SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] 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 0-23337
SPORTSLINE.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 65-0470894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 W. Cypress Creek Road
Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 351-2120
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares of common stock outstanding as of October 31, 2001:
27,742,100
Page 1 of 19 Pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000.................... 3
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 2001 and 2000................................................. 4
Condensed Consolidated Statement of Changes in Shareholders' Equity (unaudited)
for the nine months ended September 30, 2001.................................................................... 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2001 and 2000........................................................... 6
Notes to Condensed Consolidated Financial Statements (unaudited).................................................... 7
2
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
September 30, December 31,
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 57,402 $ 66,713
Marketable securities ........................................ -- 59,052
Deferred advertising and content costs ....................... 6,036 18,969
Accounts receivable, net ..................................... 10,569 10,140
Prepaid expenses and other current assets .................... 8,336 11,902
--------- ---------
Total current assets ..................................... 82,343 166,776
LICENSING RIGHTS ................................................ 567 2,267
NONCURRENT DEFERRED ADVERTISING AND CONTENT COSTS ............... 9,714 11,428
PROPERTY AND EQUIPMENT, net ..................................... 13,897 19,703
GOODWILL, net ................................................... 26,732 51,550
OTHER ASSETS .................................................... 10,708 6,447
--------- ---------
$ 143,961 $ 258,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 8,293 $ 14,404
Accrued liabilities .......................................... 17,869 19,962
Deferred revenue ............................................. 5,029 5,291
--------- ---------
Total current liabilities ............................... 31,191 39,657
OTHER LONG TERM LIABILITIES ..................................... 203 --
CONVERTIBLE SUBORDINATED NOTES .................................. 19,608 19,608
--------- ---------
Total liabilities ....................................... 51,002 59,265
--------- ---------
MINORITY INTEREST ............................................... -- 59,809
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none issued and outstanding as of September 30, 2001 and
December 31, 2000 ........................................ -- --
Common stock, $0.01 par value, 200,000,000 shares authorized,
28,577,100 and 26,486,193 issued and outstanding as of
September 30, 2001 and December 31, 2000, respectively .. 286 265
Additional paid-in capital ................................... 355,542 359,612
Accumulated other comprehensive loss ......................... -- (5,228)
Accumulated deficit .......................................... (262,869) (215,552)
--------- ---------
Total shareholders' equity ............................... 92,959 139,097
--------- ---------
$ 143,961 $ 258,171
========= =========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
3
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUE ....................................... $ 13,601 $ 26,709 $ 49,031 $ 73,704
COST OF REVENUE ............................... 7,255 12,219 26,590 31,385
------------ ------------ ------------ ------------
GROSS PROFIT .................................. 6,346 14,490 22,441 42,319
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Product development ......................... 468 435 1,451 1,268
Sales and marketing ......................... 9,219 14,111 34,198 39,642
General and administrative .................. 6,535 8,971 25,323 28,127
Depreciation and amortization ............... 11,296 10,296 34,848 30,649
Write-down of goodwill ...................... 17,000 -- 17,000 --
Restructuring charges ....................... -- -- 985 --
------------ ------------ ------------ ------------
Total operating expenses .......... 44,518 33,813 113,805 99,686
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS .......................... (38,172) (19,323) (91,364) (57,367)
INTEREST EXPENSE .............................. (267) (319) (811) (895)
INTEREST AND OTHER INCOME, net ................ 584 3,381 3,147 10,001
GAIN ON SALE OF E-COMMERCE SUBSIDIARIES ....... -- -- -- 7,814
LOSS ON EQUITY INVESTMENTS ................... -- (114,285) (28) (114,285)
EFFECT OF DECONSOLIDATION OF SPORTS.COM ....... 41,739 -- 41,739 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) ............................. 3,884 (130,546) (47,317) (154,732)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED $ 0.14 $ (4.94) $ (1.72) $ (5.91)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
BASIC ....................................... 28,367,690 26,435,512 27,436,728 26,179,127
============ ============ ============ ============
DILUTED ..................................... 28,383,024 26,435,512 27,436,728 26,179,127
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
4
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(UNAUDITED)
Accumulated
Additional Other
Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Income (Loss) Deficit Loss
------ ------ ------- ------------- ------------ ----
Balances at December 31, 2000 .................... 26,486,193 $ 265 $ 359,612 $ (5,228) $ (215,552)
Issuance of common stock pursuant
to acquisition of subsidiary ................... 828,376 8 6,333 -- --
Issuance of common stock pursuant to consulting
agreements .................................... 50,000 1 266 -- --
Repurchase of common stock pursuant to
acquisition of DBC Sports ..................... (277,152) (3) (12,497) -- --
Issuance of common stock pursuant to the
employee stock purchase plan .................. 100,092 1 194 -- --
Issuance of common stock pursuant to
The NFL Agreement ............................. 350,000 3 630 -- --
Issuance of restricted shares of
common stock to employees ..................... 1,909,458 20 2,006 -- --
Repurchase of common stock ....................... (870,000) (9) (1,003) -- --
Issuance of common stock from exercise of employee
options ........................................ 133 -- 1 -- --
Comprehensive loss:
Net loss .................................... -- -- -- -- (47,317) $ (47,317)
Cumulative translation adjustment ........... -- -- -- 5,228 -- 5,228
-------------
Comprehensive loss ............................... -- -- -- -- -- $ (42,089)
=============
-----------------------------------------------------------------
Balances at September 30, 2001 ................... 28,577,100 $ 286 $ 355,542 $ -- $ (262,869)
=================================================================
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
5
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(UNAUDITED)
Nine Months Ended
September 30
------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $ (47,317) $(154,732)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ..................................... 34,848 30,649
Other noncash expenses ............................................ 900 1,566
Minority interest in consolidated subsidiaries .................... -- (1,992)
Write-down of goodwill ............................................ 17,000 --
Effect of deconsolidation of Sports.com ........................... (41,739) --
Loss on equity investments ........................................ 28 114,285
Gain on sale of e-commerce subsidiaries ........................... -- (7,814)
Changes in operating assets and liabilities:
Accounts receivable ............................................ (4,682) (5,481)
Prepaid expenses and other current assets ...................... 1,604 3,098
Accounts payable ............................................... 1,149 1,367
Accrued liabilities ............................................ 4,139 10,417
Deferred revenue ............................................... (107) (11,424)
--------- ---------
Net cash used in operating activities .......................... (34,177) (20,061)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities, net ................................... 59,052 1,608
Purchase of property and equipment ................................... (5,473) (14,579)
Purchase of intangible assets ........................................ (6,158) --
Acquisition of businesses ............................................ (74) (11)
Investment in Sports.com ............................................. (5,000) --
Cash effect of Sports.com deconsolidation ............................ (3,743) --
Net change in restricted cash ........................................ (417) --
--------- ---------
Net cash provided by (used in) investing activities ............ 38,187 (12,982)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock of subsidiary .............. -- 52,500
Repurchase of common stock pursuant to acquisition of DBC Sports ..... (12,500) --
Net proceeds from issuance of common stock and exercise of common
stock warrants and options ........................................ 197 13,839
Repurchase of common stock ........................................... (1,012) --
Repayment of capital lease obligations ............................... (6) (159)
--------- ---------
Net cash provided by (used in) financing activities ............ (13,321) 66,180
--------- ---------
Effect of exchange rate changes ...................................... -- (5,647)
--------- ---------
Net increase (decrease) in cash and cash equivalents .................... (9,311) 27,490
CASH AND CASH EQUIVALENTS, beginning of period .......................... 66,713 45,968
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ................................ $ 57,402 $ 73,458
========= =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Noncash issuance of common stock pursuant to acquisition of subsidiary $ 6,341 $ --
========= =========
Noncash issuance of common stock pursuant to consulting agreement .... $ 267 $ --
========= =========
Noncash issuance of restricted shares to employees ................... $ 2,026 $ --
========= =========
Noncash issuance of common stock pursuant to the NFL Agreement ....... $ 633 $ --
========= =========
Noncash portion of sale of e-commerce subsidiaries ................... $ -- $ 3,579
========= =========
Noncash minority investments in businesses ........................... $ -- $ 3,297
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 491 $ 988
========= =========
Cash paid for income taxes ........................................... $ 771 $ 3
========= =========
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
6
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
SportsLine.com, Inc. ("SportsLine.com" or the "Company") was
incorporated on February 23, 1994 and began recognizing revenue from its
operations in September 1995. SportsLine.com is a leading media company
providing Internet sports content, community and e-commerce on a global basis.
The Company's content includes more than one million pages of multimedia sports
information, entertainment and merchandise. The Company's flagship Internet
sports service (http://cbs.sportsline.com) was renamed CBS SportsLine.com as
part of an exclusive promotional and content agreement with CBS Broadcasting
Inc. ("CBS") in March 1997. The Company has strategic relationships with CBS,
USA Networks, Westwood One, the NFL, Major League Baseball, the NBA and the PGA
TOUR and serves as the primary sports content provider for America Online and
Netscape. The Company distributes a broad range of up-to-date news, scores,
player and team statistics and standings, photos and audio and video clips
obtained from CBS and other leading sports news organizations and the Company's
superstar athletes; offers instant odds and picks; produces and distributes
entertaining, interactive and original programming such as editorials and
analyses from its in-house staff and freelance journalists; and produces and
offers contests, games and fantasy league products.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring accruals considered necessary for a fair presentation, have
been included in the accompanying unaudited financial statements. All
significant intercompany transactions and balances have been eliminated in
consolidation. Operating results for the three and nine months ended September
30, 2001 are not necessarily indicative of the results that may be expected for
any subsequent period or the full year ending December 31, 2001. For further
information, refer to the consolidated financial statements and notes thereto,
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Per Share Amounts
Net income and loss per share are computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon conversion of all convertible preferred stock (using the
if-converted method) and shares issuable upon exercise of stock options and
warrants (using the treasury stock method). There were 5,144,267 and 8,573,357
options and warrants outstanding in the aggregate at September 30, 2001 and
2000, respectively, that could potentially dilute earnings per share in the
future. Such options and warrants were not included in the computation of
diluted net loss per share because to do so would have been antidilutive for the
three and nine months ended September 30, 2000 and the nine months ended
September 30, 2001.
Revenue by Type
Revenue by type for the three and nine months ended September 30, 2001
and 2000 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Advertising ............... $12,166 $20,907 $39,914 $59,604
Subscription based services 882 1,780 2,839 4,913
Content licensing and other 553 4,022 6,278 9,187
------- ------- ------- -------
$13,601 $26,709 $49,031 $73,704
======= ======= ======= =======
Barter transactions, in which the Company received advertising or other
services or goods in exchange for content or advertising on its Web sites,
accounted for approximately 14% of total revenue for both the three months
7
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)--(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
ended September 30, 2001 and 2000. Barter transactions accounted for
approximately 22% and 15% of total revenue for the nine months ended September
30, 2001 and 2000, respectively. In future periods, management intends to
maximize cash advertising and content licensing revenue, although the Company
will continue to enter into barter relationships when deemed appropriate.
Equity transactions, in which the Company received equity in companies
in exchange for advertising and promotion accounted for approximately 1% and 17%
of total revenue for the quarters ended September 30, 2001 and 2000,
respectively. Equity transactions accounted for approximately 7% and 15% of
total revenue for the nine months ended September 30, 2001 and 2000. Equity
revenue in 2001 was primarily generated from one agreement, which expired in
June 2001. The majority of the equity related revenue in 2000 was derived from
two agreements, each of which had been terminated as of December 31, 2000. The
Company expects equity related revenue to decrease in future periods, unless the
Company enters into new agreements.
Restructuring Charge
In April 2001, the Company announced that it had implemented several
cost-saving initiatives. Cost reductions were accomplished through a variety of
steps, most significantly in the areas of discretionary marketing and a 15-20%
reduction in the Company's domestic workforce. The restructuring accrual balance
at June 30, 2001 was $362. Severance and rent payments for the quarter ended
September 30, 2001 were $109, resulting in a remaining accrual balance of $253
at September 30, 2001.
Sports.com Deconsolidation
On July 17, 2001, Sports.com Limited ("Sports.com"), raised
approximately $13,000 in equity funding from its existing investors including
the Company, Soros Private Equity Partners and IMG. After giving effect to the
funding, the Company's fully diluted ownership stake in Sports.com, including
all outstanding warrants and management options, is approximately 30%. As a
result of the Company's reduced ownership interest in Sports.com and a reduction
in the Company's representation on Sports.com's board of directors to less than
a majority, as of July 17, 2001 the Company is no longer consolidating the
results of Sports.com and is accounting for its investment in Sports.com under
the equity method of accounting. In accordance with United States generally
accepted accounting principles, the Company has recorded the effect of the
deconsolidation in its income statement for the three months ended September 30,
2001 in the amount of $41,739. Also, the Company's comprehensive loss for the
three months ended September 30, 2001 decreased $5.2 million due to the
deconsolidation. In future periods the Company will not record any losses
generated by Sports.com as its investment has been reduced to zero and the
Company has no future obligation to provide funding to Sports.com. Sports.com's
assets and liabilities are included in the Consolidated Balance Sheet of the
Company as of December 31, 2000 and Sports.com's income, expense and minority
interest are included in the unaudited Consolidated Statements of Operations of
the Company for the three and nine months ended September 30, 2000. Sports.com's
income, expense and minority interest through July 17, 2001 are included in the
unaudited Consolidated Statements of Operations of the Company for the three and
nine months ended September 30, 2001.
8
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(3) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY:
As discussed in Note 2, the Company began accounting for its investment
in Sports.com under the equity method of accounting as of July 17, 2001.
Unaudited condensed financial information of Sports.com is as follows:
Balance Sheets September 30, December 31,
(in thousands) 2001 2000
-------- --------
Assets:
Current assets ...................... $ 13,095 $ 27,696
Other ............................... 6,449 6,921
-------- --------
Total assets ...................... $ 19,544 $ 34,617
======== ========
Liabilities and stockholders' equity:
Current liabilities ................. $ 5,064 $ 8,604
Stockholders' equity ................ 14,480 26,013
Total liabilities and ............. -- --
stockholders' equity ............. $ 19,544 $ 34,617
======== ========
Three Months Ended Nine Months Ended
Statements of Operations September 30, September 30,
(in thousands) ---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues ............................ $ 1,478 $ 3,008 $ 5,697 $ 6,591
Cost and expenses ................... (8,639) (10,609) (29,590) (27,333)
-------- -------- -------- --------
Net loss ............................ $ (7,161) $ (7,601) $(23,893) $(20,742)
======== ======== ======== ========
9
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(4) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION:
As discussed in Note 2, the Company began accounting for its investment
in Sports.com under the equity method of accounting as of July 17, 2001. The pro
forma results for the three and nine months ended September 30, 2001 and 2000,
assuming the deconsolidation occurred as of January 1, 2000 are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUE ............................... $ 13,336 $ 23,701 $ 44,547 $ 67,113
COST OF REVENUE ....................... 6,531 8,020 17,688 22,045
--------- --------- --------- ---------
GROSS PROFIT .......................... 6,805 15,681 26,859 45,068
--------- --------- --------- ---------
OPERATING EXPENSES:
Product development ................. 468 435 1,451 1,268
Sales and marketing ................. 8,854 10,183 27,999 28,490
General and administrative .......... 6,060 6,590 19,101 20,630
Depreciation and amortization ....... 11,152 9,818 33,184 28,956
Write-down of goodwill .............. 17,000 -- 17,000 --
Restructuring charges ............... -- -- 985 --
--------- --------- --------- ---------
Total operating expenses .. 43,534 27,026 99,720 79,344
--------- --------- --------- ---------
LOSS FROM OPERATIONS .................. (36,729) (11,345) (72,861) (34,276)
INTEREST EXPENSE ...................... (267) (268) (802) (810)
INTEREST AND OTHER INCOME, net ........ 584 1,749 2,777 5,571
GAIN ON SALE OF E-COMMERCE SUBSIDIARIES -- -- -- 7,814
LOSS ON EQUITY INVESTMENTS ........... -- (114,285) (28) (114,285)
--------- --------- --------- ---------
NET LOSS .............................. (36,412) (124,149) (70,914) (135,986)
========= ========= ========= =========
NET LOSS PER SHARE - BASIC AND DILUTED $ (1.28) $ (4.70) $ (2.58) $ (5.19)
========= ========= ========= =========
(5) ACQUISITION OF DAEDALUS WORLD WIDE CORPORATION:
The Company acquired Daedalus World Wide Corporation in December 1999.
In the three months ended September 30, 2001, the Company recorded a one-time
goodwill write-down of $17,000 to reflect a reduction in the estimated value of
its investment in Daedalus World Wide Corporation. The assessment of goodwill
was based on historical operating results, estimated undiscounted future cash
flows, and the estimated market value of similar entities. In the fourth quarter
of 2000, a $12,000 liability was recorded pursuant to the purchase agreement,
which provided for additional consideration in exchange for meeting certain
performance thresholds. During the first quarter of 2001, 828,376 shares of
common stock were issued in satisfaction of $6,000 of the liability. The
remaining $6,000 is payable in cash or common stock, at the Company's option, in
December 2001.
(6) ACQUISITION OF DBC SPORTS:
In April 2000, the Company, through its wholly owned subsidiary
VegasInsider.com, Inc., purchased the DBC Sports division of Data Broadcasting
Corporation ("DBC") in exchange for 277,152 shares of the Company's common stock
(the "Consideration Shares"). Pursuant to the terms of the purchase agreement,
the Company
10
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(6) ACQUISITION OF DBC SPORTS:--(Continued)
guaranteed that the Consideration Shares would have a value equal to or greater
than $12.5 million on March 31, 2001 (the "Guaranteed Proceeds"). On April 6,
2001, due to the decline in the trading price of the Company's common stock, the
Company fulfilled its obligation to DBC by purchasing the Consideration Shares
for $12.5 million. The Consideration Shares were cancelled and retired in April
2001. DBC Sports originates and sells odds and other statistical data to certain
Las Vegas casinos.
(7) COMMITMENTS AND CONTINGENCIES:
In February 1999, the Company amended and extended its agreement with
CBS. In consideration of additional promotional and advertising opportunities,
the Company agreed to accelerate the issuance of the remaining shares that were
formerly to be issued in 2000 and 2001 (567,579 and 485,358 shares,
respectively), to issue additional warrants to purchase 1,200,000 shares of
common stock at per share exercise prices ranging from $23 in 1999 to $45 in
2001 and to issue additional shares of common stock valued at $100 million
between 2002 and 2006. The agreement provides that the Company shall issue to
CBS a number of shares of its common stock having a fair market value of $20
million each year for five years commencing on January 1, 2002, based on the
average of the closing prices of the common stock on the Nasdaq National Market
for the five day period ending on the day prior to the applicable issue dates.
In July 2001, the Company entered into an agreement with the National
Football League (the "NFL"), CBS and America Online, Inc. (the "NFL Agreement").
The Company will be responsible for a portion of the rights fee payments
required to be made to the NFL under the NFL Agreement, with the Company's share
of the required cash payments aggregating $24,050 as follows: $900 paid through
September 30, 2001, $900 for the remainder of the first year ending July 2002,
$3,250 for the second year ending July 2003; $6,000 for each of the third and
fourth years ending July 2004 and 2005; and $7,000 for the fifth year ending
July 2006. In addition in July 2001, the Company issued to the NFL 350,000
shares of the Company's common stock and is obligated to make additional
payments in cash or stock, at the Company's option, equal to $1,333 and $2,667
in 2003 and 2004, respectively. The Company is amortizing its portion of the
rights fee on a straight-line basis over the five-year term of the NFL
Agreement.
In July 2001, the Company extended its agreement with America Online,
Inc. (the "AOL Extension"). Under the terms of the multi-year promotional
agreement, the Company paid AOL $1,000 in cash upon execution of the AOL
Extension and is obligated to make additional payments in cash and/or stock, at
the Company's option, equal to $2,000 and $1,000, in 2002 and 2003,
respectively.
In April 2001, Lisa J. Crocker and David L. Crocker filed a lawsuit in
a state court in Madision County, Illinois (the "Crocker Action"), naming as
defendants, the Company and certain of its executive officers. Also named as
defendants were, among others, the National Collegiate Athletic Association, CBS
Corporation, Viacom International, Inc., several major credit card issuers and
several individuals and corporations that allegedly are engaged in various
aspects of Internet gambling. The Crocker Action asserted various claims based
on alleged patterns of racketeering activity among the various defendants. In
August 2001, the Crocker Action was voluntarily dismissed without prejudice.
The Company is subject to various legal proceedings and claims arising
in the ordinary course of business. The Company's management does not expect
that the outcome in any of these legal proceedings, individually or
collectively, will have a material adverse effect on the Company's consolidated
financial position or results of operations.
11
SPORTSLINE.COM, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(8) RECENTLY ISSUED ACCOUNTING STANDARDS:
The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities on January 1, 2001. SFAS No. 133, as amended by SFAS No.
138, requires the recognition of all derivatives on the balance sheet as either
assets or liabilities measured at fair value. Derivatives that do not qualify
for hedge accounting must be adjusted to fair value through income. Adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements, as no derivative contracts have been entered into and there are no
current plans to do so in the future.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
No. 141 addresses financial accounting and reporting for business combinations
and supercedes APB No. 16, "Business Combinations" and SFAS No. 38 "Accounting
for Pre-acquisition Contingencies of Purchased Enterprises". All business
combinations in the scope of SFAS No. 141 are to be accounted for under the
purchase method. SFAS No. 141 was adopted by the Company on July 1, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets (but
not those acquired in a business combination) at acquisition. SFAS No. 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to acquisition. With the adoption of SFAS No. 142, goodwill is
no longer subject to amortization. Rather, goodwill will be subject to at least
an annual assessment for impairment by applying a fair value-based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the book carrying value. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Any impairment loss of goodwill
arising from the initial application of SFAS No. 142 is to be reported as
resulting from a change in accounting principle. The Company is currently
assessing the impact of adopting SFAS No. 142, but does not believe the impact
will be material to its financial position, results of operations or cash flows
in the year of adoption.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment supercede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of APB Opinion 30, "Reporting the Results of Operations." SFAS No.
144 provides a single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value or carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date as
presently required. The provisions of SFAS No. 144 are not expected to have a
significant effect on the Company's financial position or operating results.
(9) RESTRICTED STOCK:
In August and September 2001, the Company issued an aggregate of
1,909,458 shares of restricted stock to its executive officers and certain key
employees in exchange for the cancellation of certain outstanding stock options
to purchase in the aggregate 3,818,919 shares of stock. Deferred compensation
has been recorded for the deemed market value of the restricted shares as of the
issuance date in the amount of approximately $2.0 million. Such amount is being
amortized to expense over the four-year vesting period of the restricted stock.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements. Factors
that might cause or contribute to such differences include, among others,
competitive pressures, the growth rate of the Internet, constantly changing
technology and market acceptance of the Company's products and services.
Investors are also directed to consider the other risks and uncertainties
discussed in the Company's Securities and Exchange Commission filings, including
those discussed under the caption "Risk Factors That May Affect Future Results"
in the Company's Annual Report on Form 10-K for the year ended December 31,
2000. The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The following discussion also should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Report.
Results of Operations
Sports.com Deconsolidation
On July 17, 2001, Sports.com Limited ("Sports.com"), raised
approximately $13,000,000 in equity funding from its existing investors
including the Company, Soros Private Equity Partners and IMG. After giving
effect to the funding, the Company's fully diluted ownership stake in
Sports.com, including all outstanding warrants and management options, is
approximately 30%. As a result of the Company's reduced ownership interest in
Sports.com and a reduction in the Company's representation on Sports.com's board
of directors to less than a majority, as of July 17, 2001 the Company is no
longer consolidating the results of Sports.com and is accounting for its
investment in Sports.com under the equity method of accounting. In accordance
with United States generally accepted accounting principles, the Company has
recorded the effect of the deconsolidation in its income statement for the three
months ended September 30, 2001 in the amount of $41,739,000. Also, the
Company's comprehensive loss for the three months ended September 30, 2001
decreased $5.2 million due to the deconsolidation. In future periods the Company
will not record any losses generated by Sports.com as its investment has been
reduced to zero and the Company has no future obligation to provide funding to
Sports.com. For purposes of the discussion below, all financial results and
operating data is presented on a pro forma basis as if the deconsolidation of
Sports.com had occurred as of January 1, 2000.
Revenue
Total revenue for the three months ended September 30, 2001 was
$13,336,000 compared to $23,701,000 for the three months ended September 30,
2000. Total revenue for the nine months ended September 30, 2001 was $44,547,000
compared to $67,113,000 for the nine months ended September 30, 2000.
Advertising revenue for the three months ended September 30, 2001 was
$12,012,000 compared to $19,801,000 for the three months ended September 30,
2000. Advertising revenue for the nine months ended September 30, 2001 was
$37,660,000 compared to $55,973,000 for the nine months ended September 30,
2000. Advertising revenue for the three months ended September 30, 2001 and 2000
represented 90% and 84%, respectively, of total revenue. The decrease in revenue
in the third quarter was primarily due to lower advertising revenue relating to
the termination of the agreements with MVP.com ("MVP") and Internet Sports
Network ("ISN"), and the result of a general slowdown in the domestic
advertising market. In addition, following the events of September 11, 2001,
advertising revenue was 4% to 7% lower than expected because of cancellations
and postponement of certain sporting events such as the second week of college
and pro football games and the Ryder Cup.
Subscription based services revenue decreased $898,000 in the three
months ended September 30, 2001 compared to the same period in 2000.
Subscription based services revenue decreased $2,022,000 in the nine months
13
ended September 30, 2001 compared to the same period in 2000. In July 2000, the
Company began offering its fantasy products and services for free instead of for
a subscription fee. As a result, subscription revenue decreased primarily due to
the free offering of fantasy products during the 2001 baseball season and, to a
lesser extent, to other subscription revenue. Commencing in the third quarter of
2001, the Company began offering a limited number of paid premium fantasy
products and expects to recognize revenue from these products in future periods.
Content licensing and other revenue decreased $1,678,000 during the
three months ended September 30, 2001 compared to the same period in 2000.
Content licensing and other revenue decreased $2,231,000 in the nine months
ended September 30, 2001 compared to the same period in 2000. The decrease in
content licensing and other revenue was due primarily to the replacement in July
2001 of the Company's previous agreement with AOL, pursuant to which the barter
content licensing provision of the prior agreement was not included in the new
agreement. Additionally, the Company previously recognized content licensing
revenue in 2000 pursuant to its agreement with Excite, Inc. which expired in
December 2000.
As of September 30, 2001, the Company had deferred revenue of
$5,029,000 relating to cash and receivables for which services had not yet been
provided.
Barter transactions, in which the Company received advertising or other
goods or services in exchange for content or advertising on its Web sites,
accounted for approximately 14% and 16% of total revenue for the three months
ended September 30, 2001 and 2000, respectively. Barter transactions accounted
for approximately 24% and 16% of total revenue for the nine months ended
September 30, 2001 and 2000, respectively. Included in these amounts are
$3,300,000 in 2001 and $4,950,000 in 2000, related to the Company's previous
three-year agreement with AOL. As noted above, the Company will no longer
recognize barter revenue associated with the new AOL agreement. In future
periods, management intends to maximize cash advertising and content licensing
revenue, although the Company will continue to enter into barter relationships
when deemed appropriate.
Equity transactions, in which the Company received equity in companies
in exchange for advertising and promotion accounted for approximately 1% and 8%
of total revenue for the quarters ended September 30, 2001 and 2000,
respectively. Equity transactions accounted for approximately 7% of total
revenue for both the nine months ended September 30, 2001 and 2000,
respectively. Equity related revenue in 2001 was primarily related to one
agreement, which expired in June 2001. The majority of the equity related
revenue in 2000 was derived from two agreements, both of which were terminated
as of December 31, 2000. The Company expects equity related revenue will
decrease in future periods, unless the Company enters into new agreements.
Cost of Revenue
Cost of revenue for the three months ended September 30, 2001 and 2000
was $6,531,000 and $8,020,000, respectively. Cost of revenue for the nine months
ended September 30, 2001 and 2000 was $17,688,000 and $22,045,000, respectively.
The decrease in cost of revenue in the quarter ended September 30, 2001 was
primarily due to decreased revenue sharing associated with lower advertising
revenue and lower costs associated with the Company's cost restructuring program
initiated in the second quarter of 2001. As a percentage of revenue, cost of
revenue increased to 48% for the three months ended September 30, 2001 from 34%
for the three months ended September 30, 2000. For the nine months ended
September 30, 2001 and 2000 cost of revenue increased to 40% from 33%. The
increase as a percentage of revenue is due to lower revenue in the three and
nine months ended September 30, 2001.
Operating Expenses
Product Development. For the three months ended September 30, 2001 and
2000, product development expense was $468,000 and $435,000, respectively. For
the nine months ended September 30, 2001 and 2000, product development expense
was $1,451,000 and $1,268,000, respectively. The Company believes that to remain
competitive, it must continue to invest in product development expenses for
development of proprietary sports information and entertainment applications,
services, technologies, interfaces and content. As a percentage of revenue,
product development expense increased to 4% from 2% for the three ended
September 30, 2001 and 2000 and increased to 3% from 2% for the nine months
ended September 30, 2001 and 2000, respectively.
14
Sales and Marketing. For the three months ended September 30, 2001 and
2000, sales and marketing expense was $8,854,000 and $10,183,000, respectively.
For the nine months ended September 30, 2001 and 2000, sales and marketing
expense was $27,999,000 and $28,490,000, respectively. The decrease in sales and
marketing expense was primarily due to the result of decreased advertising and
payroll expenses from the Company's cost restructuring program and the
replacement of the Company's agreement with AOL at a lower cost. Barter
transactions accounted for approximately 21% and 38% of sales and marketing
expense for the three months ended September 30, 2001 and 2000, respectively and
38% of sales and marketing expense for both the nine months ended September 30,
2001 and 2000, respectively. As a percentage of revenue, sales and marketing
expense increased to 66% for the three months ended September 30, 2001 from 43%
for the three months ended September 30, 2000. For the nine months ended
September 30, 2001 and 2000 sales and marketing increased to 63% from 42%, as a
percentage of revenue. The increase as a percentage of revenue is due to lower
revenue in the three and nine months ended September 30, 2001, offset somewhat
by lower expense in the same periods.
General and Administrative. General and administrative expense for the
three months ended September 30, 2001 and 2000 was $6,060,000 and $6,590,000,
respectively. General and administrative expense for the nine months ended
September 30, 2001 and 2000 was $19,101,000 and $20,630,000, respectively. The
decrease in general and administrative expense in the quarter ended September
30, 2001 was primarily attributable to reduced payroll and rent expense as a
result of the Company's cost restructuring program initiated in the second
quarter of 2001. As a percentage of revenue, general and administrative expense
increased to 45% for the three months ended September 30, 2001 from 28% for the
three months ended September 30, 2000. For the nine months ended September 30,
2001 and 2000 general and administrative expense increased to 43% from 31%, as a
percentage of revenue, resulting from lower revenue in 2001.
Depreciation and Amortization. Depreciation and amortization expense
was $11,152,000 and $9,818,000 for the three months ended September 30, 2001 and
2000, respectively. Depreciation and amortization expense was $33,184,000 and
$28,956,000 for the nine months ended September 30, 2001 and 2000, respectively.
The increase in depreciation and amortization in 2001 compared to 2000 was due
to the increased amortization of assets acquired in connection with the
acquisition of DBC Sports in April 2000 and the acquisition of intangible assets
of MVP.com in January 2001. Total amortization expense for the nine months ended
September 30, 2001 related to the Company's agreements with CBS, AOL, Westwood
One and PGA TOUR was $12,966,000, $1,917,000, $2,250,000 and $1,701,000,
respectively; and amortization expense related to these agreements for the
remainder of 2001 will be $4,322,000, $0, $750,000 and $567,000, respectively.
Write-down of Goodwill. In the three months ended September 30, 2001,
the Company recorded a one-time charge of $17,000,000 to reflect a reduction in
the estimated value of its investment in Daedalus World Wide Corporation. The
assessment of goodwill was based on historical operating results, estimated
undiscounted future cash flows, and the estimated market value of similar
entities.
Restructuring Charges. The Company recognized a one-time charge of
$985,000 related to severance payments and the termination of leases during the
quarter ended June 30, 2001.
Interest Expense. Interest expense was $267,000 for the three months
ended September 30, 2001 compared to $268,000 for the three months ended
September 30, 2000. Interest expense was $802,000 for the nine months ended
September 30, 2001 compared to $810,000 for the nine months ended September 30,
2000. The decrease in interest expense was primarily due to the expiration of
capital leases in the first quarter of 2001.
Interest and Other Income, Net. Interest and other income, net for the
three months ended September 30, 2001 was $584,000 compared to $1,749,000 for
the three months ended September 30, 2000. Interest and other income, net for
the nine months ended September 30, 2001 was $2,777,000 compared to $5,571,000
for the nine months ended September 30, 2000. The decrease was primarily
attributable to a lower invested cash balance and decreasing interest rates.
Liquidity and Capital Resources
As of September 30, 2001, the Company's primary source of liquidity
consisted of $57,402,000 in cash and cash equivalents.
15
As of September 30, 2001, current deferred advertising and content
costs totaled $6,036,000 which represented costs related to the CBS agreement to
be amortized to depreciation and amortization expense during the remainder of
2001 and the current portion of the long-term warrants related to CBS. Long-term
deferred advertising and content costs related to the CBS agreement totaled
$9,714,000. Accrued liabilities totaled $17,869,000 as of September 30, 2001, a
decrease of $2,093,000 from December 31, 2000, primarily due to decreases in
accruals for expenses related to revenue sharing and international expenses.
Net cash used in operating activities was $34,177,000 and $20,061,000
for the nine months ended September 30, 2001 and 2000, respectively. Of the
$20,061,000 net cash used in operating activities for the nine months ended
September 30, 2000, $14,750,000 was related to Sports.com. The principal uses of
cash for all periods were to fund the Company's net losses from operations
partially offset by increases in depreciation and amortization.
Net cash provided by investing activities was $38,187,000 for the nine
months ended September 30, 2001 while net cash used in investing activities was
$12,982,000 for the nine months ended September 30, 2000. Of the $12,982,000 net
cash used in investing activities for the nine months ended September 30, 2000,
$2,004,000 was related to Sports.com. Investing activities consisted primarily
of the sale of marketable securities during the nine months ended September 30,
2001 offset by the purchase of intangible assets from MVP.com and the investment
in Sports.com and the cash effect of the deconsolidation of Sports.com. In the
nine months ended September 30, 2000, net cash used in investing activities was
primarily for the purchase of property and equipment.
Net cash used in financing activities was $13,321,000 for the nine
months ended September 30, 2001 and net cash provided by financing activities
was $66,180,000 for the nine months ended September 30, 2000. Of the $66,180,000
net cash used in financing activities for the nine months ended September 30,
2000, $52,526,000 was related to Sports.com. Financing activities in 2001
consisted principally of the purchase of the consideration shares from DBC
Corporation for $12,500,000 and purchases of the Company's outstanding common
stock. During the three months ended September 30, 2001, the Company repurchased
870,000 shares of its common stock for aggregate consideration of $1,012,000.
The Board of Directors has authorized the Company to repurchase up to 6,000,000
shares of outstanding common stock. Shares may be purchased from time to time on
the open market at prevailing market prices or in privately traded negotiations.
Financing activities in 2000 consisted principally of the issuance of preferred
stock by Sports.com and the exercise of warrants by CBS.
The Company acquired Daedalus World Wide Corporation in December 1999.
In the fourth quarter of 2000, a $12,000,000 liability was recorded pursuant to
the purchase agreement, which provided for additional consideration in exchange
for meeting certain performance thresholds. During the first quarter of 2001,
828,376 shares of common stock were issued in satisfaction of $6,000,000 of the
liability. The remaining $6,000,000 is payable in cash or common stock, at the
Company's option, in December 2001.
Although the Company has no material commitments for capital
expenditures, it anticipates purchasing approximately $1.0 to $2.0 million of
property and equipment during the remainder of 2001, primarily computer
equipment related to the growth of the business. The Company intends to continue
to pursue acquisitions of or investments in businesses, services and
technologies that are complementary to those of the Company.
The Company believes that its current cash and marketable securities
will be sufficient to fund its working capital and capital expenditure
requirements for at least the next 12 months. However, the Company expects to
continue to incur significant operating losses on a consolidated basis for at
least the next 12 months. To the extent the Company requires additional funds to
support its operations or for the expansion of its business, the Company may
sell additional equity, issue debt or convertible securities or obtain credit
facilities through financial institutions. There can be no assurance that
additional financing, if required, will be available to the Company in amounts
required by or on terms acceptable to the Company.
Seasonality
The Company expects that its revenue will be higher leading up to and
during major U.S. sports seasons and lower at other times of the year,
particularly during the summer months. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events that do not occur every year, such as the Olympics and the
Ryder Cup. The Company believes that advertising sales in traditional media,
such as television, generally are lower in the first and second calendar
quarters of each year, and that advertising expenditures fluctuate significantly
with economic cycles. Depending on the extent to which the Internet is accepted
as an advertising medium, seasonality and the cyclical nature of the level of
Internet advertising
16
expenditures could become more pronounced. The foregoing factors could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Recent Accounting Pronouncements
The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities on January 1, 2001. SFAS No. 133, as amended by SFAS No.
138, requires the recognition of all derivatives on the balance sheet as either
assets or liabilities measured at fair value. Derivatives that do not qualify
for hedge accounting must be adjusted to fair value through income. Adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements, as no derivative contracts have been entered into and there are no
current plans to do so in the future.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
No. 141 addresses financial accounting and reporting for business combinations
and supercedes APB No. 16, "Business Combinations" and SFAS No. 38 "Accounting
for Pre-acquisition Contingencies of Purchased Enterprises". All business
combinations in the scope of SFAS No. 141 are to be accounted for under the
purchase method. SFAS No. 141 is effective July 1, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets (but
not those acquired in a business combination) at acquisition. SFAS No. 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to acquisition. With the adoption of SFAS No. 142, goodwill is
no longer subject to amortization. Rather, goodwill will be subject to at least
an annual assessment for impairment by applying a fair value-based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the book carrying value. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Any impairment loss of goodwill
arising from the initial application of SFAS No. 142 is to be reported as
resulting from a change in accounting principle. The Company is currently
assessing the impact of adopting SFAS No. 142, but does not believe the impact
will be material to its financial position, results of operations or cash flows
in the year of adoption.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment supersede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of APB Opinion 30, "Reporting the Results of Operations." SFAS No.
144 provides a single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value or carrying amount. SFAS No. 144 also requires expected future
operating losses from discontinued operations to be displayed in the period(s)
in which the losses are incurred, rather than as of the measurement date as
presently required. The provisions of SFAS No. 144 are not expected to have a
significant effect on the Company's financial position or operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest
rates relates primarily to the Company's investment portfolio. The Company has
not used derivative financial instruments in its investment portfolio. The
Company invests its 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. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry 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, the Company's future investment income may fall
short of expectations due to changes in interest rates or the Company may suffer
losses in principal if forced to sell securities, which have declined in market
value due to changes in interest rates.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2001, Lisa J. Crocker and David L. Crocker filed a lawsuit in
a state court in Madision County, Illinois (the "Crocker Action"), naming as
defendants, the Company and certain of its executive officers. Also named as
defendants were, among others, the National Collegiate Athletic Association, CBS
Corporation, Viacom International, Inc., several major credit card issuers and
several individuals and corporations that allegedly are engaged in various
aspects of Internet gambling. The Crocker Action asserted various claims based
on alleged patterns of racketeering activity among the various defendants. In
August 2001, the Crocker Action was voluntarily dismissed without prejudice.
The Company is subject to various legal proceedings and claims arising
in the ordinary course of business. The Company's management does not expect
that the outcome in any of these legal proceedings, individually or
collectively, will have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 2. CHANGE IN SECURITIES
In July 2001, in connection with the execution of the agreement with
the NFL Enterprises, L.P. ("NFLE"), the Company issued 350,000 shares of common
stock to NFLE. No underwriter was involved in such sale of securities to NFLE
and the shares were issued in reliance upon the exemption set forth in Section
4(2) of the Securities Act of 1933, as amended, on the basis that they were
issued under circumstances not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2001 Annual Meeting of Stockholders on September
25, 2001. There were 27,531,149 shares of Common Stock entitled to vote at the
meeting and a total of 23,290,020 shares were represented at the meeting in
person or by proxy. Following are descriptions of the matters voted on and the
results of such meeting:
Proposal 1. Election of Directors
Total Vote For Total Votes
Each Director Withheld
Michael Levy............................................ 18,030,029 5,259,991
Joseph Lacob............................................ 23,204,802 85,218
Andrew Nibley........................................... 23,202,802 87,218
James Walsh............................................. 23,206,777 83,243
ITEM 5. OTHER INFORMATION
None
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1* Second Amendment to Amended and Restated Employment Agreement of Michael
Levy dated as of August 20, 2001
10.2* First Amendment to Amended and Restated Employment Agreement of Kenneth
Sanders dated as of August 20, 2001
10.3* First Amendment to Amended and Restated Employment Agreement of Daniel
Leichtenschlag dated as of August 20, 2001
10.4* First Amendment to Employment Agreement of Andrew Sturner dated as of
August 20, 2001
10.5* First Amendment to Employment Agreement of Mark Mariani dated as of August
20, 2001
10.6* Employment Agreement of Peter Pezaris dated as of August 20, 2001
10.7 NFL Interactive Media Rights Agreement among NFL Enterprises, L.P., and
America Online, Inc., CBS Broadcasting Inc. and SportsLine.com, Inc. dated
as of July 6, 2001+
10.8 Third Amendment to Premier Sports Information and Commerce Agreement,
effective as of July 6, 2001, by and between America Online, Inc. and
SportsLine.com, Inc.+
* Management Contract or Compensatory Plan
+ Certain portions of this exhibit have been omitted and separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment thereof.
(b) Reports on Form 8-K
On July 11, 2001, the Company filed a Report on Form 8-K to announce
that it had entered into a multi-year new media agreement with the NFL, CBS and
AOL. Also, the Company announced that it had extended its existing agreement
with AOL.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2001 SPORTSLINE.COM, INC.
(Registrant)
/s/ Michael Levy
----------------------------------------
Michael Levy
President and Chief Executive Officer
/s/ Kenneth W. Sanders
-------------------------------
Kenneth W. Sanders
Chief Financial Office
19
Exhibit Index
Exhibit No. Exhibit Description
- ----------- -------------------
10.1 Second Amendment to Amended and Restated Employment Agreement of
Michael Levy dated as of August 20, 2001
10.2 First Amendment to Amended and Restated Employment Agreement of
Kenneth Sanders dated as of August 20, 2001
10.3 First Amendment to Amended and Restated Employment Agreement of
Daniel Leichtenschlag dated as of August 20, 2001
10.4 First Amendment to Employment Agreement of Andrew Sturner dated as
of August 20, 2001
10.5 First Amendment to Employment Agreement of Mark Mariani dated as
of August 20, 2001
10.6 Employment Agreement of Peter Pezaris dated as of August 20, 2001
10.7 NFL Interactive Media Rights Agreement among NFL Enterprises,
L.P., and America Online, Inc., CBS Broadcasting Inc. and
SportsLine.com, Inc. dated as of July 6, 2001+
10.8 Third Amendment to Premier Sports Information and Commerce
Agreement, effective as of July 6, 2001, by and between America
Online, Inc. and SportsLine.com, Inc.+
+ Certain portions of this exhibit have been omitted and separately
filed with the Securities and Exchange