, hacking or other events. System interruptions or slower
response times could have a material adverse effect on CNET's revenues
and financial condition.
CNET'S NETWORKS MAY BE VULNERABLE TO UNAUTHORIZED PERSONS ACCESSING
ITS SYSTEMS, WHICH COULD DISRUPT ITS OPERATIONS AND RESULT IN THE
THEFT OF ITS PROPRIETARY INFORMATION.
A party who is able to circumvent CNET's security measures could
misappropriate proprietary information or cause interruptions or
malfunctions in its Internet operations. CNET may be required to
expend significant capital and resources to protect against the threat
of security breaches or to alleviate problems caused by breaches in
security. For example, so-called "spiders" have and can be used in
efforts to copy CNET's databases, including CNET's database of
technology products and prices.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet, particularly as a
means of conducting commercial transactions. To the extent that CNET's
activities or the activities of third party contractors involve the
storage and transmission of proprietary information, such as computer
software or credit card numbers, security breaches could expose CNET
to a risk of loss or litigation and possible liability. We cannot
assure you that contractual provisions attempting to limit CNET's
liability in these areas will be successful or enforceable, or that
other parties will accept such contractual provisions as part of
CNET's agreements.
CNET'S BUSINESS INVOLVES RISKS OF LIABILITY CLAIMS FOR INTERNET,
TELEVISION AND RADIO CONTENT OR TECHNOLOGY, WHICH COULD RESULT IN
SIGNIFICANT COSTS.
As a publisher and a distributor of content over the Internet,
television and radio, CNET may face potential liability for:
- - defamation
- - negligence
- - copyright, patent or trademark infringement
- - other claims based on the nature and content of the materials
published or distributed
These types of claims have been brought, sometimes successfully,
against online services and publishers of television and radio
content. In addition, CNET could be exposed to liability in connection
with material indexed or offered on CNET's Internet sites or for
information collected from and about its users. There has been a
recent increase in the granting and attempted enforcement of business
process patents that cover practices that may be widely employed in
the Internet industry. If CNET is found to violate any such patent and
it is unable to enter into a license agreement on reasonable turns,
its ability to offer services could be materially and adversely
affected. We cannot assure you that third parties or users will not
bring claims against CNET relating to proprietary rights or use of
personal information. Although CNET will carry general liability
insurance, its insurance may not cover potential claims of defamation,
negligence and similar claims, and it may or may not apply to a
particular claim or be adequate to reimburse CNET for all liability
that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a
material adverse effect on CNET's financial condition.
CNET DEPENDS ON LICENSED TECHNOLOGY FROM THIRD PARTIES AND ITS FAILURE
TO MAINTAIN THESE ARRANGEMENTS COULD ADVERSELY AFFECT ITS OPERATIONS.
CNET relies on technology licensed from third parties for use in
operating and managing its Internet sites and providing related
services to users and advertisers. CNET's ability to generate revenue
from Internet commerce may also depend on data encryption and
authentication technologies that it may be required to license from
third parties. We cannot assure you that these third party technology
licenses will be available at all or will continue to be available to
CNET on acceptable commercial terms or that they will operate as
intended.
CNET'S DEBT OBLIGATIONS EXPOSE CNET TO RISKS THAT COULD ADVERSELY
AFFECT ITS FINANCIAL CONDITION.
CNET's debt outstanding at December 31, 2000 was approximately $186.0
million. CNET may incur substantial additional debt in the future. The
level of CNET's indebtedness, among other things, could:
- - make it difficult for CNET to make payments on its debt as
described below
- - make it difficult for CNET to obtain any necessary financing in the
future for working capital, capital expenditures, debt service,
acquisitions or general corporate purposes
- - limit CNET's flexibility in planning for or reacting to changes in
its business
- - reduce funds available to use for our operations
- - impair our ability to incur additional debt because of financial and
other restrictive covenants
- - make CNET more vulnerable in the event of a downturn in its
business or an increase in interest rates
If CNET experiences a decline in revenues due to any of the factors
described in this Risk Factors section or otherwise, it could have
difficulty paying interest and other amounts due on its indebtedness.
If CNET is unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments, or if it fails to comply
with the various requirements of its indebtedness, CNET would be in
default, which would permit the holders of its indebtedness to
accelerate the maturity of the indebtedness and could cause defaults
under its other indebtedness. Any default under its indebtedness could
have a material adverse effect on CNET's financial condition.
THE PRICE OF CNET COMMON STOCK IS SUBJECT TO WIDE FLUCTUATION.
The trading price of CNET common stock is subject to wide
fluctuations. Trading prices of CNET common stock may fluctuate in
response to a number of events and factors, including:
- - quarterly variations in operating results
- - announcements of innovations
- - new products, strategic developments or business combinations by
CNET or its competitors
- - changes in the financial estimates of CNET or securities analysts
- - changes in recommendations of securities analysts
- - the operating and securities price performance of other companies
that investors may deem comparable to CNET
- - news reports relating to trends in the Internet
- - other events or factors
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance
of these companies. These broad market and industry fluctuations may
adversely affect the trading price of CNET common stock.
These fluctuations may make it more difficult to use stock as currency
to make acquisitions that might otherwise be advantageous, or to use
stock options as a means to attract and retain employees.
CNET HAS A SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK THAT MAY BE
SOLD, WHICH COULD AFFECT THE TRADING PRICE OF CNET COMMON STOCK.
CNET has a substantial number of shares of common stock subject to
stock options, and CNET's notes may be converted into shares of CNET
common stock. In addition, as of December 31, 2000, CNET has over 265
million shares of authorized but unissued shares of CNET common stock
that are available for future sale. We cannot predict the effect, if
any, that future sales of shares of CNET common stock or notes, or the
availability of shares of CNET common stock or notes for future sale,
will have on the market price of CNET's common stock. In addition,
Softbank, which owns approximately 17% of CNET's outstanding common
stock, has a right, pursuant to registration rights granted under the
stockholder agreement, to require CNET to register for public sale
CNET common stock owned by Softbank. Sales of substantial amounts of
CNET common stock, including shares issued in connection with
acquisitions, upon the exercise of stock options or warrants or the
conversion of debt securities, or the perception that such sales could
occur, may adversely affect prevailing market prices for CNET's common
stock.
PROVISIONS OF CNET'S CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW COULD DETER TAKEOVER ATTEMPTS.
Some provisions in CNET's certificate of incorporation and bylaws
could delay, prevent or make more difficult a merger, tender offer,
proxy contest or change of control. CNET's stockholders might view any
transaction of this type as being in their best interest since the
transaction could result in a higher stock price than the current
market price for our common stock. Among other things, CNET's
certificate of incorporation and bylaws:
- - authorize its board of directors to issue preferred stock with the
terms of each series to be fixed by our board of directors
- - divide CNET's board of directors into three classes so that only
approximately one-third of the total number of directors is elected
each year
- - permit directors to be removed only for cause
- - specify advance notice requirements for stockholder proposals and
director nominations
In addition, with some exceptions, the Delaware General Corporation
Law restricts or delays mergers and other business combinations
between CNET and any stockholder that acquires 15% or more of CNET's
voting stock.
THERE ARE SEVERAL LAWSUITS IN WHICH CNET IS A DEFENDANT WHICH COULD
MATERIALLY AND ADVERSELY AFFECT THE BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CNET.
CNET is a defendant in numerous lawsuits, as described in Item 3,
Legal Proceedings. Defense costs and/or settlement costs relating to
these actions could be substantial, and the defense of these actions
may divert management's attention and resources. If the plaintiffs
prevail in these actions, any judgments awarded by the courts could
have a material adverse effect on CNET's financial condition.
OWNERSHIP OF CNET COMMON STOCK WILL BE CONCENTRATED IN A SMALL GROUP
OF STOCKHOLDERS WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER
STOCKHOLDERS.
Softbank and Shelby Bonnie, the chairman and chief executive officer
of CNET, together control approximately 24% of the outstanding
common stock of CNET. The concentration of ownership of the common
stock of CNET may delay, prevent or deter a change in control, could
deprive other stockholders of an opportunity to receive a premium for
their common stock as part of a sale of CNET or its assets and may
adversely affect the market price of CNET common stock. Also, these
stockholders can exert significant control over actions requiring the
approval of a majority of the voting stock, including amendments to
our charter. Commercial and other transactions between CNET, on the
one hand, and the directors, officers and major stockholders of CNET
and their affiliates, on the other, create potential for, or could
result in, conflicting interests.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on the
protection of our original content for the Internet, television and
radio and on the goodwill associated with our trademarks, trade names,
service marks and other proprietary rights. We rely on copyright laws
to protect the original content that we develop, including our
editorial features and the various databases of information that we
maintain and make available through our Internet channels or by
license. In addition, we rely on federal trademark laws to provide
additional protection for the appearance of our Internet channels.
We own federal trademark registrations for a number of our marks.
We also claim common law protection on certain names and marks that
we have used in connection with our business activities. We are a
defendant in pending litigation concerning our use of the name
mySimon," as described under Item 3.
We rely on trade secret and copyright laws to protect the
proprietary technologies that we have developed to manage and improve
our Internet channels and advertising services. We cannot assure you
that such laws will provide sufficient protection to us, that others
will not develop technologies that are similar or superior to ours, or
that third parties will not copy or otherwise obtain and use our
technologies without authorization. We have filed a patent
application with respect to certain of our software systems, methods
and related technologies. Although the application has matured into a
U.S. patent, we can offer no assurance that any other applications
will be granted. In addition, we can offer no assurance that any
patents will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide a competitive advantage for
us. We also rely on certain technology licensed from third parties.
We may be required to license additional technology in the future for
use in managing our Internet channels and providing related services
to users and advertising customers.
GOVERNMENT REGULATION
Although there are currently few laws and regulations directly
applicable to the Internet, a range of new laws and regulations have
been Proposed, and could be adopted, covering issues such as privacy,
obscene or indecent communications, taxation of Internet transactions
and the pricing, characteristics and quality of Internet products and
Services. Risks associated with increased legislation are outlined
under "Risk Factors-- CHANGES IN REGULATIONS COULD ADVERSELY AFFECT
THE WAY THAT WE OPERATE." We are a Delaware corporation,
incorporated in 1992.
Our principal executive offices are located at 150 Chestnut
Street, San Francisco, California 94111. Our phone number is (415) 364-8900
Segment reporting for the Company may be found in Item 8. In 2000, less
than 10% of the Company's proforma revenues came from outside the United
States of America.
Item 2. Properties
We are headquartered in San Francisco, California, were we lease
approximately 243,000 square feet of office and studio space. Our San
Francisco offices are located in several buildings under various
leases, ranging in size from 7,500 to 60,000 square feet and expire
between April 2001 and September 2005. In May 2000 we entered into a
lease in San Francisco for a building of approximately 265,000 square
feet and expect to take occupancy of that building in August 2001. We
anticipate that this building will house a majority of our San
Francisco employees. We anticipate that when we take occupancy of
our new building in San Francisco in August 2001 that we will
sublease several of the buildings currently under lease. We can
provide no assurance that we will be able to successfully sublease
these buildings or that they will be at favorable lease rates.
In addition to our San Francisco offices, we have numerous offices
throughout the United States, including Cambridge, Massachusetts and
New York. We also have offices in Europe, Asia and Australia.
Item 3. Legal
In August 1999, Simon Property Group ("SPG") filed a trademark
infringement suit against mySimon, inc., a subsidiary of the Company
acquired on February 28, 2000, in federal district court in Indianapolis.
SPG alleged that the mySimon trademark infringed SPG's "Simon" trademark.
Following a trial on the subject, on August 31, 2000, the jury found
in favor of SPG and awarded damages against mySimon in the amount of
$11.4 million in mySimon's "profit," $5.4 million for corrective
advertising, and $10 million of punitive damages. On September 25,
2000, the court entered an order establishing an escrow for royalties
pending final resolution of the litigation where mySimon pays into
escrow 2% of its gross cash receipts each month.
On January 24, 2001, the judge eliminated the profit award and offered
SPG the opportunity to accept $10 (a remittitur)for damages attributable
to corrective advertising in exchange for immediate entry on judgment in
lieu of a new trial on the subject of corrective advertising.
February 14, 2001 SPG filed its election to seek a new trial on the issue
of corrective advertising in lieu of the $10 remittitur. Under Indiana law,
the amount of punitive damages is capped at the greater of three times
times compensatory damages or $50,000. Accordingly, it is not possible
to determine the amount of punitive damages, if any, that may be
payable until the issue of damages for corrective advertising has
been resolved. It is not possible to predict the amount of damages
attributable to corrective advertising that could be awarded in a
new trial, however such amounts, if settled adversely to the Company,
could be material to stockholders' equity. Accordingly no provision
for ultimate settlement of these issues has been included
in the accompanying financial statements.
The judge's January 24, 2001 order also provided that if the jury's
verdict of trademark infringement is upheld on appeal, mySimon will be
required to change its name and domain name. The judge stayed such
name change pending the completion of the appeal process. If the
jury's verdict of infringement is upheld on appeal, mySimon will have
60 days to change its name and will be entitled to redirect traffic
from www.mysimon.com to its new website for one year following the
name change. MySimon plans to appeal the finding of trademark
infringement.
On February 14, 2001, SPG filed a notice of appeal requesting that
the court issue the injunctive relief immediately and challenging
mySimon's ability to redirect traffic to a new website for one year
following the name change.
On October 17, 2000, CNET acquired Ziff-Davis, Inc., which was a
defendant in the following cases:
Following a decline in the price per share of Ziff-Davis's common
stock leading up to October 1998, eight securities class action suits
were filed against Ziff- Davis Inc. and certain of its directors and
officers in the United States District Court for the Southern District
of New York. The complaints alleged that defendants violated Sections
11, 12(a) (2) and 15 of the Securities Act of 1933 in connection with
the registration statement filed by Ziff-Davis Inc. with the
Securities and Exchange Commission relating to the initial public
offering of Ziff-Davis Inc.'s stock on April 28, 1998 (the "IPO").
More particularly, the complaints alleged that the registration
statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-
Davis Inc.'s revenue. The complaints sought on behalf of a class of
purchasers of Ziff-Davis Inc. common stock from the date of the IPO
through October 8, 1998, unspecified damages, interest, fees and
costs, rescission and injunctive relief such as the imposition of a
constructive trust upon the proceeds of the IPO. On January 28, 1999,
the court entered an order consolidating the actions, appointing lead
plaintiff's counsel and requiring the filing of a consolidated amended
complaint. The consolidated amended complaint was filed on March 15,
1999 and only alleges claims under Section 11 of the Securities Act of
1933. On May 20, 1999, defendants moved to dismiss the consolidated
amended complaint. That motion was denied on June 27, 2000. Discovery
is nearing completion. Although the outcome of this case cannot be
predicted, CNET believes that there are substantial defenses to the
claims. CNET currently cannot estimate its ultimate liability, if any,
with respect to this case. Accordingly, no provision for such matters
has been included in the consolidated financial statements.
In addition, two shareholder derivative suits were filed by
stockholders against all of Ziff-Davis Inc.'s directors (and nominally
against Ziff-Davis Inc.) in the Court of Chancery of the State of
Delaware for New Castle County. The complaints allege that the
directors breached their fiduciary duties to Ziff-Davis Inc. by
repricing the stock options awarded to directors and employees and
demand the nullification of the repricing, damages and an injunction
against exercise by the directors of any repriced option. Plaintiffs
filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the
amended complaint also addresses the granting of "new options" at an
allegedly "reduced exercise price") and the actions have been
consolidated. CNET believes that the plaintiffs have lost their
standing to pursue the derivative action as a result of CNET's
acquisition of all of the outstanding stock of Ziff-Davis, Inc., and
defendants filed a motion for summary judgment seeking dismissal of
the action on that ground on December 13, 2000. Plaintiffs have not
yet responded to that motion. Although the outcome of this case cannot
be predicted, CNET believes that there are substantial defenses to the
claims. CNET currently cannot estimate its ultimate liability, if any,
with respect to this case. Accordingly, no provision for such matters
has been included in the consolidated financial statements.
On September 27, 2000 and September 29, 2000, respectively, two
substantially identical actions were filed by stockholders of Ziff-
Davis Inc. in the Court of Chancery of the State of Delaware, in and
for New Castle County, against Ziff-Davis and all of the members of
its Board of Directors as it was constituted in September 1998. The
complaints, which were brought as purported direct class actions,
allege that Ziff-Davis' non-employee stockholders were harmed by an
allegedly improper repricing of employee stock options in September
1998. More specifically, the complaint alleges that but for the
allegedly improper repricing, employees would not have exercised their
options, there would thus be fewer outstanding shares and therefore
the proportional share of proceeds received by non-employee
stockholders from the Ziff-Davis/CNET Networks merger would have been
larger. The first-filed action has been assigned to Vice Chancellor
Strine. The second has not yet been assigned. Pursuant to an
agreement with plaintiffs, a response to the first-filed complaint
(the only one that has been served) will be due twenty days after an
order consolidating the two actions is entered. Although the outcome
of this case cannot be predicted, CNET believes that there are
substantial defenses to the claims. CNET currently cannot estimate its
ultimate liability, if any, with respect to this case. Accordingly, no
provision for such matters has been included in the consolidated
financial statements.
On October 6, 2000, two former employees of Ziff-Davis, Inc. filed a
purported class action lawsuit in New York Supreme Court, New York
County, against Ziff-Davis, ZDNet, Inc., SOFTBANK, Inc. and Eric
Hippeau. The complaint alleges breach of contract, detrimental
reliance and unjust enrichment resulting from (i) the allegedly
wrongful shortening of exercise periods of certain Ziff-Davis, ZDNet
and SOFTBANK options and (ii) the allegedly wrongful revocation of
other Ziff-Davis and ZDNet options. The complaint seeks unspecified
damages, fees and costs on behalf of all persons who were holders of
employee stock options in Ziff-Davis, ZDNet, or SOFTBANK as of April
13, 2000 (excluding Mr. Hippeau). On November 20, 2000, defendants
Ziff-Davis, ZDNet, Inc. and Eric Hippeau (the only defendants that
have been served) moved to dismiss the action. Plaintiffs voluntarily
dismissed the action with regard to SOFTBANK, Inc. and Mr. Hippeau on
January 26, 2001, and, on March 12, 2001, indicated an intention to
seek voluntary dismissal of the entire action. A hearing concerning
court approval of such dismissal is scheduled for March 30, 2001.
There are no other legal proceedings to which CNET is a party, other
than ordinary routine litigation incidental to its business that is
not expected to be material to the business or financial condition of
the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On October 17, 2000, the company held a special meeting to approve the
following matters, which received the votes indicated:
(a) Issuance of CNET common stock in connection with the
acquisition of ZDNet, Inc. (formerly Ziff-Davis, Inc.).
Shares For Shares Against Shares Abstained Shares Non-voted
- ---------------------------------------------------------------------
37,515,012 336,389 33,003 0
(b) Approval of CNET Networks, Inc. 2000 Stock Option Plan
Shares For Shares Against Shares Abstained Shares Non-voted
- ---------------------------------------------------------------------
31,428,403 6,311,496 144,505 0
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock is traded on the National Market System of the
Nasdaq Stock Market ("Nasdaq") under the symbol "CNET".
The following table sets forth the ranges of high and low trading
prices of the common stock for the quarterly periods indicated, as
reported by Nasdaq. The prices in the table have been adjusted to reflect
both 2-for-1 stock splits of our common stock that were distributed on
March 8, 1999 and on May 10, 1999 in the form of a stock dividend to holders
of our common stock.
High Low
------- -------
Year ended December 31, 1999:
First quarter $61.69 $12.00
Second quarter $79.75 $38.63
Third quarter $57.50 $27.50
Fourth quarter $79.88 $43.25
Year ended December 31, 2000:
First quarter $75.00 $45.25
Second quarter $51.56 $22.50
Third quarter $34.88 $21.25
Fourth quarter $34.00 $12.75
On November 6, 2000, we issued 138,854 shares of stock together with
$2,840,000 in cash in exchange for all of the outstanding stock of
Quote Desk Software Corp. in a transaction exempt from registration
under Section 4(2) of the Securities Act of 1933. No underwriters
were involved in the transaction.
At March 30, 2001, the closing price for our common stock
as reported by Nasdaq, was $11.19, and the approximate number of
holders of record of our common stock was 897.
We have never declared or paid a cash dividend on our common stock.
We intend to retain any earnings to cover operating losses and working
working capital fluctuations and to fund capital expenditures and
expansion. We do not anticipate paying cash dividends on our common
stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
and other operating information. The financial data and operating
information do not purport to indicate results of operations as of any
future date or for any future period. The financial data and operating
information is derived from our audited consolidated financial statements
and should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
(in thousands, except per share data)
Fiscal Year Ended
---------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------ ----------
Total revenues $264,019 $112,345 $57,477 $33,640 $14,830
Gross profit (deficit) 166,067 64,740 26,834 (4,203) (2,994)
Total operating expenses* 482,925 125,878 23,877 29,935 12,541
Operating income (loss) (316,858) (61,138) 2,957 (34,138) (15,535)
Total other income (expense) (276,721) 735,361 66 9,410 (1,413)
Net income (loss) (483,980) 416,908 3,023 (24,728) (16,949)
Basic net income (loss)
per share ($5.18) $5.80 $0.05 ($0.44) ($0.52)
Diluted net income (loss)
per share ($5.18) $5.05 $0.04 ($0.44) ($0.52)
Shares used in basic per
share calculation 93,461 71,820 65,783 55,819 32,890
Shares used in diluted
per share calculation 93,431 83,373 71,623 55,819 32,890
Consolidated Balance Sheet Data:
Cash and cash equivalents $167,301 $53,063 $51,537 $22,554 $20,156
Working capital 301,594 603,709 59,657 19,431 20,223
Total assets 2,863,399 1,230,311 88,357 58,262 39,842
Non-current portion of
long-term debt 185,185 179,114 569 2,612 281
Stockholders' equity $2,553,811 $705,838 $76,473 $40,643 $33,098
*Operating expenses include amortization of goodwill and intangible assets of $340,406
and $15,036 for the years ended December 31, 2000 and 1999, respectively. Operating
expenses also included unusual items consisting of an expense reversal of $922,000
in 1998 related to a real estate reserve and expenses of $9.0 million in 1997 related
to warrant compensation expense of $7.0 million, a real estate reserve and a write-
off of certain domain names.
<FN>
</FN>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
CNET Networks, Inc., the global source of technology and commerce-
related information, data, exchanges and services, produces a branded
Internet network, a print publication, a computer product database and
television and radio programming for both consumers and businesses.
Using unbiased content as our platform, CNET Networks has built
marketplaces for technology and consumer products, and, through our
CNET Data Services subsidiary, is the primary provider of information
powering the computer and electronics sales and distribution channels.
The company's Internet network -- including CNET.com, ZDNet.com,
mySimon.com, and its dozens of sub-brands -- serves millions of users
each day. Our global media network includes an Internet presence in
over 25 countries. CNET Data Services (CDS) licenses its multi-
lingual product database to U.S. and European online computer
retailers, resellers and e-commerce companies, and ended the year with
139 licensing agreements. CNET ChannelOnline is a Web browser-based
application provided to Value Added Resellers (VARs) and coupled with
CDS' data to streamline business and technology transactions in a
centralized product procurement marketplace. At December 31, 2000,
CNET ChannelOnline's VAR customer base included approximately 400
unique users enabling over $2.0 billion in annualized commerce
transactions through the subscription service. The company's News.com
television programming airs on CNBC on Saturday and Sunday afternoons.
CNET Radio airs in the San Francisco Bay Area on KNEW 910 AM. CNET
Networks' Computer Shopper magazine boasts a circulation of more than
500,000 and continues as the largest selling computer publication on
newsstands.
We seek to use our editorial, technical, and programming
expertise and our product databases to provide news, product
information, product reviews, prices and availability to help business
and consumers make informed technology and non-technology buying
decisions. Based on the volume of traffic over our branded online
network, we have established a leadership position in our market. In
2000, CNET Networks' millions of online users viewed more than 12.2
billion pages, on a full year, combined basis, including CNET.com,
ZDNET.com and mySimon.com, making CNET Networks the most used
source for computer and technology information.
CNET Networks' products and services provide a platform for
advertisers to create brand awareness and sell products to our large,
tech-savvy audience. At the end of 2000, we had relationships with
approximately 1,400 advertisers. The company is also actively
providing information and services to business to enable and enhance
online retailing of computer and technology products. Our products
and services are designed to inform buyers and link them with sellers
of products and services to create a dynamic, efficient marketplace.
We earn revenues from:
- - sales of digital marketing, banner and sponsorship
advertisements on our online network
- - fees based on the number of CNET.com, ZDNet.com and
mySimon.com users who click on an advertisement or text link to
visit the websites of our merchant partners, which we refer to
as "leads"
- - revenues from licensing our original content
- - revenues from licensing our CDS product database
- - revenues from subscribing to our ChannelOnline product procurement service
- - advertising sales and licensing fees from our print
publication, television and radio programming
During 2000 we made two significant acquisitions. The acquisitions of
mySimon in March 2000 and ZDNet in October 2000 significantly expanded
our network. These acquisitions were both accounted for using the
purchase method of accounting and the financial results of their
operations are recorded in our financial statements beginning on the
dates of their respective acquisition. The addition of mySimon and
ZDNet contributed revenues, cost of revenues and operating expenses
from their acquisition dates in 2000. Revenues, cost of revenues and
operating expenses related to mySimon and ZDNet prior to the dates of
their acquisition are not recorded in our financial results.
Our revenues, cost of revenues and operating expenses have
grown substantially over the past three years. We incurred a net loss
of $484.0 million in 2000 and earned net income of $416.9 million and
$3.0 million in 1999 and 1998, respectively. Net loss in 2000 was
generated primarily from realized losses on the sale and write-down of
investments of $277.8 million and amortization of goodwill and
intangibles of $340.4 million. Net income in 1999 was generated
primarily from gains on investment sales of $734.1 million, offset by
an income tax provision of $257.3 million and an operating loss of
$61.1 million. The operating loss for 1999 included expenses related
to our marketing campaign to promote the CNET brand of approximately
$65.0 million and goodwill amortization of $15.0 million. Net income
of $3.0 million in 1998 was primarily related to operating profit.
Results of Operations
Revenues
Total Revenues. Total revenues were $264.0 million, $112.3
million and $57.5 million for 2000, 1999 and 1998, respectively.
Internet Revenues. Revenues from our Internet operations were
$244.7 million, $104.9 million and $50.4 million for 2000, 1999 and
1998, respectively. Internet revenues consist primarily of revenues
derived from the sale of advertisements on pages delivered to users of
our Internet network. Revenues also include revenues from licensing
our original content and from licensing our product database and
related technology. Advertising programs are generally delivered on
either an "impression" based program or a "performance" based program.
An impression based program earns revenues when an advertisement is
delivered to a user of our Internet network. A performance based
program earns revenues when a user of our Internet network responds to
an advertisement by linking to an advertisers Internet network.
Performance based programs include revenues generated from leads
delivered from our shopping services. Advertising rates vary
depending upon whether a program is impression or performance based
where advertisements are placed and the amount and length of the
advertiser's commitment. Advertising revenues are recognized in the
period in which the advertisements are delivered. Our ability to
sustain or increase revenues from Internet advertising will depend on
numerous factors, which include, but are not limited to, our ability
to increase our inventory of delivered Internet pages on which
advertisements can be displayed and our ability to maintain or
increase advertising rates. Also included in Internet revenues
are revenues generated from integration of customer links from
the Company's internet network to a user, revenues from the licensing
of the Company's original content and its CDS product database and
revenues from subscriptions to CNET ChannelOnline product procurement
services.
The increases in internet revenues of $139.8 million from
1999 to 2000 and $54.5 million from 1998 to 1999 were primarily
attributable to an increase in impression and lead-based advertising
programs sold on our network. This increase in advertising programs
sold was due to increased demand from advertisers and increased
availability of advertising programs. Additional advertising programs
were available due to an increase in the number of pages delivered to users
of our network and increased leads sent to advertisers on our network.
Average daily pages delivered in 2000 approximated 21.7 million, an
increase of 90% over 11.4 million average daily pages in 1999. During
2000 we averaged approximately 253,000 leads per day from our shopping
services, an increase of 81% over 140,000 leads per day in 1999.
Average daily pages delivered in 1999 approximated 11.4 million, an
increase of 65% over 6.9 million average daily pages in 1998. During
1999 we averaged approximately 140,000 leads per day as compared to
approximately 90,000 leads per day only during the fourth quarter of
1998, when we launched our leads program.
A portion of our revenues are received in the form of
securities of our customers. Revenues in the form of securities from
our customers amounted to approximately $19.6 million and $6.0 million
during 2000 and 1999 respectively. No revenues in the form of securities
from our cusotmers were received in 1998. We anticipate that
revenues earned in the form of securities from our customers
will significantly decrease in 2001 as compared to 2000. In addition,
during 2000, 1999 and 1998, approximately $16.7 million, $5.9 million
and $3.4 million, respectively, of our revenues were derived from
barter transactions whereby we delivered advertisements on our
Internet channels in exchange for advertisements on the Internet sites
of other companies. These revenues and marketing expenses were
recognized at the fair value of the advertisements received and
delivered, and the corresponding revenues and marketing expenses were
recognized when the advertisements were delivered.
Significant Customers
During 2000 and 1999 we did not have any customers that
contributed more than 10% of our revenues. USA Networks accounted
for approximately 10% of total revenues in 1998.
Broadcast and Publishing Revenues
Broadcast and publishing revenues were $19.4 million, $7.5 million
and $7.1 million for 2000, 1999 and 1998, respectively. Broadcast and
publishing revenues consist primarily of advertising sales and licensing
fees from our print publication, television programming and radio programming.
The increase in broadcast and publishing revenues of $11.9 million from
1999 to 2000 was primarily attributable to revenues related to our
print publication for which we began to realize revenues during
October 2000 as part of the acquisition of ZDNET.
Revenue Mix
Internet operations accounted for 93%, 93% and
88% and broadcast and publishing revenues accounted for 7%, 7% and 12%
of total revenues for 2000, 1999 and 1998, respectively. We expect to
experience fluctuations in television and Internet revenues in the
future that may be dependent on many factors, including demand for our
Internet network and television programming, and our ability to
develop, market and introduce new and enhanced Internet
content and television programming.
Cost of Revenues
The principal elements of cost of revenues have been payroll
and related expenses for the editorial, production and technology
staff of our Internet sites, print publications and television and
radio programming, costs related to hosting and delivering our
internet sites and costs for facilities and equipment. Cost of
revenues were $98.0 million, $47.6 million and $30.6 million or 37%,
42%, and 53% of revenues for 2000, 1999 and 1998, respectively.
The increase in cost of revenues of $50.3 million from 1999
to 2000 was primarily attributable to increased content on our
Internet sites and increased number of average daily pages delivered
from our Internet sites, including the addition of mySimon in March
2000 and ZDNet in October 2000. The cost increases related to
producing additional content, including mySimon and ZDNet were
primarily related to personnel and related expenses. The increase in
cost of revenues of $17.0 million from 1998 to 1999 was primarily
attributable to additional costs for personnel and related costs,
including personnel costs related to acquisitions. These acquisitions
included Winfiles.com, AuctionGate, KillerApp, Sumo, GDT, Nordby and
Savvy Search.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll,
sales commissions, personnel related expenses, consulting fees and
advertising expenses. Sales and marketing expenses were $107.3
million, $94.7 million and $15.8 million for 2000, 1999, and 1998,
respectively. Sales and marketing expenses represented 41%, 84% and
27% of total revenues in 2000, 1999 and 1998, respectively.
The increase in sales and marketing expenses of $12.7 million from
1999 to 2000 related primarily to increases in personnel and related
expenses, including ZDNet and mySimon costs from the dates of their
acquisition. Total advertising expenses in 2000 were approximately
$9.0 million lower than in 1999. The focus on advertising in 2000
shifted to online programs that were specific to driving traffic
to our network as compared to our CNET brand building campaign in 1999.
The increase in sales and marketing expenses of $78.9 million from 1998
to 1999 related primarily to the branding campaign launched in July 1999.
Expenses related to this campaign totaled approximately $65 million
in 1999 and consisted primarily of television, online, radio and
print advertising. Prior to July 1999, we had not marketed our brand.
The additional increase related primarily to increases in sales and
marketing personnel and their related expenses.
General and Administrative
General and administrative expenses consist of payroll and
related expenses for executive, finance and administrative personnel,
professional fees and other general corporate expenses. General and
administrative expenses were $19.8 million, $8.2 million and $1.8
million for 2000, 1999 and 1998, respectively. General and
administrative costs represented 7%, 7% and 3% of total revenues for
2000, 1999 and 1998, respectively. The increase in general and
administration of $11.5 million from 1999 to 2000 and $6.5 million
from 1998 to 1999 primarily related to costs related to facilitating
our growth, such as increased personnel and personnel related costs
related to the growth of our management team and costs related to
acquisitions made during each respective year.
Merger and Integration Costs
During the fourth quarter ended December 31, 2000 we incurred costs
of approximately $1.2 million related to the integration of ZDNet into
CNET operations. These costs included expenses that were specifically
identifiable to integrating ZDNet's operations and were incremental
to our normal operating costs. In our earnings release dated February
6, 2001, we reported these expenses as a separate cost classification,
merger expenses, in our consolidated statements of operations.
We anticipate that we will incur additional costs related to the
integration of ZDNet with our operations through each of the four
quarters of 2001 and we will continue to report these costs as a
separate cost classification in our quarterly earnings releases. In
addition, we announced during the first quarter of 2001 that we were
reducing our workforce by approximately 10%. This reduction, which
was completed by the end of the first quarter of 2001, was to eliminate
duplication in certain businesses and discontinue certain non-growth or
unprofitable businesses. We will incur severance costs related to
this reduction in workforce, which we will also classify as merger
and integration related expenses in our quarterly earnings report.
Depreciation
Total depreciation expenses were $15.4 million, $8.0 million and $6.3
million for 2000, 1999 and 1998, respectively. The increase in
depreciation expenses of $7.4 million from 1999 to 2000, related
primarily to depreciation on additional equipment acquired under the
ZDNet acquisition. The increase in depreciation expenses of $1.6
million from 1998 to 1999 related primarily to capitalized purchases.
Amortization of Goodwill and Intangibles
Goodwill amortization expenses relate to the amortization of
the goodwill we record for companies we have acquired where we use the
purchase method of accounting. Goodwill amortization expenses were
$340.4 million and $15.0 million for 2000 and 1999, respectively. We
did not have any goodwill amortization expenses for 1998. During 2000
we acquired 6 companies for which we used the purchase method of
accounting. These acquisitions included mySimon and ZDNet. Goodwill
attributed to these acquisitions totaled $2.2 billion, $668.4 million was
related to the mySimon acquisition in March 2000 and $1.5 billion
related to the ZDNet acquisition in October 2000. During 1999 we
acquired six companies for which we used the purchase method of
accounting. These acquisitions included Winfiles.com, Search Linux,
GDT, Nordby, Savvy Search and Manageable Software Services, Inc.
Goodwill attributed to these acquisitions totaled $105.8 million. We
are amortizing goodwill related to these acquisitions over the
estimated realizable life of three years.
Realized Gain (Loss) on Sale of Investments, net
We realized losses on sale and impairment of investments of
$277.8 million in 2000 and realized gains on sales of investments of
$734.1 million and $10.5 million for 1999 and 1998, respectively. The
realized losses on sales and impairment of investments related primarily
to realizing losses approximately $399.1 million related to the impairment
of several of our investments, the majority of which related to our
holdings of NBC Internet, Inc. (NBCi). The impairment charges were
partially offset by net gains on the sale of investments; primarily
Vignette Corporation.
The gains on investment sales of $734.1 million for 1999
included a gain of approximately $541.2 million related to the
contribution of our interest in snap to NBCi. We recorded this gain
based on the closing price of our NBCi stock on its first day of
trading after the completion of the merger of snap, Xoom and NBCi.
Our investment in NBCi was recorded as an investment in marketable
equity securities on our balance sheet and fluctuations in the value
of this investment are recorded net of deferred taxes as other
comprehensive income in the stockholders equity section of our balance
sheet. During 1999 we also sold a portion of our holdings of Vignette
Corporation for a gain of approximately $172.3 million, recorded a
gain of approximately $19.9 million related to the merger agreement
between beyond.com and BuyDirect.com which resulted in our owning
approximately 757,000 shares of beyond.com and had gains on the sales
of other equity investments of approximately $700,000. The gains on
investment sales in 1998 were primarily attributable to a gain related
to the sale of a portion of our Vignette investment of $9.8 million.
Interest Income (Expense)
Interest income is derived from our cash and cash equivalents
and investments in marketable debt securities. Interest expense is
primarily incurred on our 5% Convertible Subordinate Notes. Net
interest income was $2.4 million, $1.2 million and $1.4 million for
2000, 1999 and 1998, respectively.
Income Taxes
In 2000, our loss before income taxes was $593.6 million against which
we recorded a benefit for income taxes of $109.6 million. We had income
before income taxes of $674.2 million and $3 million in 1999 and 1998,
respectively. In 1999 we recorded a tax provision of $ 257.3 million. In
1998 we did not record a tax provision.
Effective tax rates for the years ended December 31, 2000, 1999 and
and 1998 were 18.46%, 38.23% and 0.00% respectively. The income tax
benefit recorded in 2000 was lower than the statutory rates
primarily due to $340.4 million of nondeductible amortization of
goodwill and other intangible assets, for which no tax benefit was
recognized.
At December 31, 2000, the Company had federal net operating losses of
approximately $116 million which will begin to expire in 2011. This net
operating loss is related to the ZDNet acquisition and subject to limitations
on its utilization due to the change in ownership.
Income (Loss)
We recorded a net loss of $484.0 million or $5.18 per share
for 2000. We recorded net income of $416.9 million or $5.05 per
diluted share for 1999 and net income of $3.0 million or $0.04 per
diluted share for 1998.
Net income decreased from $416.9 million in 1999 to a net loss of
$484.0 million in 2000, a change of $900.9 million. This change
related primarily to an increase in goodwill amortization of $325.4
million and a change related to gains and losses on the sale of
investments of approximately $1.012 billion. We recorded gains on
the sale of investments of $734.1 million in 1999 and a loss on
the sale of investments of $277.8 million in 2000. These changes
were partially offset by a $366.9 million reduction in our income
tax provision.
Net income increased by $413.9 million from 1998 to 1999.
The increase in net income from 1998 to 1999 was primarily related to
an increase in gains on investment sales of $723.7 million, an
increase in income taxes of $257.3 million and a decrease in operating
profit of $64.1 million. The decrease in operating profit was
primarily due to our campaign to market our brand, which had a cost of
approximately $65.0 million in 1999, and goodwill amortization of
$15.0 million.
Liquidity and Capital Resources
As of December 31, 2000, we had cash and cash equivalents of
$167.3 million compared to $53.1 million on December 31, 1999. In
addition on December 31, 2000 we had investments in short term and
long term marketable debt securities of $134.7 million, compared to
$175.8 million on December 31, 1999 and investments in marketable
equity securities of $59.9 million on December 31, 2000 compared to
$785.9 million on December 31, 1999.
Net cash used in operating activities of $77.2 million in
2000 was primarily due to our operating loss of $316.9 million,
depreciation and amortization of $355.8 million and changes in
operating assets and liabilities (excluding deferred tax liabilities)
of $30.4 million. Net cash used in operating activities of $39.5
million in 1999 was primarily due to our operating loss of $61.1
million and changes in operating assets and liabilities (excluding
deferred tax liabilities) of $17.9 million. Cash provided by operating
activities of $9.2 million in 1998 was primarily due to earnings of
$3.0 million, and depreciation, amortization and the amortization of
program costs of $12.1 million.
Net cash provided by investing activities in 2000 of $117.4 million
was due to proceeds from sales of marketable debt and equity securities
of $408 million and cash provided from acquisitions of $26.9 million
less purchases of marketable debt and equity securities, of $191.3
million, investments in privately held companies of $76.5 million, and
purchases of equipment and programming assets of $49.7 million. Net cash
used in investing activities in 1999 of $133.5 million was due to purchases
of marketable debt and equity securities less proceeds from sales of
marketable debt and equity securities of $19.3 million, investments in
privately held companies of $39.4 million, cash paid for acquisitions
of $43.7 million and purchases of equipment and programming assets of
$30.7 million. Net cash used in investing activities of $11.1 million
for 1998 was primarily attributable to purchases of equipment and
programming assets.
Cash flows provided by financing activities of $74.0 million were
primarily related to net proceeds from the issuance of derivative
instruments which related to the NBCi TRACES offering in February
2000, proceeds from the exercise of options and warrants and the
purchase of treasury stock. Cash flows provided by financing
activities of $174.6 million in 1999 were primarily attributable to
the proceeds from the issuance of convertible debt and the issuance of
common stock through the exercise of options and warrants. Cash flows
provided by financing activities of $30.9 million in 1998 consisted
primarily of the issuance of common stock through a private placement
in June of 1998, and the issuance of common stock through the exercise
of options and warrants.
We believe that existing funds will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures
for the next 12 months.
As of December 31, 2000 we had obligations outstanding under
notes payable totaling of $186.0 million. Notes payable included
$172.9 million of 5% convertible subordinated notes, due 2006. Such
obligations were incurred to obtain proceeds for general corporate
purchases, to finance acquisitions and marketing expenditures.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, FASB issued Financial Interpretation No. 44
("FIN44"). FIN 44 clarifies (a) the definition of employee for purposes
of applying Accounting Principles Board ("APB") Opinion 25, Accounting for
Stock Issued to Employees, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000. As a
result of the adoption of the provisions of FIN 44 relating to
business combinations effective July 1, 2000, the Company recorded
$508,000 of deferred compensation relating to the intrinsic value of
unvested stock options which were granted to employees of acquirees in
exchange for acquiree options. This deferred compensation relates to
acquisitions made subsequent to July 1, 2000 and is recorded as a
component of stockholders' equity and is amortized to compensation
expense over the vesting period of the grant.
In December 1999 the SEC published Staff Accounting Bulletin No.101
("SAB 101") "Revenue Recognition in Financial Statements". SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements
and provides interpretations regarding the application of generally
accepted accounting principles to revenue recognition where there is
an absence of authoritative literature addressing a specific arrangement
or a specific industry. SAB 101 was effective for the Company
in the fourth quarter of fiscal 2000. The Company's adoption of SAB
101 did not have a material effect on its consolidated financial
statements.
In March 2000, the Emerging Issues Task Force (EITF), published their
consensus on EITF Issue No. 00-2, "Accounting for Web Site Development
Costs", which requires that costs incurred during the development of
web site applications and infrastructure, involving developing
software to operate the web site, including graphics that affect the
"look and feel" of the web page and all costs relating to software
used to operate a web site should be accounted for under Statement of
Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". However, if a plan exists or
is being developed to market the software externally, the costs
relating to the software should be accounted for pursuant to FASB
Statement No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed". EITF Issue No. 00-2 is effective
for all quarters of fiscal years beginning after June 30, 2000. The
Company's consolidated statements conformed to EITF Issue No. 00-2
beginning July 1, 2000. The adoption of EITF Issue No. 00-2 resulted
in the capitalization of approximately $65,000 in software costs for
fiscal year 2000. Beginning in the first quarter of 2001, we
commenced the development of a standard delivery platform for our
Internet network, including our international sites. We believe this
will help create a better product for users, a better marketing
platform for advertisers and will result in internal cost and
delivery efficiencies. We expect to complete the project in late
2001 at a cost of approximately $13 million to $15 million, which
we will capitalize.
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a
hedging instrument, changes in the fair value of the derivative are
recognized in earnings in the period of change. The Company must adopt
SFAS No. 133 by first quarter in year-ending December 31, 2001. Management
does not believe the adoption of SFAS No. 133 will have a material effect
on the financial position or operations of the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
We are exposed to the impact of interest rate changes and
changes in the market values of our investments.
Interest Rate Risk. Our exposure to market rate risk for
changes in interest rates relates primarily to our investment
portfolio. We have not used derivative financial instruments in our
investment portfolio. We invest our excess cash in debt instruments
of the U.S. Government and its agencies, and in high-quality corporate
issuers and, by policy, limits the amount of credit exposure to any
one issuer. We protect and preserve our invested funds by limiting
default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to
a rise in interest rates, while floating rate securities may produce
less income than expected if interest rates fall. Due in part to
these factors, our future investment income may fall short of
expectations due to changes in interest rates or we may suffer losses
in principal if force to sell securities which have declined in market
value due to changes in interest rates.
Investment Risk. We invest in equity instruments of privately-
held, information technology companies for business and strategic
purposes. These investments are included in other long-term assets
and are accounted for under the cost method when ownership is less
that 20% and the Company doesn't exert significant influence. For
these non-quoted investments, our policy is to regularly review the
assumptions underlying the operating performance and cash flow
forecasts in assessing the carrying values. We identify and record
impairment losses on long-lived assets when events and circumstances
indicate that such assets might be impaired.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors Report
The Board of Directors,
CNET Networks, Inc.
We have audited the accompanying consolidated balance sheets of CNET
Networks, Inc. and subsidiaries as of December 31, 2000 and 1999 and
the related consolidated statements of operations and other
comprehensive income (loss), stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of CNET Networks, Inc. and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
San Francisco, California
February 5, 2001
CNET NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(000s, except per share data)
December 31,
--------------------------
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $167,301 $53,063
Investments in marketable debt securities 52,864 65,985
Investments in marketable equity securities 55,512 785,909
Accounts receivable, net of allowance for
doubtful accounts of $19,152 and $4,678
in 2000 and 1999, respectively 95,573 24,628
Other current assets 44,292 14,033
Deferred income tax 8,445 4,710
Restricted cash 2,010 740
--------------- ------------
Total current assets 425,997 949,068
Investments in marketable debt securities 81,823 109,802
Investments in marketable equity securities 4,375 -
Property and equipment, net 59,288 30,044
Other assets 184,520 47,143
Deferred income tax 5,196 3,466
Goodwill and intangible assets, net 2,102,200 90,788
--------------- ------------
Total assets $2,863,399 $1,230,311
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,045 $11,461
Accrued liabilities 92,729 16,398
Current portion of long-term debt 5,831 5,750
Tax related liabilities 244 5,398
Deferred tax liabilities 6,554 306,352
--------------- ------------
Total current liabilities 124,403 345,359
Non-current liabilites
Long-term debt 180,194 179,114
Other liabilities 4,991 -
--------------- ------------
Total liabilities 309,588 524,473
Stockholders' equity:
Common stock; $0.0001 par value;
400,000,000 shares authorized; 135,159,843
and 73,922,620 shares issued and
outstanding in 2000 and 1999,
respectively 14 7
Additional paid in capital 2,665,025 218,670
Other comprehensive income 37,872 121,409
Deferred stock compensation (508) -
Retained earnings (deficit) (118,228) 365,752
Treasury stock, at cost (30,364) -
--------------- ------------
Total stockholders' equity 2,553,811 705,838
--------------- ------------
Total liabilities and stockholders' equity $2,863,399 $1,230,311
=============== ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CNET NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(000s, except per share data)
Year Ended December 31,
-------------------------------------------
2000 1999 1998
------------- ------------- -------------
Revenues:
Internet $244,658 $104,887 $50,419
Broadcast and publishing 19,361 7,458 7,058
------------- ------------- -------------
Total revenues 264,019 112,345 57,477
Cost of revenues 97,952 47,605 30,643
------------- ------------- -------------
Gross profit 166,067 64,740 26,834
------------- ------------- -------------
Operating expenses:
Sales and marketing 107,321 94,657 15,769
General and administrative 19,756 8,213 1,767
Depreciation 15,442 7,972 6,341
Amortization of goodwill and
intangible assets 340,406 15,036 -
------------- ------------- -------------
Total operating expenses 482,925 125,878 23,877
------------- ------------- -------------
Operating income (loss) (316,858) (61,138) 2,957
Other income(expense):
Realized gain (loss) on sale and
impairment of investments (277,783) 734,138 10,450
Interest income, net 2,383 1,223 1,412
Other (1,321) - (11,796)
------------- ------------- -------------
Total other income(expense) (276,721) 735,361 66
------------- ------------- -------------
Income (loss) before
income taxes (593,579) 674,223 3,023
Income taxes (109,599) 257,315 -
------------- ------------- -------------
Net income (loss) ($483,980) $416,908 $3,023
============= ============= =============
Other comprehensive income,
net of tax:
Unrealized holding gains
(losses), net of deferred tax
arising during the period (82,499) 121,340 -
Foreign currency translation
gain (loss) (1,038) 69
------------- ------------- -------------
Comprehensive income (loss) ($567,517) $538,317 $3,023
============= ============= =============
Basic net income (loss) per share ($5.18) $5.80 $0.05
============= ============= =============
Diluted net income (loss) per share ($5.18) $5.05 $0.04
============= ============= =============
Shares used in calculating
basic per share data 93,461 71,820 65,783
============= ============= =============
Shares used in calculating
diluted per share data 93,461 83,373 71,623
============= ============= =============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CNET NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000s, except per share data)
Common Stock Additional Treasury Total
------------------- Paid-in Deferred ---------------- Comprehensive Accumulated Stockholders'
Shares Amount Capital Compensation Shares Amount Income Deficit Equity
----------- ------- ---------- ------------- ------- -------- -------------- ----------- ------------
Balances as of
December 31, 1997 58,641 $6 $94,693 -- -- -- -- ($54,056) $40,643
Exercise of stock options 1 6,246 -- -- -- -- -- 6,247
and warrants 4,055 -- -- -- -- -- -- -- --
Employee stock purchase
plan 113 -- 724 -- -- -- -- -- 724
Issuances of common stock 3,251 -- 26,212 -- -- -- -- -- 26,212
Issuance of common stock in
relation to the UVision
acquisitions 2,649 -- (518) -- -- -- -- 142 (376)
Net income -- -- -- -- -- -- -- 3,023 3,023
----------- ------- ------------ ------------- ------- ---------- -------------- ----------- -------
Balances as of
December 31, 1998 68,709 7 127,357 -- -- -- -- (50,891) 76,473
Exercise of stock options
and warrants 2,482 -- 8,086 -- -- -- -- -- 8,086
Employee stock purchase
plan 32 -- 934 -- -- -- -- -- 934
Other comprehensive income
(loss), net of deferred tax -- -- -- -- -- -- 121,409 -- 121,409
Issuance of common stock for
acquisitions 2,700 -- 50,574 -- -- -- -- (265) 50,309
Tax benefits from exercises of
stock options -- -- 31,719 -- -- -- -- -- 31,719
Net income -- -- -- -- -- -- -- 416,908 416,908
----------- ------- ------------ ------------- ------- ---------- -------------- ----------- -------
Net income (loss) -- -- -- -- -- -- -- (483,980) (483,980)
Balances as of
December 31, 1999 73,923 7 218,670 -- -- -- 121,409 365,752 705,838
Exercise of stock options
and warrants 2,731 -- 20,267 -- -- -- -- -- 20,267
Employee stock purchase
plan 161 -- 2,464 -- -- -- -- -- 2,464
Other comprehensive income
(loss), net of deferred tax -- -- -- -- -- -- (83,537) -- (83,537)
Deferred compensation -- -- -- (508) -- -- -- -- (508)
Issuance of common stock in
relation to acquisitions 58,345 7 2,402,119 -- -- -- -- -- 2,402,126
Purchase of treasury stock -- -- -- -- (1,064) (30,364) -- -- (30,364)
Tax benefits from exercises of
stock options -- -- 21,505 -- -- -- -- -- 21,505
Net income (loss) -- -- -- -- -- -- -- (483,980) (483,980)
----------- ------- ------------ ------------- ------- ---------- -------------- ----------- -------
Balances as of
December 31, 2000 135,160 $14 $2,665,025 ($508) (1,064) ($30,364) $37,872 ($118,228) $2,553,811
=========== ======= ============ ============= ======= ========== ============== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CNET NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s, except per share data)
Year Ended December 31,
-----------------------------------------
2000 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net income(loss) ($483,980) $416,908 $3,023
Adjustments to reconcile net loss
to net cash provided (used) in
operating activities:
Depreciation and amortization 355,848 23,008 6,341
Amortization of program costs 15,241 8,131 5,802
Amortization of deferred issuance co 1,855 839 --
Allowance for doubtful accounts (7,727) 2,956 1,261
Services exchanged for cost method
investments (19,559) (6,021) --
Impairment of marketable equity
securities and privately held
investments 399,101
Gain on investment sales (121,318) (734,138) --
Foreign currency translation gain 1,038 -- --
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable (16,147) (10,664) (9,730)
Other current assets (29,358) (16,940) 455
Other assets (9,801) (3,805) 4,933
Accounts payable (4,485) 7,978 329
Accrued liabilities 5,012 9,627 (3,253)
Tax related liabilities (187,389) 230,858 --
Other long term liabilities 2,990 -- --
Benefit from exercises of stock
options 21,505 31,719 --
------------- ------------- -------------
Net cash provided by (used in)
operating activities (77,174) (39,544) 9,161
------------- ------------- -------------
Cash flows from investing activities:
Purchase of marketable debt securities (180,816) (214,557) --
Purchase of marketable equity securities (10,516) (15,950) --
Proceeds from sale of marketable debt
securities 222,641 37,539 --
Proceeds from sale of marketable equity
securities 185,408 173,663 --
Investments in privately held companies (76,462) (39,448) --
Net cash acquired (paid for)
acquisitions 26,881 (43,743) (108)
Purchases of equipment, excluding
capital leases (34,293) (22,373) (4,879)
Purchases of programming assets (15,429) (8,312) (6,084)
Other -- (307) --
------------- ------------- -------------
Net cash provided by (used in)
investing activities 117,414 (133,488) (11,071)
------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of
convertible debt -- 167,220 --
Net proceeds from issuance of derivative
instruments 81,631 -- --
Net proceeds from issuance of
common stock -- -- 26,213
Net proceeds from employee stock
purchase plan 2,464 934 723
Purchase of treasury stock (30,364) -- --
Net proceeds from exercise of options
and warrants 20,267 8,086 6,246
Principal payments on capital leases (42) (416)
Principal payments on equipment note (1,640) (1,873)
------------- ------------- -------------
Net cash provided by
financing activities 73,998 174,558 30,893
------------- ------------- -------------
Net increase in cash and cash
equivalents 114,238 1,526 28,983
Cash and cash equivalents at
beginning of period 53,063 51,537 22,554
------------- ------------- -------------
Cash and cash equivalents at end
of period $167,301 $53,063 $51,537
============= ============= =============
Supplemental disclosure of cash flow
information:
Interest paid $14,325 $4,205 $325
Taxes paid $83,348 $2,625 --
Supplemental disclosure of noncash
transactions:
Issuance of debt for acquisitions -- $10,098 $3,066
Other comprehensive income,
net of deferred tax ($83,577) $121,409 --
Issuance of common stock for
acquisitions $2,402,126 $50,553 --
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CNET NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
CNET Networks, Inc. (the "Company") was incorporated in the state of
Delaware in December 1992 and is a global media company producing a branded
Internet network, a computer product database, a print publication,
and television and radio programming for both consumers and businesses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CNET Networks Inc., and its majority owned controlled subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
RECLASSIFICATION
Certain amounts in the financial statements and notes thereto have been
reclassified to conform to 2000 classification.
CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM DEBT AND EQUITY
INVESTMENTS
The Company invests its excess cash in debt instruments of the
U.S. Government and its agencies, and in high-quality corporate
issuers. All highly liquid instruments with maturities of three months
or less at the date of purchase are considered cash equivalents.
Investments in marketable debt securities with maturities greater than
three months at the date of purchase and current maturities less than
twelve months from the balance sheet date are considered current
assets. Those with maturities greater than twelve months from the
balance sheet date are considered non-current assets. Investments in
publicly traded companies are considered Investments in marketable
equity securities and are classified as a current asset of the
Company.
The Company's marketable debt and equity securities are classified
as available for sale as of the balance sheet date and are reported at
fair value, with unrealized gains and losses, net of tax, recorded in
shareholders' equity. Realized gains or losses and permanent declines
in value, if any, on available-for-sale securities are reported in
other income or expense as incurred.
The Company invests in equity instruments of privately-held,
information technology companies for business and strategic purposes.
These investments which amounted to $157.5 million and $40.5 million
at December 31, 2000 and 1999 respectively, are included in other
assets in the non-current section of the balance sheet. These
investments are accounted for under the cost method when ownership
is less than 20% and the Company and the Company doesn't exert
significant influence over the investee or their operations. For
For these non-quoted investments, the Company's policy is to
regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values.
The Company identifies and records impairment losses on investments
when events and circumstances indicate that such decline in fair value is
other than temporary. The Company recorded impairment losses on marketable
equity securities and privately held investments of $399 million for the
year ended December 31, 2000. The impairment losses were recorded in 2000,
along with realized gains on investments of $121 million in the consolidated
statement of operations as realized gain (loss) on sale and impairment
of investments. The Company recognized realized gains on sales of
investments at $734 million and $10,5 million in the years ended December
31, 1999 and 1998, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets
which range from three to forty years. Property and equipment recorded
under capital leases and leasehold improvements are amortized on a
straight- line basis over the shorter of the lease terms or their
estimated useful lives.
CONCENTRATION OF CREDIT RISK
Financial instruments potentially subjecting the Company to
concentrations of credit risk consist primarily of cash, cash equivalents,
investments and trade accounts receivable. The Company invests
excess cash in low risk, liquid instruments. No losses have been
experienced on such investments. The Company's investments in marketable
debt securities are generally investment grade securities. The Company's
marketable equity securities and investments in privately held companies
are concentrated in the information technology sector and as such are
subject to fluctuations in fair value based on technology market factors.
The majority of the Company's accounts receivable are derived from domestic
sales to companies in the information technology sector. The Company
closely monitors its outstanding receivable balances on an on-going basis.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and
liabilities of changes in tax rates is recognized in income in the
period that includes the enactment dates.
REVENUE RECOGNITION
The Company recognizes revenues once persuasive evidence of an arrangement
exists, the Company's price to the buyer is fixed or determinable,
and collectibility is reasonably assured. Revenues are recognized in the
period over which the Company's obligations are fulfilled. The Company's
revenues are comprised of Internet revenues and broadcast and publishing
revenues.
Internet revenues consist primarily of revenues derived from the sale of
advertisements on pages delivered to users of our Internet network.
Advertising programs are generally delivered on either an "impression" based
program or a "performance" based program. An impression based program earns
revenues when an advertisement is delivered to a user of our Internet network.
A performance based program earns revenues when a user of our Internet
network responds to an advertisement by linking to an advertiser's
Internet network. Performance based programs include revenues generated
from leads delivered from the Company's shopping services.
Advertising revenues are recognized in the period in which
the advertisements are delivered. Also included in Internet revenues
are revenues generated from the integration of customer links from the
Company's Internet network to a user. Such revenues are recognized on
a straight-line basis over the period that the links are delivered to
users. Revenues from the licensing of the Company's original content
and CDS product database are recognized on a straight-line basis over
the period of the arrangement. Revenues from subscriptions to
CNET ChannelOnline product procurement services are recognized on a
straight-line basis over the period of the arrangement.
Broadcast and publishing revenues consist primarily of advertising
sales and licensing fees from our television programming, radio
programming and print publication. Television revenues consist
primarily of revenues derived from the licensing of programming
produced by the company. Radio revenues consist primarily of revenues
derived from the sale of advertisements and are recognized in the period
in which the advertisements are delivered. Publishing advertising revenue,
less agency commissions, is recognized as income in the month that the related
publications are sent to subscribers or become available at newsstands.
For multiple-element arrangements, revenue is recognized for the
separate elements based on the fair values of the elements as
established through separate sales of the elements to customers.
The Company trades advertisements on its Internet sites in
exchange for advertisements on the Internet sites of other companies.
These revenues and marketing expenses are recorded at the fair market
value of services provided or received, whichever is more determinable
in the circumstances. Revenue from barter transactions is recognized
as income when advertisements are delivered on the Company's Internet
channels and expense from barter transactions is recognized when
advertisements are delivered on the other companies' Internet sites.
Barter revenues were approximately $16.7 million, $5.9 million, and
$3.4 million for the years ended December 31, 2000, 1999, and 1998,
respectively. A portion of our revenues are received in the form of
securities of our customers.
A portion of our revenues are received in the form of securities of our
customers. Revenues in the form of securities of our customers amounted
to $19.6 million and $6.0 million for the years ended December 31, 2000 and
1999 respectively.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted
average number of outstanding shares of common stock and diluted net
income (loss) per share is computed using the weighted average number
of outstanding shares of common stock and common stock equivalents
during the period, to the extent that such common stock equivalents
are not anti-dilutive. Common stock equivalents which are anti-
dilutive are excluded from the computation of diluted net income
(loss) per share. Basic and diluted net loss per share for the year
ended December 31, 2000 does not include the effect of approximately
6,545,111 common shares related to options with an average exercise
price of $16.79 and approximately 544,628 shares of unvested restricted
stock with an average exercise price of $1.21 and approximately
4,622,624 common shares related to the Convertible Subordinated Debt
offering with an average exercise price of $37.40 because their effect
is anti-dilutive. Diluted net income per share for the year ended
December 31, 1999, does include the effect of approximately 7,362,648
common shares related to options with an average exercise price of
$10.46, and 427,989 common shares related to warrants with an average
exercise price of $1.38, and the potential conversion of convertible
debt to approximately 3,762,301 common shares related to the
Convertible Subordinated Debt offering with an average exercise price
of $37.40 because their effect is dilutive. Diluted net income per
share for the year ended December 31, 1998, does include the effect of
approximately 5,355,636 common shares related to options with an
average exercise price of $6.19, and 485,180 common shares related to
warrants with an average exercise price of $0.64 because their effect
is dilutive.
The following table sets forth the computation of net income
(loss) per share:
Year Ended December 31,
(000s except per share data)
-------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net income (loss) available to
common stockholders - basic ($483,980) $416,908 $3,023
Plus: Interest income, net of taxes
available to convertible
subordinated noteholders -- 4,471 --
-------------- -------------- -------------
Adjusted income (loss) available to
common stockholders - diluted ($483,980) $421,379 $3,023
============= ============= =============
Weighted average shares - basic 93,461 71,820 65,783
Plus: Incremental shares from assumed
conversions
Options -- 7,363 5,356
Warrants -- 428 484
Convertible subordinated note -- 3,762
------------- ------------- -------------
Adjusted weighted average
shares - diluted 93,461 83,373 71,623
Basic net income (loss) per share ($5.18) $5.80 $0.05
============= ============= =============
Diluted net income (loss) per share ($5.18) $5.05 $0.04
============= ============= =============
The shares used in calculating the basic and diluted net income (loss)
per share have been adjusted in prior periods to reflect the Sumo,
NetVentures, AuctionGate, and KillerApp transactions as outstanding
for all periods, and the two-for-one stock splits on March 8, 1999 and
May 10, 1999.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation
plans using the intrinsic value method. As such, compensation expense
is recorded on the date of grant if the current market price of the
underlying stock exceeded the exercise price. The compensation expense
is recorded over the vesting period of the grant.
COMPREHENSIVE INCOME(LOSS)
The Company has adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which established standards for
reporting and disclosures of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Financial statements for earlier
periods have been reclassified for comparative purposes.
The components of other comprehensive income (loss) for the years
ended December 31, 2000, 1999, 1998 are as follows:
Year ended December 31,
(000s)
2000 1999 1998
-------- -------- --------
Unrealized holding gain
(loss)from:
Marketable equity securities ($297,742) $203,463 -
Marketable debt securities 25 (1,230) -
Debt obligations 97,344 - -
Deferred tax asset (liability)
related to unrealized holding
gains(losses) 117,874 (80,893) -
-------- -------- --------
(82,499) 121,340 -
Foreign currency translation
gain (loss) (1,038) 69 -
-------- -------- --------
($83,537) $121,409 -
======== ======== ========
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Such costs are
included in selling and marketing expense and totaled approximately
$65.8 million, $74.8 million, and $5.1 million during the years ended
December 31, 2000, 1999, and 1998, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents,
marketable debt and equity securities, accounts receivable, accounts
payable, and long-term debt approximate their respective fair values.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Depending on the nature of the long-lived asset,
fair value is measured based on the related discounted cash flows,
market values of similar publicly-traded assets or other relevant
factors Assets to be disposed of are reported at the lower of the
the carrying amount or fair value less costs to sell.
USE OF ESTIMATES
The Company's management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, FASB issued Financial Interpretation No. 44
("FIN44"). FIN 44 clarifies (a) the definition of employee for purposes
of applying Accounting Principles Board ("APB") Opinion 25, Accounting
for Stock Issued to Employees, (b) the criteria for determining whether
a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed
stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000.
As a result of the adoption of the provisions of FIN 44 relating to
business combinations effective July 1, 2000, the Company recorded
$508,000 of deferred compensation relating to the intrinsic value of
unvested stock options which were granted to employees of acquirees in
exchange for acquiree options. This deferred compensation relates to
acquisitions made subsequent to July 1, 2000 and is recorded as a
component of stockholders' equity and is amortized to compensation
expense over the vesting period of the grant.
In December 1999 the SEC published Staff Accounting Bulletin No.101
("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements and
provides interpretations regarding the application of generally accepted
principles to revenue recognition where there is an absence of authoritative
literature addressing a specific arrangement or a specific industry.
SAB 101 was effective for the Company in the fourth quarter of fiscal 2000.
The Company's adoption of SAB 101 did not have a material effect on its
consolidated financial statements.
In March 2000, the Emerging Issues Task Force (EITF), published their
consensus on EITF Issue No. 00-2, "Accounting for Web Site Development
Costs", which requires that costs incurred during the development of
web site applications and infrastructure, involving developing
software to operate the web site, including graphics that affect the
"look and feel" of the web page and all costs relating to software
used to operate a web site should be accounted for under Statement of
Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". However, if a plan exists or
is being developed to market the software externally, the costs
relating to the software should be accounted for pursuant to FASB
Statement No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed". EITF Issue No. 00-2 is effective
for all quarters of fiscal years beginning after June 30, 2000. The
Company's consolidated statements conformed to EITF Issue No. 00-2
beginning July 1, 2000. The adoption of EITF Issue No. 00-2 resulted
in the capitalization of approximately $65,000 in software costs for
fiscal year 2000. Beginning in the first quarter of 2001, we
commenced the development of a standard delivery platform for our
Internet network, including our international sites. We believe this
will help create a better product for users, a better marketing
platform for advertisers and will result in internal cost and
delivery efficiencies. We expect to complete the project in late
2001 at a cost of approximately $13 million to $15 million, which
we will capitalize.
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively)
referred to as derivatives), and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at
fair value. For a derivative not designated as a hedging instrument,
changes in the fair value of the derivative are recognized in earnings
in the period of change. The Company must adopt SFAS No. 133 by first
quarter in year-ending December 31, 2001. Management does not believe
the adoption of SFAS No. 133 will have a material effect on the financial
position or operations of the Company.
In May 2000, the EITF published their consensus on EITF No.00-8,
"Accounting by a Grantee for an Equity Instrument to be Received in
Conjunction with Providing Goods and Services", which provides that
such revenues be measured based on the fair value of the securities
at the earlier of the performance commitment date or the vesting date.
In accordance with the consensus, the Company adopted the provisions of
EITF No.00-8 for all grants and modifications of existing grants that
occurred after March 16, 2000.
(2) BALANCE SHEET COMPONENTS
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents consisted of:
December 31,
(000s)
---------------------------
2000 1999
-------------- ------------
Commercial paper $99,846 $36,742
Money market mutual funds 12,170 11,401
Cash 55,285 4,920
-------------- ------------
$167,301 $53,063
============== ============
RESTRICTED CASH
Restricted cash balance relates to certain deposits in escrow for
leasehold improvements and as collateral for letters of credit relating
to security deposits.
MARKETABLE DEBT SECURITIES
The following is a summary of available-for-sale investments:
December 31, 2000
(000s)
-------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Interest Fair
Cost Gain Losses Receivable Value
-------- -------- -------- -------- --------
Short term investments
Corporate obligations $14,314 $12 ($14) $270 $14,582
Commercial paper 35,259 35,259
Government agencies 3,000 - - 23 3,023
-------- -------- -------- -------- --------
52,573 12 (14) 293 52,864
-------- -------- -------- -------- --------
Long term investments
Corporate obligations 64,381 27 (1,176) 1,379 64,611
Government agencies 17,017 (54) 249 17,212
-------- -------- -------- -------- --------
81,398 27 (1,230) 1,628 81,823
-------- -------- -------- -------- --------
$133,971 $39 ($1,244) $1,921 $134,687
======== ======== ======== ======== ========
December 31, 1999
(000s)
-------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Interest Fair
Cost Gain Losses Receivable Value
-------- -------- -------- -------- --------
Short term investments
Corporate obligations $30,974 - ($73) $394 $31,295
Commercial paper 22,509 7 (5) 72 22,583
Government agencies 11,973 - (3) 137 12,107
-------- -------- -------- -------- --------
65,456 7 (81) 603 65,985
-------- -------- -------- -------- --------
Long term investments
Corporate obligations 78,026 - (925) 1,656 78,757
Foreign debt securities 1,997 - (83) 69 1,983
Government agencies 28,965 - (148) 245 29,062
-------- -------- -------- -------- --------
108,988 - (1,156) 1,970 109,802
-------- -------- -------- -------- --------
$174,444 $7 ($1,237) $2,573 $175,787
======== ======== ======== ======== ========
The contractual maturities of the Company's short term investments at
December 31, 2000 were one year or less while the Company's long term
investments had contractual maturities between one and three years. Expected
maturities may differ from contractual maturities because issuers of the
securities have the right to prepay or call obligations without prepayment
penalties.
MARKETABLE EQUITY SECURITIES
At December 31, 2000, the Company owned 6,497,584 shares of NBCi,
1,532,393 shares of Mail.com, Inc. ("Mail.com"), 682,326 shares
of Vignette Corporation ("Vignette"), 1,085,943 shares of Deltathree.com,
Inc. ("deltathree"), 282,289 shares of Beyond.com Corp ("Beyond'), 5,754
shares of Digital River,Inc. ("Digital River"), 1,000,000 shares of Niku
Corporation ("Niku"), 240,000 shares of Ebiz Enterprises, Inc. ("Ebiz"),
139,444 shares of Siebel Systems, Inc. ("Siebel"), 97,121 shares of
Asiacontent.com Ltd. ("Asiacontent.com"), 90,395 shares of Insiderstreet.com,
Inc. ("Insiderstreet"), 2,000,000 shares of Virtual Technology Corp.
("NetDirect"), 500,000 shares of Infe.com, Inc. ("INFE"), 250,000 shares of
Opus360 Corporation ("Opus"), 102,065 shares of Openwave Systems, Inc.
("Openwave") and 136,363 shares of Virage, Inc. ("Virage").
The following is a summary of available-for-sale investments:
December 31, 2000
(000s)
--------------------------------------------
Gross Gross Estimated
Cost or Unrealized Unrealized Fair
Valuation Gain Losses Value
-------- -------- -------- --------
Short term investments
Available for sale $52,448 $14,580 ($11,516) $55,512
-------- -------- -------- --------
Long term investments
Available for sale 101,718 - (97,343) 4,375
-------- -------- -------- --------
$154,166 $14,580 ($108,859) $59,887
======== ======== ======== ========
December 31, 1999
(000s)
--------------------------------------------
Gross Gross Estimated
Cost or Unrealized Unrealized Fair
Valuation Gain Losses Value
-------- -------- -------- --------
Short term investments
Available for sale $582,446 $214,351 ($10,888) $785,909
======== ======== ======== ========
Unrealized holding gains (losses) on marketable debt securities and market-
able equity securities, net of tax, were $(58.5) million and $121 million at
December 31, 2000 and December 31, 1999. At December 31, 2000 the unrealized
loss was offset by a $97.3 million unrealized gain on the NBCi Trust Automatic
Common Exchange Security obligations.
PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31,
(000s)
-----------------------
2000 1999
-------------- --------
Land $589 $144
Buildings 6,482 1,169
Computer equipment 52,167 27,614
Production equipment 2,868 2,661
Office equipment, furniture & fixtures 9,069 5,142
Software 12,770 2,676
Leasehold improvements 12,583 10,193
Assets in progress 1,896 1,018
------------ --------
98,424 50,617
Less accumulated depreciation
and amortization 39,136 20,573
------------ --------
$59,288 $30,044
============ ========
As at December 31, 2000 and 1999 the Company held no equipment under
capital lease agreements.
ACCRUED LIABILITIES
A summary of accrued liabilities follows:
December 31,
(000s)
---------------------------
2000 1999
-------------- ------------
Compensation and related benefits $37,384 $6,744
Interest 3,876 2,900
Marketing and advertising 11,128 1,581
Acquisition and divestiture 10,579 --
Deferred revenue 19,921 3,360
Other 9,841 1,813
-------------- ------------
$92,729 $16,398
============== ============
During 2000 the Company provided $691,000 and $11.8 million to cover acq-
uisition costs related to the acquisitions of mySimon and ZDNet respectively.
These costs are comprised of investment banking, legal, due diligence and
transfer agent services. During 2000 the Company incurred charges of $11.5
million against the provision.
As a result of the acquisition of ZDNet, the Company assumed a $20.4
million liability relating to ZDNet's prior divestiture of Ziff Davis
publishing and ZDNet's pre-acquisition exit of one of its divisions.
This liability was comprised of investment banking and legal services
and exit costs including office closure and contract termination costs.
During 2000 the Company incurred charges of $10.8 million against
the provision.
DEBT
Below is a summary of the Company's debt:
December 31
(000s)
----------------------
2000 1999
-------- --------
Trust Automatic Common
Exchange Securities $4,375 -
5% Convertible subordinated
notes 172,915 172,915
Other obligations 8,735 11,949
-------- --------
186,025 184,864
less current maturities (5,831) (5,750)
-------- --------
$180,194 $179,114
======== ========
In February 2000, the Company issued an indexed debt instrument
in a public offering of Trust Automatic Common Exchange Securities
("Traces") by NBCi through an Automatic Common Exchange Security Trust
(the "Trust"). The Traces offering consisted of 1,250,000 instruments
which were sold for $81.38 per share, with gross proceeds to the
Company of $102 million ($82 million net of $20 million prepaid interest
described below). The Traces bear interest at an annual rate
of 7.25%, which will be paid on a quarterly basis by the Trust.
The Traces are payable on February 15, 2003, whereby the holder
can exchange each security with the Company for either (i) between
.833 shares and one share of NBCi common stock that the
Company holds, (ii) cash equal to the value of those shares, or
(iii) a combination of those shares and cash, at the election of the
Company. The Company has recorded its obligation to the Trust as
long-term debt.
The number of shares, or the amount of cash, that a holder will
receive in exchange for a security will vary, depending on the average
market price of the common stock of NBCi over the twenty business
days before the exchange date. If the average market price is between
$81.38 and $97.65, then the holder will receive the value commensurate
with one share of NBCi common stock for each Trace. If the
average market price is equal to or greater than $97.65, then the
holder will receive value commensurate with 0.833 shares of NBCi common
stock for each Trace. If the average market price is less than $81.38,
then the holder will receive value commensurate with one share of NBCi
common stock for each Trace.
On December 31, 2000 the closing price of NBCi common stock was
$3.50 per share. Accordingly the Company adjusted its long-term
debt related to the Traces to $4.4 million. resulting in an unrealized
gain of $97.3 million for the year ended December 31, 2000
which was recorded in other comprehensive income and offset by an equal
unrealized loss related to the underlying NBCi common stock.
On March 8, 1999, the Company completed a private placement with
gross proceeds of $172.9 million of 5% Convertible Subordinated Notes,
due 2006 (the "Notes") The Notes are convertible into the Company's
common stock after June 7, 1999 at a conversion price of $37.40625 per
share, subject to adjustments in certain events, at the option of the
noteholder.
On February 26, 1999, the Company completed the acquisition
of the assets of Winfiles.com, a leading software downloading service
for a total purchase price of $11.5 million, with an imputed interest
rate of 8%, payable in two installments of $5.75 million. The first
installment was paid at the closing, and the final installment was
paid on August 28, 2000. At December 31, 2000 the Company's
obligations under this note had been fully discharged.
On July 27, 1999, the Company completed the acquisition of GDT S.A.,
a Swiss Societe Anonyme, ("GDT") through a merger of GDT into the Company.
As a result of the acquisition of GDT, the Company assumed a 5% mortgage
loan for the GDT building with a principal balance of $0.7 million as of
December 31, 2000. The term of the loan is 36 years. On April 24, 2000,
GDT S.A., renamed CNET Europe, S.A., acquired additional property which
the Company funded with additional 5% mortgage loans of $2.4 million
over a 20 year term. At December 31, 2000 the Company's obligation
under these loans was $3.2 million.
On July 29, 1999, the Company completed the acquisition of Nordby
International, Inc., a Colorado corporation, ("Nordby") through a merger
of Nordby into the Company. Pursuant to the merger, the Company issued a
note payable due July 29, 2001 for $5.0 million with an imputed interest
rate of 8%. At December 31, 2000 the Company's obligation under this
note $5.5 million
The aggregate annual principal payments for the notes and loan payable
outstanding as of December 31, 2000, are summarized as follows:
YEAR ENDING DECEMBER 31, (000s)
-----------------------
2001 5,831
2002 1,862
2003 2,419
2004 112
2005 77
Thereafter 175,724
--------------
$ 186,025
==============
(3) ACQUISITIONS
2000 Acquisitions
On December 15, 2000 the Company completed the acquisition of CNET
Asia Ltd., a British Virgin Islands company, a joint venture in which the
Company held a 19% Interest. Pursuant to the merger the Company paid $6
million cash for the remaining 81% interest the joint venture. Then Company
recorded goodwill of $6.2 million, which is being amortized on a straight
line basis over three years.
On November 3, 2000, the Company acquired Quote Desk Software
Corporation, a California corporation ("Quote Desk"), through a merger
of Quote Desk into the Company. Pursuant to the merger, the Company
paid $7.2 million in cash and issued 138,854 shares of common stock
valued at $4.4 million, and recorded goodwill of $7.3 million which is
being amortized over three years on a straight line basis. Quote Desk
licenses software to VARs and computer resellers which provides access
to multi-computer hardware and software distributor price files,
enables comparison pricing and generates price quotes.
On October 17, 2000, the Company completed the acquisition of Ziff
Davis, Inc. ("ZD"), a Delaware corporation, through the merger of a sub-
sidiary of the Company with and into ZD with ZD surviving the merger.
pursuant to the merger, the Company issued 47 million shares of common stock,
and as a result of the merger, each share of ZD common stock converted to
0.3397 shares of the Company's common stock and each share of ZDNet ("ZDZ")
common stock converted to .5932 shares of the Company's common stock, with a
total value of $1.7 billion as of date of closing. The Company recorded
goodwill and other intangible assets of $1.5 billion which are being
amortized over three years on a straight line basis. ZD is also an online
provider of technology news and buying guides.
On July 14, 2000, the Company completed the acquisition of the remaining
80.1 percent of Apollo Solutions, Inc. ("Apollo"), a Delaware corporation,
through the merger of Apollo into the Company. CNET had acquired a 19.9
percent interest in Apollo on December 8, 1999. Pursuant to the merger,
the Company paid $2.0 million in cash and issued 312,000 shares of common
stock valued at $9.4 million, and recorded goodwill of $17.2 million, which
is being amortized over three years on a straight line basis, for all of the
outstanding shares of Apollo. Apollo provides a Web-based application
where Value Added Resellers, IT consultants and resellers can access real
time product information, pricing and availability from multiple manufact-
urers and distributors. The company recorded this transaction using the
purchase method of accounting.
On February 29, 2000, the Company completed the acquisition of
mySimon Inc., a California corporation ("mySimon"), through a merger of
CNET Sub, Inc., a Delaware corporation and wholly-owned direct subsidiary
of the Company, with and into mySimon. Pursuant to the merger,
the Company issued 10.7 million shares of common stock and issued
364,730 options with a combined value of $678.2 million, and recorded
goodwill of $668.4 million, which is being amortized on a straight line
basis over three years, for all the outstanding shares of mySimon. mySimon
owns and operates www.mySimon.com,an online comparison shopping web site.
The Company recorded this transaction using the purchase method of
accounting.
On February 15, 2000, the Company completed the acquisition of
Digital Media Services, Inc., ("DMS") a California corporation, through
the merger of DMS into the Company. Pursuant to the merger, the Company
paid $10.7 million in cash and issued 148,611 shares of common stock valued
at $7.3 million, and recorded goodwill of $18 million, which is
being amortized on a straight line basis over three years, for all
the outstanding shares of DMS. DMS provides tools that enable manufacturers
and merchants to offer product-specific promotions directly to
customers before and at the point-of-sale, both online and offline.
The Company recorded this transaction using purchase accounting.
1999 Acquisitions
On November 4, 1999, the Company completed the acquisition of
Manageable Software Services Inc., a California corporation ("MSSI"), through
a merger of MSSI into the company. Pursuant to the merger, the Company
issued 58,394 shares of common stock to MSSI shareholders valued at $3
million, and recorded goodwill of $3 million, which is being amortized on a
straight line basis over three years, in exchange for all outstanding shares
of MSSI. MSSI provides automated PC management services to keep users'
software and hardware up-to-date. The Company recorded this transaction
using the purchase method of accounting.
On October 7, 1999, the Company completed the acquisition of
SavvySearch Limited, a Massachusetts corporation ("Savvy"), through a
merger of Savvy into the Company. Pursuant to the merger, the Company
paid $4.4 million in cash, issued 307,489 shares of common stock to
Savvy shareholders valued at $17.6 million, and recorded goodwill of
$22.1 million, which is being amortized on a straight line basis over three
years, in exchange for all outstanding shares of Savvy. Savvy is a provider
of metasearch services. The Company recorded this transaction using the
purchase method of accounting.
On July 29, 1999, the Company completed the acquisition of Nordby
International, Inc., a Colorado corporation, ("Nordby") through a merger
of Nordby into the Company. Pursuant to the merger, the Company paid $5.0
million in cash, issued a note payable due July 29, 2001 for $5.0 million,
issued 230,017 shares of common stock to Nordby shareholders valued at $10
million, and recorded goodwill of $20 million which is being amortized on
a straight line basis over three years in exchange for all outstanding shares
of Nordby. Nordby is a provider of customized financial information to online
and print partners. The Company recorded this transaction using the purchase
method of accounting.
On July 27, 1999, the Company completed the acquisition of GDT
through a merger of GDT into the Company. Pursuant to the merger, the
Company paid $30.0 million in cash, issued 429,185 shares of common
stock valued at $20 million, and recorded goodwill of $49.4 million,
which is being amortized on a straight line basis over three years, in
exchange for all of the outstanding shares of GDT. GDT is based in
Switzerland and has built a multi-language, multi-market database
of product information. GDT's database of product information will be
used to enhance CNET's Shopping services. The Company recorded this
transaction using the purchase method of accounting.
On April 30, 1999, the Company completed the acquisition of Sumo,
Inc., a Florida Corporation ("Sumo") in which the Company issued 469,484
shares of common stock to the stockholders of Sumo. Sumo developed Internet
service directories, including webhostlist.com, webdesignlist.com and
webisplist.com. The Sumo acquisition has been accounted for as a pooling-
of-interests, and accordingly, the Company's consolidated financial state-
ments have been restated for all periods prior to the acquisition to include
the results of operations, financial position and cash flows of the
acquisition.
On March 22, 1999, the Company completed the acquisition of
KillerApp Corporation, a California corporation ("KillerApp"), through
a merger of KillerApp into the Company (the "Acquisition"), in which the
Company issued an aggregate of 1,046,800 shares of its common stock to
the former KillerApp shareholders as consideration. KillerApp owned and
operated KillerApp, an online product, merchant and price listing and buying
web site. The Company recorded this transaction using the pooling-of-
interests accounting method. The consolidated financial statements
prior to January 1, 1999 have not been adjusted for the consolidated
financial results of KillerApp as the impact was not material. The shares
used in calculating the basic and diluted net income (loss) per share have
been adjusted in prior periods to reflect the KillerApp transaction as
outstanding for all periods.
On February 26, 1999, the Company acquired substantially all of
the assets of Winfiles.com, a download service, from Jensesys LLC, a
Washington limited liability company ("Winfiles"), for a total
purchase price of $11.5 million, of which $5.75 million was paid in
cash and a note for $5.75 which was paid August 28, 2000. The Company
recorded this transaction using the purchase method of accounting and
recognized $11.0 million in goodwill. The goodwill is being amortized
on a straight-line basis over a three year period.
On February 19, 1999, the Company completed the acquisition of
AuctionGate Interactive, Inc., a California corporation ("AuctionGate"),
through a merger of AuctionGate into the Company. Pursuant to the merger,
the Company issued 214,168 shares of common stock in exchange for all of
the outstanding shares of AuctionGate. AuctionGate owned and operated
AuctionGate.com, an online auction site specializing in computer products.
The Company recorded this transaction using the pooling-of-interests
accounting method and recorded the financial results of AuctionGate
in its consolidated financial statements effective January 1, 1999. The
consolidated financial statements of the Company prior to January 1, 1999
have not been adjusted for the consolidated financial results of AuctionGate
the impact was not material. The shares used in calculating the basic
and diluted net income (loss) per share have been adjusted in prior
periods to reflect the AuctionGate transaction as outstanding for all
periods.
On February 16, 1999, the Company completed the acquisition of
NetVentures, Inc., a California corporation ("NetVentures"), through a
merger of NetVentures into the Company. Pursuant to the merger,
the Company issued 414,408 shares of common stock in exchange for all
of the outstanding shares of NetVentures. NetVentures owned and operated
ShopBuilder, an online store-creation system. The Company recorded
this transaction using the pooling-of-interests accounting method and
recorded the financial results of NetVentures in its consolidated financial
statements effective January 1, 1999. The consolidated financial
statements of the Company prior to January 1, 1999 have not been
adjusted for the consolidated financial results of NetVentures as
the impact was not material. The shares used in calculating the basic
and diluted net income (loss) per share have been adjusted in prior
periods to reflect the NetVentures transaction as outstanding for all
periods.
The following unaudited proforma financial information presents the
combined results of operations of CNET as if the acquisitions of Winfiles,
GDT, Nordby, SavvySearch, MSSI, DMS, mySimon, Apollo, and ZD had
occurred as of the beginning of 1999, and 2000, after giving effect to
certain adjustments, including amortization of goodwill. All of these
acquisitions were accounted for by the purchase accounting method.
The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had CNET constituted a
single entity during such periods:
Year Ended December 31,
(000s, except per share data)
unaudited
-----------------------
2000 1999
-------------- ---------
Net revenues $ 431,342 $ 291,408
Net loss $(1,007,140) $(378,183)
Basic and diluted net loss per share $ (7.57) $ (2.91)
(4) INCOME TAXES
The provision for income taxes is as follows:
Year Ended December 31
(000s)
---------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal 66,043 30,434 -
State 11,746 9,598 -
-------- -------- --------
Total current 77,789 40,032 -
-------- -------- --------
Deferred: -
Federal (163,096) 171,773 -
State (24,292) 45,510 -
-------- -------- --------
Total deferred (187,388) 217,283 -
-------- -------- --------
($109,599) $257,315 -
======== ======== ========
The Company's effective tax rate differs from the statutory federal
income tax rate of 35% as shown in the following schedule:
Year Ended December 31
(000s)
---------------------------------
2000 1999 1998
-------- -------- --------
Income tax expense
at statutory rate 35.00% 35.00% 34.00%
Permanent differences (18.68%) 0.63% -
State tax 5.86% 5.30% -
State rate change (0.89%) - -
NOL utilized - (2.50%) -
R&D credit unutilized 0.07% (0.20%) -
Operating losses with
no current tax benefit - - (34.00%)
Valuation allowance (2.90%) - -
-------- -------- --------
Effective tax rate 18.46% 38.23% 0.00%
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets/(liabilities) are presented below:
Year Ended December 31
(000s)
---------------------------------
2000 1999 1998
-------- -------- --------
Net operating losses 40,474 - 22,184
Properties and intangibles 14,232 2,095 820
Accruals, reserves and othe (2,302) 4,708 1,615
Unrealized gain from
investments available
for sale 36,981 (80,893) -
Gain on sale of marketable
equity securities (41,637) (225,458) -
State taxes 14,304 - -
Stock based compensation (5,515) - -
Other 627 1,372 1,297
-------- -------- --------
57,164 (298,176) 25,916
Less valuation allowance (50,077) - (25,916)
-------- -------- --------
$7,087 ($298,176) $0
======== ======== ========
The total income tax valuation increased by $50,077 between the years
ended December 31, 1999 and 2000. This relates to the deferred assets
that were acquired as part of the ZDNet acquisition. The benefit
from deferred tax asset is subject to limitation as described in the
paragraph below. Accordingly, management believes that sufficient
uncertainty exists regarding the future realization of these
deferred assets and accordingly, a full valuation allowance has
been provided.
At December 31, 2000, the Company had federal net operating losses of
approximately $116 million which will begin to expire in 2011. This net
operating loss is related to the ZDNet acquisition and subject to limitations
on its utilization due to the change in ownership. Of the deferred tax
assets realized, an adjustment of approximately $53.2 million has been
recorded directly to equity to reflect the tax benefit related to stock
option compensation through December 31, 2000.
(5) LEASES
The Company has several non-cancelable operating leases primarily for
general office, facilities, and equipment that expire over the next ten
years. Future minimum lease payments under these leases are as follows:
Operating
Leases
YEAR ENDING DECEMBER 31, (000s)
----------------------- ------------
2001 $18,544
2002 21,020
2003 20,070
2004 18,831
2005 16,802
Thereafter 173,626
------------
Total minimum lease payments $268,893
============
Rental expense from operating leases amounted to $8.8 million,
$4.2 million, and $3.2 million for the years ended December 31, 2000,
1999 and 1998, respectively.
(6) STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK
The Company issued common stock pursuant to acquisitions of 58,345,793
shares and 3,169,865 shares in 2000 and 1999, respectively. The 469,484
shares related to the Sumo pooling-of-interest acquisition are reflected
as issued during 1998 in the accompanying consolidated financial statements.
On May 10, 1999, and March 8, 1999, the Company effected
two-for-one splits, respectively, of its common stock. The accompanying
consolidated financial statements have been retroactively adjusted to
reflect the stock splits.
STOCK OPTION PLAN
In 1994, the Board of Directors adopted a Stock Option Plan (the 1994
Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers and key employees. The 1994 Plan authorizes grants of
options to purchase up to 11,000,000 shares of common stock. In
1997, the stockholders approved the 1997 Stock Option Plan (the
1997 Plan"). The 1997 Plan authorizes grants of options to purchase up
to 12,400,000 shares of common stock. In 2000, the Company's Board of
Directors adopted the 2000 Stock Option Plan, which authorizes the
grant of options to purchase up to 5,000,000 shares. Each of the
1994, 1997 and 2000 Plans was approved by the stockholders of the
Company. In addition, in 2000 the Company assumed the mySimon 1998
Amended and Restated Stock Plan and the Ziff-Davis 1998 Incentive
Compensation Plan in connection with its acquisition of mySimon and
Ziff-Davis. Stock options for the 1994, 1997 and 2000 Plans are granted
with an exercise price equal to the fair market value at the date of grant.
All stock options have 10-year terms and generally vest and become
fully exercisable between three and four years from the date of grant.
A summary of the status of the Company's stock option plans as of
December 31, 2000, 1999, and 1998, and changes during each of the years
then ended:
Weighted
Number Average
of Exercise
Shares Prices
-------------- -------------
Balance as of December 31, 1997 9,286,164 4.21
Granted 4,945,800 8.37
Exercised (1,841,276) 2.56
Canceled (2,234,920) 5.80
-------------- -------------
Balance as of December 31, 1998 10,155,768 $6.19
Granted 5,061,920 31.98
Exercised (2,330,613) 4.28
Canceled (1,421,563) 11.30
-------------- -------------
Balance as of December 31, 1999 11,465,512 $17.33
Granted 22,741,669 21.60
Exercised (2,731,398) 7.31
Canceled (1,343,550) 23.44
-------------- -------------
Balance as of December 31, 2000 30,132,233 $20.86
============== =============
As of December 31, 2000, 1999 and 1998, the number of options
exercisable was 12,537,710, 2,944,082, and 2,100,032 respectively, and
the weighted average exercise price of those options was $17.83,$5.94 and
$3.51, respectively. As of December 31, 2000, there were 1,030,370
additional shares available for grant under the Plans.
The Company applies APB Opinion No. 25 in accounting for the Plans and,
accordingly, no compensation cost has been recognized for the Plans in the
financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS 123,
the Company's net income(loss) and net income (loss) per share would have
been decreased (increased) to the pro forma amounts indicated below:
Year Ended December 31
(000s, except per share data)
---------------------------------
2000 1999 1998
-------- -------- --------
Net income (loss)
As reported ($483,980) $416,908 $3,023
Proforma ($544,462) $389,596 ($12,607)
Basic net income (loss) per share
As reported ($5.18) $5.80 $0.05
Proforma ($5.83) $5.42 ($0.19)
Diluted net income (loss) per share
As reported ($5.18) $5.05 $0.04
Proforma ($5.83) $4.67 ($0.19)
The effects of applying SFAS 123 in this pro forma disclosure is
not indicative of the effects on reported results for future years.
SFAS No. 123 does not apply to awards prior to 1995.
The weighted-average fair value of options granted in 2000, 1999
and 1998, was $16.27, $23.74, and $8.37, respectively.
The fair value of each option grant is estimated on the date of
grant using Black Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2000, 1999 and 1998,
respectively: no dividend yield, expected volatility of 96%, 92%, and
75%, respectively, risk-free interest rate of 6%, 5%, and 6%, respectively,
and an expected life of five years, respectively.
The following table summarizes information about stock options
outstanding as of December 31, 2000:
------------------------------------ ------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of As of Contractual Exercise As Of Exercise
Exercise Prices 12/31/00 Life Price 12/31/00 Price
- ------------------ ------------ ----------- ----------- ------------ -----------
$0.07 $0.07 3,720 7.60 $0.07 3,720 $0.07
$0.30 $0.30 60,000 7.00 $0.30 60,000 $0.30
$0.57 $0.60 14,468 5.70 $0.59 9,252 $0.60
$1.08 $1.18 91,235 8.70 $1.18 44,098 $1.18
$2.15 $3.08 291,532 6.10 $2.62 241,087 $2.69
$3.25 $4.00 187,897 5.60 $3.51 187,202 $3.51
$5.00 $7.38 5,966,984 6.90 $6.66 4,629,810 $6.76
$8.06 $11.94 2,770,216 6.40 $9.78 2,287,256 $9.81
$12.55 $18.33 2,358,895 8.40 $14.14 733,100 $15.17
$18.86 $28.24 11,471,172 9.60 $21.10 424,116 $22.51
$28.31 $42.38 4,278,431 7.70 $33.44 3,120,737 $33.78
$42.63 $63.25 2,548,558 8.50 $53.30 781,733 $52.85
$64.13 $74.00 89,125 8.90 $66.91 15,599 $67.59
----------- -----------
$0.07 $74.00 30,132,233 8.20 $20.86 12,537,710 $17.83
=========== ===========
In conjunction with the acquisition of mySimon certain shares were
issued in the form of restricted and issued stock in exchange for acquiree
stock options. Restricted stock is subject to repurchase by the Company at
between $7.50 and $13.17 per share in the event of termination of employment.
Such shares are released from the repurchase provisions on a ratable basis
as the stockholder remains in the employment of the Company.
401(k) PROFIT SHARING PLAN
In 1996, the Company adopted a 401(k) Profit Sharing Plan (the 401 (k)
Plan") that is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The 401(k) Plan covers substantially
all of the company's employees, who may contribute up to 15% of their
annual compensation, subject to a limitation of $10,500 in 2000.
Employees vest immediately in their contributions and earnings thereon.
The plan allows for Company matching contributions which amount to 50% of
the employees contribution up to 6% with an annual cap of $1,000. Employees
vest in the Company's contributions at 50% after one year of service and
100% after two years of service. Year ended December 31, 2000 and 1999 the
Company made matching contributions of $539,240 and $168,000 respectively.
EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Company adopted an Employee Stock Purchase Plan
that covers substantially all employees. Participants may elect to
purchase the Company's stock at a 15% discount of the lower of the
closing price at the beginning or end of the quarter by contributing a
percentage of their compensation. The maximum percentage allowed is
10%.
(7) MAJOR CUSTOMERS AND CONTRACTS
CUSTOMERS
For the years ended December 31, 2000 and 1999 there were no customers
that contributed more than 10% of the Company's revenues. For the year
ended December 31, 1998, one customer, USA Networks, accounted for
approximately 10% of the Company's revenues.
CONTRACTS
In 1998 and 1999, the Company had licensing agreements with
USA Networks, whereby the Company produced television programming
for USA Networks. Under these agreements, the Company was paid a fee
equal to the cost of production for the programming produced, not to
exceed certain amounts agreed to during the various contract periods.
During 1998 and 1999, the Company agreed to pay fees for the right to
cross-market the Company's Internet channels on the television programs
produced by the Company for USA Networks. Effective July 1, 1999, the
Company reduced the amount of programming under this agreement and on
December 31, 1999, the Company's contract with USA Networks expired and was
not renewed or extended. In May, 1999, the Company entered into an agreement
with National Broadcasting Company ("NBC") whereby NBC granted certain rights
to CNBC, Inc. ("CNBC") to carry "CNET News.com". The term of the agreement
is from October 1, 1999 through September 20, 2002 and CNBC will pay based
on an annual fee not to exceed the cost of production with further maximum
limits per the contract.
In early 2000, ZDNet sold the majority of its print publishing assets
to Ziff Davis Media, an unrelated party. On April 7, 2000, prior to its
acquisition by the Company, ZDNet entered into a five year content
licensing agreement with Ziff Davis Media, whereby ZDNet had the
exclusive online rights to use and redistribute materials produced
by certain Ziff Davis Media print publications and the exclusive right
to operate web sites for those print publications. Under this agreement,
ZDNet was to pay an annual royalty to Ziff Davis Media based on worldwide
online revenues of ZDNet, on a sliding scale of 5% royalty on the first
$100 million in revenues, 4% on the next $50 million and 3% on revenues
above $150 million yearly. This agreement was amended on January 19, 2001
such that beginning March 1, 2001 the Company will be able to use the
content of those print publications on a semi-exclusive basis, for twelve
months additional, with all rights expiring on March 1, 2002 and the
the Company will transfer the publication web sites over to Ziff Davis
Media over the course of the year 2001. Under the amended terms payment
for the period from March 1, 2001 to March 1, 2002, will be a fixed
amount of $4.5 million.
On April 7, 2000 ZDNet also entered into a three year agreement with
Ziff Davis Media, whereby ZDNet would have the right to receive certain
services (production, distribution, circulation and benchmark information)
related to the publication of ZDNet's Computer Shopper print publication.
ZDNet was to pay all direct production, distribution and circulation costs,
plus a share of departmental overhead expenses (approximately $1 million
annually), plus a $5 million annual service fee. This agreement was amended
on January 19, 2001 such that, beginning March 1, 2001, the Company will
have the option of receiving the same services for up to two years, through
March 1, 2003. The Company will pay all direct production, distribution and
circulation costs, but will not incur the cost of a share of departmental
overhead expenses, plus a $2 million one time service fee.
(8) RELATED PARTY TRANSACTIONS
Included in other assets on the accompanying balance sheets is an
advance to an officer of the Company for $26,250, a loan to an employee
of the Company for $500,000 with an interest rate of 7% per annum due and
payable on April 30, 2001 and loans to employees of the Company for
$2,060,000 with interest rates of 7.87%, all maturing in April 2004.
An affiliate of an officer and stockholder of the Company
loaned the Company $800,000 in 1996 at an interest rate
of 8% and was granted 19,600 warrants to purchase Series D Convertible
preferred stock at an exercise price of $6.44 per share. This loan was
subsequently converted to Series E convertible preferred stock, which
were subsequently converted to 58,800 warrants to purchase common stock
at an exercise price of $2.15 per share. These warrants were all
exercised in June, 1999.
A stockholder loaned the Company $3,000,000 in 1996 at an interest rate
of 8%. Interest expense related to the loan was $34,000 in 1996.
This loan was subsequently converted to Series E convertible preferred
stock. In connection with this loan agreement, the Company granted the
lender 73,500 warrants to purchase Series D convertible preferred
stock at an exercise price of $6.44 per share, which were subsequently
converted to 220,500 warrants to purchase common stock at an exercise
price of $2.15 per share. These warrants were all exercised in May 2000.
BUYDIRECT.COM (BuyDirect) was a wholly-owned division of the Company
that distributed electronic software. On March 31, 1998, the Company
contributed its ownership in BuyDirect, and net assets related to
BuyDirect of approximately $744,000, to a new venture that was separately
owned and operated by BuyDirect's existing management group. As part of
the transaction, the Company received a 19% ownership interest in
the new venture. The Company used the cost method of accounting for its
BuyDirect investment thus recorded an investment of approximately
$744,000 on its balance sheet. Initially, the Company also entered
into a multi-year arrangement with the new venture to provide marketing
and promotion through April 30, 2000. Effective October 31, 1998, the
Company terminated the initial contract and entered into a new agreement
in exchange for approximately $7.5 million for marketing and promotion
through September 30, 2000. In conjunction with the new agreement, the
Company received a promissory note maturing on October 31, 2002 in the
amount of $5.6 million, which was paid off in full in 1999.
On May 9, 1999 the Company entered into an agreement to sell
its effective 40% ownership in Snap.com, a free Internet directory, search
and navigation portal service controlled by NBC Multimedia, Inc. The new
company is called NBC Internet. NBC Internet was established upon the merger
of SNAP! LLC, Xoom.com, Inc., and certain Internet related properties of
the National Broadcasting Company, Inc. ("NBC") or its affiliates, including
NBC.com, Videoseeker.com, NBC Interactive Neighborhood and a 10% interest
in CNBC.com. Upon the closing of the transaction in November, 1999, the
Company received common stock aggregating approximately 13% of NBC Internet,
which is a publicly traded company. In connection with the transaction, the
Company recorded a net gain of $324.4 million in 1999.
(9) LEGAL PROCEEDINGS
In August 1999, Simon Property Group filed a trademark infringement suit
against mySimon, inc., a subsidiary of the company acquired on February
28, 2000, in federal district court in Indianapolis. SPG alleged that
the mySimon trademark infringed SPG's "Simon" trademark. Following a
trial on the subject, on August 31, 2000, the jury found in favor of SPG
and awarded damages against mySimon in the amount of $11.4 million in
mySimon's "profit," $5.4 million for corrective advertising, and $10
million of punitive damages. On September 25, 2000, the court entered an
order establishing an escrow for royalties pending final resolution of
the litigation where mySimon pays into escrow 2% of its gross cash
receipts each month.
On January 24, 2001, the judge eliminated the profit award and offered
SPG the opportunity to accept $10 (a remittitur)for damages attributable
to corrective advertising in exchange for immediate entry on judgment in
lieu of a new trial on the subject of corrective advertising.
February 14, 2001 SPG filed its election to seek a new trial on the issue
of corrective advertising in lieu of the $10 remittitur. Under Indiana law,
the amount of punitive damages is capped at the greater of three times
times compensatory damages or $50,000. Accordingly, it is not possible
to determine the amount of punitive damages, if any, that may be
payable until the issue of damages for corrective advertising has
been resolved. It is not possible to predict the amount of damages
attributable to corrective advertising that could be awarded in a
new trial, however such amounts, if settled adversely to the Company,
could be material to stockholders' equity. Accordingly no provision
for ultimate settlement of these issues has been included
in the accompanying consolidated financial statements.
The judge's January 24, 2001 order also provided that if the jury's
verdict of trademark infringement is upheld on appeal, mySimon will be
required to change its name and domain name. The judge stayed such name
change pending the completion of the appeal process. If the jury's
verdict of infringement is upheld on appeal, mySimon will have 60 days
to change its name and will be entitled to redirect traffic from
www.mysimon.com to its new website for one year following the name
change. MySimon plans to appeal the finding of trademark infringement.
On February 14, 2001, SPG filed a notice of appeal requested that the
court issue the injunctive relief immediately and challenging mySimon's
ability to redirect traffic to a new website for one year following the
name change.
On October 17, 2000, CNET acquired Ziff-Davis, Inc., which was a
defendant in the following cases:
Following a decline in the price per share of Ziff-Davis's common stock
leading up to October 1998, eight securities class action suits were
filed against Ziff- Davis Inc. and certain of its directors and officers
in the United States District Court for the Southern District of New
York. The complaints alleged that defendants violated Sections 11, 12(a)
(2) and 15 of the Securities Act of 1933 in connection with the
registration statement filed by Ziff-Davis Inc. with the Securities and
Exchange Commission relating to the initial public offering of Ziff-
Davis Inc.'s stock on April 28, 1998 (the "IPO"). More particularly, the
complaints alleged that the registration statement contained false and
misleading statements and failed to disclose facts that could have
indicated an impending decline in Ziff-Davis Inc.'s revenue. The
complaints sought on behalf of a class of purchasers of Ziff-Davis Inc.
common stock from the date of the IPO through October 8, 1998,
unspecified damages, interest, fees and costs, rescission and injunctive
relief such as the imposition of a constructive trust upon the proceeds
of the IPO. On January 28, 1999, the court entered an order
consolidating the actions, appointing lead plaintiff's counsel and
requiring the filing of a consolidated amended complaint. The
consolidated amended complaint was filed on March 15, 1999 and only
alleges claims under Section 11 of the Securities Act of 1933. On May
20, 1999, defendants moved to dismiss the consolidated amended
complaint. That motion was denied on June 27, 2000. Discovery is
nearing completion. Although the outcome of this case cannot be
predicted, CNET believes that there are substantial defenses to the
claims. CNET currently cannot estimate its ultimate liability, if any,
with respect to this case. Accordingly, no provision for such matters
has been included in the financial statements
In addition, two shareholder derivative suits were filed by stockholders
against all of Ziff-Davis Inc.'s directors (and nominally against Ziff-
Davis Inc.) in the Court of Chancery of the State of Delaware for New
Castle County. The complaints allege that the directors breached their
fiduciary duties to Ziff-Davis Inc. by repricing the stock options
awarded to directors and employees and demand the nullification of the
repricing, damages and an injunction against exercise by the directors
of any repriced option. Plaintiffs filed an amended complaint on
February 17, 1999 (which is substantially similar to the original
complaints, except that the amended complaint also addresses the
granting of "new options" at an allegedly "reduced exercise price") and
the actions have been consolidated. CNET believes that the plaintiffs
have lost their standing to pursue the derivative action as a result of
CNET's acquisition of all of the outstanding stock of Ziff-Davis, Inc.,
and defendants filed a motion for summary judgment seeking dismissal of
the action on that ground on December 13, 2000. Plaintiffs have not yet
responded to that motion. Although the outcome of this case cannot be
predicted, CNET believes that there are substantial defenses to the
claims. CNET currently cannot estimate its ultimate liability, if any,
with respect to this case. Accordingly, no provision for such matters
has been included in the consolidated financial statements.
On September 27, 2000 and September 29, 2000, respectively, two
substantially identical actions were filed by stockholders of Ziff-Davis
Inc. in the Court of Chancery of the State of Delaware, in and for New
Castle County, against Ziff-Davis and all of the members of its Board of
Directors as it was constituted in September 1998. The complaints,
which were brought as purported direct class actions, allege that Ziff-
Davis' non-employee stockholders were harmed by an allegedly improper
repricing of employee stock options in September 1998. More
specifically, the complaint alleges that but for the allegedly improper
repricing, employees would not have exercised their options, there would
thus be fewer outstanding shares and therefore the proportional share of
proceeds received by non-employee stockholders from the Ziff-Davis/CNET
Networks merger would have been larger. The first-filed action has been
assigned to Vice Chancellor Strine. The second has not yet been
assigned. Pursuant to an agreement with plaintiffs, a response to the
first-filed complaint (the only one that has been served) will be due
twenty days after an order consolidating the two actions is entered.
Although the outcome of this case cannot be predicted, CNET believes
that there are substantial defenses to the claims. CNET currently cannot
estimate its ultimate liability, if any, with respect to this case.
Accordingly, no provision for such matters has been included in the
consolidated financial statements.
On October 6, 2000, two former employees of Ziff-Davis, Inc. filed a
purported class action lawsuit in New York Supreme Court, New York
County, against Ziff-Davis, ZDNet, Inc., SOFTBANK, Inc. and Eric
Hippeau. The complaint alleges breach of contract, detrimental reliance
and unjust enrichment resulting from (i) the allegedly wrongful
shortening of exercise periods of certain Ziff-Davis, ZDNet and SOFTBANK
options and (ii) the allegedly wrongful revocation of other Ziff-Davis
and ZDNet options. The complaint seeks unspecified damages, fees and
costs on behalf of all persons who were holders of employee stock
options in Ziff-Davis, ZDNet, or SOFTBANK as of April 13, 2000
(excluding Mr. Hippeau). On November 20, 2000, defendants Ziff-Davis,
ZDNet, Inc. and Eric Hippeau (the only defendants that have been served)
moved to dismiss the action. Plaintiffs voluntarily dismissed the
action with regard to SOFTBANK, Inc. and Mr. Hippeau on January 26,
2001, and, on March 12, 2001, indicated an intention to seek voluntary
dismissal of the entire action. A hearing concerning court approval of
such dismissal is scheduled for March 30, 2001.
There are no other legal proceedings to which CNET is a party, other
than ordinary routine litigation incidental to its business that is not
expected to be material to the business or financial condition of the
company.
(10) SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, Disclosure
About Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting by public business enterprises
of information about operating segments, products and services,
geographic areas and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operating decisions and
assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenue and cost of revenue by operating segment for
purposes of making operating decisions and assessing financial performance.
The consolidated operating information reviewed by the CEO is identical to
the information presented in the accompanying consolidated statement of
operations. The Company operates in two segments: Internet, which
includes the Company's Internet network, CNET Data Services and the
ChannelOnline business and Broadcast and Publishing which includes the
television, radio and print businesses.
Asset information regarding Internet and Broadcast and Publishing
operations is as follows:
December 31, December 31,
2000 1999
(000s) (000s)
--------- ---------
Internet 2,853,374 1,229,070
Broadcast and publishing 10,025 1,241
------------- ----------
Consolidated total 2,863,399 1,230,311
============= ==========
Revenues are primarily generated in the United States of America. Foreign
revenues accounted for less than 10% of revenues in 2000 and 1999, and
accordingly geographic data is not presented. The Company attributes
foreign revenues based on the domicile of the CNET subsidiary or division
generating the revenues.
(11) Quarterly Financial Data (unaudited)
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
----------------------------------------
September December
March 31 June 30 30 31
-------- -------- --------- ---------
2000:
Net Revenues $44,366 $52,239 $56,439 $110,975
Gross profit 26,846 33,833 34,007 71,381
Amortization of
goodwill and intangibles 28,114 66,259 67,859 178,174
Operating income (loss) (23,711) (63,826) (61,899) (167,422)
Income (loss) before income taxes (27,690) 9,747 (24,345) (551,291)
Net income (loss) (27,690) (20,655) (43,551) (392,084)
Basic net income (loss) per share ($0.36) ($0.24) ($0.50) ($3.12)
Diluted net income (loss) per share ($0.36) ($0.24) ($0.50) ($3.12)
1999:
Net Revenues $20,076 $25,552 $28,409 $38,308
Gross profit 10,785 15,576 16,125 22,254
Amortization of
goodwill and intangibles 306 931 5,224 8,575
Operating income (loss) 1,759 4,326 (28,003) (39,220)
Income before income taxes 21,872 9,212 69,695 573,444
Net income 21,872 9,212 29,384 356,440
Basic net income per share $0.31 $0.13 $0.40 $4.84
Diluted net income per share $0.29 $0.11 $0.35 $4.18
(12) SUBSEQUENT EVENTS
None
SCHEDULE II
CNET NETWORKS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Numbers presented in thousands)
Additions
-----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions at End
of Period Acquisitions Expenses Accounts Describe of Period
------------ ----------- ----------- ------------ ----------- ---------
2000
- ------------------
Allowance for
doubtful accounts $4,678 $22,201 $8,320 -- $16,047 (1) $19,152
1999
- ------------------
Allowance for
doubtful accounts $1,722 -- $4,745 $210 (2) $1,999 (1) $4,678
(1) Accounts written off.
(2) Amounts charged to revenue to cover underdelivery of guaranteed
impressions.
S-2 Independent Auditors' Report on Schedule
The Board of Directors
CNET Networks, Inc.
Under date of February 5, 2001, we reported on the consolidated balance
sheets of CNET Networks, Inc., and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations
and other comprehensive income (loss), stockholders' equity and cash
flows for each of the years in the three-year period ended December 31,
2000, as contained in the annual report on Form 10-K for the year 2000.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statements
schedule for the years ended December 31, 2000 and 1999 in the annual
report on Form 10-K. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
San Francisco, California
February 5, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Registrant's definitive Proxy Statement
for its 2001 annual meeting, which will be filed pursuant to Regulation
14A (the "2000 Proxy Statement"), under the caption "Management."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the 2001 Proxy Statement, under the caption
"Executive Compensation and Other Information," but specifically excluding
the information under the captions "-- Performance Graph" and "--
Compensation Committee's Report on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the 2001 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the 2001 Proxy Statement under the caption
"Certain Relationships and Related Transactions."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES LIST AND REPORTS ON FORM
8-K
(a) EXHIBITS:
(1) Financial Statements. The following consolidated financial
statements are filed as a part of this report
under Item 8, "Financial Statements and Supplementary Data":
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flow for the years ended December
31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report of KPMG LLP
(2) Financial Statement Schedules. The following financial
statement schedule is filed as part of this report:
S-1 Schedule II Valuation and Qualifying Accounts
S-2 Independent auditors report on schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
December 31, 2000:
(1) Current Report on Form 8-K dated August 31, 2000 - Item 5: Court
decision in mySimon litigation.
(2) Current Report on Form 8-K dated October 17, 2000, as amended on
November 13, 2000. Item 2: Completion of ZDNet merger. Financial
statements filed: Ziff-Davis Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1999 (File No. 001-14055). Ziff-Davis
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2000 (File No. 001-14055). Post-Effective Amendment No. 1 to CNET
Networks Inc.'s Registration Statement on Form S-4 filed on September 8,
2000 (Reg. No. 333-43900).
(3) Current Report on Form 8-K dated December 1, 2000 - Item 5: Election
of Shelby Bonnie as Chairman
(c) Exhibits.
1.1 Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference from a previously filed exhibit to the
Company's Registration Statement on Form SB-2, registration no.333-4752-
LA.)
2.1 Agreement and Plan of Merger, dated as of July 19, 2000, among the
Company, Ziff-Davis, Inc. and Merger Sub (Incorporated by reference to
the Company's Current Report on Form 8-K dated July 19, 2000)
3.1 Certificate of Amendment of Certificate of Incorporation of the
Company (Incorporated by reference from a previously filed exhibit to .the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998)
3.2 Amended and Restated Bylaws of the Company (Incorporated by reference
from a previously filed exhibit to .the Company's Annual Report on Form
10-K for the year ended December 31, 1999)
4.1 Specimen of Common Stock Certificate (Incorporated by reference from a
previously filed exhibit to the Company's Registration Statement on Form
SB-2, registration no.333-4752-LA.)
5.1 Indenture dated March 8, 1999 between the Company and The Bank of New
York, as trustee (Incorporated by reference from a previously filed
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
5.2 Form of 5% Convertible Subordinated Note due 2006 (Incorporated by
reference from a previously filed exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998)
10.1 Employment Agreement, dated as of October 19, 1994, between the
Company and Shelby W. Bonnie (Incorporated by reference from a previously
filed exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998)
10.2 Employment Agreement dated as of April 27, 1999 by and between the
Company and Richard Marino (Incorporated by reference from a previously
filed exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1999)
10.3 Lease Agreement, dated as of January 28, 1994, between the Company
and Montgomery/North Associates and amended as of January 31, 1995 and
as of October 19, 1995 (Incorporated by reference from a previously filed
exhibit to the Company's Registration Statement on Form SB-2, registra-
tion no.333-4752-LA.)
10.4 Lease, dated as of October 19, 1995, between the Company and The
Ronald and Barbara Kaufman Revocable Trust, et al. (Incorporated by
reference from a previously filed exhibit to the Company's Registration
Statement on Form SB-2, registration no.333-4752-LA.)
10.5 Office Lease between One Beach Street, LLC and the Company dated
September 24, 1997 (Incorporated by reference from a previously filed
exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997)
10.6 Office Lease by and between 235 Second Street LLC and the Company
(Incorporated by reference from a previously filed exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000)
10.7 Standstill Agreement between NBC Internet and the Company
(Incorporated by reference from a previously filed exhibit to NBC
Internet's Registration Statement on Form S-4 (Registration No. 333-82639)
filed on July 12, 1999)
10.8 Voting Agreement among Xoom.com, Inc., National Broadcasting Company,
Inc., the Company, Chris Kitze and Flying Disc Investments Limited
Partnership, dated May 9, 1999 (Incorporated by reference from a
previously filed exhibit to NBC Internet's Registration Statement on Form
S-4 (Registration No. 333-82639) filed on July 12, 1999)
10.9 Voting and Right of First Offer Agreement between National
Broadcasting Company, Inc. and CNET, Inc. (incorporated by reference to
the exhibits to NBC Internet's Registration Statement on Form S-4
(Registration No. 333-82639) filed on July 12, 1999) (Incorporated by
reference from a previously filed exhibit to NBC Internet's Registration
Statement on Form S-4 (Registration No. 333-82639) filed on July 12, 1999)
10.10 Addendum to the Snap Agreements by and among the Company, National
Broadcasting Company, Inc., NBC Multimedia, Inc. and Snap! LLC., dated
May 9, 1999 (incorporated by reference to the exhibits to NBC Internet's
Registration Statement on Form S-4 (Registration No. 333-82639) filed
on July 12, 1999)
10.11 Registration Agreement dated March 8, 1999 between the Company and
Salomon Smith Barney Inc. BancBoston Robertson Stephens Inc. and Volpe
Brown & Company, LLP, as Representatives of the Initial Purchasers
(Incorporated by reference from a previously filed exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998)
10.12 Stockholder Agreement, dated as of July 19, 2000, among the Company,
Softbank America Inc. and Merger Sub (Incorporated by reference from a
previously filed exhibit to the Company's Current Report on Form 8-K
dated July 19, 2000)
10.13 Voting Agreement , dated as of July 19, 2000, among the Company,
Softbank America Inc. and Merger Sub (Incorporated by reference from a
previously filed exhibit to the Company's Current Report on Form 8-K
dated July 19, 2000)
10.14 Voting Agreement , dated as of July 19, 2000, between Shelby Bonnie
and Ziff-Davis (Incorporated by reference from a previously filed exhibit
previously filed exhibit to the Company's Current Report on Form 8-K
dated July 19, 2000)
10.15 Voting Agreement , dated as of July 19, 2000, between Halsey Minor
and Ziff-Davis (Incorporated by reference from a previously filed exhibit
previously filed exhibit to the Company's Current Report on Form 8-K
dated July 19, 2000)
10.16 Purchase Agreement, dated August 30, 1999, among ZD Inc., ZD
Holdings (Europe) Ltd. and Harte-Hanks, Inc. (incorporated by reference
to a previously filed exhibit to the Ziff-Davis, Inc. Annual Report for
the year ended December 31, 1999)
10.17 Purchase Agreement, dated November 17, 1999, between ZD Inc. and WP
Education Holdings LLC. (incorporated by reference to a previously filed
exhibit to the Ziff-Davis, Inc. Annual Report for the year ended December
31, 1999)
10.18 Purchase Agreement, dated November 19, 1999, between ZD Inc. and
Vulcan Programming Inc. (incorporated by reference to a previously filed
exhibit to the Ziff-Davis, Inc. Annual Report for the year ended December
31, 1999)
10.19 Purchase Agreement, dated December 6, 1999, among ZD Inc., ZD
Holdings (Europe) Ltd. and WS-ZD Acquisition, Inc.
10.20 License Agreement, dated April 5, 2000, between Ziff-Davis Inc. and
Ziff Davis Media Inc. (incorporated by reference to a previously filed
exhibit to the Ziff-Davis, Inc. Annual Report for the year ended December
31, 1999)
10.21 License Agreement, dated April 5, 2000, between ZD Inc. and Ziff
Davis Publishing Holdings Inc. (incorporated by reference to a previously
filed exhibit to the Ziff-Davis, Inc. Annual Report for the year ended
December 31, 1999)
10.22 License Agreement, dated April 5, 2000, between ZD Inc. and Ziff
Davis Publishing Holdings Inc. (incorporated by reference to a previously
filed exhibit to the Ziff-Davis, Inc. Annual Report for the year ended
December 31, 1999)
10.23 Services Agreement, dated April 5, 2000, between ZD Inc. and Ziff
Davis Media Inc. (incorporated by reference to a previously filed exhibit
to the Ziff-Davis, Inc. Annual Report for the year ended December 31,
1999)
10.24 Transition Services Agreement, dated April 5, 2000, between ZD Inc.
and Ziff Davis Media Inc. (incorporated by reference to a previously
filed exhibit to the Ziff-Davis, Inc. Annual Report for the year ended
December 31, 1999)
10.25 Side Letter Agreement, dated as of April 5, 2000, by and among Ziff
Davis Media Inc., ZD Inc. and ZD Holdings (Europe) Ltd. (incorporated by
reference to a previously filed exhibit to the Ziff-Davis, Inc. Annual
Report for the year ended December 31, 1999)
10.26 Amendment to License Agreement between ZDNet, Inc. and Ziff Davis
Media, Inc. (incorporated by reference to a previously filed exhibit to
the Company's Current Report on Form 8-K dated January 19, 2001)
10.27 Services Agreement between ZDNet, Inc and Ziff Davis Media, Inc.
(incorporated by reference to a previously filed exhibit to the Company's
Current Report on Form 8-K dated January 19, 2001)
10.28 Lease of Ziff-Davis Inc.'s headquarters at 28 East 28th Street, New
York, New York (incorporated by reference to the exhibit in Ziff-Davis
Inc.'s Registration Statement of Form S-1, File No. 333-46493)
10.29 Agreement and Consent to Assignment, dated as of April 4, 2000, by
and among 63 Madison Associates, L.P., ZD Inc. and Ziff Davis Publishing
Inc. (incorporated by reference to a previously filed exhibit to the Ziff-
Davis, Inc. Annual Report for the year ended December 31, 1999)
10.30 Assignment and Assumption of Lease, dated as of April 5, 2000,
between ZD Inc. and Ziff Davis Publishing Inc. (incorporated by reference
to a previously filed exhibit to the Ziff-Davis, Inc. Annual Report for
the year ended December 31, 1999)
10.31 Agreement of Sublease, dated March 10, 2000, between ZD Inc. and
Ziff-Davis Inc. (incorporated by reference to a previously filed exhibit
to the Ziff-Davis, Inc. Annual Report for the year ended December 31,
1999)
10.32 Bill of Sale and Assignment, dated as of February 4, 1999, between
MAC Holdings (America) Inc. and ZD Inc. (incorporated by reference to a
previously filed exhibit to the Ziff-Davis Inc. Current Report on Form 8-
K, File No. 001-14055)
21.1*LIST OF SUBSIDIARY CORPORATIONS
23.1*CONSENT OF INDEPENDENT AUDITORS
*..........Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By /s/ Shelby W. Bonnie
----------------------------------
Shelby W. Bonnie
Chairman of the Board & Chief Executive Officer
Date March 30, 2001
----------------------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By /s/ Shelby W. Bonnie
----------------------------------
Shelby W. Bonnie
Chairman of the Board & Chief Executive Officer
Date March 30, 2001
----------------------------------
By /s/ Dan Rosensweig
----------------------------------
Dan Rosensweig
President
Date March 30, 2001
----------------------------------
By /s/ Douglas N. Woodrum
----------------------------------
Douglas N. Woodrum
Executive Vice President
and Chief Financial Officer
Date March 30, 2001
----------------------------------
By /s/ David P. Overmyer
----------------------------------
David P. Overmyer
Senior Vice President, Finance and Administration
(Principal Accounting Officer)
Date March 30, 2001
----------------------------------
By /s/ John C. "Bud" Colligan
----------------------------------
John C. "Bud" Colligan
Director
Date March 30, 2001
----------------------------------
By /s/ Mitchell Kertzman
----------------------------------
Mitchell Kertzman
Director
Date March 30, 2001
----------------------------------
By /s/ Eric Robison
----------------------------------
Eric Robison
Director
Date March 30, 2001
----------------------------------
By /s/ Eric Hippeau
----------------------------------
Eric Hippeau
Director
Date March 30, 2001
----------------------------------
By /s/ Randall Mays
----------------------------------
Randall Mays
Director
Date March 30, 2001
----------------------------------