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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
incorporation or organization) identification No.)
2200 W. Cypress Creek Road
Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 351-2120
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
(Title of Class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares of Common Stock held by non-affiliates
of the Registrant as of March 11, 2002, was approximately $99,550,939 based on
the $3.07 closing price for the Common Stock on The Nasdaq National Market on
such date. For purposes of this computation, all executive officers and
directors of the registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such directors and
officers are, in fact, affiliates of the registrant.
The number of shares of Common Stock of the registrant outstanding as of
March 11, 2002 was 36,101,489.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its
2002 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report, are incorporated by reference into Part III of this
report.
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Index to Items
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Page
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PART I
Item 1. Business.......................................................................................3
Item 2. Properties....................................................................................18
Item 3. Legal Proceedings.............................................................................19
Item 4. Submission of Matters to a Vote of Security Holders...........................................19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.....................20
Item 6. Selected Financial Data.......................................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........22
Item 7A.Quantitative and Qualitative Disclosure About Market Risk.....................................43
Item 8. Financial Statements and Supplementary Data...................................................44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........69
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................70
Item 11. Executive Compensation.......................................................................70
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................70
Item 13. Certain Relationships and Related Transactions...............................................70
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................70
PART I
Item 1. Business.
Certain statements contained in this Annual Report on Form 10-K, including,
without limitation, statements containing the words "believes," "anticipates,"
"estimates," "expects," and words of similar import, constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Readers are referred to the "Risk Factors" section of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained herein, which identifies important risk factors that could cause
actual results to differ materially from those contained in the forward looking
statements.
SportsLine.com, Inc. (together with its subsidiaries, "SportsLine" or the
"Company"), is at the leading edge of global Internet sports media companies.
SportsLine publishes one of the most comprehensive collections of multimedia
sports news, information, games and contests and offers consumers a broad
assortment of merchandise and subscription and premium services. SportsLine
offers advertisers the opportunity to reach a highly targeted and attractive
audience through marketing solutions that include sponsorships, advertising and
direct marketing services.
The Company has established a number of important strategic relationships
to increase awareness of the SportsLine brand, build traffic to its Web sites
and develop proprietary programming. SportsLine has strategic relationships
with, among others, CBS Broadcasting Inc. ("CBS"), the National Football League
(the "NFL"), USA Networks' Electronic Commerce Solutions ("ECS"), the PGA TOUR,
Westwood One, Major League Baseball ("MLB") and the National Basketball
Association (the "NBA") and serves as a primary sports content provider for
America Online. See "- Strategic Relationships."
Sports Information, Programming and Distribution
SportsLine offers a broad range of sports-related information and
programming, which it delivers through its network of Web sites and other
distribution channels.
Information and Programming
News and Editorials The Company's news organization provides
up-to-date general sports news and
information for all major professional
and college sports 24 hours a day, seven
days a week, including previews, game
summaries, audio and video clips and
color photographs, obtained from
strategic partners and a variety of
leading sports news organizations such
as the Associated Press, Getty Images,
SportsTicker and CBS. The Company also
publishes exclusive editorials and
analyses from its in-house staff of
writers and editors and freelance sports
journalists.
Scores and Statistics The Company delivers continuously
updated, real-time scores, schedules,
standings and player and team statistics
for all major professional and college
sports from data providers including the
Associated Press, Elias Sports Bureau
and SportsTicker.
Fantasy Leagues and Contests Fantasy league enthusiasts can
participate in SportsLine-administered
leagues or form their own leagues with
customized rules, scoring and reporting.
The Company administers player
transactions (e.g., drafts, trades,
starting lineup selection and disabled
list and minor league moves) and
provides summaries of scoring, standings
and roster transactions. Proprietary
contests feature cash prizes, limited
edition sports memorabilia and other
awards based on the
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results of weekly, season-long or
special event related games of skill.
Regular sweepstakes and "giveaways"
feature cash prizes, sports memorabilia,
event tickets and other merchandise.
Odds & Consulting The Company's vegasinsider.com Web site
delivers electronic odds on all major
sports events from major Las Vegas
casinos, including the Stardust, the MGM
Mirage, Caesars-Hilton, and Harrah's/The
Rio, plus lines from nationally
recognized oddsmakers. Additionally, the
Company provides consulting services to
certain Las Vegas casinos.
Local and Personalized Content The Company packages its information and
programming to enable users to follow
local or regional team and event
coverage, including weekly stories from
college sports publications and team
coverage from staff writers
strategically located in cities across
the nation. The Company's "My
SportsLine" feature enables users to
personalize the information and
programming they receive via the
Company's Web sites.
Audio The Company's radio studio produces live
sports updates for the Westwood One
Radio Network and tapes and edits audio
for streaming throughout the CBS
SportsLine Web site, including
interviews with superstars, notable
sports personalities and regular
commentary from leading sports analysts.
The Company also produces and
distributes audio clips of interviews,
press conferences and other audio
surrounding major sporting events from
various sources, including the
Associated Press.
Video The Company delivers video programming
surrounding major sports events, live
video interviews with sports celebrities
and "cybercasts" featuring live video
interviews and daily video clips
covering events such as the Super Bowl
and the NCAA Men's Basketball
Championship. The Company also
distributes video highlights from the
NFL, the PGA TOUR, the NBA, CBS Sports
and other sources.
Wireless The Company delivers a subset of its
content to wireless users of digital
cellular phones, Web enabled cellular
phones and personal digital assistant
devices ("PDAs"). Users opt in for
notifications to their device of NBA,
NCAA basketball, NCAA football, NFL,
NHL, MLB, golf and tennis scoring and
headline alerts. The Company also
produces content for Web enabled mobile
phones and PDAs such as headlines,
scores, injuries, transactions,
standings and schedules for the above
sports, as well as auto racing.
Web Sites
cbs.sportsline.com, the Company's flagship Web site, features
comprehensive, in-depth coverage of all major professional and college sports on
a domestic and international basis. cbs.sportsline.com has won numerous awards,
including Best Fantasy Sports site from Yahoo! Internet Life's "100 Best Sites
of `02" (2002); Horizon Awards "Top Sports Web Site of the Year" and "Sports
Business Impact Partnership of the Year" (2001); one of the top 100 innovative
high-tech companies from Info World 100 (2001); Top Fantasy Baseball site, Los
Angeles Times (2001); Outstanding Achievement in Web Site Development, Web
Marketing Association (2001); Horizon Awards "Top Sports Business Website
Marketing Campaign of the Year" (2000); The Top 100 Web sites, P.O.V. Magazine
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(2000); Top NFL Web site by Access Magazine (2000); San Francisco Chronicle Best
of the Web 2000; an Outstanding Web site by the Web Marketing Association
(2000); Best Football Site from Yahoo! Internet Life (2000); The Top 100 Web
Sites, PC Magazine (2000); Best Sports Site by the Fort Worth Star-Telegram
(1999); US News and World Report's "The Best of the Web: Sports" (1999);
NetGuide's "Best Sports Site" (1999); PC Magazine's top 100 sites on the Web
(1999); the Webby Award for sports (1998); PC Magazine's top 25 sites on the Web
(1997); "Editor's Choice" from UK Plus (1997); NetGuide's "Platinum Award" for
overall site excellence (1997); the Internet Services Association's "Outstanding
Innovation" award for Baseball LIVE! (1996); a "Gold Medal" for Outstanding
Olympic Coverage from The Wall Street Journal (1996); a "Members' Choice"
designation from AOL (1996-1998); and NetGuide's "Platinum Award" as one of the
best sites on the Web (1996).
nfl.com, produced by SportsLine in association with the NFL and in
partnership with America Online, Inc. ("AOL") and CBS, is the league's official
Web site and the anchor of the NFL Internet Network, which includes nfl.com, the
32 NFL team Web sites and other related Web sites, including superbowl.com,
playfootball.com and nfleurope.com. The nfl.com site delivers complete coverage
of the NFL and its players with state-of-the-art technology, live scoring and
play-by-play, audio and video streaming from NFL Films and a fantasy football
product suite. Additionally, the site provides access to the teams and players
with behind-the-scenes features, news and analysis. The nfl.com site was honored
with the Horizon Award as the "Top League Web Site of the Year" for 2001.
[email protected], produced by the Company in association with the PGA
TOUR, is a comprehensive golf site that offers the only full leaderboard real-
time scoring on the Internet from the PGA TOUR, SENIOR PGA TOUR and BUY.COM TOUR
events. The pgatour.com site also features news covering other golf
organizations and international tours. Additionally, the pgatour.com site
focuses on recreational golf, travel opportunities and golf instruction and
features a variety of interactive tools such as course guides, reviews and
message boards. The pgatour.com site also features the PGA TOUR STOP, the
official online pro shop of the PGA TOUR offering a complete line of golf
equipment, accessories, apparel and other products, including PGA TOUR branded
merchandise. The site also incorporates the Company's golfweb.com site, which
provides golf-related content, interactive entertainment, membership services,
golf course discounts and merchandise.
mvp.com, produced in partnership with USA Networks' Electronic Commerce
Solutions, is a state-of-the-art comprehensive sports-oriented retail Web site
that offers consumers the opportunity to purchase thousands of licensed
products, memorabilia and sporting goods.
vegasinsider.com provides sports gaming information and features electronic
odds on all major sports events from major Las Vegas casinos, including the
Stardust, the MGM Mirage, Caesars-Hilton, and Harrah's/The Rio, plus lines from
nationally recognized oddsmakers. Handicapping information includes commentary,
matchup analysis and picks from some of the nation's leading sports
handicappers. The site's news reporting is focused on a gaming perspective and
provides detailed statistical and matchup analysis tools, including
"against-the-spread" and "straight-up" records, team and player statistics and
injury and weather reports. Live scoreboards provide breaking news and scores,
updates, recaps and boxscores.
Other League Web Sites. SportsLine has created Web sites for sports
organizations and major sports events, including superbowl.com (for Super Bowl
XXXV and Super Bowl XXXVI), usopen.org (for the US Open Tennis Championship) in
2001, pgachampionship.com (for the PGA Championship) in 2000 and 2001, as well
as the official All-Star game and post season sites for Major League Baseball in
1999 and 2000.
SportsLine is responsible for the technical development, production and
maintenance of the Web sites it creates for third parties, as well as customer
service, technical support and billing associated with the sale of premium
features or merchandise. SportsLine's third party Web site agreements are for
terms ranging from one to ten years and generally provide SportsLine the
exclusive right to create a Web site for a sports superstar, personality,
organization or affinity group, as well as to receive certain content for the
Web site and to use the athlete or organization's name, logos and other
materials to promote the Company's business and products. In consideration for
the rights granted under its third party Web site agreements, SportsLine has, in
certain instances, issued warrants
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to purchase Common Stock and/or agreed to make cash payments. The Company
generally is entitled to receive a percentage of the sponsorship, advertising
and other revenue generated from the third party Web sites it develops.
Other Distribution Channels
The inclusion of the Company's content in AOL's services make the Company's
sports content and programming readily accessible to the tens of millions of Web
users that access the Internet via the AOL platform. See "--Strategic
Relationships--AOL." The Company, in partnership with the Westwood One Radio
Network, had two radio programs in syndication as of December 31, 2001: "NFL
Today," broadcast in 65 markets and "NFL Sunday," broadcast in approximately 400
markets.
Strategic Relationships
SportsLine has established strategic relationships to provide marketing, e-
commerce and cross-promotional opportunities to increase consumer awareness of
the SportsLine brand and other brands owned by the Company, to build traffic on
its Web sites and to obtain exclusive sports content for its Web sites.
CBS. In March 1997, the Company entered into a strategic alliance with CBS
pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." The agreement provides for cbs.sportsline.com to receive,
among other things, extensive network television advertising and on-air
promotion, primarily during CBS television sports broadcasts of events such as
the NFL, the NCAA Men's Basketball Championship, NCAA Football, PGA TOUR events
and U.S. Open tennis. In addition, the Company has the right to use certain CBS
logos and television-related sports content on cbs.sportsline.com and in
connection with the operation and promotion of that Web site. CBS and the
Company seek to maximize SportsLine's advertising sales revenue through a joint
advertising sales effort. The CBS agreement was amended in February 1999 to
extend its term through 2006. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PGA TOUR. In April 1999, the Company entered into an exclusive five-year
agreement to align the pgatour.com and golfweb.com Web sites and co-produce a
comprehensive golf site providing real-time scoring, golf news and information
regarding recreational golf, travel opportunities and golf instruction. The
Company and the PGA TOUR have combined resources to develop sales and
sponsorship opportunities and share revenues from the combined site.
Additionally, the Company paid an upfront cash license fee and issued warrants
to the PGA TOUR.
NFL. In July 2001, SportsLine entered a four-party, multi-year agreement
with NFL Enterprises, L.P., CBS and AOL encompassing a wide-range of
initiatives, including the production and hosting by SportsLine of nfl.com, the
most popular sports league Web site. SportsLine was given the designation of
"official online sports partner of the NFL" and benefits in its marketing
efforts from the use of official NFL marks and logos and other league assets.
The cbs.sportsline.com site is prominently promoted on the NFL Internet Network,
and receives selected NFL content for use on cbs.sportsline.com, including four
video clips a week, an audio game of the week, contests and sweepstakes.
SportsLine manages media sales and direct marketing services for nfl.com
and related sites. In addition to producing nfl.com, the Company is producing
other NFL-related sites, such as superbowl.com, playfootball.com, and
nfleurope.com, as well as the official fantasy football games for the sites.
SportsLine also hosts and sells certain NFL content, such as NFL Films video,
within the team sites. SportsLine, the NFL, CBS and AOL have also agreed to
jointly explore a range of potential new business ventures in technology-based
media.
AOL. In July 1997, SportsLine entered into a strategic programming and
distribution agreement with AOL pursuant to which cbs.sportsline.com became the
first "anchor tenant" on the AOL service. In October 1998, SportsLine and AOL
significantly expanded their online relationship to provide SportsLine-produced
sports news and statistics, special features, major event coverage and
merchandise on several key AOL brands around the world. In July 2001, SportsLine
and AOL entered into a multi-year extension to the agreement, pursuant to which
SportsLine remains an anchor tenant on the AOL Sports Channel, giving it access
to AOL's more than 30 million members.
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Additionally, SportsLine receives extensive promotion across key America Online
interactive brands, including Netscape, Compuserve, Digital City and ICQ.
SportsLine also provides private label fantasy sports game products to AOL and
sells advertising and sponsorships in connection with those games, including NFL
fantasy products produced in association with the NFL, and fantasy games for
professional baseball, basketball, hockey, golf and auto racing, as well as
college basketball tournament brackets contests.
USA Networks, Inc. In January 2001, the Company entered into a multi-year
e-commerce relationship with USA Networks, Inc. ("USA") under which ECS was
named the exclusive operator of the Company's online store, operated under the
MVP.com brand name. As part of the agreement, ECS built and services the
Company's entire e-commerce infrastructure. ECS re-launched MVP.com as
SportsLine's official store in Spring 2001. To support the Company's
merchandising efforts, the MVP.com store is promoted throughout USA's media
properties, including USA Network and SCI FI Channel, and its Internet assets
including ticketmaster.com, citysearch.com, match.com, hoteldiscount.com and
scifi.com.
Westwood One. In August 1999, the Company entered into a three-year
agreement with Westwood One. Under this agreement, the Company produces sports
content for Westwood One/CBS Radio Sports' coverage of live sporting events. In
addition, Westwood One was granted the right to syndicate the Company's radio
programs ("NFL Today" and "NFL Sunday"). The agreement with Westwood One expires
August 2002 and there can be no assurance that it will be renewed.
Sports.com. In May 1999, SportsLine established Sports.com Limited
("Sports.com") as a European-based, majority owned subsidiary. Sports.com has
become the leading European Internet and mobile data provider of sports content,
community, commerce and betting and is the most visited European digital sports
channel. Sports.com provides European coverage in English of football, rugby,
Formula One, cricket, boxing, tennis and golf as well as sports in local
languages in France, Germany, Italy, Ireland and Spain. On July 17, 2001,
Sports.com raised approximately $13,000,000 in equity funding from its existing
investors including SportsLine, Soros Private Equity Partners and IMG. After
giving effect to the funding, SportsLine's fully diluted ownership stake in
Sports.com, including all outstanding warrants and management options, was
reduced to approximately 30 percent.
Sports Superstars and Organizations. The Company has established strategic
relationships with sports superstars and personalities, including Michael
Jordan, Tiger Woods, Joe Namath, Shaquille O'Neal, John Daly and John Elway. The
Company also maintains cross-promotional relationships with other sports
organizations including the PGA TOUR, the NFL, MLB, and the NBA.
Advertising and Marketing Services
The Company believes that the demographics of its audience are similar to
traditional sports advertisers' target market. Based on Company-sponsored market
research, users of SportsLine's United States-targeted Web sites are
predominantly male, 76% are between the ages of 25 to 54, 86% have attended
college and 43% have an annual income greater than $75,000.
The Company currently derives, and expects to continue to derive, a
substantial portion of its revenue from advertising on Web sites. The Company
sells sponsorship opportunities that enable advertisers to associate their
corporate messages with the Company's coverage of athletes and marquee events
(such as the World Series, the Super Bowl, the NCAA Men's Basketball
Championship, tennis and golf's major events, the NBA playoffs and the Stanley
Cup playoffs), its fantasy sports products, special features of the Company's
Web sites (including GameCenters and live scoring applications) and special
promotions, contests and events. In addition, the Company sells "banner"
advertisements that allow interested readers to link directly to the
advertisers' own Web sites or to promotional sites created by SportsLine. The
Company also offers direct marketing services that allow advertisers to send e-
mail messages to the millions of consumers in SportsLine's opt-in database.
SportsLine targets as advertisers on its Web sites traditional sports
advertisers, such as consumer product and service companies, technology
companies, sporting goods manufacturers and automobile companies.
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Advertising revenue has been derived principally from short-term
advertising contracts on a per-impression basis or for a fixed fee based on a
minimum number of impressions. SportsLine's advertising rates generally range
from $10.00 to $50.00 per thousand impressions. To enable advertisers to verify
the number of impressions received by their advertisements and monitor their
advertisements' effectiveness, the Company provides its advertisers with third
party audit reports showing data on impressions received by their
advertisements.
The Company has developed its database marketing capabilities to offer its
advertisers more targeted means to reach sports fans. SportsLine provides
advertisers direct marketing vehicles by leveraging its registration process
through which tens of thousands of people register each month or by targeting
portions of the Company's user base, which included approximately 7.0 million
registered users as of December 31, 2001. Current programs in place include
direct e-mail campaigns as well as cost-per-lead-generation deals that are
promoted on registration pages.
SportsLine's in-house sales staff develops and implements its advertising
strategies, including identifying strategic accounts and developing
presentations and promotional materials. The Company has sales personnel located
in Fort Lauderdale, New York, Chicago, San Francisco, Los Angeles, Atlanta and
Detroit. The Company also capitalizes on its cross-marketing relationships with
sports superstars, personalities, organizations and affinity groups by seeking
sponsorships and advertisements from their sponsors. The Company coordinates its
advertising sales efforts for cbs.sportsline.com with CBS's television network
advertising sales personnel.
No customer accounted for more than 9% of the Company's revenue during 2001
and 1999. In 2000, MVP.com, Inc. accounted for 21% of the Company's total
revenue and no other customer accounted for more than 10% of the Company's
revenue.
Subscription and Premium Products
The Company offers fantasy products for professional football, baseball,
basketball, hockey, golf and auto racing. These fantasy products allow members
to form their own team by assembling a group of athletes from a sport and
following their performance on a weekly or daily basis. These fantasy teams can
then perform in competitions administered by the Company for cash or merchandise
prizes, or compete in leagues administered by the users on the Company's Web
site.
From July 2000 to July 2001, the Company offered its fantasy products and
services as a free service. Offering fantasy products for free allowed the
Company to showcase its Commissioner league management service to a broad
audience of fantasy players who had either only played free games before or had
never played in a fantasy game online. As a result of this strategy, the Company
attracted more than four million fantasy products customers in 2001, firmly
establishing SportsLine as a clear leader in fantasy sports offerings.
With changes in the competitive fantasy landscape and the investments
SportsLine.com has made in improving its products, the Company plans to convert
certain of its free fantasy products back to pay services, which will enable it
to leverage its customer database to maximize revenue in the subscriptions and
premium products category. During the 2001 NFL season, SportsLine began shifting
toward subscription services by adding a paid tier of products to its fantasy
offerings. For the 2002 Major League Baseball season, SportsLine has resumed
charging a $99.95 fee per league for its Baseball Commissioner league management
service. The strategy to return to a pay product is predicated upon the
Company's strong belief that it has created a superior product with an extremely
loyal customer base, as well as the effort required for a user to switch fantasy
providers. Due to these factors, the Company believes it will retain the vast
majority of its audience either through its pay Commissioner league management
product, or through its other fantasy games which will be less expensive than
the Commissioner product or remain free of charge.
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Membership Database
The Company has created an extensive database of members and increased page
views of its web sites through the use of rewards programs, fantasy products and
contests that require registration. Many of these services are offered for free
on the cbs.sportsline.com Web site.
There are two SportsLine Rewards programs: SportsLine Rewards, which is
free to members, and SportsLine Rewards Plus, which is available for a fee of
$39.95 per year. Both programs allow members to earn points by visiting the
cbs.sportsline.com site, referring others to register and clicking on sponsors'
advertisements. Members can redeem accumulated points in exchange for
merchandise in the SportsLine Rewards catalogue or auctions for other goods and
services like tickets to sports events or sports merchandise. SportsLine Rewards
Plus members receive greater benefits such as earning double points for visiting
the cbs.sportsline.com site, access to exclusive contests and the ability to
redeem points for exclusive auctions.
In addition, the Company provides registered users with the ability to
design their own personal sports web pages through the "My SportsLine" feature.
Once a user registers, he or she may design the content, layout and page
settings of the Web site. The Company also provides registered users contests
and sweepstakes in which the user can win cash, trips or merchandise. In many
cases, an advertiser sponsors these contests and sweepstakes.
Merchandise
In January 2001, following the cessation of business operations by MVP.com,
Inc. ("MVP"), the sports and outdoor e-commerce company that had previously
acquired and agreed to operate SportsLine's domestic e-commerce business,
SportsLine acquired certain assets of MVP, including the domain names,
trademarks and certain other assets associated with the Web sites mvp.com,
planetoutdoors.com, igogolf.com, golfclubtrader.com and tennisdirect.com. Also
in January 2001, the Company entered into a multi-year e-commerce relationship
with USA under which ECS was named the exclusive operator of the Company's
online store, operated under the MVP.com brand name. As part of the agreement,
ECS built and services the Company's entire e-commerce infrastructure. ECS
re-launched MVP.com as SportsLine's official store in Spring 2001.
Marketing
The Company's agreement with CBS provides for cbs.sportsline.com to receive
extensive network television advertising and on-air promotion, primarily during
CBS television broadcasts of sports events such as the NFL, the NCAA Men's
Basketball Championship, NCAA Football, PGA TOUR events and U.S. Open tennis.
NFL.com, which is produced by the Company and has direct links to
cbs.sportsline.com, receives significant on-air promotion during broadcasts of
NFL games on all networks which broadcast the games, including ABC, ESPN and Fox
as well as CBS. PGATOUR.com, which is produced by the Company and has direct
links to cbs.sportsline.com, receives significant on-air promotion during
broadcasts of the PGA TOUR events on all networks which broadcast such events,
including ABC, NBC, ESPN, Fox SportsNet, USA Networks, TNT, Golf Channel and
CNBC as well as CBS. The Company's agreement with Westwood One Radio Network
provides the Company with extensive on-air promotion and live reads during radio
broadcasts of the NFL, NCAA Football, Notre Dame Football, HBO Boxing and other
special events, such as the U.S. Open and Masters golf tournaments. In addition,
the Company's agreement with USA provides for promotion of the MVP.com store
throughout USA's media properties, including USA Network and SCI FI Channel, and
its Internet assets including ticketmaster.com, citysearch.com, match.com,
hoteldiscount.com and scifi.com.
Under the terms of the Company's multi-year agreement with AOL,
cbs.sportsline.com is an anchor tenant on the AOL Sports Channel and receives
extensive promotion across key America Online interactive brands, including
Netscape, Compuserve, Digital City and ICQ. Pursuant to the anchor tenancy
agreement, the CBS SportsLine.com brand is promoted to AOL's more than 30
million members, each of whom have instant access to SportsLine's comprehensive
coverage of the sports world through cbs.sportsline.com's continuous presence on
the
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main screen of the AOL Sports Channel. SportsLine's features and programming are
also integrated throughout the AOL Sports Channel's aggregated sports areas.
Another effective source of advertising for SportsLine has been Web
advertising. The Company, from time to time, barters for advertising impressions
on leading Web sites and its properties are listed in the directories of most
major search engine sites. SportsLine has also advertised in targeted
publications, on outdoor billboards and on sports talk radio stations, as well
as distributed promotional materials at selected sports events and conducts an
ongoing public relations campaign. SportsLine has also conducted limited direct
mail campaigns targeting online or sports-oriented consumers.
Whenever possible, the Company utilizes cross-promotional arrangements to
secure advertising and other promotional considerations. SportsLine's agreements
with sports organizations and affinity groups typically provide for the Company
to receive exposure in any print, television and marketing vehicles utilized by
the organizations or affinity groups to promote themselves or their products or
services and for the distribution of the Company's promotional materials at
events or industry shows in which they participate.
Member Service and Support
The Company believes that member service and support are important to its
ability to attract and retain members. The Company's member services staff
provides telephone and continuous e-mail support, responds to customer requests
concerning technical aspects of SportsLine's Web sites or certain third party
software and conducts inbound and outbound telemarketing on a 16 hour a day,
seven day a week basis.
Competition
The market for Internet services and products is highly competitive and the
Company expects that competition will continue to intensify. SportsLine
competes, directly and indirectly, for advertisers, viewers, members, content
providers, merchandise sales and rights to sports events with the following
categories of companies: (i) Web sites targeted to sports enthusiasts generally
(such as espn.com, cnnsi.com and foxsports.com) or to enthusiasts of particular
sports (such as Web sites maintained by the NBA, MLB and the NHL); (ii)
publishers and distributors of traditional off-line media (such as television,
radio and print), including those targeted to sports enthusiasts, many of which
have established or may establish Web sites; (iii) general purpose consumer
online services such as AOL and MSN, each of which provides access to
sports-related content and services; (iv) vendors of sports information,
merchandise, products and services distributed through other means, including
retail stores, mail, facsimile and private bulletin board services; and (v) Web
search and retrieval services, such as Lycos, Netscape and Yahoo!, and other
high-traffic Web sites. Management believes that SportsLine's most significant
competitors are espn.com, Yahoo! Sports, AOL Sports, foxsports.com and
cnnsi.com, all of which offer a variety of sports content.
The Company believes that the principal competitive factors in attracting
and retaining users and members are the depth, breadth and timeliness of
content, the ability to offer compelling and entertaining content and brand
recognition. Other important factors in attracting and retaining users include
ease of use, service quality and cost. The Company believes that the principal
competitive factor in attracting and retaining content providers and
merchandisers is SportsLine's ability to offer sufficient incremental revenue
from licensing fees, bounties and online sales of product or services. The
Company believes that the principal competitive factors in attracting
advertisers include the number of users and members of SportsLine's Web sites,
the demographics of SportsLine's user and membership bases, price and the
creative implementation of advertisement placements. There can be no assurance
that the Company will be able to compete favorably with respect to these
factors.
Many of SportsLine's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, significantly greater name recognition and substantially larger user
or membership bases than SportsLine and, therefore, have a significantly greater
ability to attract advertisers and users. In addition, many of these competitors
may be able to respond more quickly than the Company to new or
10
emerging technologies and changes in Internet user requirements and to devote
greater resources than the Company to the development, promotion and sale of
their services. There can be no assurance that SportsLine's current or potential
competitors will not develop products and services comparable or superior to
those developed by SportsLine or adapt more quickly than the Company to new
technologies, evolving industry trends or changing Internet user preferences.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which would materially and adversely affect the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, or that competitive pressures faced by the
Company would not have a material adverse effect on its business, results of
operations and financial condition.
Government Regulation and Legal Uncertainties
General.
Except as discussed below, SportsLine's Internet operations are not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally. The application of existing laws
and regulations to SportsLine with respect to issues such as the protection of
databases, user privacy, pricing, advertising, taxation, sweepstakes and
contests, promotions, content regulation, quality of products and services and
intellectual property ownership and infringement can be unclear. In addition,
SportsLine may also be subject to new laws and regulations directly applicable
to its activities. Any existing or new legislation applicable to SportsLine
could expose it to substantial liability, including significant expenses
necessary to comply with such laws and regulations, and dampen the growth in use
of the Web.
SportsLine's contests and sweepstakes may be subject to state and Federal
laws governing lotteries and gambling. The Company seeks to design its contests
and sweepstakes to either not be subject to or to fall within exemptions from
such laws and restricts participation to individuals over 18 years of age who
reside in jurisdictions within the United States and Canada in which the
contests and sweepstakes are lawful. There can be no assurance that SportsLine's
contests and sweepstakes will be exempt from such laws or that the applicability
of such laws to the Company would not have a material adverse effect on the
Company's business, results of operations and financial condition.
Certain Federal laws could have an impact on SportsLine's business. The
Digital Millennium Copyright Act is intended to reduce the liability of online
service providers for listing or linking to third-party Web sites that include
materials that infringe copyrights or other rights of others. The Children's
Online Protection Act and the Children's Online Privacy Protection Act are
intended to restrict the distribution of certain materials deemed harmful to
children and impose additional restrictions on the ability of online services to
collect user information from minors. In addition, the Protection of Children
From Sexual Predators Act of 1998 requires online service providers to report
evidence of violations of Federal child pornography laws under certain
circumstances. Such legislation may impose significant additional costs on the
Company's business or subject the Company to additional liabilities.
SportsLine posts its privacy policy and practices concerning the use and
disclosure of user data on its Web sites. Any failure by the Company to comply
with its posted privacy policy, requirements of the Federal Trade Commission
(the "FTC") regarding user privacy, or other privacy-related laws and
regulations could result in proceedings by the FTC or others which could
potentially have an adverse effect on SportsLine's business, results of
operations and financial condition. In this regard, the United States Congress
and state legislative bodies periodically consider legislation regarding privacy
issues that could affect SportsLine's business. It is not possible to predict
whether or when such legislation may be adopted, and certain proposals, if
adopted, could materially and adversely affect the Company's business through a
decrease in user registrations and revenues. This could be caused by, among
other possible provisions, the required use of disclaimers or other requirements
before users can utilize SportsLine's services.
Due to the global nature of the Internet, it is possible that the
governments of various states of the United States or foreign countries may
attempt to regulate SportsLine's transmissions or to prosecute SportsLine for
11
violations of their laws. The Company may unintentionally violate these laws and
these laws may be modified, or new laws enacted, in the future. It is also
possible that various states of the United States or foreign countries may seek
to impose sales taxes on out-of-state businesses that engage in commerce over
the Internet. In the event that states or foreign countries succeed in imposing
sales or other taxes on Internet commerce, the growth of the use of the Internet
for commerce could slow substantially.
Nevada Regulation and Licensing
During the second quarter of 2000, the Company's wholly-owned subsidiary,
VegasInsider.com, Inc. ("VegasInsider"), purchased the DBC Sports division of
Data Broadcasting Corporation, including all of the outstanding stock of Las
Vegas Sports Consultants ("LVSC"). LVSC was and remains engaged in the business
of selling and providing certain information to casinos doing business in
Nevada. As such, it is required to be licensed as an "information service
provider" as that term is defined by the Nevada Gaming Control Act and the
regulations promulgated thereunder (the "Nevada Act") and is subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission") and the Nevada State Gaming Control Board (the "Nevada Board") (The
Nevada Commission and the Nevada Board are collectively referred to as the
"Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and filing periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Changes in such laws, regulations and procedures
could have an adverse effect on the Company's "information services provider"
operations. Gaming licenses require the periodic payment of fees and taxes and
are not transferable.
Prior to the acquisition of LVSC by the Company, LVSC had submitted an
application with the Nevada Gaming Authorities to be licensed as an "information
service provider." As a result its change of ownership, LVSC filed an amended
application with the Nevada Gaming Authorities in order to reflect its new
ownership structure. VegasInsider filed an application with the Nevada Gaming
Authorities to be found suitable as an intermediary holding company, and the
Company filed an application with the Nevada Gaming Authorities to be registered
as a publicly traded company ("Registered Corporation"). In addition, certain
officers and/or directors of the Company, VegasInsider and LVSC filed
applications with the Nevada Gaming Authorities to be found suitable as officers
and/or directors of the respective companies. In November 2000, the Nevada Board
activated an investigation of the respective applications and the investigation
is ongoing. However, prior to final action on the applications, LVSC is
permitted under Nevada law to continue to operate its present business without
an approved license.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, or any of
the Company's subsidiaries required to be licensed as an "information service
provider" (each a "Gaming Subsidiary") in order to determine whether such
individual is suitable or should be licensed as a business associate of a gaming
licensee. Officers, directors and certain key employees of each Gaming
Subsidiary may be required to file applications to be licensed or found suitable
by the Nevada Gaming Authorities. Officers, directors and key employees of the
Company who are actively and directly involved in gaming activities of a Gaming
Subsidiary may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for licensing
for any cause, which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
12
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or any Gaming Subsidiary, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company or any Gaming Subsidiary to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and each Gaming Subsidiary are required periodically to submit
detailed financial and operating reports to the Nevada Commission and furnish
any other information that the Nevada Commission may require. Substantially all
material loans, leases, sales of securities and similar financing transactions
must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company or
any Gaming Subsidiary, any registration or gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, any of its Gaming
Subsidiaries and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission.
After registration or licensing, any beneficial holder of the Company's
voting securities (or rights to acquire such securities), regardless of the
number of shares owned, may be required to file an application, be investigated
and have his suitability as a beneficial holder of the Registered Corporation's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of
more than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the voting securities of a Registered Corporation
apply to the Nevada Commission for a finding of suitability within thirty days
after the Chairman of the Nevada Board mails the written notice requiring such
filing. Under certain circumstances, an "institutional investor," as defined in
the Nevada Act, which acquires more than 10%, but not more than 15%, of a
Registered Corporation's voting securities may apply to the Nevada Commission
for a waiver of such finding of suitability if such institutional investor holds
the voting securities for "investment purposes only." An institutional investor
shall not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information, including a
list of beneficial owners. The applicant is required to pay all costs of
investigation. Under certain circumstances, the Nevada Commission may find that
an entity qualifies, as an "institutional investor" even if the interest held is
not in a publicly registered company. However, the same maximum investment of
15% of the equity would remain.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the voting securities
13
of a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company will be
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
Company or the Gaming Subsidiary(ies), the Company (i) pays that person any
dividend or interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise, or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting securities for
cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any
debt or similar security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own
such security, then pursuant to the Nevada Act, the Registered Corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities;(iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company and the Gaming Subsidiaries will be required to maintain
current stock ledgers in Nevada, which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
will also be required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power to require the
Company's stock certificates to bear a legend indicating that the securities are
subject to the Nevada Act.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. The
pledge of the equity securities of a Corporate Licensee or an entity that is
registered as an Intermediary Company ("Stock Pledges") also requires the prior
approval of the Nevada Commission. In addition, restrictions on the transfer of
an equity security issued by a Corporate Licensee or Intermediary Company and
agreements not to encumber such securities (collectively, "Stock Restrictions")
are ineffective without the prior approval of the Nevada Commission.
Changes in control of a Registered Corporation, Intermediary Company or
Corporate Licensee through merger, consolidation, stock or asset acquisitions,
management or consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of the Nevada
Commission. Entities seeking to acquire control of a Registered Corporation must
satisfy the Nevada Board and Nevada Commission in a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation
14
can make exceptional repurchases of voting securities above the current market
price thereof and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by the Registered Corporation's Board of Directors in
response to a tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the Registered
Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, foreign Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Such licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities or enter into associations that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employ, contract or
associate with a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
Intellectual Property
SportsLine's performance and ability to compete are dependent to a
significant degree on its internally developed content and technology. The
Company relies on a combination of copyright and trademark laws, trade secret
protection, confidentiality and non-disclosure agreements with its employees and
with third parties and contractual provisions to establish and protect its
proprietary rights. There can be no assurance that the steps taken by SportsLine
to protect its proprietary rights will be adequate, that SportsLine will be able
to secure trademark registrations for all of its marks in the United States
and/or foreign countries, or that third parties will not infringe upon or
misappropriate the Company's copyrights, trademarks, service marks and similar
proprietary rights. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain foreign countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of the Company's services. In the future, litigation may be necessary to enforce
and protect the Company's trade secrets, copyrights and other intellectual
property rights.
There can be no assurance that third parties will not bring copyright or
trademark infringement claims against SportsLine or claim that the Company's use
of certain technologies violates a patent. If it is determined that SportsLine
has infringed upon a third party's proprietary rights, there can be no assurance
that any necessary licenses or rights could be obtained on terms satisfactory to
the Company, if at all. The inability to obtain any required license on
satisfactory terms could have a material adverse effect on the Company's
business, results of operations and financial condition. SportsLine may also be
subject to litigation to defend against claims of infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. If competitors of SportsLine prepare and file applications in
the United States that claim trademarks used or registered by the Company,
SportsLine may oppose those applications and have to participate in proceedings
before the United States Patent and Trademark Office to determine priority of
rights to the trademark, which could result in substantial costs to the Company,
even if the eventual outcome is favorable to the Company. An adverse outcome
could require SportsLine to license disputed rights from third parties or to
cease using such trademarks. Any such litigation would be costly and divert
management's attention, either of which could have a material adverse effect on
the Company's business, results of operations and financial condition. Adverse
determinations in such litigation could result in the loss of certain of the
Company's proprietary rights, subject the Company to significant liabilities,
require the
15
Company to seek licenses from third parties, or prevent the Company from selling
its services, any one of which could have a material adverse effect on
SportsLine's business, results of operations and financial condition. In
addition, inasmuch as SportsLine licenses a substantial portion of its content
from third parties, its exposure to copyright infringement actions may increase
because the Company must rely upon such third parties for information as to the
origin and ownership of such licensed content. SportsLine attempts to obtain
representations as to the origins and ownership of such licensed content and
generally obtains indemnification to cover any breach of any such
representations; however, there can be no assurance that such representations
will be accurate or that such indemnification will provide adequate compensation
for any breach of such representations.
The Company has applied to register in the United States a number of marks,
several of which include the term "SportsLine." The Company has filed
applications to register "SportsLine" marks in the United Kingdom, Canada and
Mexico. There can be no assurance that the Company will be able to secure
adequate protection for these trademarks in the United States or in foreign
countries. Many foreign countries have a "first-to-file" trademark registration
system; and thus the Company may be prevented from registering its marks in
certain countries if third parties have previously filed applications to
register or have registered the same or similar marks. It is possible that
competitors of the Company or others will adopt product or service names similar
to the Company's, thereby impeding the Company's ability to build brand identity
and possibly leading to customer confusion. The inability of the Company to
protect its "SportsLine" mark and other marks adequately could have a material
adverse effect on the Company's business, results of operations and financial
condition.
SportsLine grants users of its Web sites a license to use the Company's
service under an agreement that prohibits the unauthorized reproduction or
distribution of SportsLine's licensed and proprietary content. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's service or to obtain and use
information that SportsLine or its content providers regard as proprietary.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate SportsLine's copyrights, trademarks, service marks and similar
proprietary rights.
Employees
As of December 31, 2001, SportsLine had 335 full-time employees of which 96
employees were in editorial and operations, 76 were in technical and product
development, 97 were in sales and marketing and 66 were in finance and
administration. The Company's future success depends in large part upon its
ability to attract and retain highly qualified employees. Competition for such
personnel is intense, and there can be no assurance that SportsLine will be able
to retain its senior management or other key employees or that it will be able
to attract and retain additional qualified personnel in the future. The
Company's employees are not represented by any collective bargaining
organization, and the Company considers its relations with its employees to be
good.
Infrastructure, Operations and Technology
SportsLine makes its Web sites available through multiple servers, running
on Sun Solaris and Linux operating systems. SportsLine uses the Netscape family
of Commercial Applications Software for its Sun based Web servers and Apache for
Intel based Web servers. Capabilities in place include bulletin boards, mail,
chat, news groups, merchandising, streaming audio and video, and interactive
Java and Shockwave applications.
SportsLine maintains its principal computer systems at its Fort Lauderdale,
Florida corporate headquarters. The Company's headquarter operations are
dependent upon its ability to protect its systems against damage from fire,
hurricanes, power loss, telecommunications failure, break-ins, computer viruses
and other events beyond the Company's control. SportsLine maintains access to
and from the Internet through two third-party providers, one provides a DS3
connection running at 45 megabits per second, the other provides a 100 megabits
per second connection. These links are connected to two routers in the Company's
facility. Redundant fiber optic cables from the Company's building connect with
each local Internet provider's fiber network. SportsLine's Internet connections
are fully redundant, so that if a failure in the network or equipment of one
service provider occurs, traffic is
16
automatically routed through to the other provider. All of the Company's
computer equipment is powered by an uninterruptible power supply ("UPS"), which
is backed up by a diesel generator designed to provide power to the UPS within
seconds of a power outage. In addition, all of the Company's production systems
are copied to backup tapes each night and stored at a third party, off-site
storage facility. All of SportsLine's computer equipment is insured at
replacement cost. Remote data centers have been built with established,
co-location providers at facilities in Santa Clara, California, Sterling,
Virginia, Miami, Florida, and Elmsford, New York, to distribute content on a
redundant basis. The majority of the Company's traffic is served via these
co-location facilities. At most times during the year, each co-location facility
has the capacity to serve all of the Company's traffic from one location. If,
despite these and other precautions taken by the Company, SportsLine's Internet
access is disrupted, SportsLine's third party providers are unable to handle
higher volumes of users, or SportsLine or such third party providers experience
damage or failure that causes system disruptions or other significant
interruptions in SportsLine's operations, the Company's business, results of
operations and financial condition could be materially adversely affected.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position
- ------------------------------------ --- ------------------------------------------------------------
Michael Levy........................ 55 Chairman of the Board, President and Chief Executive Officer
Daniel L. Leichtenschlag............ 40 President of Operations and Chief Technology Officer
Mark J. Mariani..................... 45 President, Sales and Marketing
Peter Pezaris....................... 32 President, Product Development
Kenneth W. Sanders.................. 45 President of Finance and Administration and Chief Financial
Officer
Andrew S. Sturner................... 37 President, Corporate and Business Development
Michael Levy has served as the Chairman of the Board, President and Chief
Executive Officer of the Company since its inception in February 1994. From 1979
through March 1993, Mr. Levy served as President, Chief Executive Officer and as
a director of Lexicon Corporation, a high technology company specializing in
data communications and signal processing technology. From January 1988 to June
1993, Mr. Levy also served as Chairman of the Board and Chief Executive Officer
of Sports-Tech International, Inc., a company engaged in the development,
acquisition, integration and sale of computer software, equipment and
computer-aided video systems used by professional, collegiate and high school
sports programs. Between June 1993 and February 1994, Mr. Levy was a private
investor.
Daniel L. Leichtenschlag has served as President of Operations and Chief
Technology Officer since January 2001. Mr. Leichtenschlag joined the Company as
Director of Operations in May 1995, was promoted to the position of Vice
President of Engineering in 1997, became the Chief Technology Officer in 1998
and Senior Vice President of Operations in June 1999. Mr. Leichtenschlag is
responsible for programming, production, technology and computer operations.
Prior to joining SportsLine.com, Mr. Leichtenschlag spent 12 years in various
technology management roles at General Electric including Manager, Systems
Development, of Genie, GE's on-line service and Manager, UNIX Software
Development.
Mark J. Mariani has served as President, Sales and Marketing, since June
1999. He joined the Company in April 1996 as Executive Vice President, Sales.
Mr. Mariani is responsible for Sales, Marketing, Radio Operations and Vegas
Insider. From August 1991 to March 1996, Mr. Mariani served as Executive Vice
President of Sports Sales for Turner Broadcasting Sales, Inc. From June 1990 to
August 1991, Mr. Mariani served as Senior Vice President and National Sales
Manager for CNN in New York, and from May 1986 to June 1990, Mr. Mariani served
as Vice President for CNN Sales Midwest. Prior to joining Turner Broadcasting,
Mr. Mariani served as an Account Executive for WBBM, an owned and operated CBS
television station in Chicago, Illinois.
17
Peter Pezaris has served as SportsLine.com's President, Product Development
since June 2001, responsible for programming, production and fantasy products.
Previously, Mr. Pezaris was Senior Vice President, Product Development,
responsible for SportsLine.com's Commissioner.com subsidiary, which produces
Fantasy products for CBS SportsLine.com as well as official Fantasy games for
NFL.com, AOL.com and NBA.com. Mr. Pezaris joined SportsLine in December 1999
when SportsLine acquired Daedalus World Wide Corporation ("DWWC"), the producer
of Commissioner.com fantasy products that Mr. Pezaris co-founded in 1995. Prior
to DWWC, Mr. Pezaris was a systems and software developer for the investment
banking firms of Bankers Trust and Salomon Brothers.
Kenneth W. Sanders has served as President of Finance and Administration
and Chief Financial Officer since January 2001. Mr. Sanders became the Vice
President and Chief Financial Officer of the Company in September 1997 and was
appointed Senior Vice President in October 1998. From January 1996 to August
1997, Mr. Sanders served as Senior Vice President, Chief Financial Officer of
Paging Network, Inc., the world's largest paging company. From May 1993 to
December 1995, Mr. Sanders served as Executive Vice President, Chief Financial
Officer and a director of CellStar Corporation, an integrated wholesaler and
retailer of cellular phones and related products. Between July 1979 and April
1993, Mr. Sanders was with KPMG Peat Marwick, most recently as an Audit Partner
from July 1990 to April 1993.
Andrew S. Sturner has served as President, Corporate and Business
Development since June 1999. He joined SportsLine as Vice President, Business
Development in June 1995 and was promoted to Senior Vice President, Business
Development in October 1998. From May 1994 to June 1995, Mr. Sturner served as
Vice President of Business Development for MovieFone, Inc., an interactive
telephone service company. From March 1993 to May 1994, Mr. Sturner served as
President of Interactive Services, an interactive audio text development company
that he co-founded in 1992. From August 1990 to March 1993, Mr. Sturner was a
bankruptcy associate at the law firm of Stroock & Stroock & Lavan.
Item 2. Properties.
SportsLine's corporate headquarters are located in Fort Lauderdale,
Florida. The Company currently leases approximately 80,000 square feet under a
lease which expires in March 2010. See Note 11 of Notes to Financial Statements.
The Company has options to extend the lease for two additional five-year terms.
SportsLine also leases sales offices in Chicago, New York, Atlanta, San
Francisco, Los Angeles and Detroit and office space in Las Vegas. The Company
currently leases two offices, one in Austin and the other in New York that are
no longer in use. These properties are being subleased; however, there is no
guarantee that these subleases will continue in the future.
18
Item 3. Legal Proceedings.
In November 2001, Sandbox.com, Inc. ("Sandbox") filed a lawsuit in the
Seventeenth Judicial Circuit in and for Broward County, Florida, alleging that
the Company breached an agreement and plan of merger to acquire Sandbox (the
"Merger Agreement"), misappropriated trade secrets, breached fiduciary duties,
and was unjustly enriched as a consequence of alleged transfers of assets and
proprietary information. The Company in its Answer and Affirmative Defenses and
Claim of Right to Setoff asserts that it was within its contractual rights to
terminate the Merger Agreement and otherwise denies the substantive claims set
forth in Sandbox's complaint, claims a $600,000 set off for Sandbox's breach of
the Merger Agreement, and has filed a counterclaim against Sandbox and a third
party complaint against another party for fraud in the inducement relating to
the Merger Agreement and a related Consulting Agreement. The case is in the
pre-trial discovery phase, and no trial date or pretrial order has yet been set
by the court. The Company believes the claim by Sandbox is without merit and
intends to vigorously defend itself in this action and to pursue its
counterclaim against Sandbox and its claims against the third party defendant.
From time to time, SportsLine may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not currently a party to any other legal proceedings, the adverse
outcome of which, individually or in the aggregate, is expected to have a
material adverse effect on SportsLine's financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 2001.
19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Market Prices for the Company's Common Stock and Related Stockholder Matters
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SPLN" since November 13, 1997. The following table sets forth
for the periods indicated the range of high and low closing prices per share of
Common Stock, as reported by the Nasdaq National Market:
High Low
------ ------
2000
First Quarter........................................... $57.75 $29.44
Second Quarter.......................................... 27.00 10.13
Third Quarter........................................... 18.56 13.81
Fourth Quarter.......................................... 13.88 4.44
2001
First Quarter........................................... $ 9.63 $ 3.53
Second Quarter.......................................... 4.50 2.30
Third Quarter........................................... 2.40 0.80
Fourth Quarter.......................................... 3.82 1.19
SportsLine has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. SportsLine
currently intends to retain future earnings, if any, to fund the development and
growth of its business.
As of March 11, 2002, the Company had approximately 234 stockholders of
record. The Company believes that the number of beneficial owners of the Common
Stock is in excess of 300.
Sales of Unregistered Securities During the Year Ended December 31, 2001
(1) In January 2001, in connection with the execution of a consulting
agreement, the Company issued 50,000 shares of common stock to Eldrick
T. Woods in consideration of services rendered thereunder.
(2) In March 2001, in connection with the December 1999 acquisition of
DWWC, the Company issued 828,376 shares of common stock to the former
holders of stock of that corporation as additional consideration for
the acquisition.
(3) In July 2001, in connection with the execution of the agreement with
NFL Enterprises, L.P. ("NFLE"), the Company issued 350,000 shares of
common stock to NFLE in consideration of rights granted to the Company
under the agreement.
(4) In December 2001, in connection with the December 1999 acquisition of
DWWC, the Company issued 2,195,968 shares of common stock to the
former holders of stock of that corporation as additional
consideration for the acquisition.
No underwriter was involved in any of the above sales of securities. All of
the above securities were issued in reliance upon the exemption set forth in
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
on the basis that they were issued under circumstances not involving a public
offering.
20
Item 6. Selected Financial Data.
The following data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in Item 8 of this
Form 10-K. The selected consolidated balance sheet data set forth below as of
December 31, 2001 and 2000, and the selected consolidated statement of
operations data for the three years ended December 31, 2001 have been derived
from the Company's audited consolidated financial statements./1/
Year Ended December 31,
----------------------------------------------------------------------------------------------
(unaudited)
U.S. Sports.com Total U.S. Sports.com Total U.S.
2001 2001 2001 2000 2000 2000 1999
--------- ---------- ------------ --------- ----------- ----------- --------
Statement of Operations (In thousands, except share and per share data)
Data:
Revenue .................. $ 60,046 $ 4,484 $ 64,530 $ 87,458 $ 8,429 $ 95,887 $ 58,284
Cost of revenue .......... 23,770 8,902 32,672 28,070 12,931 41,001 31,536
--------- -------- ------------ --------- ----------- ----------- --------
Gross profit(loss) ....... 36,276 (4,418) 31,858 59,388 (4,502) 54,886 26,748
Operating expenses:
Product development ... 1,854 -- 1,854 1,791 -- 1,791 1,587
Sales and marketing ... 35,056 6,199 41,255 37,224 13,719 50,943 34,463
General and
administrative ...... 25,137 6,222 31,359 26,726 10,365 37,091 17,306
Depreciation and
amortization ........ 42,859 1,664 44,523 39,545 2,341 41,886 24,809
Restructuring charges . 985 -- 985 -- -- -- --
Write-down of goodwill 21,600 -- 21,600 -- -- -- --
Other non-recurring
charges for
settlement of
litigation .......... -- -- -- -- -- -- --
--------- -------- ------------ --------- ----------- ----------- --------
Total operating
expenses ............ 127,491 14,085 141,576 105,286 26,425 131,711 78,165
--------- -------- ------------ --------- ----------- ----------- --------
Loss from operations ..... (91,215) (18,503) (109,718) (45,898) (30,927) (76,825) (51,417)
Interest expense ......... (1,064) (9) (1,073) (1,081) (3) (1,084) (4,392)
Interest and other
income, net ......... 3,108 371 3,479 10,142 2,772 12,914 8,783
Loss on equity investments (28) -- (28) (127,653) -- (127,653) --
Gain on termination of
agreements .......... 2,051 -- 2,051 78,766 -- 78,766 --
Gain on sale of
e-commerce subsidiaries -- -- -- 7,814 -- 7,814 --
Effect of deconsolidation
of Sports.com ....... 41,739 -- 41,739 -- -- -- --
--------- -------- ------------ --------- ----------- ----------- --------
Loss before extraordinary
gain ................ (45,409) (18,141) (63,550) (77,910) (28,158) (106,068) (47,026)
Extraordinary gain on
extinguishment of debt 2,404 -- 2,404 -- -- -- 36,027
--------- -------- ------------ --------- ----------- ----------- --------
Net loss ................. $ (43,005) $(18,141) $ (61,146) $ (77,910) $ (28,158) $ (106,068) $(10,999)
========= ======== ============ ========= =========== =========== ========
Loss per share before extraordinary gain.............. $ (2.32) $ (4.04)
Extraordinary gain.................................... 0.09 --
------------ -----------
Net loss per share - basic and diluted................ $ (2.23) $ (4.04)
============ ===========
Weighted average common and common equivalent
shares outstanding - basic and diluted................ 27,446,626 26,245,946
Year Ended December 31,
----------------------------------------------------------
(unaudited)
Sports.com Total
1999 1999 1998 1997
---------- ------------ ------------ ------------
Statement of Operations (In thousands, except share and per share data)
Data:
Revenue .................. $ 1,994 $ 60,278 $ 30,551 $ 12,014
Cost of revenue .......... 2,542 34,078 17,231 10,431
------- ------------ ------------ ------------
Gross profit(loss) ....... (548) 26,200 13,320 1,583
Operating expenses:
Product development ... -- 1,587 1,313 2,541
Sales and marketing ... 1,989 36,452 20,481 14,019
General and
administrative ...... 2,757 20,063 13,159 8,305
Depreciation and
amortization ........ 997 25,806 17,104 11,689
Restructuring charges . -- -- -- --
Write-down of goodwill -- -- -- --
Other non-recurring
charges for
settlement of
litigation .......... -- -- 1,100 --
------- ------------ ------------ ------------
Total operating
expenses ............ 5,743 83,908 53,157 36,554
------- ------------ ------------ ------------
Loss from operations ..... (6,291) (57,708) (39,837) (34,971)
Interest expense ......... -- (4,392) (118) (146)
Interest and other
income, net ......... 193 8,976 4,446 940
Loss on equity investments -- -- -- --
Gain on termination of
agreements .......... -- -- -- --
Gain on sale of
e-commerce subsidiaries -- -- -- --
Effect of deconsolidation
of Sports.com ....... -- -- -- --
------- ------------ ------------ ------------
Loss before extraordinary
gain ................ (6,098) (53,124) (35,509) (34,177)
Extraordinary gain on
extinguishment of debt -- 36,027 -- --
------- ------------ ------------ ------------
Net loss ................. $(6,098) $ (17,097) $ (35,509) $ (34,177)
======= ============ ============ ============
Loss per share before extraordinary gain.... $ (2.31) $ (1.94) $ (3.08)
Extraordinary gain.......................... 1.57 -- --
------------ ------------ ------------
Net loss per share - basic and diluted...... $ (0.74) $ (1.94) $ (3.08)
============ ============ ============
Weighted average common and common equivalent
shares outstanding - basic and diluted...... 23,018,224 18,305,927 11,107,534
December 31,
---------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- -------
Balance Sheet Data: (In thousands)
Cash and marketable securities ...... $ 46,035 $125,765 $120,973 $ 85,242 $33,988
Working capital ..................... 46,180 127,119 97,229 64,509 31,284
Total assets ........................ 114,824 258,171 271,461 137,655 45,726
Long-term obligations, net of current
maturities ........................ 17,085 19,608 19,608 207 458
Total shareholders' equity .......... 81,028 139,097 224,656 118,963 36,985
- ----------
/1/ Results of Sports.com are consolidated from August 1999 through July 2001
only. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Overview."
21
Item 7. 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 as a result of
certain risk factors, including those set forth under "Risk Factors that May
Affect Future Results," below and elsewhere in this Report. The following
discussion also should be read in conjunction with the information set forth in
"Item 6. Selected Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included in "Item 8. Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K.
Overview
The Company derives most of its revenue from advertising. The Company also
derives revenues from content licensing, membership and premium services and
e-commerce. Advertising revenue, content licensing, fees from memberships and
premium services and e-commerce revenue, constituted approximately 83%, 10%, 7%
and 0%, respectively, of the Company's total revenue in 2001; 81%, 12%, 7% and
0% respectively, of the Company's total revenue in 2000; and 50%, 14%, 9% and
27%, respectively, of the Company's total revenue in 1999.
Advertising revenue has been derived principally from short-term
advertising contracts on a per impression basis or for a fixed fee based on a
minimum number of impressions. Advertising revenue also includes sponsorship
opportunities that enable advertisers to associate their corporate messages with
the Company's coverage of athletes and marquee events for a fee. Advertising
revenue is also derived from the sale of advertising on Web sites that the
Company operates such as nfl.com and pgatour.com. Although most of the content
on the Company's Web sites is free, users of the Company's Web sites can
purchase memberships and premium services for a fee.
Advertising revenue is recognized in the period in which the advertisement
is displayed, provided that no significant obligations remain and collection of
the resulting receivable is probable. Company obligations typically include
guarantees of a minimum number of "impressions," or times that advertisements
appear in page views downloaded by users. Content licensing revenue is
recognized over the period of the license agreement as the Company delivers its
content. Revenue relating to annual memberships and seasonal sports contests is
recognized ratably over the life of the membership agreement or contest period.
Accordingly, amounts received for which services have not yet been provided are
recorded as deferred revenue on the Company's balance sheets. E-commerce revenue
is recognized once the product has been shipped and payment is reasonably
assured.
In March 1997, the Company entered into a strategic alliance with CBS
pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." The CBS agreement was amended in February 1999 (as
amended, the "CBS Agreement") to extend the term for an additional five years,
effective as of January 1, 1999, through 2006. Commencing with calendar year
1999, CBS is obligated to provide advertising and promotion of the
cbs.sportsline.com Web site pursuant to a fixed promotion schedule. In
consideration of additional promotional and advertising opportunities, at the
time of the execution of the amendment in 1999, the Company accelerated the
issuance of the remaining shares that were formerly to be issued in 2000 and
2001 (567,579 and 485,358 shares, respectively), issued 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 became obligated to issue additional shares
of common stock valued at $100 million between 2002 and 2006. Shares having a
fair market value of $20 million will be issued each year based on the average
of closing prices of the common stock on the Nasdaq National Market for the
five-day period ending on the day prior to each of the following issue dates, as
applicable: January 1, 2002; April 1, 2003; July 1, 2004; October 1, 2005; and
January 1, 2007. See " - Recent Developments." Additionally, the original
revenue sharing provisions of the agreement were eliminated and replaced by a
new revenue sharing formula calculated on a broader revenue base and at a lower
rate.
In July 2001, SportsLine entered into a multi-year agreement (the "NFL
Agreement") with CBS, AOL and the NFL. Pursuant to the terms of the NFL
Agreement, SportsLine is responsible for the production and hosting of the NFL's
Internet sites, including nfl.com, superbowl.com, nfleurope.com and
playfootball.com. SportsLine is entitled to recoup the costs of such production
and hosting pursuant to an agreed-upon budget, from the first dollars of revenue
generated from such sites, after the payment of certain sales commissions,
including but not limited to, advertising and sponsorship sales, e-commerce
revenues and direct marketing and, to a limited extent, from the exploitation of
certain emerging media rights (collectively, the "Gross Revenues"). SportsLine
will be responsible for
22
a portion of the rights fee payments required to be made to the NFL under the
NFL Agreement, with SportsLine's share of the required cash payments aggregating
$24,050,000 over the five-year term of the NFL Agreement as follows: $1,800,000
for the first year; $3,250,000 for the second year; $6,000,000 for each of the
third and fourth years; and $7,000,000 for the fifth year. In addition,
SportsLine issued to the NFL 350,000 shares of SportsLine common stock upon
effectiveness of the NFL Agreement; and is obligated to pay an additional
$1,333,333 in cash or stock, at SportsLine's option, in 2003 and an additional
$2,666,667 in cash or stock, at SportsLine's option, in 2004. After the payment
of certain sales commissions and SportsLine's recoupment of its production and
hosting expenses, SportsLine will be entitled to a graduated share of Gross
Revenues in an amount aggregating approximately 50% of the first $140,000,000 of
Gross Revenues generated during the term of the NFL Agreement. In addition,
SportsLine may be entitled to receive 20% of certain additional Gross Revenues
in excess of such amount. The NFL has the unilateral right to terminate the NFL
Agreement after the second or third year of the contract.
In July 2001, SportsLine extended its existing agreement with AOL (the "AOL
Extension"). Pursuant to the terms of the AOL Extension, SportsLine paid AOL
$1,000,000 in cash in July 2001 and is obligated to pay AOL an additional
$2,000,000 in cash and/or stock, at SportsLine's option, in July 2002 and an
additional $1,000,000 in cash and/or stock, at SportsLine's option, in July
2003.
In May 1999, SportsLine established Sports.com as a European-based,
majority owned subsidiary. A liability of $59,809,000 was reflected in the
Company's consolidated balance sheet as of December 31, 2000 to reflect the
minority interests in Sports.com. In 2000, the Company consolidated between 71%
and 100% of the losses of Sports.com, which had historically been offset by the
allocation of a portion of such losses to third party holders of Sports.com
common stock. On July 17, 2001, 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 recorded in 2001 the effect of the deconsolidation of
the subsidiary in the amount of $41,739,000. Also, the Company's comprehensive
loss in 2001 decreased by $5.2 million due to the deconsolidation of Sports.com.
After July 17, 2001, the Company no longer recorded any losses generated by
Sports.com, as its investment had 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 Company's Consolidated Balance Sheet as of
December 31, 2000 and Sports.com's revenue, expenses and minority interest are
included in the Company's Consolidated Statements of Operations for the years
ended December 31, 2000 and 1999. Sports.com's revenue, expenses and minority
interest through July 17, 2001 are included in the Consolidated Statement of
Operations of the Company for the year ended December 31, 2001.
The Company acquired Daedalus World Wide Corporation in December 1999. The
transaction was accounted for using the purchase method of accounting. The
purchase resulted in goodwill of $31,880,000, which is being amortized over an
estimated life of seven years. In the fourth quarter of 2000, a $12,000,000
liability included in accounts payable at December 31, 2000 was recorded
pursuant to the purchase agreement, which provided for additional consideration
contingent upon the acquired company meeting certain performance thresholds.
During the first quarter of 2001, 828,376 shares of common stock were issued in
satisfaction of the liability of $6,000,000 and during the fourth quarter of
2001, 2,195,968 shares of common stock were issued in satisfaction of the
remaining $6,000,000 liability. In addition, the Company recognized a one-time
goodwill write-down during the year ended December 31, 2001 of $17,000,000
related to the reduced estimate of the value of its investment in Daedalus World
Wide Corporation. The Company's assessment of its goodwill investment is based
on historical operations, undiscounted future cash flows and the market values
of similar entities. See Note 3 of Notes to Consolidated Financial Statements.
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 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
23
Consideration Shares were cancelled and retired in April 2001. DBC Sports
provides consulting services to certain Las Vegas casinos. In December 2001, the
Company recorded a one-time goodwill write-down of $4,600,000 to reflect a
reduction in the estimated value of its investment in DBC. The assessment of
goodwill was based on historical operating results, undiscounted future cash
flows and the market value of similar entities. See Note 3 of Notes to
Consolidated Financial Statements.
Recent Developments
In January 2002, pursuant to the terms of the CBS Agreement, the Company
issued approximately 6.9 million shares of its common stock to CBS valued at $20
million. Upon issuance, CBS owns approximately 11.4 million shares of the
Company's common stock, representing approximately 32% of the Company's 36.1
million outstanding common shares.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenue and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to bad debts, intangible
assets, restructuring costs, contingencies and litigation. Management bases its
estimates and judgments on historical experience, and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
Company reviews its long-lived assets and goodwill for possible impairment
whenever events or changes in circumstances indicate that, based on estimated
undiscounted future cash flows, the carrying amount of the assets may not be
fully recoverable. If the Company's analysis indicates a possible impairment
exists, it is required to then estimate the fair value of the asset determined
either by third party appraisal or estimated discounted future cash flows. As
described below under Recent Accounting Pronouncements, effective January 1,
2002, the Company is required at least annually to test for impairment of
goodwill. Management believes its estimates and judgments have been reasonable
in determining whether the Company's goodwill has been impaired. If, however,
there was a material change in the conditions or circumstances influencing fair
value, the Company could be required to recognize an impairment charge.
Results of Operations
Revenue
Total revenue for the year ended December 31, 2001 was $64,530,000 compared
to $95,887,000 for the year ended December 31, 2000 and $60,278,000 for the year
ended December 31, 1999. Advertising revenue decreased to $53,583,000 in 2001
compared to $77,666,000 in 2000 and $29,970,000 in 1999. Advertising revenue for
2001, 2000 and 1999 accounted for approximately 83%, 81% and 50%, respectively,
of total revenue. Advertising revenue decreased in 2001 from 2000 due to lower
advertising revenue relating to the termination of the agreements with MVP.com,
Inc. ("MVP") and Internet Sports Network, Inc. ("ISN"), which accounted for
$27,655,000 of advertising revenue during 2000 in the aggregate, and the result
of a general slowdown in the domestic advertising market. In addition, following
the events of September 11, 2001, advertising revenue was 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. Advertising
revenue increased during 2000 compared to 1999 primarily as a result of revenue
under the MVP and ISN agreements as well as a higher number of impressions sold
and additional sponsors advertising on the Company's Web sites. Advertising
revenue from Sports.com accounted for approximately 4%, 6% and 3% of total
24
advertising revenue during 2001, 2000 and 1999, respectively; however,
commencing on July 17, 2001, the Company no longer consolidates the results of
Sports.com.
Membership and premium services revenue decreased to $4,252,000 in 2001
compared to $6,284,000 in 2000 and $5,629,000 in 1999. From July 2000 to July
2001, the Company offered its fantasy products and services for free instead of
for a subscription fee. As a result, subscription revenue decreased from 2000 to
2001 primarily due to the free offering of fantasy during the 2001 baseball
season offset by fee-based football fantasy offerings during the 2001 season. In
July 2001, the Company began offering both free and fee-based fantasy products.
For the 2002 Major League Baseball season, SportsLine has resumed charging a
$99.95 fee per league for its Baseball Commissioner league management service
and expects to charge substantially similar fees during the 2002 - 2003 NFL
season. Other factors contributing to the decrease in 2001 from 2000 were the
discontinuation of some products such as Sports Careers subscriptions and
services related to sales of statistical data. Subscription revenue increased
from 1999 to 2000 primarily due to subscription revenue relating to sales of
statistical data and other content as a result of the acquisition of DBC Sports.
E-commerce revenue decreased to immaterial amounts in 2001 and 2000
compared to $16,486,000 in 1999. E-commerce revenue in 1999 consisted of the
Company's domestic and international e-commerce sales as well as sales generated
by its e-commerce subsidiaries, primarily International Golf Outlet. On January
1, 2000 the Company sold its domestic e-commerce business, including its
e-commerce subsidiaries, to MVP.com, Inc. Accordingly, e-commerce revenue in
2000 consisted solely of revenue generated by Sports.com. In 2001, the Company's
e-commerce business was operated by ECS. Accordingly, revenue associated with
items sold by ECS is only recognized to the extent of the Company's revenue
share in such sale and is included in advertising revenue pursuant to its
multi-year promotional agreement with ECS.
Content licensing and other revenue decreased to $6,695,000 in 2001
compared to $11,937,000 in 2000 and $8,193,000 in 1999. 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, which had included a barter content
licensing provision. Additionally, in 2000 the Company recognized content
licensing revenue pursuant to its agreement with Excite, Inc. that expired in
December 2000. Unless the Company enters into new content licensing agreements,
management does not expect content licensing revenue to be significant in future
periods.
As of December 31, 2001, the Company had deferred revenue of $2,640,000
relating to cash and receivables for which services had not yet been provided.
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 20%, 17% and 17% of total revenue for 2001, 2000 and
1999, 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 5%, 16% and
0% of total revenue for the years ended December 31, 2001, 2000 and 1999,
respectively. The majority of the equity-related revenue in 2000 was derived
from two agreements which have been terminated as of December 31, 2000. An
additional agreement for equity-related revenue terminated in June 2001.
Therefore, the Company expects that, unless new agreements are entered into,
equity-related revenue will be insignificant in future periods.
Commencing in 2002, the Company will condense the reporting of its revenue
to two categories: advertising and marketing services, and subscriptions and
premium products. Advertising and marketing services will encompass advertising
and sponsorship sales as well as the Company's revenue from its direct marketing
services and e-commerce promotions. Subscriptions and premium products will
include paid memberships and fantasy products, and premium Vegas Insider
services.
Cost of Revenue
Cost of revenue consists primarily of content fees to third parties and
payroll and related expenses for the editorial and operations staff that are
responsible for creating content on the Company's Web sites and radio programs.
Telecommunications, Internet access and computer related expenses for the
support and delivery of the
25
Company's services are also included in cost of revenue. Also included in cost
of revenue are royalty and other payments paid to content providers, technology
and marketing partners and celebrity athletes based on membership levels or
percentage of revenue generated subject, in certain instances, to specified
minimum amounts.
Cost of revenue was $32,672,000 in 2001 compared to $41,001,000 and
$34,078,000 in 2000 and 1999, respectively. The decrease in cost of revenue from
2000 to 2001 was primarily due to decreased revenue sharing expense to CBS
because of lower advertising revenue, elimination of revenue sharing expense to
Major League Baseball and lower costs associated with the Company's cost
restructuring program initiated in the second quarter of 2001. Also contributing
to the decrease was the deconsolidation of Sports.com in the third quarter of
2001. The increase in cost of revenue from 1999 to 2000 was primarily the result
of increased revenue sharing under the Company's agreements with CBS, Major
League Baseball, the PGA TOUR and others. Revenue sharing expense represented
11% of total revenue in 2001, 14% of total revenue in the year 2000 and 12% of
total revenue in 1999. Cost of revenue also increased in 2000 compared to 1999
due to increases in the costs of content fees and telecommunications needed to
support and deliver services. As a percentage of revenue, cost of revenue
increased to 51% in 2001 compared to 43% in 2000 and 57% in 1999.
Operating Expenses
Product Development. Product development expense consists primarily of
employee compensation and related expenses required to support the continuing
development of proprietary sports information and entertainment applications,
services, technologies, interfaces and content. These costs include the
Company's effort to develop streaming media content and players, advanced java
applications, ShockWave/Flash games and contests, wireless applications and
technologies, broadband content and enhanced user interfaces across all
products. These costs are expensed as incurred.
Product development expense was $1,854,000 in 2001 compared to $1,791,000
and $1,587,000 in 2000 and 1999, respectively. The increase in product
development expense in 2001 is primarily the result of increased product
development personnel and consultants related to the Company's agreement with
NFL.com partially offset by lower costs from the Company's restructuring
program. The Company believes that significant investments in product
development are required to remain competitive. Consequently, the Company
intends to continue to invest resources in product development. As a percentage
of revenue, product development expense was 3%, 2% and 3% for 2001, 2000 and
1999, respectively.
Sales and Marketing. Sales and marketing expense consists of salaries and
related expenses, advertising, marketing, promotional, business development and
public relations expenses and member acquisition costs. Member acquisition costs
consist primarily of the direct costs of member solicitation, including
advertising on other Web sites and the cost of obtaining qualified prospects
from direct marketing programs and from third parties. The Company expenses
member acquisition costs as incurred.
Sales and marketing expense was $41,255,000 in 2001 compared to $50,943,000
and $36,452,000 in 2000 and 1999, respectively. As part of a cost containment
initiative begun in the second quarter of 2001, management decided to invest
less in cash television and Web site advertising for promotion and rely more on
its strategic relationships such as with CBS, the NFL, Westwood One, USA
Networks and others. Consequently, the decrease in sales and marketing expense
from 2001 to 2000 was primarily due to the decreased Web site and television
advertising spending and the replacement of the Company's agreement with AOL at
a lower cost offset by increases in radio and outdoor advertising expense.
Additionally, payroll expenses decreased because of the Company's cost
restructuring program. Also contributing to lower costs was the deconsolidation
of Sports.com in the third quarter of 2001. The increase in sales and marketing
expense from 2000 to 1999 was primarily the result of increased television
advertising and other advertising expenses related to the launch of the
Company's free fantasy offerings. Barter transactions accounted for
approximately 31% of sales and marketing expense for both 2001 and 2000 and 30%
for 1999. As a percentage of revenue, sales and marketing expense increased to
64% in 2001 compared to 53% in 2000 and 60% in 1999. Included in sales and
marketing expense are expenses of $2,227,000, $1,408,000 and $410,000 in 2001,
2000 and 1999, respectively, made in the aggregate to CBS, a major stockholder
in SportsLine, and certain affiliates of CBS, for television, radio and outdoor
advertising during those periods.
General and Administrative. General and administrative expense consists of
salary and related costs for executive, finance and accounting, technical and
customer support, human resources and administrative functions,
26
as well as rent and occupancy expenses and professional service fees. General
and administrative expense was $31,359,000 in 2001 compared to $37,091,000 and
$20,063,000 in 2000 and 1999, respectively. The decrease in general and
administrative expense in 2001 from 2000 was primarily attributable the
deconsolidation of Sports.com in the third quarter of 2001 and to a lesser
extent reduced bad debt expense related to lower advertising billings. Also, as
a result of the Company's cost restructuring program initiated in the second
quarter of 2001, consulting and payroll expenses decreased. The increase in
general and administrative expense from 1999 to 2000 was due to the relocation
of the Company's corporate headquarters to a new facility and an increase in
expenses for system support of the Company's on-going technological operations.
As a percentage of revenue, general and administrative expense increased to 49%
in 2001 compared to 39% in 2000 and 33% in 1999.
Depreciation and Amortization. Depreciation and amortization expense
consists of the depreciation of property and equipment, amortization of costs
associated with consulting agreements and, beginning in March 1997, the
amortization of deferred advertising and content costs relating to the CBS
Agreement. Depreciation and amortization expense was $44,523,000 in 2001
compared to $41,886,000 and $25,806,000 in 2000 and 1999, respectively. The
increase in depreciation and amortization in 2001 compared to 2000 was due to
the amortization of the intangible assets acquired from MVP in January 2001 and
the assets acquired in connection with the acquisition of DBC Sports in April
2000. The increase in depreciation and amortization in 2000 compared to 1999 was
due to the following factors: (i) the acquisition of Daedalus World Wide
Corporation and DBC Sports in December 1999 and April 2000, respectively,
resulting in an increase in goodwill amortization; (ii) agreements entered into
with the PGA TOUR and Westwood One involving the issuance of shares and warrants
during the second and third quarters of 1999, making 2000 the first full year of
amortization of these agreements; and (iii) an additional $3,000,000 of
amortization expense in 2000 compared to 1999 related to the CBS Agreement.
Depreciation and amortization also increased over all periods presented due to
depreciation expense related to increased purchases of fixed assets and
leasehold improvements.
Under the Company's agreement with CBS, the Company has issued shares of
common stock and warrants to purchase Common Stock in consideration of CBS
advertising and promotional efforts and its license to the Company of the right
to use certain CBS logos and television-related sports content. The value of the
advertising and content has been recorded in the balance sheet as deferred
advertising and content costs and is amortized as depreciation and amortization
expense over each related contract year. See Note 8 of Notes to Consolidated
Financial Statements. In February 1999, the Company amended its agreement with
CBS to extend the original term of the agreement for five years, effective as of
January 1, 1999, through 2006. Commencing in calendar year 1999, CBS began
providing advertising and promotion in accordance with a fixed promotion
schedule. At the time of the amendment, the Company accelerated the issuance to
CBS of 1,052,937 shares of Common Stock and warrants to purchase 760,000 shares
of Common Stock, which originally were to be issued in 2000 and 2001. The
Company also issued to CBS new warrants to purchase 1,200,000 shares of Common
Stock, which vested on various dates through January 2001, and agreed to issue
to CBS on specified dates in each of the sixth through tenth contract years
Common Stock having a fair market value of $20.0 million on each issue date. As
of December 31, 2001, all unexercised warrants issued to CBS have expired. Total
amortization expense under the CBS Agreement was $17,288,000 for each of 2001
and 2000 and $14,096,000 for 1999, and will be $22,286,000 annually from 2002 to
2006. Commencing in 2002, the expense associated with the CBS Agreement will be
recognized as sales and marketing expense.
In July 2001, the Company replaced its agreement with AOL. Under the
Company's prior agreement with AOL, the value of the advertising had been
recorded in the balance sheet as deferred advertising costs and was amortized to
depreciation and amortization expense over each related contract year. Total
expense under the prior AOL agreement was $1,917,000, $4,499,000 and $4,220,000
for 2001, 2000 and 1999, respectively. Commencing in 2002, the cost of the AOL
agreement will be recognized as sales and marketing expense.
Under the Company's agreement with Westwood One, which became effective in
August 1999, the Company issued shares of Common Stock in consideration for a
three-year promotional and programming agreement. The value of the Common Stock
has been recorded on the balance sheet as deferred consulting costs and is being
amortized to depreciation and amortization expense over each related contract
year. Total expense under the Westwood One agreement was $3,000,000 for 2001 and
2000 and $1,250,000 for 1999, and will be $1,750,000 in 2002. Commencing in
2002, the expense associated with this agreement will be recognized as sales and
marketing expense.
Under the Company's agreement with the PGA TOUR, which became effective in
April 1999, the Company paid an up-front licensing fee of $8,500,000. The
licensing fee has been recorded on the balance sheet as licensing rights and is
being amortized to depreciation and amortization expense over each related
contract year. Total
27
amortization expense under the PGA TOUR agreement was $2,267,000 for both 2001
and 2000 and $1,700,000 for 1999, and will be $2,267,000 in 2002. Unless the PGA
Tour exercises its right to terminate the agreement as of December 31, 2002, the
Company is obligated to pay the PGA Tour an additional fee of $2,000,000 on
January 1, 2003 which will be expensed during 2003.
Write-down of Goodwill. For the year ended December 31, 2001, the Company
recorded one-time charges totaling $21,600,000 to reflect the reduction in the
estimated value of its investment in Daedalus World Wide Corporation and DBC
Sports of $17,000,000 and $4,600,000, respectively. The assessment of goodwill
was based on historical operating results, estimated undiscounted future cash
flows, and the estimated market values 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 year
ended December 31, 2001. See Note 2 of Notes to Consolidated Financial
Statements.
Interest Expense. Interest expense was $1,073,000 in 2001 compared to
$1,084,000 and $4,392,000 in 2000 and 1999, respectively. The decrease in
interest expense in 2001 was primarily due to the expiration of capital leases
in the first quarter of 2001. The decrease in interest expense in 2000 compared
to 1999 was primarily due to the repurchase in the third and fourth quarters of
1999 of approximately $130,000,000 of the $150,000,000 principal amount of
Convertible Subordinated Notes, which were originally issued in March 1999.
During the fourth quarter of 2001, the Company repurchased an additional
$2,930,000 principal amount of Convertible Subordinated Notes. Interest expense
during 1999 consisted primarily of interest paid on the Convertible Subordinated
Notes.
Interest and Other Income, Net. Interest and other income, net primarily
represents interest earned on cash and cash equivalents and marketable
securities. Interest and other income, net was $3,479,000 in 2001 compared to
$12,914,000 and $8,976,000 in 2000 and 1999, respectively. The decrease in
interest income in 2001 compared to 2000 was primarily attributable to a lower
invested cash balance and decreasing interest rates. The increase in 2000
compared to 1999 was primarily attributable to the higher average balances of
cash and cash equivalents and marketable securities. Sports.com contributed to
the increase in 2000 by recording a $953,000 realized gain on currency exchange
upon receipt of funding of a private placement of preferred stock during the
first quarter of 2000.
Loss on Equity Investments. Several of the Company's equity investments in
certain Internet companies, primarily its investment in MVP, were written off in
2000 in the amount of $127,653,000 while the remainder of such investments in
the amount of $28,000 was written off in 2001. During the third and fourth
quarters of 2000, the Company deemed its investment in MVP to be permanently
impaired and wrote off the entire value of that investment. The Company's
determination was based on the market downturn during the third and fourth
quarters of 2000 which caused similar declines in publicly-traded internet
e-commerce companies' market values, the difficulty experienced by MVP in
raising additional capital and an assessment of MVP's financial condition and
prospects. MVP ceased operations in January 2001.
Gain on Termination of Advertising Agreements. Due to the termination of
the Company's relationships with MVP and Internet Sports Network during 2000,
the Company was no longer obligated to perform under either of these agreements.
In December 2000, the Company recorded a one-time gain related to the
recognition of deferred revenue from these agreements of $78,766,000, net of an
expense accrual of $2,673,000 for tax expense and potential expenses related to
the MVP liquidation, such as assumption of leases and legal expenses. In
December 2001, the Company reversed the remaining accrual of $2,051,000 having
deemed the MVP liquidation substantially complete.
Gain on Sale of E-Commerce Subsidiaries. Effective January 1, 2000, the
Company sold to MVP three of its subsidiaries, which engaged in e-commerce
activity (International Golf Outlet, Inc., Golf Club Trader, Inc. and
TennisDirect.com, Inc.). The sale resulted in a one-time gain of $7,814,000, net
of taxes, in 2000.
Extraordinary Gain. During the fourth quarter of 2001, the Company
repurchased $2,930,000 of its Convertible Subordinated Notes for approximately
$500,000 and, as a result, recognized an extraordinary gain of $2,404,000, net
of unamortized debt issuance costs. During the second half of 1999, the Company
repurchased
28
$130,392,000 of its Convertible Subordinated Notes for approximately
$90,100,000. As a result, in 1999 the Company recognized an extraordinary gain
of $36,027,000, net of unamortized debt issuance costs.
Income Taxes. No provision for Federal and state income taxes has been
recorded as the Company incurred net operating losses for each period presented.
As of December 31, 2001, the Company had approximately $160,000,000 of net
operating loss carryforwards for Federal income tax purposes, expiring beginning
in 2009, available to offset future taxable income. Additionally, the Company
had approximately $90,000,000 of capital loss carryforwards. Given the Company's
losses incurred to date and the difficulty in accurately forecasting the
Company's future results, management does not believe that the realization of
the related deferred income tax assets meets the criteria required by United
States generally accepted accounting principles and, accordingly, a full
valuation allowance has been recorded to reduce the deferred income tax assets
to zero. See Note 10 of Notes to Consolidated Financial Statements.
29
Quarterly Results of Operations (unaudited)
The tables below set forth the quarterly operating results for 2001 and
2000. This information is unaudited, but in the opinion of the Company reflects
all adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of such information in
accordance with United States generally accepted accounting principles. The
results for any quarter are not necessarily indicative of results for any future
period.
Quarter Ended
------------------------------------------------------------
(In thousands, except share and per share data)
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
-------- -------- -------- --------
2001 2001 2001 2001
------------ ------------ ------------ ------------
Revenue ............................................ $ 22,298 $ 13,132 $ 13,601 $ 15,499
Cost of revenue .................................... 11,163 8,172 7,255 6,082
------------ ------------ ------------ ------------
Gross profit ....................................... 11,135 4,960 6,346 9,417
------------ ------------ ------------ ------------
Operating expenses:
Product development ............................. 521 462 468 403
Sales and marketing ............................. 14,108 10,871 9,219 7,057
General and administrative ...................... 9,954 8,834 6,535 6,036
Depreciation and amortization ................... 11,714 11,838 11,296 9,675
Restructuring charges ........................... -- 985 -- --
Write-down of goodwill .......................... -- -- 17,000 4,600
------------ ------------ ------------ ------------
Total operating expenses ........................ 36,297 32,990 44,518 27,771
------------ ------------ ------------ ------------
Loss from operations ............................... (25,162) (28,030) (38,172) (18,354)
Interest expense ................................... (276) (268) (267) (262)
Interest and other income, net ..................... 1,621 942 584 332
Loss on equity investments ......................... (4) (24) -- --
Gain on termination of agreements .................. -- -- -- 2,051
Effect of deconsolidation of Sports.com ............ -- -- 41,739 --
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain ............ (23,821) (27,380) 3,884 (16,233)
Extraordinary gain on extinguishment of debt ....... -- -- -- 2,404
------------ ------------ ------------ ------------
Net income (loss) .................................. $ (23,821) $ (27,380) $ 3,884 $ (13,829)
============ ============ ============ ============
Net income (loss) per share
Net loss per share before extraordinary gain .... $ (0.89) $ (1.01) $ 0.14 $ (0.59)
Extraordinary gain .............................. -- -- -- 0.09
------------ ------------ ------------ ------------
Net income (loss) per share-basic ............... $ (0.89) $ (1.01) $ 0.14 $ (0.50)
============ ============ ============ ============
Net income (loss) per share-diluted ............. $ (0.89) $ (1.01) $ 0.14 $ (0.50)
============ ============ ============ ============
Weighted average common and common equivalent shares
outstanding
Basic .............................................. 26,821,619 27,103,878 28,367,690 27,476,011
============ ============ ============ ============
Diluted ............................................ 26,821,619 27,103,878 28,383,024 27,476,011
============ ============ ============ ============
30
Quarter Ended
-----------------------------------------------------------
(In thousands, except share and per share data)
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
-------- -------- -------- --------
2000 2000 2000 2000
------------ ------------ ------------ ------------
Revenue ........................................... $ 22,678 $ 24,317 $ 26,709 $ 22,183
Cost of revenue ................................... 8,654 10,512 12,219 9,616
------------ ------------ ------------ ------------
Gross profit ...................................... 14,024 13,805 14,490 12,567
------------ ------------ ------------ ------------
Operating expenses:
Product development .......................... 441 392 435 523
Sales and marketing .......................... 12,050 13,481 14,111 11,301
General and administrative ................... 9,612 9,544 8,971 8,964
Depreciation and amortization ................ 10,250 10,103 10,296 11,237
------------ ------------ ------------ ------------
Total operating expenses ..................... 32,353 33,520 33,813 32,025
------------ ------------ ------------ ------------
Loss from operations .............................. (18,329) (19,715) (19,323) (19,458)
Interest expense .................................. (289) (287) (319) (189)
Interest and other income, net .................... 3,608 3,012 3,381 2,913
Loss on equity investments ........................ -- -- (114,285) (13,368)
Gain on termination of agreements ................. -- -- -- 78,766
Gain on sale of e-commerce subsidiaries ........... 7,814 -- -- --
------------ ------------ ------------ ------------
Net income (loss) ................................. $ (7,196) $ (16,990) $ (130,546) $ 48,664
============ ============ ============ ============
Net income (loss) per share
Net income (loss) per share-basic ............ $ (0.28) $ (0.64) $ (4.94) $ 1.84
============ ============ ============ ============
Net income (loss) per share-diluted .......... $ (0.28) $ (0.64) $ (4.94) $ 1.83
============ ============ ============ ============
Weighed average common and common equivalent shares
outstanding
Basic ............................................. 25,713,275 26,360,787 26,435,512 26,444,907
============ ============ ============ ============
Diluted ........................................... 25,713,275 26,360,787 26,435,512 26,599,023
============ ============ ============ ============
31
Liquidity and Capital Resources
As of December 31, 2001, the Company's primary source of liquidity
consisted of $30,322,000 in cash and cash equivalents. As of December 31, 2001,
the Company also had $15,713,000 in current marketable securities, which mature
at various dates from January 2002 to May 2002. 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
for at least the next 12 months. To the extent the Company requires additional
funds to support its operations or the expansion of its business, the Company
may sell additional equity, issue debt or convertible securities or obtain
credit facilities through financial institutions. The sale of additional equity
or convertible securities will result in additional dilution to the Company's
stockholders. There can be no assurance that additional financing, if required,
will be available to the Company in amounts or on terms acceptable to the
Company.
As of December 31, 2001, current deferred advertising and content costs
totaled $2,286,000, which represented cost related to the CBS Agreement to be
amortized to sales and marketing expense during 2002. Long-term deferred
advertising and content costs related to the CBS Agreement totaled $9,143,000 at
December 31, 2001. These costs represent the common stock warrants issued at the
time of the renewal in exchange for the CBS Agreement extension. Accrued
liabilities totaled $13,103,000 as of December 31, 2001, a decrease of
$6,859,000 from December 31, 2000, primarily due to decreases in accruals for
cost of revenue sharing, professional fees, marketing and advertising expenses.
Net cash used in operating activities was $40,916,000, $34,257,000 and
$29,710,000 for 2001, 2000 and 1999, respectively. The principal uses of cash
for all periods were to fund the Company's net losses from operations, partially
offset by increases in accrued liabilities and depreciation and amortization and
other non-cash charges.
Net cash provided by investing activities was $22,239,000 in 2001, and net
cash used in investing activities was $5,995,000 and $34,190,000 in 2000 and
1999, respectively. Investing activities in 2001 consisted primarily of sales of
marketable securities offset by purchases of property and equipment and
intangible assets and the Company's investment in Sports.com. The principal uses
in 2000 were for purchases of property and equipment offset by sales of
marketable securities. The principal uses in 1999 were for purchases of current
and non-current marketable securities, purchases of property and equipment and
licensing rights.
Net cash used in financing activities in 2001 was $17,714,000. Net cash
provided by financing activities was $66,474,000 and $78,184,000 for 2000 and
1999, respectively. Financing activities in 2001 consisted principally of the
repurchase of the Consideration Shares from DBC Corporation for $12,500,000 and
purchases of the Company's outstanding common stock. During the six months ended
December 31, 2001, the Company repurchased 2,500,500 shares of its common stock
for aggregate consideration of $5,074,000. Financing activities in 2000
consisted principally of the issuance of a private placement of preferred stock
by Sports.com and the exercise of warrants by CBS. In January 2000, Sports.com
raised $52,500,000 through the issuance of Series B Preferred Stock. In February
2000, CBS exercised warrants to purchase 500,000 shares of Common Stock
resulting in net proceeds of $11,500,000. Financing activities in 1999 consisted
principally of the issuance and repurchase of Convertible Subordinated Notes. In
March 1999, the Company completed an offering of $150,000,000 aggregate
principal amount of 5% Convertible Subordinated Notes due 2006. Total net
proceeds to the Company from this offering were approximately $145,443,000.
During the third and fourth quarters of 1999, the Company repurchased
$130,300,000 of its Convertible Subordinated Notes for approximately
$90,100,000, and as a result, the Company recognized an extraordinary gain of
$36,000,000, net of amortized debt issuance costs. Convertible Subordinated
Notes in an aggregate principal amount of approximately $16,678,000 were
outstanding as of December 31, 2001.
The Company has entered into various licensing, royalty and consulting
agreements with content providers, vendors, athletes and sports organizations,
which agreements provide for consideration in various forms, including issuance
of warrants to purchase Common Stock and payment of royalties, bounties and
certain other guaranteed amounts on a per member and/or a minimum dollar amount
basis over terms ranging from one to ten years. Additionally, some of these
agreements provide for a specified percentage of advertising and merchandising
revenue to be paid to the athlete or organization from whose Web site the
revenue is derived. As of December 31, 2001, the minimum guaranteed payments
required to be made by the Company under such agreements, including the
32
Company's agreements with the NFL, the PGA TOUR and AOL, totaled $38,835,000, of
which $7,000,000 is payable in stock at prevailing market prices in lieu of cash
at the Company's option.
The following contractual obligations and commercial commitments are
payable during the periods stated:
Years Ending December 31,
-------------------------------------------------------------------------------------------
(In thousands)
Type of obligation Total 2002 2003 2004 2005 2006 Thereafter
- ------------------ ------- ------- -------- -------- ------ ------- ----------
Long-term debt .................. $16,678 $ -- $ -- $ -- $ -- $16,678 $ --
Operating leases ................ 13,383 2,100 2,089 1,487 1,349 1,403 4,955
Other long-term obligations ..... 38,835 8,201 /(1)/ 11,883 /(2)/ 9,131 /(3)/ 7,605 2,015 --
------- ------ ------- ------ ------ ------- ------
Total obligations ............... $68,896 $10,301 /(1)/ $ 13,972 /(2)/ $ 10,618 /(3)/ $8,954 $20,096 $4,955
/(1)/ $2,000 of which is payable in stock at prevailing market prices in lieu of
cash at the Company's option.
/(2)/ $2,333 of which is payable in stock at prevailing market prices in lieu of
cash at the Company's option.
/(3)/ $2,666 of which is payable in stock at prevailing market prices in lieu of
cash at the Company's option.
Although the Company has no material commitments for capital expenditures,
it anticipates purchasing approximately $4 million of property and equipment
during 2002. These capital expenditures will primarily be computer equipment
related to the growth of the business. Additionally, the Company intends to
continue to pursue acquisitions of or investments in businesses, services and
technologies that are complementary to those of the Company.
Related Party Transactions
The Company has had transactions in the normal course of business with
certain officers and directors of the Company. The terms of these transactions
were:
In April 2001, the Company loaned an executive officer of the Company
$200,000 at an annual interest rate of 5.5% secured by the officer's stock in
the Company. The loan and accrued interest were paid in full in December 2001.
The Company contracts for endorsement and other services of Joe Namath
through Planned Licensing, Inc., which is a wholly owned subsidiary of Namanco
Productions, Inc. whose president and sole stockholder is a director of the
Company. The Company has an agreement with Planned Licensing, Inc. through
October 16, 2004. The Company incurred consulting and royalty expenses related
to services provided by Planned Licensing, Inc. of $207,000, $267,000 and
$61,000 in 2001, 2000 and 1999, respectively. Additionally, in 2000 the Company
issued 30,000 common stock warrants which vest over the life of the agreement.
The Company is obligated to make future minimum payments totaling $550,000 under
this agreement through 2004.
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, such as the Olympics, the Ryder Cup and the World Cup,
although such events do not occur every year. The Company believes that
advertising sales in traditional media, such as television, generally are lower
in the first and third 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 cyclicality in the level of Internet advertising expenditures could become
more pronounced. The foregoing factors could have a material adverse affect on
the Company's business, results of operations and financial condition.
33
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards ("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.
The Company adopted SFAS No. 141, Business Combinations, on July 1, 2001.
SFAS No. 141 addresses financial accounting and reporting for business
combinations and supercedes Accounting Principles Board ("APB") Opinion 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. The adoption
of SFAS No. 141 did not have a material impact on the consolidated financial
statements of the Company, as the Company has not made any acquisitions after
its adoption.
In July 2001, the Financial Accounting Standards Board ("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 on January 1,
2002, but does not believe the impact will be material to its consolidated
financial statements 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 adoption of SFAS No. 144 on January 1, 2002 is not
expected to have a material impact on the Company's consolidated financial
statements.
Risk Factors That May Affect Future Results
SportsLine's business and the value of its stock are subject to a number of
risks. Some of those risks are described below.
We operate in a difficult market environment
The markets in which we operate, including the Internet-based advertising,
information services and commerce markets, experience frequent and substantial
changes. Additionally, we face intense competition and we must effectively
manage our growth and respond quickly to rapid changes in customer demands and
industry standards. To address these risks, among others, we must provide
compelling and original content to our users, maintain our existing
relationships and effectively develop new relationships with advertisers,
advertising agencies and other third parties, develop and upgrade our technology
and respond to competitive developments, and attract, retain and motivate
qualified personnel. We may not succeed in addressing these challenges and
risks.
34
We have an accumulated deficit and we anticipate further losses
We have incurred significant losses since we began doing business and it is
possible that we may never generate sufficient revenue to meet our expenses or
achieve or maintain profitability. We incurred net operating losses of $34.2
million during 1997, $35.5 million during 1998, $53.1 million during 1999,
$106.1 million during 2000 and $63.6 million during 2001. As of December 31,
2001, we had an accumulated deficit of $276.7 million. We expect to continue to
incur operating losses for at least the next two years.
Since inception, we have incurred substantial costs to develop and enhance
our technology, to create, introduce and enhance our service offerings, to
acquire and develop content, to build traffic on our Web sites, to acquire
members, to establish marketing relationships and to build an administrative
organization and we intend to continue these efforts. We have entered into
various licensing, royalty and consulting agreements with content providers,
vendors, athletes and sports organizations, including, among others, the NFL,
the PGA TOUR and AOL, which agreements provide for consideration in various
forms, including issuance of warrants to purchase shares of our common stock and
payment of royalties, bounties and certain other guaranteed amounts on a per
member and/or a minimum dollar amount basis over terms ranging from one to ten
years. Additionally, some of these agreements provide for a specified percentage
of advertising and merchandising revenue to be paid to the athlete or
organization from whose Web site the revenue is derived. As of December 31,
2001, the minimum guaranteed payments we were required to make under such
agreements totaled $38,835,000, of which $7,000,000 is payable in stock at
prevailing market prices in lieu of cash at the Company's option. See " -
Liquidity and Capital Resources." Also, we recorded non-cash expense of
approximately $17,000,000 in each of the years ended December 31, 2001 and 2000,
related to our agreement with CBS and will record an additional $111,000,000 of
non-cash expense over the remaining term of our agreement with CBS.
We may need additional capital and the future funding of these capital needs is
uncertain
As of December 31, 2001, our primary source of liquidity consisted of
$30,322,000 in cash and cash equivalents and $15,713,000 in current marketable
securities, which mature at various dates from January 2002 to May 2002. We
believe that our current cash and marketable securities will be sufficient to
fund our working capital and capital expenditure requirements for at least the
next 12 months. However, we expect to continue to incur significant operating
losses for such period. To the extent we require additional funds to support our
operations or the expansion of our business, we may need to sell additional
equity, issue debt or convertible securities or obtain credit facilities through
financial institutions. The sale of additional equity or convertible securities
will result in additional dilution to our stockholders and the rights,
preferences or privileges of the new security holders may be senior to those of
the existing common stockholders. If we are unable to raise additional funds on
favorable terms, we may be required to cut our expenditures, which may affect
our ability to expand our business, support our operations and generate
sustained revenues. There can be no assurance that additional financing, if
required, will be available in amounts or on terms acceptable us or at all.
Our quarterly results may fluctuate and our future revenues are unpredictable
and may be seasonal
Because of the uncertain nature of the rapidly changing market we serve,
period-to-period comparisons of our operating results are not likely to be
meaningful. In addition, you should not rely on the results for any period as an
indication of future performance. We are likely to experience fluctuations in
quarterly revenue and operating results due to the level of advertising revenue
within each quarter. We base our current and future expense levels on our
investment plans and estimates of future revenues. Our expenses are to a large
extent fixed. We may not be able to adjust our spending quickly if our revenues
fall short of our expectations.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:
. the level of usage of the Internet,
. the level of traffic on our Web sites,
. demand for Internet advertising,
. seasonal trends in both Internet usage and advertising placements,
35
. the addition or loss of advertisers,
. the advertising budgeting cycles of individual advertisers,
. the number of users that purchase memberships, merchandise or premium
services,
. the amount and timing of capital expenditures and other costs relating to
the expansion of our operations,
. the introduction of new sites and services by us or our competitors,
. price competition or pricing changes in the industry, and
. general economic conditions and economic conditions specific to the
Internet, electronic commerce, online media and the overall advertising
market, both traditional and online.
Furthermore, we expect that our 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, such as the Olympics and World Cup events, although such
events do not occur every year. We believe that advertising sales in traditional
media, such as television, generally are lower in the first and third 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 cyclicality in the level of Internet
advertising expenditures could become more pronounced in which case our revenues
may be affected by such seasonal and cyclical patterns.
Due to all of the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is possible that our operating results may fall below the
expectations of securities analysts or investors in some future quarter, which
would likely cause the trading price of our common stock to decline.
We rely heavily on revenues derived from Internet advertising, which are subject
to uncertain demand from our current and potential clients and are difficult to
forecast accurately.
Currently, the majority of our revenues come from advertisements displayed
on our online properties. Our ability to continue to achieve substantial
advertising revenue depends upon:
. growth of our user base;
. our user base being attractive to advertisers;
. our ability to derive better demographic and other information from our
users;
. acceptance by advertisers of the Web as an advertising medium; and
. our ability to transition and expand into other forms of advertising.
Most of our revenues are currently derived from agreements with advertisers
or sponsorship arrangements. These agreements generally have terms no longer
than three (3) years and, in many cases, the terms are much shorter. In cases
where the advertiser is providing services, the agreements often have payments
contingent on usage levels. The adoption of Internet advertising, particularly
by those entities that have historically relied upon traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. Advertisers that
have traditionally relied upon other advertising media may be reluctant to
advertise on the Internet. These businesses may find Internet advertising to be
less effective than traditional advertising media for promoting their products
and services. Many potential advertisers have little or no experience using the
Internet for advertising purposes. Consequently, they may allocate only limited
portions of their advertising budgets to Internet advertising. Many of our
advertisers are Internet companies, which, in certain cases, may lack financial
resources to fulfill their commitments. Accordingly, it is difficult to
accurately forecast these revenues. However, our expense levels are based in
part on expectations of future revenues and are fixed over the short term with
respect to certain categories. We may be unable to adjust spending quickly
enough to compensate for any unexpected revenue shortfall. Accordingly, the
cancellation or deferral of advertising or sponsorship contracts could have a
material adverse effect on our financial results. Furthermore, we had two
advertising clients that accounted for approximately 8% and 5%, respectively, of
our consolidated revenue during 2001. We do not
36
have a long-term agreement with either of these clients and we cannot assure you
that such clients will continue to purchase advertising on our online
properties. If these clients should cease, or substantially reduce, their
respective purchasing of advertising from us, it could have a material adverse
effect on our financial results.
Our revenues could be adversely affected if we are unable to adapt to other
Internet advertising pricing models that are adopted as industry standard. It is
difficult to predict which, if any, pricing models for Internet advertising will
emerge as the industry standard. This makes it difficult to project our future
advertising rates and revenues.
The rate structure of some of our sponsorship arrangements subjects us to
financial risk.
A key element of our strategy is to generate advertising revenues through
sponsored services and placements by third parties in our online media
properties in addition to banner advertising. We typically receive sponsorship
fees or a portion of transaction revenues in return for minimum levels of user
impressions to be provided by us. These arrangements expose us to potentially
significant financial risks in the event our usage levels decrease, including
the following:
. the fees we are entitled to receive may be adjusted downwards;
. we may be required to "make good" on our obligations by providing
alternative services;
. the sponsors may not renew the agreements or may renew at lower rates;
and
. the arrangements may not generate anticipated levels of shared
transaction revenues, or sponsors may default on the payment
commitments in such agreements as has occurred in the past.
Accordingly, any leveling off or decrease of our user base or the failure
to generate anticipated levels of shared transaction revenues could result in a
significant decrease in our revenue levels.
We rely upon our strategic relationships in order to execute our business plan
In March 1997, we entered into a five-year agreement with CBS, pursuant to
which our flagship Web site was renamed "cbs.sportsline.com." We amended our
agreement with CBS in February 1999 to extend the term through 2006. Over the
term of the agreement, we have the right to use certain CBS logos and
television-related sports content and will receive extensive network television
advertising and on-air promotions. This network television advertising and
on-air promotions, as well as the association of our brand with CBS, are
important elements of our strategy to increase awareness of the SportsLine brand
and build traffic on our Web sites. Under the agreement, CBS has the right to
receive specified percentages of our net revenues. The agreement requires us to
maintain and operate our flagship Web site, cbs.sportsline.com, in accordance
with certain guidelines and restrictions and to cease using any content on
cbs.sportsline.com which CBS determines conflicts, interferes with or is
detrimental to the reputation or business of CBS or which becomes subject to any
third party restriction or claim which would prohibit, limit or restrict the use
of such content on the Internet. CBS has the right to terminate the agreement
upon the acquisition by a CBS competitor of 40% or more of the voting power of
our equity securities or in certain other circumstances, including if we breach
a material term or condition or the agreement or if we become insolvent or
subject to bankruptcy or similar proceedings.
The Company believes that its relationship with CBS, in particular the
branding of its flagship Web site as "cbs.sportsline.com" and the promotion the
Company receives on CBS television broadcasts, has been important in
establishing SportsLine as a broadly recognized consumer brand. We cannot assure
you that CBS will perform its obligations under the agreement. If the agreement
with CBS were to terminate and the Company was unable to establish a strategic
relationship with another promotional partner of similar stature on similar or
more favorable terms, it could have a material adverse effect on our business,
results of operations and financial condition.
In addition to our relationship with CBS, we have entered into other
strategic relationships with other parties including the NFL, AOL, ECS and the
PGA TOUR, and various sports superstars and personalities and other sports
organizations. We rely on these relationships to increase awareness of our brand
among consumers, to create revenue opportunities and to obtain content for our
Web sites. We cannot assure you that a party to any of our strategic agreements
will perform its obligations as agreed or that we will be able to specifically
enforce any such agreement. Many of these strategic agreements are short-term in
nature and either party on short notice may
37
terminate certain of these agreements. Our failure to maintain or renew these
existing strategic relationships, to establish additional strategic
relationships or to fully capitalize on any such relationship could have a
material adverse effect on our business, results of operations and financial
condition.
CBS beneficially owns approximately 32% of our outstanding common stock and
their interests could conflict with yours.
CBS beneficially owned approximately 32% of SportsLine's outstanding common
stock as of March 11, 2002. Sean McManus and Russell Pillar are members of our
board of directors and are also employees of CBS and Viacom Inc., the parent
company of CBS, respectively. As a result of CBS's ownership stake and
representation on our board of directors, CBS may be able to significantly
influence matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Furthermore,
pursuant to our agreement with CBS, upon a change of control we may be required
to accelerate the issuance of shares of common stock valued at $80 million,
which are otherwise scheduled to be issued in four installments of $20 million
on April 1, 2003; July 1, 2004; October 1, 2005; and January 1, 2007. Such
concentration of ownership and the provision for the acceleration of future
stock issuances may have the effect of delaying or preventing a change in
control of SportsLine. In addition, sales of significant amounts of shares held
by CBS, or the prospect of these sales, could adversely affect the market price
of our common stock.
We may not be able to compete successfully
The market for Internet services and products is highly competitive and we
expect that competition will continue to intensify. Competition could result in
less user traffic to our Web sites, price reductions for our advertising,
reduced margins or loss of market share, any of which would have a material
adverse effect on our business, results of operations and financial condition.
We compete, directly and indirectly, for advertisers, viewers, members,
content providers, merchandise sales and rights to sports events with the
following categories of companies:
. Web sites targeted to sports enthusiasts generally (such as espn.com,
cnnsi.com and foxsports.com) or to enthusiasts of particular sports
(such as Web sites maintained by the NBA, MLB and the NHL),
. publishers and distributors of traditional off-line media (such as
television, radio and print), including those targeted to sports
enthusiasts, many of which have established or may establish Web
sites,
. general purpose consumer online services such as AOL and MSN, each of
which provides access to sports-related content and services,
. vendors of sports information, merchandise, products and services
distributed through other means, including retail stores, mail,
facsimile and private bulletin board services, and
. Web search and retrieval services and portals, such as AltaVista,
Lycos, Netscape and Yahoo!, and other high-traffic Web sites.
Our ability to compete depends on many factors, many of which are outside
of our control. These factors include the quality of content provided by us and
by our competitors, the ease of use of services developed either by us or by our
competitors, the timing and market acceptance of new and enhanced services
developed either by us or by our competitors, and sales and marketing efforts by
us and our competitors.
Based on our review of publicly available documents, we believe some of our
existing competitors, as well as potential new competitors, have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user or membership
bases than we do. This may allow them to devote greater resources than we can to
the development and promotion of their services. In addition, some of these
competitors may be able to respond more quickly than us to new or emerging
technologies and changes in Internet user requirements and to devote greater
resources than us to the development, promotion and sale of their services.
There can be no assurance that our current or potential competitors will not
develop products and services comparable or superior to those developed by us or
adapt more quickly than us to new technologies, evolving industry trends or
changing Internet user preferences. In addition, as we expand internationally we
are likely to face new competition. There can be no assurance that we will be
able to compete successfully against current and future competitors, or that
competitive pressures would not have a material adverse effect on our business,
results of operations and financial condition.
More individuals are utilizing non-PC devices to access the Internet and we may
not be successful in developing a version of our service that will gain
widespread adoption by users of such devices.
In the coming years, the number of individuals who access the Internet
through devices other than a personal computer (such as personal digital
assistants, cellular telephones and television set-top devices) is expected to
increase dramatically. Our services are designed for rich, graphical
environments such as those available on personal and laptop computers. The lower
resolution, functionality and memory associated with alternative devices may
make the use of our services through such devices difficult and we may be
unsuccessful in our efforts to modify our online properties to provide a
compelling service for users of alternative devices. As we have limited
experience to date in operating versions of our service developed or optimized
for users of alternative devices, it is difficult to predict the problems we may
encounter in doing so and we may need to devote significant resources to the
creation, support and maintenance of such versions. If we are unable to attract
and retain a substantial number of alternative
38
device users to our online services, we may fail to capture a sufficient share
of an increasingly important portion of the market for online services. Further,
as the majority of our revenues are derived through the sale of banner and other
advertising optimized for a personal computer screen, we may not be successful
at developing a viable strategy for deriving substantial revenues from online
properties that are directed at the users of alternative devices. Any failure to
develop revenue-generating online properties that are adopted by a significant
number of alternative device users could have a material adverse effect on our
business, operating results and financial condition.
We are dependent on certain content providers and are required to make
significant payments to such content providers
We rely on independent content providers, including professional sports
organizations, for sports news, scores, statistics and other sports information.
Our future success depends, in significant part, on our ability to maintain and
renew our relationships with these content providers and to build new
relationships with other content providers. Our agreements with content
providers generally are short-term and may be terminated by the content provider
if we fail to fulfill our obligations under the applicable agreement. Some of
our content providers compete with one another and, to some extent, with us for
advertising and members. Termination of one or more significant content provider
agreements would decrease the availability of sports news and information which
we can offer our customers and could have a material adverse effect on our
business, results of operations and financial condition.
Most of our agreements with content providers are nonexclusive, and many of
our competitors offer, or could offer, content that is similar or the same as
that obtained by us from such content providers. In addition, the growing reach
and use of the Internet have further intensified competition in this industry.
Consumers have gained free access to certain information provided directly on
the Internet by certain content providers. To the extent that content providers,
including but not limited to our current suppliers, provide information to users
at a lower cost than us or at minimal or no cost, our business, results of
operations and financial condition could be materially adversely affected.
Fees payable to content providers constitute a significant portion of our
cost of revenue. There can be no assurance that these content providers will
enter into or renew agreements with us on the same or similar terms as those
currently in effect. If we are required to increase the fees payable to our
content providers, such increased payments could have a material adverse effect
on our business, results of operations and financial condition.
Effectively managing our growth may be difficult
We have continuously expanded our operations and anticipate that
significant expansion of our operations will continue to be required in order to
address potential market opportunities. This growth is likely to place a
significant strain on our management, operational and financial resources and
systems. To manage our growth, we must implement systems and train and manage
our employees. In addition, it may become necessary to increase the capacity of
our software, hardware and telecommunications systems on short notice. We cannot
assure you that our management will be able to effectively or successfully
manage our growth.
Our acquisition strategy has certain risks
Our acquisition strategy is subject to the following risks:
. we may not be able to identify additional suitable acquisition
candidates available for sale at reasonable prices,
. acquisitions may cause a disruption in our ongoing business, distract
our management and other resources and make it difficult to maintain
our standards, controls and procedures,
. we may not be able to consummate any acquisition or successfully
integrate services, products and personnel of any acquisition into our
operations,
. we may acquire companies in markets in which we have little
experience, and
. we may be required to incur debt or issue equity securities, which may
be dilutive to existing stockholders, to pay for acquisitions.
39
We may not be able to protect our proprietary rights and we may infringe the
proprietary rights of others
Proprietary rights are important to our success and competitive position.
In 1996, we were issued a United States trademark registration for our former
SportsLine USA logo. We have applied to register in the United States a number
of marks, several of which include the term "SportsLine." We have filed
applications to register "SportsLine" marks in Australia, the United Kingdom and
other countries. We cannot assure you that we will be able to secure adequate
protection for these trademarks in the United States or in foreign countries.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. In addition, effective copyright and trademark protection may be
unenforceable or limited in certain countries, and the global nature of the
Internet makes it impossible to control the ultimate destination of our work. We
also license content from third parties and it is possible that we could become
subject to infringement actions based upon the content licensed from those third
parties. We generally obtain representations as to the origin and ownership of
such licensed content; however, this may not adequately protect us. Any of these
claims, with or without merit, could subject us to costly litigation and divert
the attention of our technical and management personnel.
We hold rights to various Web domain names, including "cbs.sportsline.com,"
"golfweb.com" and "vegasinsider.com," among others. Governmental agencies
typically regulate domain names. These regulations are subject to change. We may
not be able to acquire or maintain appropriate domain names in all countries in
which we do business. Furthermore, regulations governing domain names may not
protect our trademarks and similar proprietary rights. We may be unable to
prevent third parties from acquiring domain names that are similar to, infringe
upon or diminish the value of our trademarks and other proprietary rights.
Our business is at risk of system failures, delays and inadequacy
The performance of our Web sites is critical to our reputation and ability
to attract and retain users, advertisers and members. Services based on
sophisticated software and computer systems often encounter development delays
and the underlying software may contain undetected errors or failures when
introduced. Any system error or failure that causes interruption in availability
or an increase in response time could result in a loss of potential or existing
users, advertisers or members and, if sustained or repeated, could reduce the
attractiveness of our Web sites to users and advertisers. A sudden and
significant increase in the number of users of our Web sites also could strain
the capacity of the software, hardware or telecommunications systems we deploy,
which could lead to slower response time or system failures. In addition, if the
number of Web pages or users of our Web sites increases substantially, our
hardware and software infrastructure may not be able to adequately handle the
increased demand. Our operations also are dependent upon receipt of timely feeds
and computer downloads from content providers, and any failure or delay in the
transmission or receipt of such feeds and downloads, whether on account of our
system failure, our content providers, the public network or otherwise, could
disrupt our operations. Any failure or delay that causes interruptions in our
operations could have a material adverse effect on our business, results of
operations and financial condition.
Our success is dependent on our key personnel
Our future success depends, in part, upon the continued service of our
senior management and other key personnel. Although we have entered into
employment agreements with Michael Levy, our President and Chief Executive
Officer, and each of our other executive officers, the loss of his services or
the services of one or more of our other executive officers or key employees
could have a material adverse effect on our business, results of operations and
financial condition. Our future success also depends on our continuing ability
to attract and retain highly qualified technical, editorial and managerial
personnel. Competition for such personnel is intense, and we have, at times,
experienced difficulties in attracting the desired number of such individuals.
Our business depends on the growth of the Internet
Our success is highly dependent upon continued growth in the use of the
Internet generally and, in particular, as a medium for advertising, information
services and commerce. Internet usage may be inhibited for a number of reasons,
such as:
40
. the Internet infrastructure may not be able to support the demands placed
on it, and its performance and reliability may decline as usage grows,
. security and authentication concerns with respect to the transmission over
the Internet of confidential information, such as credit card numbers, and
attempts by unauthorized computer users, so-called hackers, to penetrate
online security systems,
. privacy concerns, including those related to the ability of Web sites to
gather user information without the user's knowledge or consent, and
. the lack of availability of cost-effective, high-speed services.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, Web sites may from time to time experience
interruptions in service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Internet usage, as well as usage of our Web
sites could be adversely affected.
We may not be able to adapt as Internet technologies and customer demands
continue to evolve
To be successful, we must adapt to rapidly changing Internet technologies
by continually enhancing our Web sites and introducing new services to address
our customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure in order to adapt to changes affecting
providers of Internet services. Our business, results of operations and
financial condition could be materially adversely affected if we incurred
significant costs to adapt, or cannot adapt, to these changes.
Concerns regarding security of transactions and transmitting confidential
information over the Internet
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information. We cannot assure you that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the algorithms we use
to protect customer transaction data. If any such compromise of our security
were to occur it could have a material adverse effect on our business, results
of operations and financial condition. If someone is able to circumvent our
security measures, such person could misappropriate proprietary information or
cause interruptions in our operations. We may be required to expend significant
capital and other resources to protect against the threat of such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of Internet transactions and the privacy of users may also inhibit the
growth of the Internet generally, and the Web in particular, especially as a
means of conducting commercial transactions. To the extent that our activities
or the activities of third party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could expose us to a risk of loss or litigation and possible liability.
We cannot assure you that our security measures will prevent security breaches
or that failure to prevent such security breaches would not have a material
adverse effect on our business, results of operations and financial condition.
Regulatory and legal uncertainties could harm our business
The application of existing laws and regulations to SportsLine and its
advertising clients with respect to issues such as the protection of databases,
user privacy, pricing, advertising, taxation, gambling, sweepstakes, promotions,
content regulation, quality of products and services and intellectual property
ownership and infringement can be unclear. In addition, SportsLine or its
clients may also be subject to new laws and regulations directly applicable to
our respective activities. Any existing or new legislation applicable to
SportsLine could expose it to substantial liability, including significant
expenses necessary to comply with such laws and regulations, and dampen the
growth in use of the Web. Any new laws or regulations applicable to any of our
advertising clients may reduce or eliminate their ability or desire to advertise
their services on our online properties and could therefore have a material
adverse effect on our business, results of operations and financial condition.
Several Federal laws could have an impact on SportsLine's business. The
Digital Millennium Copyright Act is intended to reduce the liability of online
service providers for listing or linking to third-party Web sites that include
41
materials that infringe copyrights or other rights of others. The Children's
Online Protection Act and the Children's Online Privacy Protection Act are
intended to restrict the distribution of certain materials deemed harmful to
children and impose additional restrictions on the ability of online services to
collect user information from minors. In addition, the Protection of Children
From Sexual Predators Act of 1998 requires online service providers to report
evidence of violations of Federal child pornography laws under certain
circumstances. Such legislation may impose significant additional costs on our
business or subject us to additional liabilities.
SportsLine posts its privacy policy and practices concerning the use and
disclosure of user data. Any failure by the Company to comply with its posted
privacy policy, requirements of the FTC regarding user privacy, or other
privacy-related laws and regulations could result in proceedings by the FTC or
others which could potentially have an adverse effect on SportsLine's business,
results of operations and financial condition. In this regard, there are a large
number of legislative proposals before the United States Congress and various
state legislative bodies regarding privacy issues related to SportsLine's
business. It is not possible to predict whether or when such legislation may be
adopted, and certain proposals, if adopted, could materially and adversely
affect the Company's business through a decrease in user registrations and
revenues. This could be caused by, among other possible provisions, the required
use of disclaimers or other requirements before users can utilize SportsLine's
services.
Our contests and sweepstakes may be subject to state and Federal laws
governing lotteries and gambling. We seek to design our contest and sweepstakes
rules to fall within exemptions from such laws and restrict participation to
individuals over 18 years of age who reside in jurisdictions within the United
States and Canada in which the contests and sweepstakes are lawful. We cannot
assure you that our contests and sweepstakes will be exempt from such laws or
that the applicability of such laws to us would not have a material adverse
effect on our business, results of operations and financial condition.
Through an indirect wholly-owned subsidiary, we are engaged in the business
of selling and providing certain information to casinos doing business in
Nevada. As such, our subsidiary is required to be licensed as an "information
service provider" as that term is defined by the Nevada Gaming Control Act and
the regulations promulgated thereunder (collectively, the "Nevada Act"), and is
subject to the regulatory jurisdiction of the Nevada Gaming Commission (the
"Commission") and the Nevada State Gaming Control Board (the "Board") (The
Commission and the Board are collectively referred to as the "Nevada Gaming
Authorities"). Our wholly-owned subsidiary, VegasInsider, has filed an
application to be found suitable as an intermediary holding company, and we have
filed an application to be registered as a publicly traded company. In addition,
certain of our officers and the officers of certain of our subsidiaries filed
applications to be found suitable as officers of the respective companies. The
subjection of our business to the regulatory jurisdiction of the Nevada Gaming
Authorities could have a material adverse effect on our business, results of
operations and financial condition. See "Business--Government Regulation and
Legal Uncertainties - Nevada Regulation and Licensing."
We may be liable for the content we make available on the Internet
We may be subject to legal claims relating to the content we make available
on our Web sites, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our Web sites. Claims could
also involve such matters as defamation, invasion of privacy and copyright
infringement. Providers of Internet products and services have been sued in the
past, sometimes successfully, based on the content of material. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to cover all costs incurred in defense of
potential claims or to indemnify us for all liability that may be imposed. Any
costs or imposition of liability that is not covered by insurance or in excess
of insurance coverage could have a material adverse effect on our business,
results of operations and financial condition. Implementing measures to reduce
our exposure to this liability may require us to spend substantial resources and
limit the attractiveness of our service to users.
The price of our common stock is highly volatile
The trading price of our common stock has fluctuated significantly. For
example, during the year ended December 31, 2001, the reported closing price of
our common stock on the Nasdaq National Market was as high as
42
$9.63 and as low as $0.80. The trading price of the common stock may fluctuate
in response to a number of events and factors, such as:
. quarterly variations in operating results,
. announcements of technological innovations,
. new services, products and strategic developments by us or our
competitors,
. changes in financial estimates or recommendations by securities
analysts, and
. the operating and stock price performance of other companies.
In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of companies within
certain industry groups such as technology companies and Internet-related
companies in particular, and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may materially
adversely affect the trading price of our common stock, regardless of our
operating performance.
Item 7A. 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 carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, 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.
43
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants................................................ 45
Consolidated Balance Sheets as of December 31, 2001 and 2000 ..................................... 46
Consolidated Statements of Operations
for the years ended December 31, 2001, 2000 and 1999.......................................... 47
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2001, 2000 and 1999.......................................... 48
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000 and 1999.......................................... 50
Notes to Consolidated Financial Statements........................................................ 52
44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To SportsLine.com, Inc.:
We have audited the accompanying consolidated balance sheets of
SportsLine.com, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SportsLine.com, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Fort Lauderdale, Florida,
January 25, 2002.
45
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
December 31,
----------------------
2001 2000
--------- ---------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 30,322 $ 66,713
Marketable securities ............................................. 15,713 59,052
Deferred advertising and content costs ............................ 2,286 18,969
Accounts receivable, net .......................................... 6,927 10,140
Prepaid expenses and other current assets ......................... 7,643 11,902
--------- ---------
Total current assets .......................................... 62,891 166,776
LICENSING RIGHTS ..................................................... -- 2,267
NONCURRENT DEFERRED ADVERTISING AND CONTENT .......................... 9,143 11,428
PROPERTY AND EQUIPMENT, net .......................................... 12,069 19,703
GOODWILL, net ........................................................ 20,861 51,550
OTHER ASSETS, net .................................................... 9,860 6,447
--------- ---------
$ 114,824 $ 258,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable .................................................. $ 968 $ 14,398
Accrued liabilities ............................................... 13,103 19,962
Deferred revenue .................................................. 2,640 5,291
Current portion of capital lease obligations ...................... -- 6
--------- ---------
Total current liabilities .................................... 16,711 39,657
OTHER LONG-TERM LIABILITIES .......................................... 407 --
CONVERTIBLE SUBORDINATED NOTES ....................................... 16,678 19,608
--------- ---------
Total liabilities ............................................ 33,796 59,265
--------- ---------
MINORITY INTEREST .................................................... -- 59,809
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding as of December 31, 2001 and December 31,
2000 .......................................................... -- --
Common stock, $0.01 par value, 200,000,000 shares authorized,
29,218,936 and 26,486,193 issued and outstanding as of
December 31, 2001 and December 31, 2000, respectively ........ 292 265
Additional paid-in capital ........................................ 357,434 359,612
Accumulated other comprehensive loss .............................. -- (5,228)
Accumulated deficit ............................................... (276,698) (215,552)
--------- ---------
Total shareholders' equity .................................... 81,028 139,097
--------- ---------
$ 114,824 $ 258,171
========= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
46
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
Year Ended December 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
REVENUE .............................................. $ 64,530 $ 95,887 $ 60,278
COST OF REVENUE ...................................... 32,672 41,001 34,078
------------ ------------ ------------
GROSS PROFIT ......................................... 31,858 54,886 26,200
------------ ------------ ------------
OPERATING EXPENSES:
Product development ................................ 1,854 1,791 1,587
Sales and marketing ................................ 41,255 50,943 36,452
General and administrative ......................... 31,359 37,091 20,063
Depreciation and amortization ...................... 44,523 41,886 25,806
Restructuring charges .............................. 985 -- --
Write-down of goodwill ............................. 21,600 -- --
------------ ------------ ------------
Total operating expenses ................. 141,576 131,711 83,908
------------ ------------ ------------
LOSS FROM OPERATIONS ................................. (109,718) (76,825) (57,708)
INTEREST EXPENSE ..................................... (1,073) (1,084) (4,392)
INTEREST AND OTHER INCOME, net ....................... 3,479 12,914 8,976
LOSS ON EQUITY INVESTMENTS ........................... (28) (127,653) --
GAIN ON TERMINATION OF ADVERTISING AGREEMENTS ........ 2,051 78,766 --
GAIN ON SALE OF E-COMMERCE SUBSIDIARIES .............. -- 7,814 --
EFFECT OF DECONSOLIDATION OF SPORTS.COM .............. 41,739 -- --
------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY GAIN ................... (63,550) (106,068) (53,124)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF
DEBT ................................................. 2,404 -- 36,027
------------ ------------ ------------
$ (61,146) $ (106,068) $ (17,097)
NET LOSS ............................................. ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED:
Net loss per share before extraordinary gain .... $ (2.32) $ (4.04) $ (2.31)
Extraordinary gain .............................. 0.09 -- 1.57
------------ ------------ ------------
Net loss per share - basic and diluted .......... $ (2.23) $ (4.04) $ (0.74)
============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
BASIC AND DILUTED .................................. 27,446,626 26,245,946 23,018,224
============ ============ ============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
47
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
Accumulated
Common Stock Additional Other
--------------------- Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Income (Loss) Deficit Loss
------------ ------ ---------- ------------- ----------- -------------
Balances at December 31, 1998 .......... 20,300,785 $203 $ 211,061 $ -- $ (92,301)
Exercise of CBS warrants ............... 380,000 4 7,596
Issuance of common stock and
common stock warrants pursuant to CBS
Agreement ............................ 1,611,925 16 59,672 -- --
Issuance of common stock and
options pursuant to acquisition of
Subsidiary ........................... 920,170 9 31,003 -- (86)
Equity activity of subsidiary .......... -- -- 4,936 -- --
Issuance of common stock pursuant to the
Employee stock purchase plan ......... 101,561 1 1,553 -- --
Net proceeds from exercise of common
stock warrants ...................... 949,434 10 3,974 -- --
Issuance of common stock pursuant
to purchase of advertising ........... 450,000 5 8,995 -- --
Issuance of warrants pursuant to
PGA Tour agreement ................... -- -- 2,105 -- --
Issuance of common stock from exercise
of employee options .................. 644,913 6 2,984 -- --
Comprehensive loss:
Net loss ............................. -- -- -- -- (17,097) $ (17,097)
Cumulative translation adjustment .... -- -- -- 7 -- 7
---------
Comprehensive loss ................... $ (17,090)
------------------------------------------------------------------=========
Balances at December 31, 1999 .......... 25,358,788 254 333,879 7 (109,484)
Exercise of CBS warrants ............... 500,000 5 11,495 -- --
Issuance of common stock and
options pursuant to acquisition of
subsidiaries ......................... 305,591 3 15,049 -- --
Equity activity of subsidiary .......... -- -- (5,007) -- --
Issuance of common stock pursuant to the
Employee stock purchase plan ......... 73,883 1 715 -- --
Net proceeds from exercise of common
stock warrants ...................... 57,000 -- 365 -- --
Issuance of common stock warrants ...... -- -- 1,567 -- --
Issuance of common stock from exercise
of employee options .................. 190,931 2 1,549 -- --
Comprehensive loss:
Net loss ............................. -- -- -- -- (106,068) $(106,068)
Cumulative translation adjustment .... -- -- -- (5,235) -- (5,235)
---------
Comprehensive loss ................... $(111,303)
------------------------------------------------------------------=========
Balances at December 31, 2000 .......... 26,486,193 $265 $ 359,612 $(5,228) $(215,552)
(continued on next page)
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
48
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(CONTINUED)
(amounts in thousands, except share data)
Accumulated
Common Stock 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)
Repurchase of common stock ............. (2,500,500) (25) (5,049) -- --
Issuance of common stock and
options pursuant to acquisition of
Subsidiary ........................... 3,024,344 30 12,103 -- --
Issuance of common stock pursuant to the
employee stock purchase plan ......... 176,460 2 363 -- --
Repurchase of common stock pursuant to
acquisition of subsidiary ........... (277,152) (3) (12,497) -- --
Issuance of restricted shares of
common stock for employees ........... 1,909,458 19 2,005 -- --
Issuance of common stock pursuant
to National Football League agreement 350,000 3 630 -- --
Issuance of common stock pursuant
to consulting agreement .............. 50,000 1 266 -- --
Issuance of common stock from exercise
of employee options .................. 133 -- 1 -- --
Comprehensive loss:
Net loss ............................. -- -- -- -- (61,146) $(61,146)
Cumulative translation adjustment .... -- -- -- 5,228 -- 5,228
--------
Comprehensive loss ................... $(55,918)
-------------------------------------------------------------------========
Balances at December 31, 2001 .......... 29,218,936 $ 292 $ 357,434 $ -- $(276,698)
========== ===== ========= ======= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
49
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended December 31,
-----------------------
2001 2000 1999
-------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $(61,146) $(106,068) $(17,097)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................... 44,523 41,886 25,806
Amortization of equity agreements ............................... 228 -- --
Write-down of goodwill .......................................... 21,600 -- --
Bad debt and other expense ...................................... 1,038 1,986 348
Minority interest in consolidated subsidiaries .................. -- (2,951) (372)
Loss on equity investments ...................................... 28 127,653 --
Gain on termination of agreements ............................... (2,051) (78,766) --
Gain on sale of e-commerce subsidiaries ......................... -- (7,814) --
Effect of deconsolidation ....................................... (41,739) -- --
Extraordinary gain on extinguishment of debt .................... (2,404) -- (36,027)
Changes in operating assets and liabilities:
Accounts receivable ......................................... (1,405) (3,022) (6,927)
Prepaid expenses and other current assets ................... 1,448 2,808 (4,121)
Accounts payable ............................................ (168) 1,156 (376)
Accrued liabilities ......................................... 1,628 5,976 6,963
Deferred revenue ............................................ (2,496) (17,101) 2,093
---------------------------------
Net cash used in operating activities ....................... (40,916) (34,257) (29,710)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net ...................... 43,339 10,953 (21,447)
Purchases of property and equipment .................................. (5,734) (18,808) (8,627)
Purchase of licensing rights and intangible assets ................... (6,158) -- (8,500)
Investment in Sports.com ............................................. (5,000) -- --
Cash effect of Sports.com deconsolidation ............................ (3,743) -- --
Acquisitions of businesses ........................................... (73) (11) (8,165)
Proceeds from sale of investments .................................... -- 1,871 --
Net decrease (increase) in restricted cash ........................... (392) -- 12,549
---------------------------------
Net cash provided by (used in) investing activities ......... 22,239 (5,995) (34,190)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock of subsidiary .............. -- 52,500 7,500
Net proceeds from issuance of common stock and exercise of common .... 366 14,132 16,128
stock warrants and options
Proceeds from issuance of convertible subordinated notes, net of costs -- -- 145,443
Repurchase of common stock pursuant to acquisition of DBC Sports ..... (12,500) -- --
Repurchase of common stock ........................................... (5,074) -- --
Repurchase of convertible subordinated notes, net of costs .......... (500) -- (90,585)
Repayment of capital lease obligations ............................... (6) (158) (302)
---------------------------------
Net cash provided by (used in) financing activities ......... (17,714) 66,474 78,184
---------------------------------
Effect of exchange rate changes on cash .............................. -- (5,477) --
---------------------------------
Net increase (decrease) in cash and cash equivalents ..................... (36,391) 20,745 14,284
CASH AND CASH EQUIVALENTS, beginning of period ........................... 66,713 45,968 31,684
---------------------------------
CASH AND CASH EQUIVALENTS, end of period ................................. $ 30,322 $ 66,713 $ 45,968
=================================
(continued on next page)
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
50
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(amounts in thousands)
Year Ended December 31,
---------------------------------
2001 2000 1999
-------- --------- --------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock pursuant to the NFL agreement............... $ 633 $ -- $ --
======== ========= ========
Issuance of common stock pursuant to acquisition of subsidiaries .... $ 12,133 $ 15,052 $ 30,926
======== ========= ========
Issuance of restricted shares to employees........................... $ 2,024 $ -- $ --
======== ========= ========
Issuance of common stock and common stock warrants pursuant to
consulting agreements............................................ $ 267 $ 1,567 $ --
======== ========= ========
Issuance of common stock and common stock warrants pursuant
to CBS Agreement................................................. $ -- $ -- $ 59,688
======== ========= ========
Sale of e-commerce subsidiaries...................................... $ -- $ 3,579 $ --
======== ========= ========
Investments in businesses............................................ $ -- $ 3,297 $ --
======== ========= ========
Equity activity of subsidiary........................................ $ -- $ (5,007) $ 4,936
======== ========= ========
Issuance of common stock pursuant to purchase of advertising ........ $ -- $ -- $ 9,000
======== ========= ========
Issuance of common stock warrants to PGA Tour........................ $ -- $ -- $ 2,105
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................... $ 988 $ 990 $ 2,384
======== ========= ========
Cash paid for income taxes........................................... $ 780 $ 26 $ 18
======== ========= ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
51
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(1) NATURE OF OPERATIONS:
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 a primary sports content provider for America Online ("AOL"). 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of
SportsLine.com and its majority owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with
original maturities of three months or less to be cash equivalents.
Marketable Securities
Marketable securities include highly liquid investments with original
maturities in excess of three months but less than one year. Such marketable
securities are classified as "held to maturity" and, accordingly, are carried at
cost, which approximates market value as of December 31, 2001 and 2000.
Marketable securities at December 31, are as follows:
2001 2000
------- -------
U.S. Government agencies ...... $15,713 $50,474
Corporate bonds ............... -- 8,578
------- -------
Total marketable securities $15,713 $59,052
======= =======
Deferred Advertising and Content Costs
Deferred advertising and content costs relates to unamortized costs of
equity instruments issued under the CBS Agreement discussed in Note 8. Such
costs are capitalized as the equity instruments are issued. These costs are then
charged to operations as depreciation and amortization as the Company receives
promotion and other benefits under the agreements.
52
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Licensing and Consulting Agreements
The cost of licensing and consulting agreements, which is primarily a
result of issuances of warrants to purchase common stock (see Note 9), is being
amortized using the straight-line method over the term of the related agreements
(from one to ten years) beginning in August 1995, when cbs.sportsline.com first
became commercially available. Such costs totaled approximately $16,704, $20,169
and $18,602 for the years ended December 31, 2001, 2000 and 1999, respectively.
Accumulated amortization on such amounts was approximately $11,541 and $10,116
at December 31, 2001 and 2000, respectively. The current portion of such amounts
is reflected in prepaid expenses and other current assets and the long-term
portion in other assets in the accompanying consolidated balance sheets.
Amortization expense under these agreements was approximately $4,662, $5,689 and
$3,134 for the years ended December 31, 2001, 2000 and 1999, respectively, and
is included in depreciation and amortization expense in the accompanying
consolidated statements of operations.
Property and Equipment
Property and equipment is carried at historical cost and is being
depreciated and amortized using the straight-line method over the shorter of the
estimated useful life of the asset or the lease period.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation and amortization are removed from the account and any gain or loss
is recognized.
Goodwill
Goodwill, net consists of the following at December 31:
2001 2000
-------- --------
Original cost basis $ 56,214 $ 58,654
Less accumulated amortization (13,753) (7,104)
Less additional write-down (21,600) --
-------- --------
$ 20,861 $ 51,550
======== ========
The Company assesses the recoverability of goodwill by analyzing the
entity's historical operations, undiscounted future cash flows and the market
value of similar entities. An impairment assessment is triggered if
circumstances regarding the underlying entity's ability to generate cash flows
occurs. See Note 3.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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 on January 1, 2002, but does not
believe the impact will be material to its consolidated financial statements in
the year of adoption.
53
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Accrued Liabilities
Accrued liabilities are as follows:
December 31,
-----------------
2001 2000
------- -------
Deferred rent $ 2,315 $ 2,330
Payroll 2,207 1,097
Revenue sharing 1,397 3,870
NFL fees 1,161 --
Advertising 1,159 2,340
Professional fees 998 3,249
Cash prizes 661 --
Health insurance 692 936
Other 2,513 6,140
------- -------
$13,103 $19,962
======= =======
Revenue Recognition
Revenue recognition policies for advertising, e-commerce, membership and
premium services, content licensing and barter transactions are set forth below.
Revenue by Type
Revenue by type for the years ended December 31, 2001, 2000 and 1999 was as
follows:
2001 2000 1999
------- ------- -------
Advertising ..................... $53,583 $77,666 $29,970
Membership and premium services.. 4,252 6,284 5,629
E-commerce....................... -- -- 16,486
Content licensing and other ..... 6,695 11,937 8,193
------- ------- -------
$64,530 $95,887 $60,278
======= ======= =======
Advertising Revenue
Advertising revenue is derived from the sale of advertising on the
Company's Web sites as well as the sale of advertising on Web sites operated by
the Company. Advertising revenue is recognized in the period the advertisement
is displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of "impressions", or times that
an advertisement is viewed by users of the Company's Web sites. Amounts received
or billed for which impressions have not yet been delivered are reflected as
deferred revenue in the accompanying consolidated balance sheets.
54
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
E-Commerce Revenue
E-commerce revenue is derived from the sales of limited edition
memorabilia, licensed apparel, golf equipment and other sports-related products.
E-commerce revenue is recognized once the product has been shipped and payment
is reasonably assured.
Membership and Premium Services Revenue
In January 1999, the Company launched "SportsLine Rewards," a program
offered at no charge that offers bonus points to members for viewing pages and
making purchases. These points can be redeemed for discounts on merchandise,
special events and other premium items. For a fee, the Company offers
"SportsLine Rewards Plus" where members are also eligible to participate in
sports contests to win cash prizes and merchandise. The "Rewards Plus" program
offers annual memberships, the revenue from which is recognized ratably over the
life of the membership agreement. The Company also offers free fantasy products
for football, baseball, basketball, hockey, golf and auto racing. These fantasy
products allow members to form their own team by assembling a group of athletes
from a sport and following their performance on a weekly or daily basis. These
fantasy teams can then compete in contests administered by the Company for cash
or merchandise prizes or compete in leagues administered by the users on the
Company's Web site. The Company also offers fee-based fantasy products for
football and baseball, which enable the user to compete for larger cash prizes
than the free products. Additionally, the Company originates and sells odds and
other statistical data to certain Las Vegas casinos.
Revenue relating to monthly memberships is recognized in the month the
service is provided. Revenue relating to yearly memberships and sports contests
is recognized ratably over the life of the membership agreement or contest
period. Accordingly, amounts received for which services have not yet been
provided are reflected as deferred revenue in the accompanying consolidated
balance sheets.
Content Licensing Revenue
Content licensing revenue is derived from the licensing of certain of the
Company's content to third parties. Content licensing revenue is recognized over
the period of the license agreement as the Company delivers content.
Barter and Equity Transactions
The Company recognizes advertising and content licensing revenue as a
result of barter transactions. Such revenue is recognized based on the fair
value of the consideration received, which generally consists of advertising
displayed on the other companies' Web sites. Barter revenue and the
corresponding expense is recognized in the period the advertising is displayed.
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 20%, 17% and 17% of total revenue for the years
ended December 31, 2001, 2000 and 1999, respectively. Barter transactions are
recorded on a basis consistent with similar recent cash transactions of the
Company pursuant to Emerging Issues Task Force ("EITF") Issue No. 99-17,
Accounting for Advertising Barter Transactions.
Equity transactions, in which the Company received equity in companies in
exchange for advertising and promotion accounted for approximately 5%, 16% and
0% of total revenue for the years ended December 31, 2001, 2000 and 1999,
respectively. As discussed in Note 3, the majority of equity-related revenue was
derived from two agreements, both of which were terminated prior to December 31,
2000. An additional agreement that provided for equity-related revenue
terminated in June 2001.
55
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Cost of Revenue
Cost of revenue consists primarily of content and royalty fees, revenue
sharing, payroll and related expenses for the editorial and operations staff,
telecommunications and computer-related expenses for the support and delivery of
the Company's services. Royalty payments are paid to certain content providers
and technology and marketing partners based on membership levels subject, in
certain instances, to specified minimum amounts.
Sales and Marketing
Sales and marketing expense consists of salaries and related expenses,
advertising, marketing, promotional, business development, public relations
expenses and member acquisition costs. Member acquisition costs consist
primarily of the direct costs of member solicitation, including advertising on
other Web sites and Internet search engines and the cost of obtaining qualified
prospects from direct marketing programs and third parties. No indirect costs
are included in member acquisition costs. In accordance with American Institute
of Certified Public Accountants ("AICPA") Statement of Position ("SOP"), 93-7,
Reporting on Advertising Costs, the Company may, in the future, capitalize such
direct-response advertising costs if historical evidence is available to
indicate that the advertising results in a future benefit. Until that time, all
such costs are expensed as incurred. All other advertising and marketing costs
are charged to expense at the time the advertising takes place. Cash advertising
expense for 2001, 2000 and 1999 was $7,035, $16,217 and $10,895, respectively.
Per Share Amounts
SFAS No. 128, Earnings Per Share, simplifies the methodology of computing
earnings per share and requires the presentation of basic and diluted earnings
per share. The Company's basic and diluted earnings per share are the same,
since the Company's common stock equivalents are antidilutive.
Net loss per share is 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 approximately 4,346,000, 9,685,000, and
7,711,000 options and warrants outstanding at December 31, 2001, 2000 and 1999,
respectively, that could potentially dilute earnings per share in the future.
Such options and warrants were not included in the computation of diluted loss
per share because to do so would have been antidilutive for all periods
presented.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
56
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and cash
equivalents, marketable securities, accounts receivable and accounts payable,
approximate fair value due to their short-term nature and/or market rates of
interest. Additionally, the fair value of the Convertible Subordinated Notes at
December 31, 2001 was significantly below the principal amount of $16,678.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities and accounts receivable. The Company's cash management and
investment policies restrict investments to low risk, highly-liquid securities,
and the Company performs periodic evaluations of the credit standing of the
financial institutions with which it deals. Accounts receivable from customers
outside the United States at December 31, 2001 were not significant. The Company
performs ongoing credit evaluations and maintains an allowance for doubtful
accounts for accounts which management believes may have become impaired and, to
date, losses have not been significant. The allowance for doubtful accounts was
$1,031 and $1,765 at December 31, 2001 and 2000, respectively, and activity for
the years ended December 31, 2001, 2000 and 1999 was as follows:
2001 2000 1999
------- ------ -----
January 1 balance ................ $ 1,765 $ 423 $ 230
Provision for doubtful accounts... 926 1,999 329
Write-offs ....................... (1,439) (657) (136)
Sports.com deconsolidation ....... (221) -- --
------- ------ -----
December 31 balance .............. $ 1,031 $1,765 $ 423
======= ====== =====
Impairment of Long-Lived Assets
Through December 31, 2001 the Company followed the provisions of SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. SFAS No. 121 required impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment were
present and the undiscounted cash flows estimated to be generated by those
assets were less than the carrying amount of the assets. The amount of the
impairment was calculated as the amount by which carrying value exceeds fair
value. SFAS No. 121 also addressed the accounting for long-lived assets that
were expected to be disposed of. See Note 3.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation allows either
adoption of a fair value based method of accounting for employee stock options
and similar equity instruments or continuation of the measurement of
compensation cost relating to such plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has elected to continue to
use the intrinsic value based method. Accordingly, pro forma disclosures
required to be presented by SFAS No. 123 for companies continuing to utilize the
intrinsic value based method are presented in Note 9.
57
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Segment Reporting
Based on the criteria set forth in SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, the Company operates in one principal
business segment as of December 31, 2001. For the years ended December 31, 1999
and 2000 and through July 17, 2001, the Company operated in two principal
business segments that shared the same infrastructure: United States and Europe
through the Company's subsidiary, Sports.com Limited. See Note 4.
Comprehensive Loss
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income (loss) and its components in a
full set of financial statements. The objective of SFAS No. 130 is to report
comprehensive income (loss), a measure of all changes in equity of an enterprise
that result from transactions and other economic events in a period, other than
transactions with owners. The Company has elected to disclose comprehensive loss
in the consolidated statements of changes in shareholders' equity.
Restructuring Charges
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
reduction in the Company's domestic workforce of approximately 25%. Severance
and rent payments for the year ended December 31, 2001 were approximately $800,
with a remaining accrual balance at December 31, 2001 of approximately $200.
Internal Use Software and Web Site Development Costs
SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use establishes criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. To date, the Company has not
capitalized such costs.
EITF Issue 00-2, Accounting for Web Site Development Costs, provides
guidance on what types of costs incurred to develop Web sites should be
capitalized or expensed. To date, the Company has not capitalized such costs.
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.
The Company adopted SFAS No. 141, Business Combinations, on July 1, 2001.
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. The adoption of SFAS No. 141 did not have a material impact
on the consolidated financial statements of the Company, as the Company has not
made any acquisitions after its adoption.
58
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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 No. 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 adoption of SFAS No. 144 on January 1, 2002 is not
expected to have a material impact on the Company's consolidated financial
statements.
(3) ACQUISITIONS AND DISPOSITIONS:
The Company acquired International Golf Outlet, Inc. in June 1998 and
TennisDirect.com, Inc. in August 1999, and accounted for these transactions
using the purchase method of accounting. The purchases resulted in goodwill of
$3,180. Such goodwill was being amortized over an estimated life of ten years.
In May 1999, the Company acquired Golf Club Trader, Inc. The purchase was
accounted for using the pooling-of-interests method of accounting. As of January
2000, the aforementioned companies were sold to MVP.com, Inc. ("MVP") in
exchange for an equity interest in MVP resulting in a one-time gain of $7,814.
In addition, the Company entered into a 10-year strategic e-commerce and
marketing agreement with MVP pursuant to which MVP operated the Company's
domestic e-commerce business. These transactions with MVP resulted in the
Company receiving an investment in MVP totaling $100,000. Such investment was
initially recorded at estimated fair value. During the third and fourth quarters
of 2000, the Company deemed its investment in MVP to be permanently impaired and
wrote off the entire investment of $100,000, which is included in loss on equity
investments. The Company's estimate was based on the market downturn during the
third and fourth quarters of 2000, which caused similar declines in
publicly-traded internet e-commerce companies' market values, the difficulty
experienced by MVP in raising additional capital and an assessment of MVP's
financial condition and prospects. In November 2000, the Company terminated its
marketing agreement with MVP due to MVP's breach of the agreement. As a result
of the termination, in 2000 the Company reversed deferred revenue of $72,303,
net of taxes, which is included in gain on termination of advertising agreements
in the accompanying consolidated statements of operations. In 2001, the Company
recognized an additional gain of $2,051 resulting from the reversal of an
accrual related to the termination of the MVP.com agreement.
Additionally, as of December 29, 2000, Internet Sports Network ceased
operations. As a result, the Company wrote off its investment of $15,247,
included in loss on equity investments, during the fourth quarter of 2000, which
the Company had received as part of the promotional and advertising agreement.
Furthermore, several of the Company's other equity investments were adversely
affected by the market downturn and were written down by $12,406, included in
loss on equity investments, in the third and fourth quarters of 2000. As of
December 31, 2001, the Company had an equity investment in one company totaling
$500, the value of which is guaranteed by a cash escrow account.
Sports.com Limited ("Sports.com") was formed in May 1999. In May 1999,
Sports.com purchased SportsWeb, which was accounted for using the purchase
method of accounting, and resulted in goodwill of $584 that was being amortized
over five years. In June 1999, Sports.com acquired the sports division of
Infosis Group. The Company also accounted for this transaction using the
purchase method of accounting resulting in goodwill of $2,526, which was being
amortized over five years. A liability of $59,809 was reflected in the Company's
consolidated balance sheet as of December 31, 2000 to reflect the minority
interest in Sports.com. As of December 31, 2000, SportsLine owned 71% of the
common shares of Sports.com. In 2000, the Company consolidated between 71% and
100% of the losses of Sports.com, which has historically been offset by the
allocation of a portion of such losses to third party holders of Sports.com
common stock. On July 17, 2001, Sports.com raised approximately $13,000 in
equity
59
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(3) ACQUISITIONS AND DISPOSITIONS:--(Continued)
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 of the
subsidiary in the amount of $41,739. Comprehensive loss decreased by $5,200 due
to the deconsolidation of Sports.com. After July 17, 2001 the Company did not
record any losses generated by Sports.com as its investment had been reduced to
zero and the Company had no future obligation to provide funding to Sports.com.
Sports.com's assets and liabilities are included in the Company's Consolidated
Balance Sheet as of December 31, 2000 and Sports.com's revenue, expenses and
minority interest are included in the Company's Consolidated Statements of
Operations for the years ended December 31, 2000 and 1999 and Sports.com's
revenue, expenses and minority interest through July 17, 2001 are included in
the Company's Consolidated Statements of Operations for the year ended December
31, 2001.
The Company acquired Daedalus World Wide Corporation in December 1999. The
transaction was accounted for using the purchase method of accounting. The
purchase resulted in goodwill of $31,880, which is being amortized over an
estimated life of seven years. In the fourth quarter of 2000, a $12,000
liability included in accounts payable at December 31, 2000, 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 the
liability of $6,000 and during the fourth quarter of 2001 2,195,968 shares of
common stock were issued in satisfaction of the remaining $6,000 liability. In
addition, the Company recognized a one-time goodwill write-down in the year
ended December 31, 2001 of $17,000 related to the reduced estimate of the value
of its investment in Daedalus World Wide Corporation. The Company's assessment
of its goodwill investment is based on historical operations, undiscounted
future cash flows and the market values of similar entities.
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 guaranteed that the Consideration Shares would have a value equal to
or greater than $12,500 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 $12,500. 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. In December 2001, the Company recorded a one-time goodwill
write-down of $4,600 to reflect a reduction in the estimated value of its
investment in DBC. The assessment of goodwill was based on historical operating
results, undiscounted future cash flows and the market values of similar
entities.
The Company acquired another business during 1999 and accounted for the
transaction using the purchase method of accounting. The purchase resulted in
goodwill of $3,726, which was being amortized over an estimated life of seven
years. The business was subsequently sold in April 2000 resulting in a gain of
$264.
The following unaudited pro forma financial information presents the
consolidated operations of the Company along with the acquired and disposed of
companies as if the transactions had occurred at the beginning of the periods
presented, after giving effect to certain adjustments including increased
amortization of goodwill related to the acquisitions. The following table
excludes the results of Sports.com in 2001 and 2000 and includes DBC Sports,
acquired in April 2000, as if it had been acquired on January 1, 2000. The
unaudited pro forma information is provided for informational purposes only and
should not be construed to be indicative of the Company's consolidated results
of operations had the transactions been consummated on the dates assumed and do
not project the Company's results of operations for any future period:
60
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(3) ACQUISITIONS AND DISPOSITIONS:--(Continued)
2001 2000
-------- --------
Revenue $ 60,046 $ 87,927
Loss before extraordinary gain $(87,147) $(78,091)
Diluted loss per share before
extraordinary gain $ (3.18) $ (2.96)
(4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (UNAUDITED):
As discussed in Note 3, the Company began accounting for its investment in
Sports.com under the equity method of accounting as of July 17, 2001. No losses
have been recorded after July 17, 2001, as the Company's investment in
Sports.com has been reduced to zero and the Company has no future obligation to
provide funding to Sports.com. Unaudited condensed financial information of
Sports.com is as follows:
Balance Sheets December 31, December 31,
2001 2000
------------ ------------
Assets:
Current assets ...................... $ 7,556 $27,695
Other ............................... 5,717 6,922
------- -------
Total assets ...................... $13,273 $34,617
======= =======
Liabilities and shareholders' equity:
Current liabilities ................. $ 5,138 $ 8,604
Shareholders' equity ................ 8,135 26,013
Total liabilities and
------- -------
shareholders' equity ............ $13,273 $34,617
======= =======
Year Ended
Statements of Operations December 31,
----------------------------
2001 2000
------------ ------------
Revenue.............................. $ 7,253 $ 8,429
Expenses............................. (37,178) (36,587)
-------- --------
Net loss.............................. $(29,925) $(28,158)
======== ========
(5) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
As discussed in Note 3, the Company began accounting for its investment in
Sports.com under the equity method of accounting as of July 17, 2001. The
unaudited pro forma results for the years ended December 31, 2001, 2000 and
1999, assuming the deconsolidation occurred as of January 1, 1999 are as
follows:
Year Ended
December 31,
2001 2000 1999
-------- ------------ --------
Revenue ....................................... $ 60,046 $ 87,458 $ 58,284
Cost of revenue ............................... 23,770 28,070 31,536
-------- --------- --------
Gross profit .................................. 36,276 59,388 26,748
61
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(5) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):--(Continued)
Year Ended
December 31,
2001 2000 1999
-------- ------------ --------
Operating expenses:
Product development ...................... 1,854 1,791 1,587
Sales and marketing ...................... 35,056 37,224 34,463
General and administrative ............... 25,137 26,726 17,306
Depreciation and amortization ............ 42,859 39,545 24,809
Write-down of goodwill ................... 21,600 -- --
Restructuring charges .................... 985 -- --
-------- --------- --------
Total operating expenses ............. 127,491 105,286 78,165
-------- --------- --------
Loss from operations .......................... (91,215) (45,898) (51,417)
Interest expense .............................. (1,064) (1,081) (4,392)
Interest and other income, net ................ 3,109 7,190 8,783
Gain on sale of e-commerce subsidiaries ....... -- 7,814 --
Loss on equity investments .................... (28) (127,653) --
Gain on termination of agreements ............. 2,051 78,766 --
-------- --------- --------
Net loss before extraordinary gain ............ (87,147) (80,862) (47,026)
Extraordinary gain on extinguishment of debt .. 2,404 -- 36,027
-------- --------- --------
Net loss ...................................... $(84,743) $ (80,862) $(10,999)
======== ========= ========
Net loss per share before extraordinary gain .. $ (3.18) $ (3.08) $ (2.05)
Extraordinary gain ............................ 0.09 -- 1.57
-------- --------- --------
Net loss per share - basic and diluted ........ $ (3.09) $ (3.08) $ (0.48)
======== ========= ========
(6) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
Estimated December 31,
Useful Lives -------------------
(Years) 2001 2000
------------ -------- --------
Computer equipment 2-3 $ 27,929 $ 27,341
Furniture, fixtures and leasehold improvements 3-7 6,376 7,722
-------- --------
34,305 35,063
Less: accumulated depreciation and amortization (22,236) (15,360)
-------- --------
$ 12,069 $ 19,703
======== ========
Depreciation and amortization expense on property and equipment amounted to
approximately $8,848, $7,609 and $4,085 for the years ended December 31, 2001,
2000 and 1999, respectively.
(7) DEBT:
In March 1999, the Company completed an offering of $150,000 aggregate
principal amount of 5% Convertible Subordinated Notes due 2006 (the "Convertible
Subordinated Notes"). The Convertible Subordinated Notes are convertible, at the
holder's option, into the Company's common stock at an initial conversion rate
of 15.355 shares of common stock per thousand dollar principal amount of
Convertible Subordinated Notes (equivalent to a conversion price of
approximately $65.125 per share), subject to adjustment in certain events.
Interest on the Convertible Subordinated Notes is payable semiannually on April
1 and October 1 of each year, commencing October
62
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(amounts in thousands, except share and per share data)
(7) DEBT: --(Continued)
1, 1999. The Convertible Subordinated Notes are unsecured and are subordinated
to all existing and future Senior Indebtedness (as defined in the Convertible
Subordinated Notes Indenture) of the Company. The Convertible Subordinated Notes
may not be redeemed by the Company prior to April 2, 2002. Thereafter, the
Convertible Subordinated Notes are redeemable at the option of the Company, in
whole or part, at the redemption prices set forth in the Convertible
Subordinated Notes indenture. At this time the Company does not intend to redeem
the Convertible Subordinated Notes. As of December 31, 2001, the Company had no
material indebtedness outstanding that would have constituted Senior
Indebtedness. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which the Company can create,
incur, assume, or guarantee, nor does the Indenture limit the amount of
indebtedness which any subsidiary of the Company can create, incur, assume or
guarantee.
During the third and fourth quarters of 1999, the Company repurchased
$130,300 of its Convertible Subordinated Notes for approximately $90,100 and, as
a result, the Company recognized an extraordinary gain of $36,027, net of
unamortized debt issuance costs. During the fourth quarter of 2001, the Company
repurchased $2,930 of its Convertible Subordinated Notes for approximately $500
and, as a result, the Company recognized an extraordinary gain of $2,404, net of
unamortized debt issuance costs. Convertible Subordinated Notes in an aggregate
principal amount of approximately $16,678, which are convertible into 256,091
shares of the Company's stock, were outstanding as of December 31, 2001.
(8) SHAREHOLDERS' EQUITY:
Pursuant to the terms of the Company's Amended and Restated Certificate of
Incorporation, the Board of Directors is authorized to issue up to an aggregate
of 1,000,000 shares of preferred stock in one or more series and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. The
Company has no present plans to issue any shares of preferred stock.
In March 1997, the Company entered into a five-year agreement with CBS
Broadcasting Inc. ("CBS"). In consideration of the advertising and promotional
efforts of CBS and its license to the Company of the right to use certain CBS
logos and television-related sports content, CBS received 3,100,000 shares of
common stock over the term of the agreement (752,273, 735,802, 558,988, 567,579
and 485,358 shares in 1997, 1998, 1999, 2000 and 2001, respectively). The CBS
agreement also required the Company to issue CBS, on the first business day of
each of the first five contract years, warrants to purchase 380,000 shares of
common stock at per share exercise prices ranging from $10 in 1997 to $30 in
2001. Such warrants were exercisable at any time during the contract year in
which they were granted. As of December 31, 2001, all unexercised warrants
issued to CBS have expired. The value of the advertising and content was
recorded annually in the consolidated balance sheets as deferred advertising and
content costs and amortized to depreciation and amortization expense over each
related contract year. Amounts amortized to expense in 2001, 2000 and 1999 were
$17,288, $17,288 and $14,096, respectively, consisting of amortization relating
to advertising of $14,000 in both 2001 and 2000 and $11,000 for 1999; content of
$518 for 2001, 2000 and 1999; and expense related to warrants of $2,770 for both
2001 and 2000, and $2,578 for 1999, respectively, and are included in
depreciation and amortization in the accompanying consolidated statements of
operations for the years ended December 31, 2001, 2000 and 1999.
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), issued 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
will issue additional shares of common stock valued at $100 million between 2002
and 2006. Shares having a fair market value of $20 million will be issued each
year based on the average of closing prices of the common stock
63
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(amounts in thousands, except share and per share data)
(8) SHAREHOLDERS' EQUITY: --(Continued)
on the Nasdaq National Market for the five-day period ending on the day prior to
the applicable issue dates. On January 1, 2002, the Company issued 6,882,312
shares of the Company's stock, having a market value of $20,000, to CBS pursuant
to this agreement. Additionally, pursuant to the 1999 amendment, the original
revenue sharing provisions of the CBS agreement were eliminated and replaced by
a new revenue sharing formula, which is calculated on a broader revenue base and
at a lower rate. Total annual amounts to be recognized as sales and marketing
expense, not including any revenue share payments, in accordance with the CBS
agreement and amendment are as follows:
2002 $ 22,286
2003 22,286
2004 22,286
2005 22,286
2006 22,286
--------
$111,430
========
On June 29, 1998, the Company acquired International Golf Outlet, Inc.
("IGO"), a privately held Internet retailer of fine golf equipment and
accessories, for $2,000, consisting of $350 in cash and $1,650 of common stock
(46,924 shares). The Company also agreed to issue to the IGO shareholders
additional common stock, valued at $1,500 at the time of acquisition, if IGO met
certain revenue and earnings targets over the three-year period following the
acquisition. Accordingly, during 1999 the Company issued 14,220 additional
shares of Common Stock valued at $249 to the former shareholders of IGO
resulting from revenue and earnings goals being met for the first year of
operations subsequent to the acquisition. In March 2000, 28,439 additional
shares of common stock were issued pursuant to the foregoing terms in connection
with the sale of IGO to MVP, which was effective as of January 1, 2000.
In April 2000, in connection with the acquisition of DBC Sports, the
Company issued to DBC 277,152 shares of common stock. Due to the decline in the
trading price of the Company's common stock, the Company purchased such shares
back from DBC for $12.5 million in April 2001 in order to fulfill certain
obligations set forth in the acquisition agreement. See Note 3.
In December 1999, CBS exercised its 1999 warrants resulting in net proceeds
of $7,600. In January 2000, CBS exercised its 2000 warrants resulting in net
proceeds of $11,500.
The Company has reserved sufficient shares of its common stock to cover
issuance of common stock under the CBS Agreement, exercises of common stock
warrants and the stock option, incentive compensation and employee stock
purchase plans discussed in Note 9.
(9) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:
Common stock warrants issued in 2001, 2000 and 1999 to non-employees for
services rendered primarily under consulting agreements were valued on the date
of grant using the Black-Scholes option pricing model. The following is a
summary of warrants granted, exercised, canceled and outstanding and the
assumptions utilized involving the grants in 2001, 2000 and 1999:
64
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(9) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS: --(Continued)
2001 2000 1999
--------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- --------- -------- ---------- --------
Warrants outstanding, beginning
of year 2,344,000 $29.24 3,451,000 $29.20 2,365,000 $17.51
Granted -- -- 230,000 7.26 29.53
2,455,000
Exercised -- -- (557,000) 21.30 9.73
(1,329,000)
Canceled (1,187,000) 32.87 (780,000) 30.13 (40,000) 5.00
---------- --------- ----------
Warrants outstanding, end of year 1,157,000 $25.01 2,344,000 $28.94 3,451,000 $29.20
========== ========= ==========
The range of exercise prices of warrants outstanding at December 31, 2001
was $5.00 - $49.00. The weighted average fair value of warrants granted during
2000 and 1999 was $6.81 and $9.22, respectively. There were no warrants granted
in 2001. There were 928,365 warrants exercisable at December 31, 2001 at a
weighted average exercise price of $26.35 per share.
Assumptions utilized to value warrants are as follows:
Risk-Free
Volatility Dividend Interest Estimated
Factor Yield Rates Lives
---------- -------- ----------- ---------
2000 grants 100% 0% 5.8% - 6.0% 4-5
1999 grants 75% 0% 4.5% - 6.2% 1-5
In 1995, the Company adopted a stock option plan (the "1995 Plan") under
which the Company is authorized to issue a total of 1,200,000 incentive stock
options and nonqualified stock options to purchase common stock to be granted to
employees, non-employee members of the Board of Directors and certain
consultants or independent advisors who provide services to the Company. Options
become exercisable for 25% of the option shares upon the optionee's completion
of one year of service, as defined, with the balance vesting in successive equal
monthly installments upon the optionee's completion of each of the next 36
months of service. The maximum term of the options is ten years.
On April 14, 1997, the Company adopted the 1997 Incentive Compensation Plan
(the "Incentive Plan"). Pursuant to the Incentive Plan, as amended through June
12, 2000, the total number of shares of common stock that may be subject to the
granting of awards shall be equal to: (i) 8,000,000 shares, plus (ii) the number
of shares with respect to awards previously granted under the Incentive Plan
that terminate without being exercised, expire, are forfeited or canceled, and
the number of shares of common stock that are surrendered in payment of any
awards or any tax withholding requirements. The Incentive Plan provides for
grants of stock options, stock appreciation rights, restricted stock, deferred
stock, other stock-related awards and performance or annual incentive awards at
not less than the fair market value of the underlying common stock that may be
settled in cash, stock or other property. At December 31, 2001, there were
3,008,344 shares available for issuance under both plans.
65
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(9) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS: --(Continued)
A summary of the activity relating to the Company's employee stock option
plans as of December 31, 2001, 2000 and 1999, and changes during the years then
ended is presented below:
2001 2000 1999
--------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- --------- -------- ---------- --------
Outstanding at beginning of year 6,561,569 $ 18.74 4,260,796 $ 20.39 2,821,704 $ 9.60
Granted 1,094,950 2.63 3,168,500 16.74 2,470,100 28.78
Exercised (133) 8.00 (190,931) 7.98 (644,913) 5.62
Canceled (4,467,275) 20.34 (676,796) 22.78 (386,095) 16.94
---------- --------- ---------
Outstanding at end of year 3,189,111 11.01 6,561,569 18.74 4,260,796 20.39
========== ========= =========
Options exercisable at end of year 1,227,265 15.82 2,009,514 19.38 775,049 11.76
========== ========= =========
The weighted average fair value of options granted during 2001, 2000 and
1999 was $1.93, $12.45, and $21.32, respectively.
The following table summarizes information about employee stock options
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
Average
Outstanding at Remaining Weighted Exercisable at Weighted
Range of December 31, Contractual Average December 31, Average
Exercise Prices 2001 Life (In Years) Exercise Price 2001 Exercise Price
- ---------------- -------------- --------------- -------------- -------------- --------------
$ 0.62 to $5.00 1,326,124 8.90 $ 2.92 164,324 $ 3.96
5.01 to 8.00 617,686 7.20 7.81 341,049 7.92
8.01 to 15.00 473,970 7.70 12.00 231,643 12.04
15.01 to 20.00 346,091 6.90 16.91 205,197 16.89
20.01 to 30.00 99,060 6.60 25.79 62,168 25.59
30.01 to 40.00 235,527 7.10 34.30 172,770 33.88
40.01 to 60.00 90,653 7.80 46.84 50,114 47.07
--------- ---------
3,189,111 7.90 11.01 1,227,265 15.82
========= =========
Pro forma information is required by SFAS No. 123 and has been determined
as if the Company had accounted for its stock-based compensation plans under the
fair value method. The fair value of each option grant was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2001, 2000 and 1999,
respectively: risk-free interest rates of 1.3% to 5.5%, 5.2% to 6.7% and 4.6% to
5.6%, dividend yield of 0% for all years, expected volatility factor of 100% for
all years, and expected life of 4.39 years for all years.
66
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except share and per share data)
(9) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS: --(Continued)
The Company's unaudited pro forma information follows for the years ended
December 31:
2001 2000 1999
-------- --------- --------
Net loss - as reported $(61,146) $(106,068) $(17,097)
Pro forma net loss (87,042) (129,936) (26,397)
Net loss per share -
basic and diluted - as reported $ (2.23) $ (4.04) $ (0.74)
Net loss per share
basic and diluted - pro forma $ (3.17) $ (4.95) $ (1.15)
In August and September 2001, the Company issued an aggregate of 1,909,458
shares of restricted stock to its executive officers and certain other key
employees in exchange for the cancellation of certain outstanding stock options
to purchase in the aggregate 3,818,919 shares of common 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 expected four-year vesting period
of the restricted stock. Although vesting is over a four-year period, vesting
may be accelerated upon the Company achieving certain financial goals. As of
December 31, 2001 none of the restricted shares were vested.
On April 14, 1997, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan") and on November 19, 1999 the Purchase Plan was amended to
increase the number of shares of common stock reserved for issuance thereunder
to 1,000,000. The Purchase Plan provides eligible employees, as defined therein,
the right to purchase shares of common stock. The purchase price per share will
be equal to 85% of the fair market value as of certain measurement dates. Such
purchases are limited in any calendar year to the lower of 25% of the employee's
total annual compensation or $25,000. There were 176,460, 73,883 and 101,561
shares of common stock issued pursuant to the Purchase Plan in 2001, 2000 and
1999, respectively.
In January 1996, the Company adopted a retirement plan that qualifies under
Section 401(k) of the Internal Revenue Code. Under this plan, participating
employees, as defined, may defer a portion of their pretax earnings, up to the
Internal Revenue Service annual contribution limits. There is currently no
matching of employee contributions by the Company.
(10) INCOME TAXES:
No provision for Federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 2001. At December
31, 2001, the Company had approximately $160,000 of net operating loss
carryforwards for Federal income tax reporting purposes available to offset
future taxable income; such carryforwards expire beginning in 2009.
Additionally, the Company had $90,000 of capital loss carryforwards. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
and capital losses carried forward may be impaired or limited in certain
circumstances. Events, which may cause limitations in the amount of net
operating losses that the Company may utilize in any one year, include, but are
not limited to, a cumulative ownership change of more than 50% over a three-year
period.
Deferred tax assets at December 31, 2001 and 2000 consist primarily of the
tax effect of net operating loss carryforwards, which amounted to approximately
$60,000 and $37,000, respectively. Other deferred tax assets and liabilities are
not significant. The Company has provided a full valuation allowance on the
deferred tax assets at December 31, 2001 and 2000 to reduce such deferred income
tax assets to zero as it is management's belief that realization of such amounts
do not meet the criteria required by SFAS 109, Accounting for Income Taxes.
Management will review the valuation allowance periodically and make adjustments
as warranted.
67
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(amounts in thousands, except share and per share data)
(11) COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under noncancellable leases that expire
on various dates through 2010. Certain leases require the Company to pay
operating costs, including property taxes and maintenance costs and include rent
adjustment clauses. The Company committed to a ten-year lease for its corporate
headquarters beginning in March 2000. Under the terms of the office leases, the
Company has provided letters of credit to the landlords. The letters of credit
are secured by certain restricted certificates of deposit of approximately $297
as of December 31, 2001.
Rent expense amounted to approximately $2,825, $3,281 and $1,716 for the
years ended December 31, 2001, 2000 and 1999, respectively.
Future minimum lease payments for all operating leases are as follows as of
December 31, 2001:
2002 $ 2,100
2003 2,089
2004 1,487
2005 1,349
2006 1,403
Thereafter 4,955
-------
Total minimum lease payments $13,383
=======
The Company has entered into licensing, royalty and consulting agreements
with various content providers, vendors and sports celebrities. The remaining
terms of these agreements range from one to five years. These agreements provide
for the payment of royalties, bounties and certain guaranteed amounts, some of
which are on a per member basis. Additionally, some agreements provide for a
specified percentage of advertising and merchandising revenue to be paid to the
athlete or organization from whose Web site the revenue is derived. Several of
the payments ($2,000 in 2002, $2,333 in 2003, $2,666 in 2004) are payable in
stock at prevailing market prices in lieu of cash at the Company's option.
Minimum future guaranteed payments required under such agreements are as
follows as of December 31, 2001:
2002 $ 8,201
2003 11,883
2004 9,131
2005 7,605
2006 2,015
-------
$38,835
=======
In November 2001, Sandbox.com, Inc. ("Sandbox") filed a lawsuit in the
Seventeenth Judicial Circuit in and for Broward County, Florida, alleging that
the Company breached an agreement and plan of merger to acquire Sandbox (the
"Merger Agreement"), misappropriated trade secrets, breached fiduciary duties,
and was unjustly enriched as a consequence of alleged transfers of assets and
proprietary information. The Company in its Answer and Affirmative Defenses and
Claim of Right to Setoff asserts that it was within its contractual rights to
terminate the Merger Agreement and otherwise denies the substantive claims set
forth in Sandbox's complaint, claims a $600 set off for Sandbox's breach of the
Merger Agreement, and has filed a counterclaim against Sandbox and a third party
complaint against another party for fraud in the inducement relating to the
Merger Agreement and a related Consulting Agreement. The case is in the
pre-trial discovery phase, and no trial date or pretrial order has yet been
68
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(amounts in thousands, except share and per share data)
(11) COMMITMENTS AND CONTINGENCIES: --(Continued)
set by the court. The Company believes the claim by Sandbox is without merit and
intends to vigorously defend itself in this action and to pursue its
counterclaim against Sandbox and its claims against the third party defendant.
In the opinion of management, the Company is not currently a party to any
legal proceedings, the adverse outcome of which, individually or in the
aggregate, would have a material adverse effect on the Company's consolidated
financial position or results of operations.
(12) RELATED PARTY TRANSACTIONS:
Pursuant to the Company's promotion and licensing agreement with CBS, the
Company issued equity instruments to CBS and expensed $17,288, $17,288 and
$14,096 during 2001, 2000 and 1999, respectively, primarily related to
advertising and promotion on CBS. See Note 8. As of January 2002, CBS owns
approximately 32% of the Company's outstanding common stock. See Note 13. In
addition, the Company expensed $3,000, $3,000 and $1,250 during 2001, 2000 and
1999, respectively, related to shares issued to Westwood One, Inc., a company
that may be deemed an affiliate of CBS, in exchange for advertising and
promotion and the Company incurred television, radio and outdoor advertising
expenses related to services provided by CBS and/or certain of its affiliates of
$2,227, $1,408 and $410 in 2001, 2000 and 1999, respectively.
The Company has had transactions in the normal course of business with
certain officers and directors of the Company. The terms of these agreements
were negotiated on what the Company believes is an "arms-length basis." In April
2001, the Company loaned an officer of the Company $200 at an annual interest
rate of 5.5% secured by the officer's stock in the Company. The loan and accrued
interest were paid in full in December 2001. The Company contracts for
endorsement and other services of Joe Namath through Planned Licensing, Inc.,
which is a wholly-owned subsidiary of Namanco Productions, Inc. whose president
and sole stockholder is a director of the Company. The Company has an agreement
with Planned Licensing, Inc. through October 16, 2004. The Company incurred
consulting and royalty expenses related to services provided by Planned
Licensing, Inc. of $207, $267 and $61 in 2001, 2000 and 1999, respectively.
Additionally, in 2000 the Company issued 30,000 common stock warrants to Planned
Licensing, Inc. that vest over the life of the agreement. The Company is
obligated to make future minimum payments to Planned Licensing, Inc. totaling
$550 under this agreement through 2004.
(13) SUBSEQUENT EVENT:
In January 2002, pursuant to the terms of the CBS Agreement, the Company
issued approximately 6.9 million shares of its common stock to CBS valued at $20
million. Upon issuance, CBS owns approximately 11.4 million shares of the
Company's common stock, representing approximately 32% of the Company's 36.1
million total outstanding common shares.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
69
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
Item 11. Executive Compensation.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions.
The information required in response to this item is incorporated by
reference to the Registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Reference is made to the Index to Financial Statements set forth in "Item
8. Financial Statements and Supplementary Data" of this Annual Report on Form
10-K.
2. Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission") are not
required under the related instructions, the required information is contained
in the financial statements and notes thereto or are not applicable, and
therefore have been omitted.
70
3. Exhibits:
The following exhibits are filed as part of this Annual Report on Form
10-K:
Exhibit Description
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation (3.1)(1)
3.2 Amendment of Article IV of the Amended and Restated Certificate of
Incorporation (3.2)(2)
3.3 Amendment of Article I of the Amended and Restated Certificate of
Incorporation (3.3)(3)
3.2 Form of Amended and Restated Bylaws (3.2) (4)
10.1* Form of Indemnification Agreement between the Company and each of its
directors and executive officers (10.2) (4)
10.2* 1995 Stock Option Plan (10.1) (4)
10.3* 1997 Incentive Compensation Plan, as amended (4.1)(5)
10.4* Employee Stock Purchase Plan, as amended (10.4)(3)
10.5 Amended and Restated Investors' Rights Agreement dated as of September
25, 1996, among the Company, the holders of the Company's Series A,
Series B and Series C Preferred Stock, The Estate of Burk Zanft and
Michael Levy (10.5) (4)
10.6 Agreement dated March 5, 1997 between the Company and CBS Inc. (10.6)
(4)
10.7+ Premier Sports Information and Commerce Agreement, effective as of
October 1, 1998, by and between the Company and America Online, Inc.
(10.1) (6)
10.8 Amendment to Agreement, effective as of January 1, 1999, between the
Company and CBS Broadcasting, Inc. (99.1) (7)
10.9* Amended and Restated Employment Agreement, dated as of January 28,
2000, between the Company and Michael Levy (10.14)(3)
10.10* Amended and Restated Employment Agreement, dated as of January 28,
2000, between the Company and Kenneth W. Sanders (10.15)(3)
10.11* Amended and Restated Employment Agreement, dated as of January 28,
2000, between the Company and Daniel L. Leichtenschlag (10.16)(3)
10.12* Employment Agreement, dated as of January 28, 2000, between the
Company and Andrew S. Sturner (10.17)(3)
10.13* Employment Agreement, dated as of January 28, 2000, between the
Company and Mark J. Mariani (10.18)(3)
10.14 First Amendment to License and Consulting Agreement between the
Company and Planned Licensing, Inc. dated as of October 16, 1999
(10.19)(3)
10.15* Amendment to the Employment Agreement of Michael Levy, dated as of
June 30, 2000 (10.1)(8)
10.16* Second Amendment to Amended and Restated Employment Agreement of
Michael Levy dated as of August 20, 2001 (10.1)(9)
10.17* First Amendment to Amended and Restated Employment Agreement of
Kenneth Sanders dated as of August 20, 2001 (10.2)(9)
10.18* First Amendment to Amended and Restated Employment Agreement of Daniel
Leichtenschlag dated as of August 20, 2001 (10.3)(9)
10.19* First Amendment to Employment Agreement of Andrew Sturner dated as of
August 20, 2001 (10.4)(9)
10.20* First Amendment to Employment Agreement of Mark Mariani dated as of
August 20, 2001 (10.5)(9)
10.21* Employment Agreement of Peter Pezaris dated as of August 20, 2001
(10.6)(9)
10.22++ 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 (10.7)(9)
10.23++ 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. (10.8)(9)
21.1 Subsidiaries of the Company (filed herewith)
23.1 Consent of Arthur Andersen LLP (filed herewith)
99.1 Confirmation of Receipt of Assurances from Arthur Andersen LLP
71
- ----------
(1) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on
Form S-1 (Registration No. 333-62685).
(2) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on
Form S-3 (Registration No. 333-78921).
(3) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-K for the
year ending December 31, 1999.
(4) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on
Form S-1 (Registration No. 333-25259).
(5) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on
Form S-8 (Registration No. 333-43746).
(6) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q for the
quarterly period ending September 30, 1998.
(7) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 8-K (Event of
February 10, 1999).
(8) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q for the
quarterly period ending June 30, 2000.
(9) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q for the
quarterly period ending September 30, 2001.
* Management Contract or Compensatory Plan
+ Confidential treatment granted to certain portions of this Exhibit
++ 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
The Company did not file any Reports on Form 8-K during the three months
ended December 31, 2001.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SPORTSLINE.COM, INC.
By: /s/ Michael Levy
--------------------------------------
Michael Levy
March 26, 2002 President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael Levy President, Chief Executive Officer and March 26, 2002
- ----------------------------------------- Director (principal executive officer)
Michael Levy
/s/ Kenneth W. Sanders Chief Financial Officer March 26, 2002
- ----------------------------------------- (principal financial and accounting officer)
Kenneth W. Sanders
/s/ Thomas Cullen Director March 26, 2002
- -----------------------------------------
Thomas Cullen
/s/ Gerry Hogan Director March 26, 2002
- -----------------------------------------
Gerry Hogan
/s/ Richard B. Horrow Director March 26, 2002
- -----------------------------------------
Richard B. Horrow
/s/ Joseph Lacob Director March 26, 2002
- -----------------------------------------
Joseph Lacob
/s/ Sean McManus Director March 26, 2002
- -----------------------------------------
Sean McManus
/s/ Andrew Nibley Director March 26, 2002
- -----------------------------------------
Andrew Nibley
/s/ Russell I. Pillar Director March 26, 2002
- -----------------------------------------
Russell I. Pillar
/s/ Michael P. Schulhof Director March 26, 2002
- -----------------------------------------
Michael P. Schulhof
/s/ James C. Walsh Director March 26, 2002
- -----------------------------------------
James C. Walsh
73
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
99.1 Confirmation of Receipt of Assurances from Arthur Andersen LLP
74