CNET Networks Reports Second Quarter 2004 Financial Results
Company Posts Total Revenues of $68.1 million; Interactive Revenue up 26%
SAN FRANCISCO--(BUSINESS WIRE)--July 14, 2004-- CNET Networks, Inc. (Nasdaq: CNET) today reported that revenues for the second quarter ended June 30, 2004 totaled $68.1 million, a 17 percent increase compared to revenues of $58.4 million for the same period of 2003. The company's second quarter operating loss was $261,000, versus an operating loss of $9.8 million during the same period in 2003. Results for the second quarter of 2003 included $4.3 million of realignment costs. Net loss for the second quarter of 2004 was $1.5 million, or $0.01 per share, compared to a net loss of $11.6 million, or $0.08 per share, for the same period last year.
In the second quarter of 2004, CNET Networks' operating income before depreciation and amortization was $5.5 million. This compares to an operating loss before depreciation and amortization of $4.1 million in the second quarter of 2003. A table that reconciles operating income (loss) before depreciation and amortization to the operating income (loss) found on CNET Networks' statement of operations can be found on the "Operating Income (Loss) Reconciliation" page that accompanies this press release.
Revenues for the six months ended June 30, 2004 totaled $131.5 million, versus revenues of $115.0 million for the same period of 2003. The company's first half operating loss was $5.9 million, versus an operating loss of $24.4 million for the same period in 2003. Operating income before depreciation and amortization for the first half of 2004 was $7.9 million, versus a loss of $11.4 million for the same period last year. Results for the first half of 2003 included $9.8 million of realignment costs. Net income for the first half of 2004 was $1.4 million, or $0.01 per share, compared to a net loss of $27.4 million, or $0.20 per share, for the same period last year. Approximately $0.04 of net income per share for the first six-months of 2004 is attributable to a net gain from unusual items, as further explained on the financial attachments that accompany this press release.
"The second quarter was another solid and consistent step forward along our growth trajectory, with healthy traction across our key metrics," said Shelby Bonnie, Chairman and CEO of CNET Networks. "Recent product developments, partnerships, and acquisitions demonstrate our progress toward reaching new audience and customer segments, as well as enhancing our depth, with innovative community and streaming video features that draw users further into the site experience."
"As we focus on long-term, sustainable growth, we will continue to seek opportunities to expand our audience and customer segments in order to extend our leadership position in the interactive content category. As further illustrated by our acquisition of Webshots, CNET Networks has the ability to invest strategically in order to build the business for the long-term and to capture revenue growth opportunities in 2004 and beyond."
Business Review
-- CNET Networks' global network of Internet properties reached an average of 74.2 million unique users on a monthly basis during the second quarter of 2004(1), an increase of 17% from the second quarter of 2003.
-- CNET Networks today announced that it has signed a definitive agreement to acquire privately-held Webshots, the leading photography website(2). Under the terms of the agreement, CNET Networks will pay $60 million in cash and $10 million of deferred consideration. Webshots adds to CNET Networks' market-leading portfolio of properties, and enhances the company's position as a premier global interactive content company that informs, entertains, and connects large, engaged audiences around topics of high information need and/or personal passion. More than 14 million people visit the Webshots community each month to browse, share and engage with fellow users about photos in a range of categories, such as travel, sports and recreation, birthdays, and weddings; activities that generate over 20 million average daily page views(3). While the Webshots and CNET Networks audiences share a passion for the digital lifestyle, the audiences are largely unduplicated. Together, the companies add significant reach and impression inventory for CNET Networks' marketing partners.
-- In May, CNET Networks launched the new MP3.com, following its acquisition of that domain in December 2003. MP3.com is a next-generation digital music discovery and content resource with a range of innovative features that cater to the way people learn about and listen to music today. The launch of MP3.com has further enhanced the company's ability to attract non-endemic advertisers. Since launch, the following customers have advertised on MP3.com: McDonald's, Panasonic and Toyota Scion. Not only are early traffic and users trends strong, but the usage activity on MP3.com is encouraging. In June, users were listening to an average of 72,000 song samples per day from MP3.com's catalog of free audio clips, a testament to the site's early momentum. Still in its nascent stage, MP3.com continues its rapid development, with several key features planned for launch by year end.
-- CNET Download.com launched its free, legal music discovery and download service, music.download.com, as part of its expansion into categories beyond the successful core software business that made it the Internet's leading source for downloads. The service enables the tens of millions of people who visit CNET Download.com each month to easily navigate a diverse selection of songs from participating independent artists, find the music that appeals to them, and fill their MP3 players and other audio devices with tunes, without spending a penny. Since launch, nearly 5 million songs have been downloaded by users, a volume of activity that has been well received by the participating artist community.
-- CNET.com recently secured new editorial distribution opportunities through partnerships with Premier Retail Networks, Inc. (PRN) and The New York Times Digital. The PRN alliance enables CNET to deliver consumers valuable tech buying expertise - via an editorial-driven video series - as they shop in television departments across leading nationwide retail chains including Best Buy, Circuit City, and Sears. The CNET videos are being shown in nearly 5,000 stores with an estimated audience of over 110 million shoppers per week. Under its agreement with The New York Times Digital, CNET will provide co-branded technology content to The New York Times online technology channel later this year. This agreement underscores the quality and recognition of CNET as the premier voice for technology information and content.
-- Streaming video was another area of advancement in both product innovation and audience adoption during the second quarter. CNET.com launched comprehensive new product overview pages on the latest personal technology products, including a collection of 60-second video product reviews called "First Look from the Labs" that provide consumers a realistic, 3-D "look-and-feel" perspective, enabling them to fully grasp the product offering before they buy. CNET has quickly ramped the number of products featured on "First Look from the Labs" to close to 200 since launch and going forward intends to showcase most new products in video format. Meanwhile, in May, GameSpot.com made its range of streaming video features -- including live editorial programming and product demos - free to users, and the response was overwhelming, with more than 12 million streams served during the first month.
-- GameSpot (www.gamespot.com) introduced an innovative new approach to social networking with GameSpot Community, a free service that makes it fun and easy for gamers to find, meet and interact with others that share their specific gaming interests. GameSpot Community's appeal to the fanatical gaming audience became evident during its first month in beta, with 250,000 people registering for the service.
-- This month, Joseph Gillespie officially joined CNET Networks as its first-ever Chief Marketing Officer. Gillespie is a veteran sales and marketing executive with 20 years of experience spanning online, television and print media. He joins CNET Networks from his most recent post as executive vice president, chief operating officer, and "acting chief executive officer" of Vulcan Ventures' TechTV, the successful technology cable network and affiliated Web site.
-- During the quarter, CNET News.com continued to rack-up prestigious awards for its top-drawer journalism. The latest wins include the coveted National Magazine Award for General Excellence Online from the American Society of Magazine Editors, as well as four "Maggie Awards" from the Western Publisher's Association. These wins build on the significant recognition CNET News.com has received in the past two years, with dozens of prestigious national honors, including awards from the Society of Professional Journalists, National Press Club, and the Society of American Business Editors and Writers.
Business Outlook
For the third quarter of 2004, management anticipates total revenues of $68.0 million to $70.0 million. Interactive revenues are expected to be in the range of $59.0 million to $60.5 million, and publishing revenues are expected to be between $9.0 million and $9.5 million. Management estimates between an operating loss of $500,000 and operating income of $500,000 during the third quarter, and operating income before depreciation and amortization of between $5.5 million and $6.5 million for the quarter. CNET Networks expects that Webshots, which is expected to close in the third quarter of 2004, will be a modest contributor during the third quarter. Given the inability to predict the actual closing date, management is not including any contribution from Webshots in its third quarter business outlook.
We are raising our financial projections for 2004 due to stronger than anticipated performance from CNET Network's existing operations and expected contribution from Webshots. The new guidance for 2004, which takes into account the anticipated closing of the Webshots acquisition, consists of revenue estimates in the range of $285.0 million to $292.0 million. Interactive revenues are expected to be in the range of $249.0 million to $255.0 million, and publishing revenues are expected to be between $36.0 million and $37.0 million. Management now estimates that 2004 operating income will be in the range of $5.7 million to $8.2 million, and operating income before depreciation and amortization will be between $33.0 million and $35.5 million in 2004. More detailed guidance, as well as a table that reconciles operating income (loss) before depreciation and amortization guidance to operating income (loss) guidance can be found on the "Guidance to the Investment Community" sheet that accompanies this press release.
Conference Call and Webcast
CNET Networks will host a conference call to discuss its second quarter financial, business outlook, and acquisition of Webshots beginning at 5:00 pm ET (2:00 pm PT), today, July 14, 2004. To listen to the discussion, please visit http://ir.cnetnetworks.com and click on the link provided for the webcast conference call or dial (800) 344-1035 (international dial-in: (706) 679-3076). A replay of the conference call will be available through July 28, 2004 via webcast at the URL listed above or by calling (800) 642-1687 (international dial-in: (706) 645-9291) and entering the conference ID number 8488413. The company's past financial news releases, related financial and operating information, and access to all Securities and Exchange Commission filings, can also be accessed at http://ir.cnetnetworks.com.
Safe Harbor
This press release and its attachments include forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ materially. These forward-looking statements include the statements under the section entitled "Business Outlook" and statements regarding the company's growth prospects and new products, as well as other statements throughout the release that are identified by the words "expect," "estimate," "target," "believe," "anticipate," "intend" and similar expressions. These statements are only effective as of the date of this release and we undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. The risks and uncertainties include: a lack of growth or a decrease in marketing spending on the Internet or on CNET Networks' properties in particular, which could be prompted by a lack of confidence or familiarity with the Internet as an advertising medium, weakness in corporate or consumer spending, competition from other media outlets or other factors; the failure of existing advertisers to meet or renew their advertising commitments; the loss of marketing revenue and users to CNET's competitors, especially in the highly competitive fields of comparative shopping, personal technology and games and entertainment; a decline in revenues from our print publications as more marketing spending shifts from print to the Internet; the acquisition of businesses or the launch of new lines of business, which could decrease the company's cash position, increase operating expense, and dilute operating margins; loss of users or customers by Webshots following its acquisition by CNET Networks, which could result in lower than expected revenue and operating income; failure to successfully integrate Webshots' operations, which could result in increased expenses or loss of revenues; an increase in intellectual property licensing fees, which could increase operating expense, including amortization; and general risks associated with our business. For risks about CNET Networks' business, see its Annual Form 10-K for the year ended December 31, 2003 and subsequent Forms 8-K, including disclosures under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are filed with the Securities and Exchange Commission and are available on the SEC's website at www.sec.gov.
About CNET Networks, Inc.
CNET Networks, Inc. (www.cnetnetworks.com) is a premier global interactive content company that informs, entertains, and connects large, engaged audiences around topics of high information need and personal passion. The company focuses on three categories -- personal technology, games and entertainment, and business technology - and includes such leading brands as CNET, ZDNet, TechRepublic, MP3.com, GameSpot, CNET Download.com, CNET News.com, Computer Shopper magazine, and CNET Channel. With a strong presence in the US, Asia and Europe, CNET Networks has operations in 12 countries.
(1) CNET Networks April - June 2004 (internal log data)
(2) Neilsen//NetRatings' U.S. data (June 2004)
(3) Based on CNET Networks internal tracking and/or Webshots's internal logs.
Consolidated Statements of Operations
Unaudited
(in thousands, except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues
Interactive $ 59,243 $ 46,864 $ 114,748 $ 88,913
Publishing 8,845 11,537 16,737 26,076
------------ ------------ ------------ ------------
Total revenues 68,088 58,401 131,485 114,989
Operating expenses:
Cost of revenues 34,700 34,079 68,550 70,280
Sales and
marketing 17,892 17,365 36,126 35,082
General and
administrative 10,026 11,019 18,929 21,065
Depreciation 4,075 3,855 11,246 9,467
Amortization of
intangible
assets 1,656 1,898 2,556 3,502
------------ ------------ ------------ ------------
Total operating
expenses 68,349 68,216 137,407 139,396
Operating loss (261) (9,815) (5,922) (24,407)
Non-operating income (expense):
Realized gains on
investments, net of
impairments 3,306 - 11,338 -
Interest income 541 563 1,023 1,236
Interest expense (3,031) (1,778) (4,709) (3,547)
Other (1,918) (271) (86) (266)
------------ ------------ ------------ ------------
Total non-
operating
income
(expense) (1,102) (1,486) 7,566 (2,577)
------------ ------------ ------------ ------------
Income (loss)
before income
taxes (1,363) (11,301) 1,644 (26,984)
Income tax
expense 168 271 247 417
------------ ------------ ------------ ------------
Net income
(loss) $ (1,531)$ (11,572) 1,397 $ (27,401)
============ ============ ============ ============
Basic net income
(loss) per share $ (0.01)$ (0.08) 0.01 $ (0.20)
============ ============ ============ ============
Diluted net
income (loss)
per share $ (0.01)$ (0.08) 0.01 $ (0.20)
============ ============ ============ ============
Shares used in
calculating
basic net income
(loss) per share 143,144,017 139,432,692 142,884,525 139,343,944
Shares used in
calculating
diluted net
income (loss)
per share 143,144,017 139,432,692 150,312,383 139,343,944
Note: Beginning in 2004, CNET Networks, Inc. will refer to previously
reported "Internet" revenues as "Interactive" revenues.
Consolidated Balance Sheets
Unaudited
(in thousands, except share data)
June 30, December 31,
2004 2003
------------ --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 62,626 65,913
Investments in marketable debt securities 14,049 12,556
Accounts receivable, net 49,355 54,387
Other current assets 14,712 8,823
------------ --------------
Total current assets 140,742 141,679
Restricted cash 19,774 19,159
Investments in marketable debt securities 57,013 38,711
Property and equipment, net 49,553 56,384
Other assets 24,611 23,092
Intangible assets, net 13,978 11,263
Goodwill 67,878 61,555
------------ --------------
Total assets $ 373,549 351,843
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,503 8,767
Accrued liabilities 57,770 53,151
Current portion of long-term debt 3,744 99
------------ --------------
Total current liabilities 69,017 62,017
Non-current liabilities:
Long-term debt 125,614 118,029
Other liabilities 1,779 1,835
------------ --------------
Total liabilities 196,410 181,881
Stockholders' equity:
Common stock; $0.0001 par value;
400,000,000 shares authorized;
143,320,963 outstanding at June 30, 2004
and 139,251,879 outstanding at December
31, 2002 14 14
Notes receivable from stockholders - (137)
Additional paid-in-capital 2,714,173 2,709,178
Accumulated other comprehensive income (13,426) (14,074)
Treasury stock, at cost (30,428) (30,428)
Accumulated deficit (2,493,194) (2,494,591)
------------ --------------
Total stockholders' equity 177,139 169,962
------------ --------------
Total liabilities and stockholders'
equity $ 373,549 351,843
============ ==============
Statements of Cash Flows
Unaudited
(in thousands)
Six Months Ended
June 30,
----------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net Income (Loss) $1,397 $(27,401)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 13,802 12,969
Asset disposals 274 91
Noncash interest 1,363 408
Noncash stock compensation - 53
Allowance for doubtful accounts 1,552 1,607
(Gain) loss on sale of marketable securities
and privately held investments (11,338) (3)
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable 3,636 11,062
Other assets (2,476) 6,566
Accounts payable (1,276) 1,038
Accrued liabilities 2,077 3,315
Other long-term liabilities (56) (665)
--------- ---------
Net cash provided by operating activities 8,955 9,040
--------- ---------
Cash flows from investing activities:
Purchase of marketable debt securities (31,965) (22,211)
Proceeds from sale of marketable debt
securities 12,159 45,699
Proceeds from sale of investments in privately
held companies 13,206 -
Investments in privately held companies (732) -
Net cash paid for acquisitions (7,142) (2,018)
Capital expenditures (6,873) (6,244)
--------- ---------
Net cash provided by (used in) investing
activities (21,347) 15,226
--------- ---------
Cash flows from financing activities:
Payments received on stockholders' notes 137 -
Net proceeds from issuance of convertible
notes 120,800 -
Net proceeds from employee stock purchase plan 447 216
Net proceeds from exercise of options 4,055 866
Principal payments on borrowings (113,910) (317)
--------- ---------
Net cash provided by financing activities 11,529 765
--------- ---------
Net increase in cash and cash equivalents (863) 25,031
Effect of exchange rate changes on cash and
cash equivalents (2,424) 536
Cash and cash equivalents at the beginning of
the period 65,913 47,199
--------- ---------
Cash and cash equivalents at the end of the
period $62,626 $72,766
========= =========
Business Segments
Unaudited
(in thousands)
CNET's primary areas of measurement and decision-making include two
principal business segments. CNET has determined that its business
segments are U.S. Media and International Media. U.S. Media consists
of an online network focused on three content categories: personal
technology, games and entertainment and business technology. Beginning
in 2004, U.S. Media also includes Channel Services, a product database
licensing business and an online technology marketplace for resellers,
distributors and manufacturers. Previously, Channel Services was
presented as a separate segment; however, as we continued to see a
convergence of customer relationships between U.S. Media and the
Channel Services product offerings, we determined that combining the
reporting results of Channel Services within U.S. Media more
accurately reflects the decision-making processes, internal reporting
and resource allocation within these businesses. International Media
includes the delivery of online technology information and several
technology print publications in non U.S. markets. Management believes
that segment operating income (loss) before depreciation and
amortization and realignment expenses is an appropriate measure of
evaluating the operating performance of the company's segments.
However, segment operating income (loss) before depreciation and
amortization and realignment expenses should not be considered a
substitute for operating income, cash flows or other measures of
financial performance prepared in accordance with generally accepted
accounting principles.
Three months ended June 30, 2004
----------------------------------------------
U.S. International
Media Media Other (1) Total
---------------------------------- ---------
Revenues $54,359 $13,729 $- $68,088
Operating expenses 48,901 13,717 5,731 68,349
---------------------------------- ---------
Operating income (loss) $5,458 $12 $(5,731) $(261)
================================== =========
Three months ended June 30, 2003
----------------------------------------------
U.S. International
Media Media Other (1) Total
---------------------------------- ---------
Revenues $49,367 $9,034 $- $58,401
Operating expenses 48,190 9,929 10,097 68,216
---------------------------------- ---------
Operating income (loss) $1,177 $(895)$(10,097) $(9,815)
================================== =========
Six months ended June 30, 2004
----------------------------------------------
U.S. International
Media Media Other (2) Total
---------------------------------- ---------
Revenues $107,128 $24,357 $- $131,485
Operating expenses 96,020 27,585 13,802 137,407
---------------------------------- ---------
Operating income (loss) $11,108 $(3,228)$(13,802) $(5,922)
================================== =========
Six months ended June 30, 2003
----------------------------------------------
U.S. International
Media Media Other (2) Total
---------------------------------- ---------
Revenues $99,188 $15,801 $- $114,989
Operating expenses 96,807 19,855 22,734 139,396
---------------------------------- ---------
Operating income (loss) $2,381 $(4,054)$(22,734) $(24,407)
================================== =========
(1) For the three months ended June 30, 2004, other represents
operating expenses related to depreciation of $4,075 and amortization
of $1,656. For the three months ended June 30, 2003, other represents
operating expenses related to realignment of $4,344, depreciation of
$3,855 and amortization of $1,898.
(2) For the six months ended June 30, 2004, other represents operating
expenses related to depreciation of $11,246 and amortization of
$2,556. For the six months ended June 30, 2003, other represents
operating expenses related to realignment of $9,765, depreciation of
$9,467 and amortization of $3,502.
Quarterly Statistical Highlights
Unaudited
Q2-04 Q1-04 Q4-03 Q3-03 Q2-03
----- ----- ----- ----- -----
Total Quarterly Revenue ($mm) $68.1 $63.4 $73.5 $57.7 $58.4
Revenue Distribution (a)(%)
Marketing Services 77% 76% 74% 68% 69%
Licensing, Fees & User 10% 12% 10% 12% 11%
Publishing 13% 12% 16% 20% 20%
Advertiser Metrics
Top 100 US Advertisers' Renewal
Rate (Q-to-Q) 98% 89% 96% 94% 90%
Top 100 US Advertisers' % of
Network Revenue 56% 58% 60% 58% 60%
Select Business Metrics
Network Unique Users (mm) 74.2 76.5 66.3 65.5 63.3
Network Average Daily Page Views
(mm) 41.8 44.2 43.9 40.7 36.3
Total Paid Leads (b) (mm) 44.8 46.1 49.0 38.3 38.2
Balance Sheet Highlights ($mm)
Cash $62.6 $77.9 $65.9 $65.1 $72.8
Marketable Debt Securities 71.1 51.6 51.2 53.3 56.9
Restricted Cash 19.8 19.7 19.2 19.2 18.9
------ ------ ------ ------ -------
Total Cash & Equivalents $153.5 $149.2 $136.3 $137.6 $148.6
Total Debt $129.4 $118.1 $118.1 $117.9 $117.9
Days Sales Outstanding (DSO) 65 66 67 64 67
(a) Revenue distribution definitions are as
follows:
Marketing Services - sales of advertisements on our Internet network
through impression-based and activity-based advertising.
Licensing, Fees & User - licensing our product database, online
content, subscriptions to online services, and other paid services.
Publishing - sales of advertisements in our print publications,
subscriptions and newsstand sales of publications, and custom
publishing services.
(b) Total Paid Leads include leads from shopping services, downloads,
search, and white papers.
Guidance to the Investment Community
FY 2004 estimateFY 2004 estimate
CNET Networks Upon Closing of
Q2-04 Q3-04 estimate Stand-Alone Webshots
Acquisition(a)
$ in millions, Actual Low - High Low - High Low - High
except per
share
-------------------------------------------------------
Interactive
Revenues $59.2 $59.0 - $60.5 $245.8 - $251.3 $249.0 - $255.0
Publishing
Revenues $8.9 $9.0 - $9.5 $36.0 - $37.0 $36.0 - $37.0
Total
Revenues $68.1 $68.0 - $70.0 $281.8 - $288.3 $285.0 - $292.0
Operating
income before
depreciation &
amortization $5.5 $5.5 - $6.5 $31.3 - $33.5 $33.0 - $35.5
Depreciation
expense ($4.1) ($4.5) ($20.5) ($21.0)
Amortization
expense ($1.7) ($1.5) ($5.3) ($6.3)
Operating
income (loss) ($0.3) ($0.5) - $0.5 $5.5 - $7.7 $5.7 - $8.2
Realized gains
on sale of
investments $3.3 - $11.3 $11.3
Interest
expense, net ($2.5) ($0.5) ($4.1) ($4.6)
Other income
(expense) ($1.9) ($0.1) ($0.3) ($0.3)
Tax expense ($0.1) ($0.1) ($0.5) ($0.5)
Earnings (loss)
per share ($0.01)($0.01) - $0.00 $0.08 - $0.09 $0.08 - $0.09
----------------------------------------------------------------------
(a) FY 2004 estimates assume no Webshots contribution in the third
quarter.
Safe Harbor Statement:
This press release and its attachments include forward-looking
information and statements that are subject to risks and uncertainties
that could cause actual results to differ materially. These
forward-looking statements include statements under the section
entitled "Business Outlook" and statements regarding the company's
growth prospects and new products, as well as other statements
throughout the release that are identified by the words "expect,"
"estimate," "target," "believe," "anticipate," "intend" and similar
expressions. These statements are only effective as of the date of
this release and we undertake no duty to publicly update these
forward-looking statements, whether as a result of new information,
future developments or otherwise. The risks and uncertainties include:
a lack of growth or a decrease in marketing spending on the Internet
or on CNET Networks' properties in particular, which could be prompted
by a lack of confidence or familiarity with the Internet as an
advertising medium, weakness in corporate or consumer spending,
competition from other media outlets or other factors; the failure of
existing advertisers to meet or renew their advertising commitments;
the loss of marketing revenue and users to CNET's competitors,
especially in the highly competitive fields of comparative shopping,
personal technology and games and entertainment; a decline in revenues
from our print publications as more marketing spending shifts from
print to the Internet; the acquisition of businesses or the launch of
new lines of business, which could decrease the company's cash
position, increase operating expense, and dilute operating margins;
loss of users or customers by Webshots following its acquisition by
CNET Networks, which could result in lower than expected revenue and
operating income; failure to successfully integrate Webshots'
operations, which could result in increased expenses or loss of
revenues; an increase in intellectual property licensing fees, which
could increase operating expense, including amortization; and general
risks associated with our business. For risks about CNET Networks'
business, see its Annual Form 10-K for the year ended December 31,
2003 and subsequent Forms 8-K, including disclosures under the
captions "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are filed with
the Securities and Exchange Commission and are available on the SEC's
website at www.sec.gov.
Operating Loss Reconciliation
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
2004 2003 2004 2003
------------------- -----------------
Operating loss $(261) $(9,815) $(5,922)$(24,407)
Depreciation 4,075 3,855 11,246 9,467
Amortization of intangible
assets 1,656 1,898 2,556 3,502
------------------- -----------------
Operating income (loss) before
depreciation and amortization $5,470 $(4,062) $7,880 $(11,438)
=================== =================
The company believes that "operating income (loss) before depreciation
and amortization" is useful to management and investors in evaluating
the current operating performance of the company, since depreciation,
amortization include the impact of past transactions and costs that
are not necessarily directly related to the current underlying capital
requirements or performance of the business operations. Management
refers to "operating income before depreciation and amortization" to
compare historical operating results, in making operating decisions
and for planning and compensation purposes. A limitation associated
with this measure is that it does not reflect the costs of certain
capitalized tangible and intangible assets used in generating revenue.
Management evaluates the costs of these assets through other financial
measures such as capital expenditures. "Operating income before
depreciation and amortization" should be considered in addition to,
and not as a substitute for, other measures of financial performance
prepared in accordance with US GAAP.
Explanation of Net Gain from Unusual Items
In the six months ended June 30, 2004, approximately $0.05 of net
income per share can be attributed to the effect of several unusual
items. The company recognized $11.3 million of gains, net of
impairments, on the sale of investments. The company recorded $3.5
million of accelerated depreciation and a related $1.7 million foreign
currency gain associated with the evaluation of the carrying value of
its office buildings and other fixed assets in Switzerland upon
integration of those operations into US Media. In conjunction with the
retirement of the company's 5% Convertible Subordinated Notes, the
company recorded a $1.6 million prepayment penalty and additional
interest expense of $1.4 million. The foreign currency gain and the
prepayment penalty are recorded in the "Other" line of the income
statement. The company believes that this information is useful to
investors because these items are infrequent in nature and may affect
the comparability of the current six-month period results to other
six-month period results.
Contacts
CNET Networks
Investor Relations Contact:
Cammeron Finnegan McLaughlin, 415-344-2844
cammeron.mclaughlin@cnet.com
Media Contact:
Sarah Winterhalder, 415-344-2218
sarah.winterhalder@cnet.com
[ Comment, Edit or Article Submission ]
