SAN FRANCISCO--(BUSINESS WIRE)--Oct. 14, 2004--CNET Networks, Inc.
(NASDAQ:CNET) today reported results for the third quarter ended
September 30, 2004. The company's third quarter results include the
financial results for Webshots as of the closing date of this
acquisition on August 2, 2004. CNET Networks reported that revenues
for the third quarter ended September 30, 2004 totaled $70.5 million,
a 22 percent increase compared to revenues of $57.7 million for the
same period of 2003. Webshots contributed approximately $2.0 million
to total revenues during the quarter. Net income for the third quarter
of 2004 was $1.1 million, or $0.01 per share, compared to a net loss
of $5.8 million, or loss of $0.04 per share, for the same period last
year.
The company's third quarter operating income equaled $1.8 million
versus an operating loss of $4.5 million during the same period in
2003. CNET Networks' operating income before depreciation and
amortization was $7.1 million, compared to $1.0 million during the
third quarter of 2003. Webshots contributed approximately $700,000 to
operating income before depreciation and amortization during the third
quarter of 2004. 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 nine months ended September 30, 2004 totaled
$201.9 million, versus revenues of $172.7 million for the same period
of 2003. The company's operating loss for this period was $4.1
million, versus an operating loss of $28.9 million for the same period
in 2003. Operating income before depreciation and amortization for the
first nine months of 2004 was $15.0 million, versus a loss of $10.4
million for the same period last year. Results for the first nine
months of 2003 included $9.8 million of realignment costs. Net income
for the first nine months of 2004 was $2.5 million, or $0.02 per
share, compared to a net loss of $33.2 million, or $0.24 per share,
for the same period last year. Approximately $0.04 of net income per
share for the first nine months of 2004 is attributable to a net gain
from unusual items, as further explained on the financial attachments
that accompany this press release.
"CNET Networks' solid revenue growth and profit margin expansion
during the third quarter was fueled by growth in marketing services
revenue as well as our continued ability to turn top-line growth into
profits," said Shelby Bonnie, chairman and CEO of CNET Networks.
"These results once again illustrate the leverage in our model and
prove that we are well positioned to capture long-term, sustainable
growth."
"We are focused on expanding our existing franchise and
strengthening our core offerings with new content and features; and as
a result are seeing strong user and traffic trends as well as expanded
customer relationships. The acquisitions of ZOL and Fengniao in China,
completion of the Webshots acquisition, as well as the re-launch of
CNET.com, are key examples of this ongoing expansion strategy."
The company also announced that Doug Woodrum, Chief Financial
Officer, has decided to transition out of the role of CFO, a position
that he has held for almost seven years, into a new role within the
company. Mr. Woodrum intends to remain in the CFO role through the
first quarter of 2005 while the company engages in a search for a
successor.
"We have been very fortunate to have Doug in the role of CFO for
these past seven years. His strong leadership has been instrumental in
helping the company overcome challenges in the industry to emerge on a
path to growth," said Bonnie. "He is a valued member of our senior
management team and we are pleased that he will continue to contribute
as a leader within this organization."
Business Review
- CNET Networks' global network of Internet properties reached
an average of 88.7 million unique users on a monthly basis
during the third quarter of 2004(1), an increase of 35 percent
from the third quarter of 2003. Average daily page views
increased to 61.8 million during the third quarter(1), up 52
percent from the year-ago quarter. Excluding Webshots, CNET
Networks reported monthly unique users of 80.5 million and
average daily page views of 45.5 million during the third
quarter of 2004(1).
- CNET Networks, Inc. today announced that it has entered into a
definitive agreement to acquire the assets of ZOL and
Fengniao, which operate the zol.com.cn and fengniao.com Web
sites, respectively, in cooperation with Chinese subsidiaries
and affiliates. The transactions total $16 million in cash
payments to be paid over the next two quarters and are
effective immediately. ZOL is one of the leading providers of
personal technology-related content and shopping services in
Northern China. Fengniao is one of the country's leading
digital photography sites, with reviews on over 1,000 digital
cameras, as well as an image database, category-specific
content, interviews, and forums. The properties bring a
combined daily reach of over 1 million users generating over 7
million page views each day(2). CNET Networks has a large,
established presence in China with online and offline brands
and services it has been building there for over ten years.
These acquisitions expand CNET Networks' online presence in
China, securing a leadership position in the personal
technology category ahead of the wave of expected Internet
usage and online advertising growth.
- Last month, CNET.com, the trusted resource for people
interested in enhancing their lives with personal technology,
launched a new home page and a range of streaming video-based
how-to content features. Building on its comprehensive
foundation of unbiased product reviews that help people make
smart buying decisions, CNET expanded its focus to help
consumers unlock the potential of their new products and get
the most out of personal technology. The how-to video library
builds on CNET's "First Look from the Labs" videos series, in
which editors showcase the "look and feel" aspects of products
that are hard to describe in written reviews, saving viewers a
trip to the store. Already, hundreds of product reviews and
how-to videos are featured on CNET, and the collection will
continue to grow, with more than 100 new videos added each
month.
- In August, CNET Networks announced the completion of its
acquisition of privately-held Twofold Photos, Inc., and its
Webshots Web site (www.webshots.com), for $60 million in cash
paid upon closing and $10 million of deferred consideration
payable in three years. Webshots is a leading Web site in the
photography category and has the largest publicly available
collection of photo content. Since integration, Webshots has
continued to scale and reach important milestones, recently
celebrating its 100 millionth photo upload, including
submissions into both its publicly and privately shared
libraries.
- Once again, CNET News.com brought home awards, building on the
dozens it has won during the past two years from prestigious
journalism societies and associations. Most recently, CNET
News.com won two awards from The Society of Professional
Journalists for its breaking news and reporting, as well as
the Web Marketing Association's "Best News Site" award.
Financing Update
CNET Networks' balance sheet included cash and marketable debt
securities of approximately $93.6 million on September 30, 2004, which
includes restricted cash of $19.8 million. CNET Networks today
announced that it has signed a $30 million, 2-year revolving credit
facility led by the Bank of America. The company also announced that
it intends to file a universal shelf registration statement on Form
S-3 with the Securities and Exchange Commission covering the issuance
of up to $300 million in securities. The shelf registration enables
the company to take advantage of favorable market conditions and
opportunistically access the capital markets. Both the credit facility
and shelf offering further strengthen the company's liquidity position
and provide financial flexibility to fund growth and further expansion
opportunities.
Business Outlook
For the fourth quarter of 2004, management anticipates total
revenues of $86.0 million to $89.0 million. Interactive revenues are
expected to be in the range of $77.0 million to $79.5 million, and
publishing revenues are expected to be between $9.0 million and $9.5
million. Management estimates operating income between $11.5 million
and $13.5 million during the fourth quarter, and operating income
before depreciation and amortization of between $18.0 million and
$20.0 million for the quarter.
The company has narrowed its full year 2004 estimates and expects
total revenue in the range of $288.0 million to $291.0 million.
Interactive revenues are expected to be in the range of $253.0 million
to $255.5 million, and publishing revenues are expected to be between
$35.0 million and $35.5 million. Management estimates that 2004
operating income will be in the range of $7.5 million to $9.5 million,
and operating income before depreciation and amortization will be
between $33.0 million and $35.0 million in 2004.
Management is also providing preliminary guidance for 2005,
estimating full-year total revenues will be in the range of $340.0
million and $355.0 million. Interactive revenues are expected to be in
the range of $305.0 million to $318.0 million, and publishing revenues
are expected to be between $35.0 million and $37.0 million. Operating
income before depreciation and amortization is expected to be between
$62.0 million and $69.0 million. Full-year 2005 guidance does not
reflect any stock option related expenses.
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 third
quarter financial, business outlook, and recent initiatives in China
beginning at 5:00 pm ET (2:00 pm PT), today, October 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 October 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 1248067. 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; 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 or
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, Webshots, 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 July - September 2004 (internal log data)
2. Internal log data.
Consolidated Statements of Operations
Unaudited
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues
Interactive $ 61,351 $ 46,129 $ 176,099 $ 135,042
Publishing 9,108 11,615 25,845 37,691
------------ ------------ ------------ ------------
Total revenues 70,459 57,744 201,944 172,733
Operating expenses:
Cost of revenues 36,617 33,208 105,167 103,488
Sales and marketing 17,954 16,191 54,080 51,273
General and
administrative 8,803 7,320 27,732 28,385
Depreciation 3,695 3,836 14,941 13,303
Amortization of
intangible assets 1,578 1,715 4,134 5,217
------------ ------------ ------------ ------------
Total
operating
expenses 68,647 62,270 206,054 201,666
Operating
income (loss) 1,812 (4,526) (4,110) (28,933)
Non-operating income
(expense):
Realized gains
on investments,
net of impairments - - 11,338 -
Interest income 353 576 1,376 1,812
Interest expense (709) (1,727) (5,418) (5,274)
Other (270) (222) (356) (488)
------------ ------------ ------------ ------------
Total non-
operating
income
(expense) (626) (1,373) 6,940 (3,950)
------------ ------------ ------------ ------------
Income (loss)
before income
taxes 1,186 (5,899) 2,830 (32,883)
Income tax
expense
(benefit) 125 (61) 372 356
------------ ------------ ------------ ------------
Net income
(loss) $ 1,061 $ (5,838) 2,458 $ (33,239)
============ ============ ============ ============
Basic net income
(loss) per
share $ 0.01 $ (0.04) 0.02 $ (0.24)
============ ============ ============ ============
Diluted net
income (loss)
per share $ 0.01 $ (0.04) 0.02 $ (0.24)
============ ============ ============ ============
Shares used in
calculating
basic net
income (loss)
per share 143,410,759 140,529,839 143,060,255 139,737,338
Shares used in
calculating
diluted net
income (loss)
per share 149,772,652 140,529,839 150,132,791 139,737,338
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)
September 30, December 31,
2004 2003
------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 29,118 65,913
Investments in marketable debt
securities 19,114 12,556
Accounts receivable, net 50,976 54,387
Other current assets 14,585 8,823
------------- --------------
Total current assets 113,793 141,679
Restricted cash 19,774 19,159
Investments in marketable debt securities 25,552 38,711
Property and equipment, net 49,831 56,384
Other assets 22,738 23,092
Intangible assets, net 30,395 11,263
Goodwill 120,203 61,555
------------- --------------
Total assets $ 382,286 351,843
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,526 8,767
Accrued liabilities 57,207 53,151
Current portion of long-term debt 3,710 99
------------- --------------
Total current liabilities 67,443 62,017
Non-current liabilities:
Long-term debt 125,614 118,029
Other liabilities 10,203 1,835
------------- --------------
Total liabilities 203,260 181,881
Stockholders' equity:
Common stock; $0.0001 par value;
400,000,000 shares
authorized; 143,520,451 outstanding
at September 30, 2004 and 139,251,879
outstanding at December 31, 2003 14 14
Notes receivable from stockholders - (137)
Additional paid-in-capital 2,715,041 2,709,178
Accumulated other comprehensive income (13,468) (14,074)
Treasury stock, at cost (30,428) (30,428)
Accumulated deficit (2,492,133) (2,494,591)
------------- --------------
Total stockholders' equity 179,026 169,962
------------- --------------
Total liabilities and stockholders'
equity $ 382,286 351,843
============= ==============
Statements of Cash Flows
Unaudited
(in thousands)
Nine Months Ended
September 30,
-------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net Income (Loss) $2,458 $(33,239)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 19,075 18,520
Asset disposals 279 (242)
Noncash interest 1,533 622
Noncash stock compensation - 53
Allowance for doubtful accounts 2,798 2,021
(Gain) loss on sale of marketable
securities and privately held investments (11,338) (10)
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable 1,997 12,940
Other assets (410) 2,729
Accounts payable (2,251) 247
Accrued liabilities (2,779) (9,931)
Other long-term liabilities (1,632) (936)
--------- ---------
Net cash provided by (used in) operating
activities 9,730 (7,226)
--------- ---------
Cash flows from investing activities:
Purchase of marketable debt securities (32,969) (41,573)
Proceeds from sale of marketable debt securities 39,964 68,837
Proceeds from sale of investments in privately
held companies 13,240 -
Investments in privately held companies (982) -
Proceeds from asset sales - 342
Net cash paid for acquisitions (64,821) (2,018)
Capital expenditures (10,635) (7,791)
--------- ---------
Net cash provided by (used in) investing
activities (56,203) 17,797
--------- ---------
Cash flows from financing activities:
Payments received on stockholders' notes 137 130
Net proceeds from issuance of convertible notes 120,800 -
Net proceeds from employee stock purchase plan 722 456
Net proceeds from exercise of options 4,647 6,304
Principal payments on borrowings (113,975) (417)
--------- ---------
Net cash provided by financing activities 12,331 6,473
--------- ---------
Net increase in cash and cash equivalents (34,142) 17,044
Effect of exchange rate changes on cash and cash
equivalents (2,653) 847
Cash and cash equivalents at the beginning of the
period 65,913 47,199
--------- ---------
Cash and cash equivalents at the end of the period $29,118 $65,090
========= =========
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 September 30, 2004
-------------------------------------------
U.S. International
Media Media Other (1) Total
------------------------------- ---------
Revenues $57,278 $13,181 $- $70,459
Operating expenses 49,536 13,838 5,273 68,647
------------------------------- ---------
Operating income (loss) $7,742 $(657) $(5,273) $1,812
=============================== =========
Three months ended September 30, 2003
-------------------------------------------
U.S. International
Media Media Other (1) Total
------------------------------- ---------
Revenues $48,447 $9,297 $- $57,744
Operating expenses 46,323 10,396 5,551 62,270
------------------------------- ---------
Operating income (loss) $2,124 $(1,099) $(5,551) $(4,526)
=============================== =========
Nine months ended September 30, 2004
-------------------------------------------
U.S. International
Media Media Other (2) Total
------------------------------- ---------
Revenues $164,406 $37,538 $- $201,944
Operating expenses 145,556 41,423 19,075 206,054
------------------------------- ---------
Operating income (loss) $18,850 $(3,885) $(19,075) $(4,110)
=============================== =========
Nine months ended September 30, 2003
-------------------------------------------
U.S. International
Media Media Other (2) Total
------------------------------- ---------
Revenues $147,635 $25,098 $- $172,733
Operating expenses 143,130 30,251 28,285 201,666
------------------------------- ---------
Operating income (loss) $4,505 $(5,153) $(28,285) $(28,933)
=============================== =========
(1) For the three months ended September 30, 2004, other represents
operating expenses related to depreciation of $3,695 and
amortization of $1,578. For the three months ended September 30,
2003, other represents depreciation of $3,836 and amortization of
$1,715.
(2) For the nine months ended September 30, 2004, other represents
operating expenses related to depreciation of $14,941 and
amortization of $4,134. For the nine months ended September 30,
2003, other represents operating expenses related to realignment
of $9,765, depreciation of $13,303 and amortization of $5,217.
Quarterly Statistical Highlights
Unaudited
Q3-04 Q2-04 Q1-04 Q4-03 Q3-03
------- ------- ------- ------- -------
Total Quarterly Revenue($mm) $70.5 $68.1 $63.4 $73.5 $57.7
Revenue Distribution(%)(a)
Marketing Services 75% 77% 76% 74% 68%
Licensing, Fees & User 12% 10% 12% 10% 12%
Publishing 13% 13% 12% 16% 20%
Advertiser Metrics
Top 100 US Advertisers'
Renewal Rate (Q-to-Q) 95% 98% 89% 96% 94%
Top 100 US Advertisers' % of
Network Revenue 57% 56% 58% 60% 58%
Select Business Metrics (b)
Network Unique Users (mm) 88.7 74.2 76.5 66.3 65.5
Network Average Daily Page
Views (mm) 61.8 41.8 44.2 43.9 40.7
Total Paid Leads (mm) 45.5 44.8 46.1 49.0 38.3
Balance Sheet Highlights($mm)
Cash $29.1 $62.6 $77.9 $65.9 $65.1
Marketable Debt Securities 44.7 71.1 51.6 51.2 53.3
Restricted Cash 19.8 19.8 19.7 19.2 19.2
------- ------- ------- ------- -------
Total Cash & Equivalents $93.6 $153.5 $149.2 $136.3 $137.6
Total Debt $129.3 $129.4 $118.1 $118.1 $117.9
Days Sales Outstanding (DSO) 65 65 66 67 64
(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) Excluding Webshots, monthly unique users increased to 80.5 million
and average daily page views increased to 45.5 million. Total Paid
Leads include leads from shopping services, downloads, search, and
white papers.
Guidance to the Investment Community
$ in
millions,
except per Q3-04 Q4-04 estimate FY 2004 estimate FY 2005 estimate
share Actual Low - High Low - High Low - High
------ -------------- ---------------- ----------------
Interactive
Revenues $61.4 $77.0 - $79.5 $253.0 - $255.5 $305.0 - $318.0
Publishing
Revenues $9.1 $9.0 - $9.5 $35.0 - $35.5 $35.0 - $37.0
Total
Revenues $70.5 $86.0 - $89.0 $288.0 - $291.0 $340.0 - $355.0
Operating
income before
depreciation
&
amortization $7.1 $18.0 - $20.0 $33.0 - $35.0 $62.0 - $69.0
Depreciation
expense ($3.7) ($4.3) ($19.3) ($19.5)
Amortization
expense ($1.6) ($2.2) ($6.2) ($10.5)
Operating
income $1.8 $11.5 - $13.5 $7.5 - $9.5 $32.0 - $39.0
Interest
expense, net ($0.4) ($0.4) ($4.4) ($1.7)
Other income
(expense) ($0.3) ($0.2) $10.8 ($0.5)
Tax expense ($0.1) ($0.1) ($0.5) ($1.8)
Earnings per
share $0.01 $0.07 - $0.09 $0.09 - $0.10 $0.18 - $0.22
------------- ------ -------------- ---------------- ----------------
Note: Other Income guidance for FY 2004 includes $11.3 million of
income from the gain on sale of investments.
FY 2005 guidance does not reflect any stock option related expenses.
FY 2005 earnings per share guidance is based on a share count of
approximately 160 million shares, of which 8.3 million shares are
attributable to the impact of EITF 04-8.
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 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; 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 Income (Loss) Reconciliation
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2004 2003 2004 2003
-------------------- ---------------------
Operating loss $1,812 $(4,526) $(4,110) $(28,933)
Depreciation 3,695 3,836 14,941 13,303
Amortization of
intangible assets 1,578 1,715 4,134 5,217
-------------------- ---------------------
Operating income (loss)
before depreciation
and amortization $7,085 $1,025 $14,965 $(10,413)
==================== =====================
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 nine months ended September 30, 2004, approximately $0.04 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 nine-month period results to other
nine-month period results.
CONTACT: CNET Networks, Inc.
Cammeron McLaughlin, 415-344-2844 (Investor Relations)
cammeron.mclaughlin@cnet.com
Martha Papalia, 617-225-3340 (Media)
martha.papalia@cnet.com
SOURCE: CNET Networks, Inc.
