SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended October 31, 2000 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-23262 CMGI, INC. ---------- (Exact name of registrant as specified in its charter) DELAWARE 04-2921333 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 100 Brickstone Square 01810 Andover, Massachusetts (Zip Code) (Address of principal executive offices) (978) 684-3600 (Registrant's telephone number, including area code) 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 _____ ----- Number of shares outstanding of the issuer's common stock, as of December 11, 2000 Common Stock, par value $.01 per share 319,311,017 --------------------------------------- ----------- Class Number of shares outstanding CMGI, INC. FORM 10-Q INDEX Page Number ----------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets October 31, 2000 (unaudited) and July 31, 2000 3 Consolidated Statements of Operations Three months ended October 31, 2000 and 1999 (unaudited) 4 Consolidated Statements of Cash Flows Three months ended October 31, 2000 and 1999 (unaudited) 5 Notes to Interim Unaudited Consolidated Financial Statements 6-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-29 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30 Part II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 31 Item 6. Exhibits and Reports on Form 8-K 31-32 SIGNATURE 34 EXHIBIT INDEX 35 2 CMGI, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share amounts) October 31, July 31, 2000 2000 ---- ---- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 1,163,718 $ 639,666 Available-for-sale securities 513,396 1,595,011 Accounts receivable, trade, net of allowance for doubtful accounts 219,138 232,104 Prepaid expenses and other current assets 108,112 105,094 ----------- ----------- Total current assets 2,004,364 2,571,875 ----------- ----------- Property and equipment, net 283,767 259,270 Investments in affiliates 586,123 583,648 Goodwill and other intangible assets, net of accumulated amortization 4,790,166 4,955,076 Other assets 209,082 187,238 ----------- ----------- $ 7,873,502 $ 8,557,107 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 136,004 $ 523,022 Current installments of long-term debt 6,218 6,649 Accounts payable 125,355 128,627 Accrued income taxes 115,318 36,318 Accrued expenses 231,566 246,289 Deferred income taxes 8,302 392,340 Deferred revenues 33,943 27,898 Other current liabilities 92,166 100,627 ----------- ----------- Total current liabilities 748,872 1,461,770 ----------- ----------- Long-term debt, less current installments 226,523 228,023 Deferred income taxes 312,732 61,365 Other long-term liabilities 47,767 50,945 Minority interest 650,057 586,062 Commitments and contingencies Preferred stock, $0.01 par value. Authorized 5,000,000 shares; issued 375,000 Series C convertible, redeemable preferred stock at October 31, 2000 and July 31, 2000, dividend at 2% per annum; carried at liquidation value 385,030 383,140 Stockholders' equity: Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; issued and outstanding 318,875,119 shares at October 31, 2000 and 296,487,502 shares at July 31, 2000 3,189 2,965 Additional paid-in capital 6,990,741 6,190,182 Deferred compensation (30,122) (45,202) Accumulated deficit (1,496,268) (857,814) ----------- ----------- 5,464,351 5,290,131 Accumulated other comprehensive income (loss) 34,981 495,671 ----------- ----------- Total stockholders' equity 5,502,521 5,785,802 ----------- ----------- $ 7,873,502 $ 8,557,107 =========== =========== see accompanying notes to interim unaudited consolidated financial statements 3 CMGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts) Three months ended October 31, ------------------------------ 2000 1999 ---- ---- Net revenue $ 366,143 $ 129,118 Operating expenses: Cost of revenue 329,878 113,560 Research and development 53,271 20,188 In-process research and development 1,462 -- Selling 141,066 72,501 General and administrative 85,047 30,053 Amortization of intangible assets and stock-based compensation 652,139 170,039 ---------- --------- Total operating expenses 1,262,863 406,341 ---------- --------- Operating loss (896,720) (277,223) ---------- --------- Other income (expenses): Interest income 12,119 5,871 Interest expense (22,588) (5,700) Other gains, net 197,338 48,349 Gains on issuance of stock by subsidiaries and affiliates 126,589 46,368 Equity in losses of affiliates (15,872) (1,796) Minority interest 88,852 23,288 ---------- --------- 386,438 116,380 ---------- --------- Loss before income taxes (510,282) (160,843) Income tax expense (benefit) 126,282 (43,431) ---------- --------- Net loss (636,564) (117,412) Preferred stock accretion and amortization of discount (1,890) (4,935) ---------- --------- Net loss available to common stockholders $ (638,454) $(122,347) ========== ========= Basic and diluted loss per share $ (2.07) $ (0.54) ========== ========= Shares used in computing basic and diluted loss per share 307,873 226,372 ========== ========= see accompanying notes to interim unaudited consolidated financial statements 4 CMGI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three months ended October 31, ------------------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net loss $ (636,564) $ (117,412) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 680,893 175,430 Deferred income taxes 42,541 (118,918) Non-operating gains, net (323,927) (94,717) Equity in losses of affiliates 15,872 1,796 Minority interest (88,852) (23,288) In-process research and development 1,462 -- Changes in operating assets and liabilities, excluding effects from acquired companies: Trade accounts receivable 19,548 (18,821) Prepaid expenses and other current assets (3,549) (13,407) Accounts payable and accrued expenses 543 16,254 Deferred revenues 1,428 7,316 Refundable and accrued income taxes, net 80,382 25,280 Tax benefit from exercise of stock options -- 48,802 Other assets and liabilities (640) (5,218) ---------- ---------- Net cash used for operating activities (210,863) (116,903) Cash flows from investing activities: Additions to property and equipment (42,202) (23,185) Net proceeds from maturities of (purchases of) available-for-sale securities 19,923 (6,500) Proceeds from sale of stock investments 844,016 291,069 Investments in affiliates (46,173) (11,129) Cash paid for acquisitions of subsidiaries, net of cash acquired (12,460) 23,425 Other (8) -- ---------- ---------- Net cash provided by investing activities 763,096 273,680 ---------- ---------- Cash flows from financing activities: Net repayments of notes payable (33,570) -- Net proceeds from issuance of common stock 6,795 5,569 Net proceeds from issuance of stock by subsidiaries 4,382 69,567 Other (5,788) 4,176 ---------- ---------- Net cash provided by (used for) financing activities (28,181) 79,312 ---------- ---------- Net increase in cash and cash equivalents 524,052 236,089 Cash and cash equivalents at beginning of period 639,666 468,912 ---------- ---------- Cash and cash equivalents at end of period $1,163,718 $ 705,001 ========== ========== see accompanying notes to interim unaudited consolidated financial statements 5 CMGI, INC. AND SUBSIDIARIES NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS A. Basis of Presentation The accompanying consolidated financial statements have been prepared by CMGI, Inc. (CMGI or the Company) in accordance with generally accepted accounting principles. In the opinion of management, the accompanying consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. While the Company believes that the disclosures presented are adequate to make the information not misleading, these consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the year ended July 31, 2000 which are contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on October 30, 2000 (as amended on December 8, 2000). The results for the three-month period ended October 31, 2000 are not necessarily indicative of the results to be expected for the full fiscal year. Certain prior year amounts in the consolidated financial statements have been reclassified in accordance with generally accepted accounting principles to conform with current year presentation. B. New Accounting Pronouncements In June 1998, the