Europe - Jubii

Transcription

Europe - Jubii

Europe
SHAPING THE FUTURE OF THE INTERNET
Annual Report
(US-GAAP)
Year ended December 31, 2002
Key Figures
In million Euro (except share data and gross margin)
Total revenues
Year ended
December 31,
2002
118.0
Gross profit
Year ended
December 31,
2001
(Unaudited)
Change
(in percent)
150.7
(22) %
107 %
35.2
17.0
30 %
11 %
EBITDA
(53.9)
(133.3)
Operating loss
(90.3)
(927.7)
(90) %
Net loss before cumulative effect of accounting
change
(78.6)
(909.4)
(91) %
(179.0)
(909.4)
(80) %
Net loss per share basic and diluted before
cumulative effect of accounting change in Euro
(0.25)
(2.89)
(91) %
Net loss per share basic and diluted in Euro
(0.57)
(2.89)
(80) %
Gross margin
Net loss
In million Euro (except share data and gross margin)
Revenues
Gross profit
(60) %
Quarter ended
December 31,
2002
(Unaudited)
Quarter ended
September 30,
2002
(Unaudited)
Quarter ended
June 30,
2002
(Unaudited)
Quarter ended
March 31,
2002
(Unaudited)
28.8
27.2
30.0
32.1
11.2
9.7
7.8
6.6
39 %
36 %
26 %
20 %
1.5
(15.7)
(22.4)
(17.4)
Operating loss
(6.4)
(31.6)
(29.1)
(23.2)
Net loss before cumulative effect of accounting
change
(1.5)
(30.4)
(27.5)
(19.3)
Net loss
(1.5)
(30.4)
(27.5)
(119.7)
Net loss per share basic and diluted before
cumulative effect of accounting change in Euro
(0.00)
(0.10)
(0.09)
(0.06)
Net loss per share basic and diluted in Euro
(0.00)
(0.10)
(0.09)
(0.38)
Gross margin
EBITDA
December 31,
2002
Other data
Page views per quarter (unaudited)
Number of employees
Cash position in million Euro
December 31,
2001
Change
9.9 billion
6.9 billion
43 %
883
1,151
(23) %
219.6
288.9
(24) %
Please refer also to the explanatory notes to the key figures, which are
displayed on page 46
1
Table of Contents
Report to Shareholders
1. Message from the CEO
5
2. Overview
6
3. Financial Results
13
4. Shareholder Structure
16
5. Employees
17
6. Risk Management
17
7. Outlook
18
Consolidated Financial Statements
1. Consolidated Financial Statements
21
2. Notes to Consolidated Financial Statements
26
3. Independent Auditors’ Report
45
4. Quarterly Financial Information
46
5. Report of the Supervisory Board
47
6. Group Structure
49
2
3
R E P O R T
T O
S H A R E H O L D E R S
Report to Shareholders
4
1. Message from the CEO
R E P O R T
T O
Dear Shareholders,
2002 was both a difficult but yet
successful year for Lycos Europe.
The ongoing slowdown in the overall
economy affected the advertising
market negatively and Lycos Europe
experienced revenues that were lower
than initially anticipated. However,
intense cost reduction initiatives
allowed Lycos Europe to improve its
financial results significantly.
Lycos Europe focused
especially on optimizing
its internal processes.
The consolidation of
our group’s technical
infrastructure
was
improved substantially
in almost all countries,
which lowered our cost
base and at the same time
improved our product
quality
significantly.
Streamlined workflows
also led to a reduction
in the number of people
employed by Lycos
Europe. Although this
helped us to further lower
expenses it was still a
painful process both for
our employees and the management.
With our strongly improved cost
structure we succeeded in significantly
reducing our losses and achieved the
best results since our initial public
offering (IPO) in the year 2000.
I am pleased to report that Lycos
Europe did achieve its major financial
goal for the year 2002, a positive
EBITDA result for the last quarter.
Even though this was supported by
some non-recurring items, this first
quarter with a positive EBITDA since
our IPO marks a major milestone on
the path to the long-term profitability
of Lycos Europe.
In 2002, we also initiated „Portal
Vision“, a project to re-work our
product strategy. As a result Lycos
Europe will focus on the combination
of community and entertainment,
called „Communitainment“.
5
This strategy is key to differentiate us
from our competitors and is expected
to have a major impact on product
attractiveness and revenue generation.
Since our market is changing, brand
advertising and premium services
shall become the growth drivers of
our business and we believe that
Communitainment will support both
revenue streams very well.
In 2003 the main challenge for Lycos
Europe will be to focus on reach
and revenue again. We believe that
premium services will evolve into
another major revenue stream besides
advertising.
Even though we need to overcome
the loss of the frame agreement with
Bertelsmann, we are also convinced
that mid- to long-term our advertising
revenues will recover since the
Internet is one of the few growth
markets in the media industry.
With the launch of new and exciting
products like Lycos Classmates,
Lycos WebCenter, and Quiz Show in
2002 we already laid the foundation
for a successful year 2003.
Christoph Mohn
Chief Executive Officer
2. Overview
This report contains certain forwardlooking statements and information
relating to Lycos Europe that are
based on the beliefs of Lycos Europe
as well as assumptions made by and
information currently available to
Lycos Europe.
These statements include, but are
not limited to, statements about
Lycos Europe’s strategies, plans,
objectives, expectations, intentions,
expenditures and assumptions as
well as other statements contained
in this report that are not historical
facts. When used in this document,
words such as “anticipate”, “believe”,
“estimate”, “expect”, “intend”, “plan”
and “project” and similar expressions,
as they relate to Lycos Europe or its
management, are intended to identify
forward-looking statements.
These statements reflect Lycos
Europe’s current views with respect
to future events, are not guarantees of
future performance and involve risks
and uncertainties that are difficult
to predict. Further, certain forwardlooking statements are based upon
assumptions as to future events that
may not prove to be accurate.
Investors are cautioned that forwardlooking statements contained in
this section involve both risk and
uncertainty. Several important factors
cause actual results to differ materially
from those anticipated by these
statements. Many of these statements
are macroeconomic in nature and are,
therefore, beyond the control of Lycos
Europe.
Inspiring Real Relationships
“We put knowledge within reach.
We put people within reach. We put
products and services within reach.”
Lycos Europe is an Internet portal
focusing
on
Communitainment.
Started as a search engine back in
1997 Lycos Europe offers today a
large variety of exciting Internet
applications supporting both the
community of Lycos users and
entertainment opportunities. The
overall integration of its products and
services into its Communitainment
strategy differentiates Lycos Europe
from its competitors. A fresh design
attracts the attention of Lycos
Europe´s target group, common
interfaces and seamless integration
of its products and services guarantee
easy usage, and its services are of
high quality. With a network covering
Austria, Denmark, France, Germany,
Great Britain, Italy, the Netherlands,
Norway, Russia, Spain, Sweden, and
Switzerland Lycos Europe is a true
pan-European network.
Lycos Europe aims to provide the
most popular online services to
attract the largest user audience of
any portal in Europe. Lycos Europe is
committed to initiating, strengthening
and deepening relationships between
and with its users and with its
advertising clients. For its users,
Lycos Europe wants to be the easiest
and most enjoyable way to get and
keep in touch with friends, contacts
– and life. For its advertisers, Lycos
Europe thrives to be the most reliable
and powerful medium in the Internet
to make a customer´s brand known to
users.
Lycos Europe´s Main Events 2002
January
. Consolidation of all entities in
France
March
. Restructuring program accelerated
April
. Reorganization of Lycos France
. Launch of Lycos WebCenter
. Launch of new Fireball search
technology in Germany
May
. Launch of Lycos MMS-Composer
on Lycos Mobile
June
. Pay-for-Performance search
agreement with Overture
. Launch of the Quiz Show World
Cup Special
6
2. Overview
July
. Agreement with Espotting
. Sale of Netzeitung
. Squeeze out offer for Lycos France
R E P O R T
T O
August
. Lycos Europe joins Liberty Alliance
. Acquisition of Brience Armenia
7
October
. Settlement agreement with previous
Massmarket shareholders
. Launch of substantially improved
Chat
November
. Agreement with Amazon
. Sale of Massmarket
. Launch of Lycos Matchmaker in
cooperation with TerraLycos
. Relaunch of Mobile Channel
. Acquisition of shopping portal
eVITA in Germany
. European rollout of Lycos Classmates
December
. Sale of Nettavisen
. Launch of Love@Lycos DeLuxe
. Achievement of EBITDA-break
even
Achieving the Target
Reaching EBITDA Break-even
In 2002, Lycos Europe had to cope
with a weak advertising market and
the ongoing slowdown in the overall
economy leading to an economic
climate considerably worse than
initially expected. Therefore Lycos
Europe accelerated its restructuring
program originally started in
September 2001. The overall
turnaround program consisted of
several elements, including reduced
marketing spending, a reduction
of headcount, and a new network
concept. During 2002, this turnaround
program was enlarged when Lycos
Europe decided to consolidate all
its entities in France, to further
unify its technical infrastructure,
and to withdraw from non-strategic
business activities. While processes
and workflows were streamlined
both nationally and on a European
level, redundancies were resolved
thus leading to a total reduction of
headcount from 1,151 at the end of
December 2001 to 883 at the end
of December 2002. The successful
implementation of its reorganization
enabled Lycos Europe to substantially
reduce cost thus compensating lower
revenues. Despite the unfavorable
economic framework, Lycos Europe
therefore succeeded in significantly
lowering its losses. Its strongly
improved cost structure led to
enhanced competitiveness helping
Lycos Europe to achieve its main
financial target to become profitable
on an EBITDA basis (see page 46 for
a definition of EBITDA) for the last
quarter of 2002. Supported by some
non-operating events the achievement
of this challenging goal under very
unfavorable market conditions marks
a major milestone in the improvement
of the financial situation of Lycos
Europe.
Consolidation of All Activities in
France
After the acquisitions of Spray
Network N.V. including its subsidiary
Caramail in October 2000 and
MultiMania in January 2001
respectively, Lycos Europe reached
the final step to consolidate its entities
in France in 2002.
As part of Lycos Europe´s accelerated
overall
restructuring
program,
Lycos France announced a second
reorganization in April 2002 after
the first restructuring in June 2001.
Headcount reduced from 170
employees on December 31, 2001,
to 109 employees on December 31,
2002.
In July 2002, Lycos Europe filed a
squeeze out offer for the remaining
minority stake in Lycos France. Lycos
Europe already owned approximately
96 percent of Lycos France´s equity
and voting rights.
When the squeeze out process was
completed on July 30, 2002, Lycos
Europe owned 100 percent of Lycos
France´s shares. Therefore the shares
in Lycos France are no longer publicly
traded.
2. Overview
Harmonization of Technical
Infrastructure
In 2002, the integration of the
previously
acquired
companies
Spray and MultiMania was both
organizationally and technically
substantially improved, leading to
a common technical infrastructure
in almost all countries. Apart from
reducing cost considerably the
harmonization of the technical
infrastructure
improved
Lycos
Europe´s overall product quality
significantly with services running
faster and more stable.
Following its technical integration
Lycos Europe migrated its mail users
to a new architecture resulting in a
significantly improved performance
and a considerable reduction of spam
mails. Lycos Europe´s mail platform is
now one of the fastest on the Internet
and generated an increasing number
of active users.
Lycos Europe further succeeded in
bringing forward its infrastructure
projects. New ad management
systems run more smoothly, a large
billing platform was installed, and the
sign-up system for the Lycos site as
well as the pageview reporting system
were both improved considerably.
To enlarge its development capacities,
Lycos Europe acquired the Armenian
company Brience Armenia cjsc from
the San Francisco (USA) based
Brience Inc. in August 2002. Brience
Armenia was integrated into Lycos
Europe’s network of competence
centers as Lycos Armenia cjsc and
will focus on further enhancing Lycos
Europe’s development competence in
the Communitainment area.
Focus on Core Competencies
Following its consolidation strategy,
Lycos Europe decided to withdraw
from non-strategic business activities
and to focus on its core competencies
search, communication, homepage
building, communities, e-commerce,
and selected content channels.
On July 1, 2002, Lycos Europe
therefore
sold
its
German
subsidiary Netzeitung, an online
newspaper, to the publishing house
BertelsmannSpringer. With its focus
on editorial content Netzeitung´s
strategic fit with Lycos Europe´s other
business activities was only very
limited. Netzeitung was loss making.
In line with the sale of Netzeitung,
Lycos Europe sold its subsidiary
Nettavisen on December 31, 2002.
Nettavisen is one of Norway’s largest
independent online newspapers and
was also loss making.
Additionally
Lycos
Europe
sold Massmarket, a Norwegian
outsourcing company specialized in
procurement for business customers.
Massmarket generated revenues of
EUR 9.3 million during the first ten
months of fiscal year 2002 but was
loss-making. A settlement agreement
with previous shareholders of
Massmarket AS preceded the sale.
The sale of these three subsidiaries
enabled Lycos Europe to further
reduce losses and, at the same time, to
adapt even better to its new strategic
profile defined by Portal Vision.
Portal Vision
Communitainment
Apart from the comprehensive
restructuring program, 2002 was
characterized by sharpening Lycos
Europe´s strategic focus. Since
Lycos Europe started in 1997, the
company´s portfolio has grown
significantly and covers today a wide
range of products and services such
as search, communication services,
online
communities,
homepage
building,
e-commerce,
content
channels, and Internet access. Lycos
Europe´s strategic focus was defined
in a project called “Portal Vision”.
This project aimed at creating a clear
and fascinating portal brand with high
quality products and a fresh design.
Lycos Europe wants to differentiate
8
2. Overview
R E P O R T
T O
its services even better from those of
its competitors and intends to focus its
products on a more valuable market
segment. The result of Portal Vision
will be the foundation and reference
to the future development of Lycos
Europe´s products.
9
Based on its strong brands and
high-quality products in the areas
of
communication,
community
and entertainment services such as
Lycos Entertainment Chat, Lycos
Fight Club, Lycos Quiz Show, or
Love@Lycos, Lycos Europe´s product
strategy to implement portal vision is
summarized as “Communitainment”.
Instead of thinking about community
and entertainment as separate
categories, Lycos Europe will bring
them together to increase the value
and differentiation of its products.
Most products in Lycos Europe´s
portfolio will be “flavored” by
Communitainment
thus
making
products more valuable to both
consumers and advertisers.
has continued with topic related
specials and with questions relating to
common knowledge.
Lycos Europe´s viral games give
evidence of the company´s focus
to strengthen users´ loyalty while
being an innovative platform for
online advertisers. They ensure high
word-of-mouth
recommendations,
thus increase user numbers, generate
new customers and enhance Lycos
Europe´s strong market position. Viral
marketing generated additional traffic
and as such successfully compensated
Lycos Europe´s potential loss of
traffic due to its substantial reduction
in traditional marketing spending.
Even though Communitainment was
only initialized in 2002, Lycos Europe
already succeeded in launching
several products and services to build
up and strengthen its position as a
Communitainment portal.
One of the first outcomes of the
Portal Vision project was the new
Lycos homepage design, which was
introduced in the summer of 2002.
Following its entertainment idea
Lycos Europe signed an agreement
with RenaultF1 for the Formula 1
season 2002. With Lycos Europe
being RenaultF1´s official European
Internet partner Lycos users in
France, Germany, Spain and UK
received background information
on races, racing drivers and their
favorite teams on Lycos Europe´s
portal sites. Furthermore, Lycos
Europe offered Formula 1 fans the
chance to talk to their racing stars in
the Lycos Entertainment Chat. Due to
an arrangement with BMG, another
partner of RenaultF1, Lycos Europe
was able to present international
BMG music stars visiting the races
as guests of the RenaultF1 team and
performing exclusive concerts in each
country for a selected audience.
A viral online game called Lycos
Fight Club, an online boxing game,
was rolled out throughout Europe.
In June 2002, Bertelsmann Music
Group (BMG) Europe started a
competition to specially promote six
of its most famous stars on Lycos
Fight Club. Building on the success
of this first viral game, the Quiz Show
World Cup Special was launched in
all European countries at the time
of the soccer world cup 2002. This
two-player quiz on soccer related
topics was very successful with about
500,000 visitors. After the end of the
soccer world cup, Lycos Quiz Show
For its soccer supporters, Lycos
Europe entered into cooperations
with the acting German soccer
champion Borussia Dortmund and
with Manchester United, one of the
biggest names in sports. Following the
agreement with Borussia Dortmund,
Lycos Europe´s communication
products were integrated into
Borussia Dortmund´s portal sites.
Lycos Europe thus contributes its
applications such as Lycos Quiz
Show and Chat while Borussia
Dortmund offers editorial content
and the possibility to chat with its
famous stars. Besides, Lycos Europe
Realizing the Vision
2. Overview
took over Borussia Dortmund´s
merchandizing into its shopping mall
and promotes Borussia Dortmund´s
web presence. In May 2002, Lycos
UK and Manchester United PLC
announced a deal that will transform
the club’s fan base in the UK into a
community of fans the club can build
a long-term relationship with. The
deal will help the football club exploit
its content and brand strength via
interactive media for the benefit of its
many fans around the world.
Europe took features from its most
successful products including Lycos
Chat, Love@Lycos, Lycos Mail and
the Lycos Mobile Channel to create
Lycos Classmates. Users can meet
in a chat room or contact individuals
via SMS or email. Other features
include SMS and email notifications
when new users sign up, as well as an
easy to use photo album and a school
reunion tool kit. Lycos Classmates
is characteristic for Lycos Europe´s
mission to inspire real relationships.
In the field of online communities,
Lycos Tripod successfully defended
its position as the European market
leader in homepage building. With the
WebBuilder a new, powerful website
generator was launched which enables
users to create, publish and maintain
their own sites. This point and click
tool is easy to use so that even
beginners who have only little or no
experience with web building tools
are able to generate a personal and
professional website in a few minutes
choosing from a wide range of
templates like resume, photo album,
corporate websites, and others. The
newly introduced webmaster channel
is an online library with more than
2,000 exclusive pages gathering tips,
scripts, workshops and references
to walk beginners and expert users
through the various techniques for
building and developing Internet
sites. The redesigned Lycos Tripod is
available for free to any Lycos user.
Additionally a paid-for platform called
the Lycos WebCenter was launched
later in the year. Lycos WebCenter
offers a number of unique packages,
consisting of Internet domains, web
hosting and other features like e-mail
that cater to the needs especially of
small and medium enterprises, nonprofit organizations or sophisticated
private Internet users.
Revenue Generating Activities
In October 2002, the alumni
community
Lycos
Classmates
was launched in many European
countries. Building on one of its core
competencies, search, Lycos Europe
will bring together former classmates
who lost track of each other. Lycos
Advertising
Lycos Europe generates its revenues
today predominantly from the
advertising business and expects
the advertising business to remain
the most important revenue stream
over the next years. However, Lycos
Europe intends to develop paid
services as another major revenue
stream in the future. This revenue
stream does not only provide other
excellent opportunities for Lycos
Europe to monetize its product
offering, but also to develop a revenue
stream largely independent from the
very volatile advertising market.
Historically Lycos Europe received
EUR 7.0 million in quarterly
advertising revenues associated to a
two-year agreement with Bertelsmann
AG. This agreement terminated at the
end of October 2002 and was not
renewed. In the past this inventory was
exclusively available to Bertelsmann
AG but since the termination of the
contract this inventory is now also
available for other companies and
in November 2002, Lycos Europe
signed an agreement with the leading
e-tailer Amazon, which covers part
of the inventory. In this alliance
Lycos Europe integrates Amazon´s
virtual shopping mall into its portal
thus allowing users to have access
to Amazon´s range of millions of
items in categories such as books,
music, DVDs, videos, electronics,
and software. Customers benefit from
wide selections, favorable prices and
10
R E P O R T
T O
2. Overview
convenient shopping. Lycos Europe
generates revenues by obtaining
registration fees and by charging
turnover commissions.
partnership forms part of a strategic
global marketing agreement between
TerraLycos, Lycos Europe and
Manchester United.
In June 2002, Lycos Europe signed
a two-year pan-European agreement
with Overture, a leader in “Payfor-Performance” - Internet search.
Overture provides its high-quality
Pay-for-Performance search listings
to Lycos Europe’s search engines
Lycos Search and Fireball. The
agreement guarantees revenues to
Lycos Europe of at least EUR 8.5
million over the next two years. Under
the agreement, Lycos Europe’s search
results pages feature Overture’s
Pay-For-Performance search listings
under the heading “Sponsored Links”.
Overture’s listings are generated by its
advertisers who bid for placement on
keywords relevant to their business.
The service was launched in UK in
August 2002 and in Germany and
France in December 2002.
Premium and Paid Services
Another pan-European contract was
signed with Espotting in July 2002.
According to this three-year agreement
Espotting provides its high-quality
Pay-for-Inclusion listings to Lycos
Europe´s channel and directory pages.
The agreement generates revenues of
EUR 17.5 million for Lycos Europe.
The rollout started in September
and included Austria, Belgium,
Denmark, France, Germany, Italy, the
Netherlands, Norway, Spain, Sweden,
Switzerland, and UK. Espotting´s
results appear in separate areas on
Lycos channel sites and are featured
as “Sponsored Links”. Espotting´s
listings are generated by its advertisers
who bid for placement under certain
topics relevant to their business.
Lycos UK became the exclusive
sales agent for Manchester United’s
web inventory underscoring the
portal’s scale and expertise in the
online advertising industry. An
added benefit of the deal is Lycos
UK’s access to Manchester United’s
platinum sponsors all of which are
leading global brands like Nike,
Vodafone and Anheuser-Busch. The
11
Lycos Europe expects a substantial
increase in revenues for premium
services over the next years. Instead
of focusing on paid-for content,
Lycos Europe for example intends to
gain revenues from offering special
features within its communication
products and services. Premium and
paid services will generate direct
revenues and, at the same time,
enhance the quality of Lycos Europe´s
products. Lycos Europe is convinced
that premium products will become
another major revenue stream for the
company in addition to its advertising
revenues.
Paid Submission
In addition to its existing ‘free
submission’ service, Lycos Europe
launched the Lycos Paid Submission
Program. Lycos editors will check
and add websites to the Lycos catalog
within five working days or register
them with the search engine within 48
hours on payment of a service charge.
The ranking of the search results
remains unaffected.
Web Hosting
In 2002, Lycos Europe launched
a new high quality web hosting
service, Lycos WebCenter, creating
an additional revenue stream for the
portal. Lycos WebCenter is a paidfor platform and thus an addition to
the free website building tool that
Lycos also provides to its users.
According to the users´ personal
needs the Lycos WebCenter provides
affordable solutions and an easy
and efficient way to organize the
web presence. Different user groups
ranging from individuals to small
and medium enterprises are targeted
by offering specific product bundles.
Each package consists of a domain
name, email addresses, web space
2. Overview
and homepage building tools. The
packages can be divided into three
categories – personal, advanced and
business – and differ in the number
of email accounts and the extent
of services they offer. The service
packages enable users to have a
true Internet identity and to enjoy a
personalized Internet address. The
service also provides telephone
and email support from a dedicated
network operation team. The
WebCenter service is an extension
of the existing free webpage building
service and is a response to customer
demand. Research showed that users
were looking to create their own
online presence and were willing to
pay for more advanced web hosting
packages. The service was launched
first in the UK in April 2002, followed
by a rollout across many countries
Lycos Europe operates in.
Love@Lycos
A partnership agreement was signed
with TerraLycos to rollout the
premium dating service Matchmaker
in Europe starting in November 2002
in the UK. This premium service has
proven to be one of the most successful
paid services offerings in the US
and is an addition to the free online
dating community Love@Lycos.
In Germany, Love@Lycos DeLuxe
was rolled out in December 2002.
Both Matchmaker and Love@Lycos
DeLuxe offer new features and enable
the user to introduce him or herself
exclusively to other members. The
pricing of these services depends
on the term of the contract varying
between one month and half a year.
Mobile
In November 2002, the new version
of Lycos Europe´s mobile channel
was launched across Europe. This
version is characterized by an easier
usage, new payment methods for
the paid messaging services and the
introduction of new SMS packages
and formats such as broadcast SMS
function - One2Many, a long SMS
facility, and Europe’s first cross-
network,
PC-to-mobile,
MMS
(Multimedia Messaging Service)
Composer. Alongside with reducing
the number of free SMS to zero
in Germany this led to an increase
of paid SMS traffic by almost 300
percent to nearly 400,000 paid SMS
per month in this country alone. The
new broadcast SMS One2Many
Mobile Manager feature allows user
to send SMS campaigns to large
groups of mobile phone users at
specified times as well as capture
responses to create their own polls.
The One2Many Mobile Manager
service went live in December and is
available in a number of competitively
priced bundles. The long SMS
function gives users the ability to send
messages in excess of 160 characters.
Lycos’ pioneering Internet-based PCto-mobile MMS Composer (picture
and sound messaging) is the first in
Europe to allow users to send multi
media messages to the new generation
of mobile phones. Unlike the phoneto-phone MMS, the Lycos facility
gives users a choice when composing
messages as it lets them upload
content from the web and store it in
their own personal archives for use
with the Composer. The Lycos MMS
Composer allows users to log in and
choose from a variety of images and
sounds. Added functionalities allow
users to upload their own images for
sending. With this web-based service
developed in association with Nokia
for MMS compatible terminals,
Lycos Europe positioned itself as the
leading Internet portal in this new
field of communication services.
Shopping
In November 2002, Lycos Europe
announced to acquire Deutsche
Post AG´s shopping portal eVITA.
The acquisition will be effective
per January 1, 2003. Well-known
eVITA will help Lycos Europe to
further enlarge its already very strong
position in e-commerce. Currently,
more than 1.5 million products can
be ordered in 250 shops in Germany
alone.
12
R E P O R T
T O
Lycos Europe changed the fiscal year
end from June 30 to December 31,
starting July 1, 2001. The discussion
of its results for the year ended
December 31, 2002, is performed by
comparing with the 12 months period
ended December 31, 2001 (unaudited),
as discussion of comparative periods
is more meaningful.
Focus on Core Competencies
On July 1, 2002, Lycos Europe sold
its German subsidiary, NZ Netzeitung
GmbH to BertelsmannSpringer,
a subsidiary of Bertelsmann AG,
for a consideration of EUR 1. NZ
Netzeitung is a German online
newspaper.
On November 7, 2002, Spray Network
N.V., a fully owned company of Lycos
Europe N.V., sold its Norwegian
subsidiary Massmarket AS to Visma
Services ASA for a consideration of
EUR 1.8 million. Massmarket AS
is an online outsourcing company
specializing in the procurement for
business customers.
On December 31, 2002, Lycos
Europe sold its Norwegian subsidiary
Nettavisen AS to TV2 Gruppen AS for
a consideration of EUR 3.0 million.
Nettavisen AS is a Norwegian online
newspaper.
Revenues
With revenues of EUR 118.0 million
for the year ended December 31, 2002,
Lycos Europe’s revenues decreased by
22 percent compared to the year ended
December 31, 2001.
Advertising
revenues
for
the
year ended December 31, 2002,
experienced a decline of 29 percent,
compared to the year ended December
31, 2001. The decline in advertising
revenues in 2002 is the result of a weak
advertising market and a slowdown in
the overall economy. Paid services
and shopping for the year ended
December 31, 2002, increased by
13
38 percent compared to the year
ended December 31, 2001. The
increase of revenues of paid services
and shopping was the result of the
increased focus by Lycos Europe
on the paid services and shopping
revenues. Interconnect revenues for
the year ended December 31, 2002,
decreased by 29 percent compared
to the year ended December 31,
2001, as a result of Lycos Europe’s
attempt to selectively reduce usage
for unprofitable parts of the service
through price increases.
Barter revenues represented less than
5 percent of net revenues during those
periods.
Cost of Revenues
Cost
of
revenues
(including
impairment of licenses and trade
names classified as cost of revenues)
decreased from EUR 133.7 million for
the year ended December 31, 2001, to
EUR 82.8 million for the year ended
December 31, 2002. This decrease
in costs of 38 percent was partially
influenced by a one-off impairment
charge of EUR 15.6 million, which
was reflected in the financials for
the year ended December 31, 2001.
Additionally overall cost savings
which include lower network costs
and a reduction of cost relating to
the offering of interconnect revenues
had a significant impact on reducing
cost of revenues, which improved the
overall gross margin from 11 percent
last year to 30 percent for the year
ended December 31, 2002. The sale
of Netzeitung and Massmarket also
contributed to the improvement of the
gross margin starting July 1, 2002.
This improvement in gross margin is
achieved with decreasing revenues,
which indicates that Lycos Europe’s
cost reduction efforts are currently
paying off.
Sales and Marketing
Sales and marketing expenses
amounted to EUR 29.9 million for
which is a decrease by 57 percent
compared to the year ended December
31, 2001. Marketing expenses were
reduced significantly after having
established high brand awareness
all across Europe and following the
implementation of the restructuring
program, which also reduced
the headcount of the marketing
department and the related costs.
General and Administrative
General and administrative expenses
decreased from EUR 65.6 million for
the year ended December 31, 2001, to
EUR 41.8 million for the year ended
December 31, 2002. This decrease
of 36 percent was mainly due to a
significant reduction in the cost for
employees and professional & other
external services.
Research and Development
Cost incurred for research and product
development amounted to EUR 30.4
million for the year ended December
31, 2002, compared to EUR 44.9
31, 2001. This decrease of 32 percent
is the result of the restructuring
program, which focused on a reduction
of costs without jeopardizing the
development of new products. Lycos
Europe acquired on August 1, 2002,
a development company in Armenia,
which employs 33 developers as per
December 31, 2002.
Restructuring Charges
Lycos Europe incurred restructuring
charges of EUR 11.8 million for the
year ended December 31, 2002. In
March 2002, Lycos Europe announced
its plans to accelerate its turnaround
program, launched in September 2001.
As such, Lycos Europe implemented
an additional restructuring program
consisting of several elements,
including the introduction of a new
network concept. Part of the overall
program was to reduce headcount.
Amortization of Intangibles /
Cumulative Effect of Accounting
Change
As a result of adopting SFAS No.
142, goodwill and indefinite lived
intangible assets are no longer
expensed on a straight-line basis over
their estimated useful lives.
The charge for amortization of
intangibles amounted to EUR 1.3
31, 2002, compared to EUR 100.3
31, 2001. The significant reduction of
these costs is a result of Lycos Europe
adopting the Statement of Financial
Accounting Standards (“SFAS”) No.
142.
As a result of the adoption of SFAS
142 on January 1, 2002, Lycos Europe
recorded a goodwill impairment
loss of EUR 100.4 million, which
was recorded as a cumulative effect
of an accounting change in Lycos
Europe’s Consolidated Statements
of Operations. The fair value of the
reporting units giving rise to the
transitional impairment loss was
estimated using the expected present
value of future cash flows. Lycos
Europe will perform its annual
impairment review during the second
quarter of each year.
Acquisition related expenses
The acquisition related expenses
amount to EUR 10.3 million for
the year ended December 31,
2002, of which EUR 9.4 million
relate to the settlement agreement
with the previous shareholders of
Massmarket AS. As a result of the
settlement agreement the plaintiffs,
who were claiming that the purchase
price was not timely received,
agreed to withdraw all legal actions
against Lycos Europe N.V. and its
subsidiaries. The remaining EUR 0.9
million relate to the squeeze out offer
in France, resulting in Lycos Europe
acquiring 100 percent share in the
company Lycos France.
14
Other income, net
R E P O R T
T O
The other income include the result
on the sale of Netzeitung, which
was sold effective July 1, 2002, the
sale of Massmarket, which was sold
effective November 7, 2002, and the
sale of Nettavisen AS, which was sold
effective December 31, 2002.
15
The quarter ended December 31,
2002, showed strong improvement
compared to previous quarters. This
is the result of both operational
improvements such as a reduction
in sales and marketing expenses
and non-recurring items such as
the settlement of litigations and the
appropriate reversal of restructuring
accruals.
EBITDA
Financing
The EBITDA result amounted to EUR
(53.9) million for the full year ended
December 31, 2002, which is an
improvement of 60 percent compared
to the full year ended December 31,
2001 (EUR (133.3) million).
Lycos Europe financed its operations
with funds received when listing the
Company in the year 2000. During
the year ending December 31, 2002,
Lycos Europe used EUR 66.0 million
cash for operating activities. The
negative cash flow from investing
activities amounted to EUR 9.8
million. Lycos Europe generated a
cash inflow of EUR 5.5 million from
financing activities. On December 31,
2002, Lycos Europe’s cash position
amounted to EUR 219.6 million
compared to EUR 288.9 million on
December 31, 2001. Lycos Europe
focused on reducing its operating
losses and will continue to do so,
expecting no additional funding
requirement until becoming cashflow positive.
The EBITDA result was strongly
influenced by the restructuring
charges recorded for the full year
ended December 31, 2002 (EUR 11.8
million). Excluding the restructuring
charges the EBITDA result for the
full year ended December 31, 2002,
would have amounted to EUR (45.0)
million.
Lycos Europe anticipates a further
improvement of its EBITDA as a
result of the implemented restructuring
program.
Lycos Europe´s legal shareholder
structure as of December 31, 2002, is
as follows:
TerraLycos (29.5%), Bertelsmann
Internet Holding GmbH / Fireball
Internet GmbH (18.4%), Christoph
Mohn Internet Holding GmbH
(11.1%), Lycos Europe N.V. [shares
held as treasury shares] (8.2%), and
Others (32.8%). The total number of
shares outstanding as of December
31, 2002, excluding treasury shares is
311,576,344.
In 2002, both the number of total
shares outstanding and the number of
treasury shares held by Lycos Europe
changed. Following the acquisition
of Spray Network, Lycos Europe
issued 521,250 shares to Investor
(Guernsey), a former shareholder
of Spray Network, in January 2002.
This was the fourth and final tranche
allotted to Investor (Guernsey)
after the first three tranches, in total
1,563,750 shares, had been allotted in
December 2000, February 2001 and
August 2001.
In October 2002, Spray Ventures, the
previous owner of Spray Network,
agreed to partially indemnify Lycos
Europe for arranging a settlement
agreement
with
the
previous
Massmarket
shareholders
and
transferred 3,225,500 Lycos Europe
shares to Lycos Europe thus increasing
the number of treasury shares held by
Lycos Europe to 28,000,800.
On January 17, 2003, Lycos
Europe´s shareholders resolved at an
extraordinary general meeting upon
the reduction of the Company´s issued
share capital by canceling 27,277,144
bearer shares currently still held as
treasury shares by Lycos Europe. This
resolution will lead to a reduction
of Lycos Europe´s share capital to
311,576,344 shares outstanding,
excluding the remaining treasury
shares. Additionally, Lycos Europe
will still hold 723,656 own shares
recorded as treasury shares.
Share Price Performance
In 2002, Lycos Europe´s share has
been under pressure again. In line
with the Nemax Internet Index, Lycos
Europe´s stock price experienced
further declines and fell from EUR
0.74 on January 1, 2002, to EUR 0.37
on December 30, 2002, a decline by
50 percent. During the same period
Nemax Internet Index fell by 52
percent.
Since Lycos Europe succeeded in
reaching its main financial target,
the EBITDA break-even, in the
fourth quarter of 2002, Lycos Europe
is confident that investors will
honor this achievement. Following
the reshaping of Frankfurt Stock
Exchange´s trading segments, Lycos
Europe´s stock will not be traded
on Neuer Markt any longer but
will be listed in the Prime Standard
starting on January 1, 2003. In order
to consolidate the trading volume
of Lycos Europe shares with the
goal to achieve maximum liquidity,
Lycos Europe currently evaluates the
consequences of a possible delisting
of its shares from the market with the
lower trading volume, the “Nouveau
Marché” in Paris.
16
Directors’ Holding as of December 31, 2002
Executive Board
Christoph Mohn
R E P O R T
Shares
Options
8,333
285,000
Christoph Mohn Internet Holding GmbH (100 % held by Christoph Mohn)
holds 37,730,000 shares.
Supervisory Board
T O
Lycos Europe´s Stock Price Performance compared to Nemax Internet Index
Shares
Options
Prof. Dr. Jürgen Richter
none
none
Joaquim Agut
none
none
Dr. Dieter Bohnert
none
none
Juan Antonio GarcíaUrgelés Capdevila
none
none
Stephen Killeen
none
none
400
none
Juan Rovira
none
none
Burkhard Schmidt
none
none
Dr. Siegfried Luther
5. Employees
The total number of employees
in Europe decreased from 1,151
as per December 31, 2001, to 883
employees as per December 31,
2002. The reduction in the numbers
of employees is a result of the
completed restructuring program.
Throughout the restructuring process,
management paid particular attention
to employees´ interests.
6. Risk Management
The German law on Control and
Transparency
in
Corporations
(KonTraG) specifies the legal
obligations pertaining to corporate
risk management. Based on these
requirements in Germany, Lycos
Europe maintains a comprehensive
risk management system. As part
of this program, Lycos Europe
systematically lists all risks that might
17
affect the company, quantifies and
qualifies their potential effects, and
determines the key levers required
to influence each risk. Beyond this,
certain employees are assigned
responsibility for specific and
general risks. They are accountable
for monitoring potential risks and
ensure that the agreed measures are
implemented.
7. Outlook
During 2002 Lycos Europe focused
especially on restructuring its
operations and the improvement of its
financial results. While the financial
focus will continue, more effort will
be spent to win more Internet users
with new and improved products and
services.
Improving the Bottom Line
The year of 2002 was clearly marked
by major improvements with regards
to Lycos Europe’s financial results.
This is especially highlighted by
achieving the main financial target, a
positive EBITDA result for the final
quarter.
Looking forward it has to be stressed,
however, that 2003 will become
a year of transition. Especially in
terms of the quarterly EBITDA
result it has to be clearly stated that
the major achievement for the last
three months of 2002 benefited from
special effects like a positive revenue
development due to seasonality, the
last month of the frame agreement
with Bertelsmann, a reduction in
sales and marketing expenses as
well as non-recurring items such as
the settlement of litigations and the
accruals.
Furthermore
Lycos
Europe intends to invest additional
financial funds into its main strategic
objectives, the implementation of
its Communitainment strategy and
the development of paid services as
another major revenue stream for
Lycos Europe. Especially for paid
services Lycos Europe expects to
invest in the short-term. Mid-term
Lycos Europe is convinced that
premium products will become its
second most important revenue stream
besides advertising and a major driver
for its overall results.
For these reasons Lycos Europe plans
to record a negative EBITDA again
during the next quarters. However, at
the same time Lycos Europe intends
to significantly improve its financial
results again in 2003. On an annual
basis Lycos Europe does not only
plan to improve net results, but also
the operating performance measures
EBIT and EBITDA considerably.
Implementing Communitainment
With regard to its product
offering Lycos Europe will focus
on the implementation of the
Communitainment strategy.
By
developing new and excellent
products and services like Quiz Show,
Love@Lycos, Lycos Classmates,
Entertainment or Chat Lycos Europe
intends to make Europe’s Internet
population feel excited about Lycos
every day. Lycos Europe wants to
be a constant companion for its users
everywhere everyday.
By offering excellent products and
promoting them well Lycos Europe
believes to be able to improve its reach
in its core markets. Free products are
supposed to attract people to the sites
of the Lycos network, targeting will
allow Lycos Europe to both offer
products well suited for the needs of
its users and to present an excellent
advertising platform for its clients,
attractive premium services will
generate additional revenues from
its users for the Lycos network. This
strategic approach will change the
way Lycos Europe develops and
markets most of its products during
the next year and thus promises to
reinvent the entire company in a way
well suited for the years to come.
Continuing Its Mission
Lycos Europe expects 2003 to
become both a year of transition
and excitement. With the Internet
population still growing strongly,
some hope for the recovery of
the online advertising market
arising, paid services promising
new revenue opportunities and
the Communitainment strategy to
implement, Lycos Europe believes
to be well positioned to continue its
mission: To shape the future of the
Internet.
Haarlem, The Netherlands
February 4, 2003
Christoph Mohn, CEO
18
19
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
Consolidated Financial Statements
Year ended December 31, 2002
20
F I N A N C I A L
S T A T E M E N T S
Lycos Europe N.V. consolidated statements of operations (US-GAAP)
In thousand Euro (except share data)
Year ended
December
31,
2002
Year ended
December
31,
2001
(Unaudited)
Revenues
Advertising
Paid services and shopping
Interconnect
Other
Total revenues
69,940
23,365
22,302
2,437
118,044
98,363
16,889
31,483
3,971
150,706
Cost of revenues
Impairment of licenses and trade names
Gross profit
(82,817)
35,227
(118,105)
(15,608)
16,993
(29,876)
(41,829)
(30,442)
(11,789)
(10,342)
(1,278)
(125,556)
(90,329)
(69,816)
(65,638)
(44,948)
(14,717)
(100,307)
(649,288)
(944,714)
(927,721)
(137)
9,494
(213)
1,778
10,922
16,920
(827)
941
17,034
(79,407)
(910,687)
846
(12)
1,348
(99)
(78,573)
(909,438)
(100,394)
(178,967)
(909,438)
(0.25)
(2.89)
(0.57)
(2.89)
Operating expenses
Sales and marketing
General and administrative
Research and development
Restructuring charges
Acquisition related expenses
Amortization of intangibles
Impairment of intangibles
Total operating expenses
Operating loss
Other income (expense)
Expense from equity investments
Interest income
Interest expense
Other income, net
Total other income (expense)
Net loss before taxes, minority
interests and cumulative effect of
accounting change
Minority interests in subsidiaries
Income tax expenses
Net loss before cumulative effect of
accounting change
Cumulative effect of accounting change
Net loss
Net loss per share basic and diluted
before cumulative effect of accounting
change
Weighted average number of shares
outstanding
313,961,551 314,257,025
The accompanying notes are an integral part of these consolidated financial statements
21
Lycos Europe N.V. consolidated balance sheets (US-GAAP)
In thousand Euro
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Due from related parties
Prepaid expenses and other current
assets
Total current assets
Property and equipment, net
Goodwill, net
Intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS´
EQUITY
Current liabilities
Short-term debt
Due to related parties
Accounts payable
Accrued expenses and other current
liabilities
Deferred revenue
Total current liabilities
Other liabilities
Deferred revenue
Total liabilities
December
31,
2002
December
31,
2001
219,568
22,595
960
288,891
29,444
121
20,965
18,674
264,088
337,130
24,766
15,191
301
304,346
37,647
97,351
20,824
388
493,340
34
290
13,106
5
1,665
19,317
26,049
37,793
14,052
53,531
7,929
66,709
428
2,619
56,578
732
2,380
69,821
-
1,037
620
620
2,156
1,687,298
(79,432)
(1,363,685)
191
247,768
620
620
2,148
1,682,327
(79,224)
(1,184,718)
709
422,482
304,346
493,340
Commitments and contingencies
(Note 10)
Shareholders’ equity
Class AA registered shares
Class AB registered shares
Class B ordinary bearer shares
Additional paid-in capital
Treasury shares
Accumulated deficit
Other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’
equity
22
F I N A N C I A L
S T A T E M E N T S
Lycos Europe N.V. consolidated statements of shareholders´ equity (US-GAAP)
23
In thousand
Euro (except
share data)
Balance as of
December 31,
2000 (*)
Class AA Shares
Class AB shares
No. of
shares
No. of
shares
62,000,000
Amount
620 62,000,000
Issuance of
shares for
acquisitions
Issuance of
shares for cash
and receivables
Treasury shares
acquired for
settlement of
receivables
Amount
Class B shares
No. of
shares
Amount
620 187,820,302
1,878
18,080,230
181
8,957,500
89
620 214,858,032
2,148
521,250
6
197,862
2
620 215,577,144
2,156
Options acquired
Translation
gain (*)
Net loss (*)
Balance as of
December 31,
2001
62,000,000
620 62,000,000
Issuance of
shares for cash
and receivables
Issuance of
shares for
exercise of
options
Re-issuance
of shares for
exercise of
options
Treasury shares
acquired for
settlement of
receivables
Translation loss
Net loss
Balance as of
December 31,
2002
62,000,000
620 62,000,000
Additional Due from
Paid-insharecapital
holders
Amount
1,409,764
Amount
-
Treasury shares
Accumulated
deficit
No. of
shares
Other
Total
compre- comprehensive hensive
income income
Amount
Amount
Amount
-
-
(275,280)
Amount
(418) (275,698)
183,153
89,485
Amount
1,137,184
183,334
(78,715)
10,859
78,715 (24,922,300) (79,224)
(509)
(75)
(75)
1,127
(909,438)
1,682,327
Total
- (24,922,300) (79,224)
(1,184,718)
1,127
1,127
(909,438) (909,438)
709 (1,184,009)
422,482
5,208
5,214
138
140
(375)
147,000
470
95
(3,225,500)
(678)
(678)
(518)
(178,967)
1,687,298
-
(28,000,800) (79,432) (1,363,685)
(518)
(518)
(178,967) (178,967)
191 (1,363,494)
247,768
(*) unaudited
24
In thousand Euro
Cash flows from operating activities
Net loss
(178,967)
(909,438)
100,394
26,085
137
(3,004)
(1,846)
(846)
127,535
649,288
15,608
(1,432)
(1,830)
6,261
6,417
(3,609)
17,891
(2,214)
(4,787)
(52,885)
(27,383)
F I N A N C I A L
Adjustments to reconcile net loss to net cash used
in operating activities
Cumulative effect of accounting change
Depreciation and amortization
Impairment of intangibles
Impairment of licenses and trade names
Expense from equity investments
Gain on sale of subsidiaries
Other non cash movements
Year ended Year ended
December December
31,
31,
2002
2001
(Unaudited)
Changes in operating assets and liabilities
Decrease in accounts receivable
(Increase) decrease in prepaid expenses and other
current assets
Net change in related party operating accounts
Decrease in accounts payable
Decrease in accrued expenses and other current
liabilities
Increase (decrease) in deferred revenue
Decrease in non current liabilities
Total adjustments
Net cash used in operating activities
(9,077)
(58,895)
5,983
(510)
112,967
(66,000)
(4,407)
(588)
669,319
(240,119)
S T A T E M E N T S
Lycos Europe N.V. consolidated statements of cash flows (US-GAAP)
Cash flows from investing activities
Decrease in related party receivables
Purchases of long-lived assets
Payments for acquisitions, net of cash acquired
Proceeds from sale of fixed assets
Proceeds from sale of subsidiaries, net of cash
Net cash used in investing activities
(11,491)
(36)
1,695
(9,832)
68,176
(23,323)
40,349
86
85,288
5,449
29
5,478
(50)
15,636
(6,559)
50,454
421
59,902
1,031
(1,659)
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
(69,323)
288,891
(96,588)
385,479
Cash and cash equivalents, end of period
219,568
288,891
Cash flows from financing activities
Options acquired
Proceeds from issuance of capital stock
Capital tax
Related party financing
Increase of short-term debt
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents
25
1. The Company and Summary of
Significant Accounting Policies
The Company
Lycos Europe N.V. (the Company or
Lycos Europe), is one of the leading
European
Internet
destinations
operating a pan-European network
of websites in ten languages. The
Company’s combination of search,
communication services, content
channels, Internet access, homepage
building and online communities
addresses a wide range of target
groups. The Lycos Europe Network
provides an attractive medium not
only for consumers but also for
advertisers and e-commerce partners
throughout Europe. Every month
more than 25 million users visit
the Lycos sites in Europe. Today,
Lycos Europe generates more than
2.5 billion page views each month.
With a network of websites covering
Austria, Denmark, France, Germany,
Great Britain, Italy, the Netherlands,
Norway, Russia, Spain, Sweden and
Switzerland, Lycos Europe has a large
geographical reach in Europe.
The Company commenced operations
in the year 1997, and the companies
existing before 2000 were reorganized
as subsidiaries of Lycos Europe N.V.
in January 2000. The Company’s
consolidated financial statements
are prepared in accordance with
the accounting principles generally
accepted in the United States (“US
GAAP”). The accounting of the
Company follows the provisions of
Netherlands law, and its subsidiaries
follow the provisions of the respective
local law. Since those legal systems
contain accounting principles, which
are different in some important
respects from US GAAP, adjustments
were made in order to present the
consolidated financial statements in
accordance with US GAAP.
The registered office of the Company
is in Haarlem, the Netherlands. The
Company generates its revenue from
i) selling advertising (advertising),
ii) Paid services and shopping,
iii) providing Internet access
(interconnect), iv) licensing its
products and services (other). The
websites of the Company are directed
at target groups throughout Europe in
the language of the country concerned
and with country-specific content.
Lycos Europe has changed the fiscal
year end from June 30 to December 31,
starting July 1, 2001. The discussion
of its results for the year ended
December 31, 2002 is performed by
comparing with the 12 months period
December 31, 2001 (unaudited) as
addressing of comparative periods is
more meaningful.
Foreign Exchange Translation and
Transaction
The functional currencies of the
Company’s foreign operations are
the local currencies in the respective
countries. The financial statements
of these subsidiaries are translated
into Euro using the year-end rates
of exchange for assets and liabilities,
and average rates of exchange for the
year for income and expense items.
Translation gains (losses) are recorded
in other comprehensive income as a
component of shareholders’ equity.
Net gains and losses resulting from
foreign
exchange
transactions
are included in the consolidated
statements of operations.
Principles of Consolidation
The consolidated financial statements
include the accounts of Lycos
Europe N.V. and all of its majorityowned subsidiaries. All significant
intercompany transactions have
been eliminated in the consolidation.
Investments in entities in which the
Company can exercise significant
influence, but are less than majority
owned and not otherwise controlled
by the Company, are accounted for
under the equity method.
Revenue Recognition
In order to improve the presentation of
its revenues and to make an analysis
26
F I N A N C I A L
S T A T E M E N T S
27
of the revenues more meaningful,
Lycos Europe has redefined its
revenue streams into the following
four revenue lines:
1. Advertising
2. Paid services and shopping
3. Interconnect
4. Other
Certain reclassifications have been
made to the financial statement
presentation of prior periods to
conform such presentation to the
current period presentation.
The revenues from the sale of
advertising (advertising) are obtained
through short-term contracts and
payments, which business partners
make for long-term prominent
placing and advertising space on the
Company’s websites. Under these
contracts, the Company guarantees
for a fixed or a variable price a
certain number of page impressions
(accesses to Internet pages which
show advertising) or user referrals
to other Internet sites. Revenues on
advertising contracts are recognized
ratably over the period in which
the advertisement is displayed,
provided that no significant Company
obligations remain at the end of a
period in which the collection of the
resulting receivables is probable.
Company
obligations
typically
include guarantees of minimum
number of “impressions” or times
that an advertisement appears in pages
viewed by users of the Company’s
online properties.
The revenues from paid services
and shopping are made up from
fees charged to Internet users for
the access to certain products of the
Company, from commissions on
the turnover made by the business
partners and generated through the
Company’s websites, as well from
the sale of goods on the Internet.
Typically, the relevant contracts
from commissions have terms of six
months and more. The revenues from
shopping are recognized at the time
the service is rendered, if there are no
substantial commitments on the part
of the Company remaining and the
collection of the resulting receivable
is probable.
Revenues
from
providing
interconnect consist of the portion
of the interconnection fees due
to the Company. The revenues
from providing Internet access are
recorded at gross when the Company
acts as principal in the transaction
and carries the risk of loss for the
collection. Only a commission (kick
back fee) is recorded as revenue from
providing Internet access when the
criteria as described above are not
met. The revenues are recognized
when the services are performed.
The other revenues consist of
revenues from licensing which are
generated from the fees for product
licenses and the relevant maintenance
and support services. The revenues
from licensing are recognized at the
time the service is rendered, if there
are no substantial commitments on
the part of the Company remaining
and the collection of the resulting
receivable is probable. Fees from
maintenance and support for the
products of the Company, including
the revenue, which is obtained in
connection with the initial license
fees, are deferred and recorded as
revenue proportionately over the
support period.
Revenues from barter transactions
are accounted for in accordance
to Emerging Issues Task Force
(“EITF”) 99-17, “Accounting for
Advertising Barter Transactions”. In
accordance with EITF 99-17, barter
transactions have been valued based
upon similar cash transactions, which
have occurred within six months prior
to the date of the barter transaction.
Advertising revenues from barter
transactions are recognized during
the period, during which the
advertisements are displayed. During
and 2001, revenues from barter
transactions have been less than 5
percent of total revenues.
Cost of Revenues
Advertising Costs
Cost of revenues consists of the cost
associated with the production and
usage of the Company’s online media
properties. These costs primarily
consist of costs related to in-house
production of content, fees paid
for content purchased from third
parties, cost related to the shopping
products sold, Internet connection
charges, amortization of trade names
and license fees, depreciation and
amortization related to data center,
hosting cost, other network cost and
compensation expenses. The cost of
revenues have not been allocated to
advertising revenues and e-commerce,
license, access and other revenues as
management is of the opinion that
these costs cannot be directly allocated
and that management of the Company
also does not use this information
to measure the performance of the
different revenues types.
Costs
of
media
advertising
production are expensed the first
time the advertising takes place. All
other advertising costs are expensed
as incurred. The advertising costs of
the Company amounted to EUR 4.3
million and EUR 40.8 million during
the year ended December 31, 2002
and 2001 respectively.
Deferred Revenue
The deferred revenues consist of
advertising, commissions and license
fees that are invoiced on the basis
of non-cancelable contracts at the
balance sheet date, the performance of
which is rendered at a future time.
Research and Development Costs
Research and development costs
consist primarily of payroll and
related cost incurred by the Company
to develop, enhance and maintain the
Company’s website and associated
systems. Development costs include
external direct costs of material
and services and payroll costs for
employees devoting time to software
projects during the application
development stage. The amortization
period is two years, which represents
management’s estimate of the
economic life of the capitalized
costs. Technology and development
costs other than those capitalized in
accordance with Statement of Position
98-1, “Accounting for the Costs
of Computer Software Developed
or Obtained for Internal Use” are
expensed as incurred.
Cash and Cash Equivalents
All highly liquid instruments with
an original maturity of three months
or less are considered cash and cash
equivalents.
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to significant
concentration of credit risk consist
primarily of cash and cash equivalents,
and accounts receivable. Substantially
all of the Company’s cash and cash
equivalents are managed by financial
institutions. Accounts receivable are
typically unsecured and are derived
from revenues earned from customers
primarily located in Europe. The
Company performs ongoing credit
evaluations of its customers and
maintains reserves for potential credit
losses. As of December 31, 2002 and
2001, no one customer accounted for
10 percent or more of the accounts
receivable balance.
Depreciation and Amortization
Property and equipment are stated at
cost, net of accumulated amortization
and depreciation, and depreciated
over the estimated useful lives of the
assets (usually three to five years) on
a straight-line basis.
Lease Equipment
Lease equipment are capitalized where
the terms of the lease indicate that the
Company maintains substantially
all of the risks and rewards of the
equipment. Lease equipment, which
are classified as capital lease are stated
28
F I N A N C I A L
S T A T E M E N T S
at the discounted present value of the
lease payments, net of accumulated
amortization, and amortized over the
lesser of the estimated useful lives of
the equipment or the lease term.
Goodwill and Other Intangibles
Purchased intangible assets with
definite useful lives are capitalized
and amortized on a straight-line basis
over their estimated useful lives.
For identifiable internally developed
intangible assets, only the direct
external costs incurred in generating
these assets are capitalized and
amortized on a straight-line basis over
their useful life. The Company reviews
its intangible assets with estimable
useful lives for impairment whenever
events or changes in circumstances
indicate that the carrying amount of
its asset may not be recoverable.
Goodwill and indefinite lived
intangible assets are no longer
amortized to expense over their
estimated useful lives. The Company
evaluates goodwill and indefinite lived
intangible assets for impairment on an
annual basis between annual test dates
if events or changes in circumstances
indicate that the asset may be impaired.
Prior to the adoption of SFAS 142,
goodwill, which represents the excess
of purchase price over the fair value of
net assets acquired, was amortized on
a straight-line basis over the expected
periods to be benefited, and assessed
for recoverability by determining
whether the amortization of the
goodwill balance over its remaining
life could be recovered through
undiscounted future operating cash
flows of the acquired operation. The
amount of goodwill impairment, if
any, was measured based on projected
discounted future operating cash flows
using a discount rate reflecting the
Company’s average cost of capital.
The carrying values of long-lived
assets such as properties, plant, and
equipment, and purchased intangibles
subject to amortization are reviewed
for possible impairment on each
balance sheet date or whenever events
29
or changes in circumstances indicate
that the carrying amount of an asset
may not be recoverable. In the event
that facts and circumstances indicate
that the carrying amount of any
long-lived asset may be impaired,
an evaluation of recoverability
would be performed whereby the
estimated future undiscounted cash
flows associated with the asset would
be compared to the asset’s carrying
amount to determine if a writedown to fair value is required. The
remaining useful life of the assets is
evaluated accordingly. An impairment
loss is recognized to the extent that
the carrying amount exceeds the
asset’s fair value.
Minority Interests
The minority interests shown in the
consolidated financials statements
reflect third parties’ interests in the
subsidiaries, which are not fully
owned.
Unconsolidated Investments
The Company’s investments in less
than 50 percent owned affiliates,
where the Company can exercise
significant influence, are accounted
for using the equity method.
Income Taxes
Deferred income taxes are calculated
using the assets and liability method.
Under the assets and liability method,
deferred income tax assets and
liabilities are determined based on
the differences between the financial
reporting and tax bases of assets and
liabilities and are measured using the
current tax rates and laws. A valuation
allowance is provided for the amount
of deferred tax assets that, based on
available evidence, are not expected
to be realized.
Stock-based Compensation
The Company accounts for stockbased
employee
compensation
arrangements in accordance with the
provisions of Accounting Principles
Board Opinion (“APB”) No. 25,
“Accounting for Stock Issued to
Employees”, and complies with the
disclosure provisions of SFAS No.
123, “Accounting for Stock-Based
Compensation” as amended by SFAS
No. 148 “Accounting for StockBased Compensation - Transition
and Disclosure”. Under APB 25,
compensation expense is based on
the difference, if any, on the date of
grant, between the fair value of the
Company’s stock and the exercise
price of the option (see recent
accounting pronouncements below).
Loss per Share
Basic net loss per share is calculated
using the weighted average number
of common shares outstanding during
the year. Diluted net loss per share
is similar to basic net loss per share
except that the weighted average
of common shares outstanding is
increased to include the number of
additional common shares that would
have been outstanding if the dilutive
potential common shares resulting
from options and other potentially
dilutive instruments had been issued.
Because of the net losses for all
periods presented, the inclusion of
options in the calculation of weighted
average common shares is antidilutive; and therefore there is no
difference between basic and diluted
earning per share.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires
management to make estimates and
assumptions that affect the reported
amounts of the assets and liabilities
and the disclosure of contingent
assets and liabilities at the date of
the financial statements as well as
on revenues and expenses during the
reporting period. The actual amounts
may differ from these estimates.
Comprehensive Income
Other comprehensive income, as
included in the accompanying
consolidated balance sheets, consists
of the cumulative translation
adjustment resulting from the
translation of the balance sheet
and income statements of foreign
subsidiaries.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS
No. 141 “Business Combinations”
and SFAS No. 142 “Goodwill and
Other Intangible Assets”. SFAS No.
141 replaces Accounting Principles
Board Opinion No. 16, “Business
Combinations” (APB 16) and
requires
business
combinations
initiated after June 30, 2001, to be
accounted for using the purchase
method of accounting, and broadens
the criteria for recording intangible
assets separate from goodwill.
Recorded goodwill and intangibles
will be evaluated against these new
criteria and may result in certain
intangibles being subsumed into
goodwill, or alternatively, amounts
initially recorded as goodwill may be
separately identified and recognized
apart from goodwill. SFAS No. 142
requires the use of a non-amortization
approach to account for purchased
goodwill and certain intangibles.
Under a non-amortization approach,
goodwill and certain intangibles
will not be amortized into results
of operations, but instead would
be reviewed for impairment and
written down and charged to results
of operations only in the periods in
which the recorded value of goodwill
and certain intangibles exceeds its
fair values. The provisions of SFAS
141 and SFAS 142, which apply
to goodwill and intangibles assets
acquired prior to June 30, 2001, was
adopted by the Company on January
1, 2002.
In October 2001, the FASB issued
SFAS 144 “Accounting for the
Impairment or Disposal of LongLived Assets,” which supersedes
Statement of Financial Accounting
Standards No. 121 (“SFAS 121”),
“Accounting for the Impairment
of Long-Lived Assets and for
30
F I N A N C I A L
S T A T E M E N T S
31
Long-Lived Assets to be Disposed
Of” and certain provisions of APB
Opinion No. 30, “Reporting Results
of Operations – Reporting the
Effects of Disposal of a Segment
of a Business, and Extraordinary,
Unusual and Infrequently Occurring
Events and Transactions.” SFAS
144 requires that long-lived assets
to be disposed of by sale, including
discontinued operations, be measured
at the lower of carrying amount or
fair value less cost to sell, whether
reported in continuing operations or
in discontinued operations. SFAS
144 also broadens the reporting
requirements
of
discontinued
operations to include all components
of an entity that have operations
and cash flows that can be clearly
distinguished, operationally and for
financial reporting purposes, from
the rest of the entity. The provisions
of SFAS 144 are effective for fiscal
years beginning after December 15,
2001, was adopted by the Company
on January 1, 2002.
In July 2002, the FASB issued
Statement 146, “Accounting for
Costs Associated with Exit or
Disposal Activities”. SFAS 146
replaces
previous
accounting
guidance provided by EITF 94-3,
Liability Recognition for Certain
Employee Termination Benefits and
Other Costs to exit an Activity, and
requires companies to recognize
costs associated with exit or
disposal activities when they are
incurred rather than at the date of a
commitment to an exit of disposal
plan. The provisions of SFAS 146
are to be applied prospectively to exit
or disposal activities initiated after
December 31, 2002. The adoption
of SFAS 146 is not expected to have
a material impact on the Company’s
consolidated financial statements.
In December 2002, the FASB issued
SFAS 148 “Accounting for StockBased Compensation - Transition
and Disclosure
Disclosure”, which amends
FASB Statement No. 123, Accounting
for Stock-Based Compensation
Compensation.
Statement 148 provides alternative
methods of transition for a voluntary
change to the fair value based method
of accounting for stock-based
employee compensation. In addition,
Statement 148 amends the disclosure
requirements of Statement 123 to
improve the clarity and prominence
of disclosures about the pro forma
effects of using the fair value based
method of accounting for stock-based
compensation for all companies
regardless of the accounting method
used by requiring that the data be
presented more prominently and in
a more user-friendly format in the
footnotes to the financial statements.
The transition guidance and annual
disclosure provisions of Statement
148 are effective for fiscal years
ending after December 15, 2002,
with earlier application permitted in
certain circumstances. Lycos Europe
N.V. has adopted the disclosure
requirements of SFAS 148 as
presented in footnote 13.
In December 2002, the EITF
published a Consensus on when
and how to allocate revenue from
sales undertakings to deliver more
than one product or service. The
Consensus mandates how to identify
whether goods or services or both
that are to be delivered separately in
a bundled sales arrangement should
be accounted for separately because
they are considered “separate units
of accounting”. This new guidance
can affect the timing of revenue
recognition for such arrangements,
even though it does not change rules
governing the timing or pattern of
revenue recognition of individual
items accounted for separately.
Companies must disclose their
accounting policy for recognition of
revenue from multiple deliverable
arrangements (i.e., whether the
deliverables were separate units of
accounting) and a description of those
arrangements, including performance,
cancellation, termination, or refund
type provisions.
The Consensus
is effective prospectively for
arrangements entered into in fiscal
periods beginning after June 15, 2003.
However, companies may alternatively
elect to apply the Consensus to
existing arrangements as well and to
record the income statement impact of
the change as a cumulative effect of
a change in accounting principle. The
Company will adopt the Consensus
prospectively starting with its interim
period beginning July 1, 2003, and
does not believe that the adoption of
the Consensus will have a material
effect on its financial statements.
the recognition of a liability by a
guarantor at the inception of certain
guarantees.
The
Interpretation
requires the guarantor to recognize
a liability for the non-contingent
component of the guarantee, which
is the obligation to stand ready to
perform in the event that specified
triggering events or conditions
occur. The initial measurement of
this liability is the fair value of the
guarantee at inception.
In November 2002, the FASB
issued Interpretation No. 45 (FIN
45),
“Guarantor’s
Accounting
and Disclosure Requirements for
Guarantees,
Including
Indirect
Guarantees of Indebtedness of
Others” (the Interpretation), which
addresses the disclosure to be made
by a guarantor in its interim and
annual financial statements about its
obligations under guarantees.
The recognition of the liability is
required even if it is not probable that
payments will be required under the
guarantee; if the guarantee was issued
with a premium payment; or as part of
a transaction with multiple elements.
As noted above, the Company has
adopted the disclosure requirements
of the Interpretation (see footnote
10) and will apply the recognition
and measurement provisions for all
guarantees entered into or modified
after December 31, 2002. To date,
the Company has not entered into or
modified guarantees subsequent to its
fiscal year end.
These
disclosure
requirements
are included in footnote 10 to the
consolidated financial statements.
The Interpretation also requires
32
2. Accounts Receivable
F I N A N C I A L
S T A T E M E N T S
Accounts receivable net are made up of the following:
33
In thousand Euro
December 31, December 31,
2002
2001
Accounts receivable
Less: Allowance for doubtful accounts
receivable
Accounts receivable, net
30,852
39,197
(8,257)
(9,753)
22,595
29,444
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are made up of the following:
In thousand Euro
VAT receivable
Rent deposits and prepayments
Prepaid expenses
Accrued income
Other short term receivables
Prepaid expenses and other
current assets
2002
2001
4,327
3,317
4,295
3,426
5,600
4,790
1,441
3,858
4,532
4,053
20,965
18,674
4. Property and Equipment
Property and equipment, including equipment under capital leases are made up
as follows:
In thousand Euro
Computers
Leased equipment
Furniture and fixtures
Less: Accumulated depreciation and
amortization
Property and equipment, net
2002
2001
52,270
10,389
62,659
48,449
3,326
12,429
64,204
(37,893)
(26,557)
24,766
37,647
5. Disposals
On July 1, 2002, the Company sold its German subsidiary, NZ Netzeitung
GmbH to BertelsmannSpringer, a subsidiary of Bertelsmann AG, for a
consideration of EUR 1. NZ Netzeitung is a German online newspaper.
On November 7, 2002, Spray Network N.V., a fully owned company of Lycos
Europe N.V., sold its Norwegian subsidiary Massmarket AS to Visma Services
ASA for a consideration of EUR 1.8 million. Massmarket AS is an online
outsourcing company specializing in the procurement for business customers.
On December 31, 2002, the Company sold its Norwegian subsidiary Nettavisen
AS to TV2 Gruppen AS for a consideration of EUR 3.0 million. Nettavisen AS
is a Norwegian online newspaper.
The Company has realized a loss on the sale of NZ Netzeitung and a gain on the
sale of Massmarket AS and Nettavisen AS.
The following table presents selected financial information for Lycos Europe
N.V. on a pro forma basis, as if the disposals described above occurred as of
January 1, 2001.
In thousand Euro
(except share data)
Revenues
Net loss
Year ended
Year ended
2002
2001
(Unaudited)
(Unaudited)
105,024
(174,833)
134,976
(893,960)
(0.56)
(2.84)
6. Goodwill and Intangible Assets
Goodwill is recorded at cost less accumulated amortization, as follows:
In thousand Euro
Goodwill
Less: Accumulated amortization
Less: Cumulative effect of
accounting change
Goodwill, net
2002
2001
235,479
235,479
(138,128)
(138,128)
(97,351)
-
-
97,351
The intangible assets are recorded at cost less accumulated amortization, as
follows:
In thousand Euro
2002
2001
Licenses and other rights
Capitalized development expenses
50,425
50,860
7,305
5,757
Purchased software
2,900
60,630
1,722
58,339
(42,396)
(37,515)
(3,043)
-
15,191
20,824
Less: Accumulated amortization
Less: Cumulative effect of
accounting change
Intangible assets, net
34
Aggregated Amortization Expense:
F I N A N C I A L
S T A T E M E N T S
For the financial year ended December 31,
35
2002
In thousand Euro
5,176
Estimated Amortization Expense:
For the financial year ended December 31,
During management’s review of the
value and periods of amortization of
both goodwill and other intangible
assets as of June 30, 2001, it was
determined that the carrying value of
goodwill and certain other intangible
assets were not fully recoverable.
The Company recorded impairment
charges totaling approximately EUR
664.9 million, consisting primarily of
EUR 515.6 million related to goodwill
and other intangible assets recorded
for the acquisition of Spray Network
and Jubii, EUR 128.7 million of
goodwill and other intangibles
recorded for the acquisition of
MultiMania, EUR 8.9 million and
EUR 11.7 million in intangibles
recorded for the contribution of
Fireball and Angelfire, respectively.
Due to trends in the advertising
market, each of the companies for
which impairment charges were
recorded has experienced significant
declines in operating and financial
performance over the previous
several quarters in comparison to
the forecasted performance at the
time of their respective acquisitions.
The impairment analyses considered
that these companies were mostly
acquired during the time period
from September 2000 to January
In thousand Euro
2003
4,683
2004
3,214
2005
1,798
2006
916
2007
916
2001 and that the intangible assets
recorded generally were being
amortized over a period of three to
fives years. However, an assessment
was performed over several quarters
subsequent to these acquisitions,
which resulted in the requirement
to record impairment charges for
these companies. The amount of the
impairment charge was determined
by comparing the carrying value of
goodwill and certain other intangible
assets to their respective fair values
on June 30, 2001. Fair values were
calculated using the estimated future
discounted cash flows method and
analysis of market price multiples of
companies engaged in similar lines of
business to that of the Company.
The Company completed the
transitional impairment test under
SFAS 142 in 2002. The measurement
date for the test was the beginning
of the year of the adoption period,
hence, the Company performed an
impairment test of its goodwill and
intangible assets as of January 1,
2002. The Company recorded an
impairment loss for goodwill and
other intangibles of EUR 100.4
million, which was recorded as a
cumulative effect of an accounting
change in the Company’s consolidated
statements of operations for the year
ended December 31, 2002. The fair
value of the reporting units giving
rise to the transitional impairment
loss was estimated using the expected
present value of future cash flows.
The Company will perform its
annual impairment review during the
second quarter of each year, which
commenced in the quarter ended
June 30, 2002. The total amount
of depreciation of fixed assets and
In thousand Euro
Reported net loss
Amortization and impairment of
assets
Cumulative effect of accounting
change
Adjusted net loss
amortization of intangible assets
amounted to EUR 26.1 million for
the year ended December 31, 2002.
The depreciation and amortization
expenses are included in all the
main expense categories within the
statements of operations. In line with
the provisions of SFAS No. 142, the
Company ceased the amortization of
goodwill and certain intangibles on
January 1, 2002. The consequences
of the adoption of the provisions of
SFAS No. 142 are presented below.
Year ended
December 31,
2002
(178,967)
(909,438)
-
766,606
100,394
-
(78,573)
(142,832)
Year ended
December 31,
in Euro
2002
Reported net loss
Amortization and impairment of
assets
Cumulative effect of accounting
change
Adjusted net loss
Year ended
December 31,
2001
(Unaudited)
Year ended
December 31,
2001
(Unaudited)
(0.57)
(2.89)
-
2.44
0.32
-
(0.25)
(0.45)
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are made up as follows:
In thousand Euro
2002
2001
Accrued expenses
Current portion of capitalized lease
obligations
Restructuring provision (Note 8)
13,305
23,876
-
1,860
2,736
4,853
Other current liabilities
Accrued expenses and other
current liabilities
10,008
7,204
26,049
37,793
36
S T A T E M E N T S
8. Restructuring Charges
The Company incurred restructuring charges of EUR 11.8 million for the year
ended December 31, 2002. In March 2002, the Company announced its plans
to accelerate its turnaround program launched in September 2001. As such, the
Company has implemented an additional restructuring program consisting of
several elements, including the establishment of a new network concept. Part
of the overall program was to further reduce headcount.
The development of the restructuring provision during the year ended December
31, 2002, was as follows:
In thousand Euro
Restructuring provision as per December 31, 2001
Restructuring charge
11,789
Payments
(12,148)
Release of provision in disposed subsidiaries
F I N A N C I A L
Release of provision via the restructuring charge
37
4,853
(756)
(1,002)
Restructuring provision as per December 31, 2002
2,736
Included in the restructuring provision as per December 31, 2002, are,
amongst others, restructuring expenses for 23 employees.
9. Acquisition-related Expenses
The acquisition related expenses
relate to the final settlement with the
previous shareholders of Massmarket
AS. During October 2002, Lycos
Europe N.V. signed on behalf of its
subsidiary Spray Network N.V., a final
settlement agreement with previous
shareholders of Massmarket AS.
N.V. as consideration for their
Massmarket shares. Spray Ventures
BV, the previous owner of Spray
Network N.V., partially indemnified
Lycos Europe N.V. for arranging
this settlement and thus transferred
3,225,500 Lycos Europe shares to
Lycos Europe N.V.
In this settlement, Spray Network
N.V. paid EUR 10 million while the
plaintiffs in return withdrew all legal
actions against Lycos Europe N.V.
and its subsidiaries. In February
2001, previous shareholders of
Massmarket AS, a subsidiary of
Spray Network N.V., had commenced
legal proceedings in Norway and the
Netherlands against Spray Network
N.V., a wholly owned subsidiary of
Lycos Europe N.V.
Additionally the acquisition-related
expenses relate to the squeeze out
offer for Lycos France filed on July
16, 2002, by the Company. Before
July 16, 2002, Lycos Europe owned
approximately 96 percent of Lycos
France’s equity and voting rights.
The claim related to Spray Network
N.V.´s acquisition of Massmarket AS
in April 2000. Former Massmarket
shareholders claimed to receive a
cash settlement of approximately
EUR 40 million from Spray Network
The acquisition price for the
additional four percent in Lycos
France amounted to EUR 1.2 million.
This resulted in acquisition-related
expenses amounting to EUR 0.9
million.
When the squeeze out process was
completed on July 30, 2002, Lycos
Europe owned 100 percent of Lycos
France.
10. Commitments and Contingencies
The Company has entered into lease agreements in Britain, Denmark, Italy,
France, Germany, the Netherlands, Norway, Spain and Sweden. The rental
expenses amounted to EUR 6,6 million and EUR 7,3 million for the year ended
December 31, 2002, respectively December 31, 2001.
The future, non-cancelable minimum rental payments under these commitments
are as follows:
For the financial year ended December 31
In thousand Euro
2003
3,417
2004
2,677
2005
2,179
2006
851
2007
447
Thereafter
-
Total
9,571
From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business. The company is currently not aware of any
legal proceeding or claims that the Company believes will have, individually or
in the aggregate, a material adverse effect on the Company’s financial position,
results of operations or cash flows.
11. Shareholders’ Equity
The Company’s Class AA and AB
shares have been issued in registered
form and may only be transferred
by a private deed. These registered
shares carry special voting and
binding nomination rights. Of the
shareholders, only holders of Class
AA and AB registered shares have also
the right to make binding nominations
of the Management Board and the
Supervisory Board as well as for the
positions of Chairman and Deputy
Chairman of the Supervisory Board.
The Class AA shares have a par value
of EUR 0.01. Of the 250,000,000
shares authorized, 62,000,000 are
issued and outstanding on December
31, 2002, and December 31,
2001. These shares are owned by
TerraLycos, an initial shareholder and
founder of the Company.
The Class AB shares have a par value
EUR 0.01. Of the 250,000,000 shares
authorized, 62,000,000 are issued and
outstanding on December 31, 2002,
and December 31, 2001. These shares
are owned by Bertelsmann Internet
Holding
GmbH
(24,347,400),
Fireball Internet GmbH (14,260,000)
and Christoph Mohn Internet Holding
(23,392,600), also initial shareholders
and founders of the Company.
The Class B shares have a par value
of EUR 0.01. Of the 500,000,000
shares authorized, 215,577,144 and
214,858,032 are issued on December
31, 2002, and December 31, 2001,
respectively, and 187,576,344 and
189,935,732 are outstanding on
December 31, 2002, and December
31, 2001, respectively.
In fiscal year 2000, the Company
issued 28,000,000 Class B shares in
an Initial Public Offering. A total of
83.3 million Lycos Europe shares
have been issued in connection with
the acquisition of Spray Network. A
total of 18.1 million Lycos Europe
shares have been issued in connection
with the acquisition of MultiMania.
38
F I N A N C I A L
S T A T E M E N T S
On September 20, 2000, Spray
Ventures and Investor Guernsey
entered into a share purchase
agreement with the Company to
acquire a total of 10.0 million shares
for a total consideration of EUR
100 million. All these Lycos Europe
shares have been issued in connection
with this share purchase agreement to
Spray Ventures and Investor Guernsey
of which 0.5 million have been issued
in January 2002 to Investor Guernsey
for a total consideration of EUR 5.2
million.
On February 16, 2001, Spray Ventures
entered into an agreement with the
Company to transfer 24.9 million
Lycos Europe shares (representing
a value of EUR 78.7 million) to the
Company in settlement of amounts due
under the share purchase agreement.
These shares have been recorded
as treasury shares at the settlement
amount within shareholders’ equity.
The Company intends to cancel 27.3
million of the treasury stock (Note
17).
The Company issued 197,862 shares
and reissued 147,000 treasury shares
during the year ended December 31,
2002, in connection with the exercise
of employee stock options.
In October 2002, Spray Ventures
transferred 3.2 million Lycos Europe
shares (representing a value of
EUR 0.7 million) to the Company
as indemnification for arranging
the settlement with the previous
shareholders of Massmarket AS (see
note 9).
12. Income Taxes
The income tax expenses differ from the amount computed by applying the
Netherlands statutory rate of 34.5 percent as follows:
In thousand Euro
Expected income tax benefit at the
statutory tax rate
Effect of non deductible charges
Different foreign tax rates
Changes in valuation allowance
Change prior years
Income tax expenses
December
31, 2002
December
31,
2001
(Unaudited)
27,395
314,187
(4,028)
(1,311)
(10,670)
(11,398)
(12)
(218,335)
(1,882)
(108,180)
14,111
(99)
The development of the valuation allowance for deferred tax assets are
summarized as follows:
In thousand Euro
Valuation allowance December 31,
2001
Reduction due to sold entities
Change in valuation allowance
Valuation allowance December 31,
2002
175,981
(25,078)
10,670
161,573
In view of the fact that in all reporting periods since its formation the Company
has incurred considerable losses, the Company considers that valuation
allowances are necessary for all deferred tax assets to the extent to which they
are in excess of the future taxable differences. Consequently, no deferred tax
benefit is shown in the consolidated statement of operations.
39
Deferred tax assets and liabilities are summarized as follows:
In thousand Euro
Deferred tax assets
Accrued pensions
Loss carry forward
Total deferred tax assets
Less valuation allowance
Deferred tax assets, net
Deferred tax liabilities
Fixed assets
Intangible assets
Total deferred tax liabilities
Deferred tax assets (liabilities),
net
In assessing the recoverability of
deferred tax assets, management
considers whether it is more likely
than not that some or all of the
deferred tax assets will be realized.
The Company believes that sufficient
uncertainty about the recoverability
of the deferred tax assets exists so
that valuation allowances of EUR
161.6 million and EUR 176.0 million
on the deferred tax assets have been
established for December 31, 2002,
2002
2001
31
170,636
170,667
(161,573)
9,094
19
180,243
180,262
(175,981)
4,281
359
8,735
9,094
2,143
2,138
4,281
-
-
and December 31, 2001, respectively,
these being the amounts by which the
deferred tax assets are in excess of the
future reversals of taxable temporary
differences.
On December 31, 2002, and
December 31, 2001, the Company
recorded operating loss carry forward
of approximately EUR 477.7 million
and EUR 524.0 million respectively.
A major portion of the loss carry
forward has an indefinite life.
13. Stock Option Plan
In fiscal year 2000, the Company
approved a stock option plan (“the
Plan”). Under the terms of the Plan,
the Company may grant up to 10
million options to purchase shares of
the Company. Options are generally
granted for a period of 8 years. The
Plan allows for stock options to
purchase up to a maximum of 10
million shares of the Company.
With regard to the acquisition of
MultiMania most of the outstanding
MultiMania options have been
converted into the Plan in July 2001.
The total number of options converted
is 1.8 million options with an average
exercise price of EUR 5.30. No
compensation cost has been recorded
as a result of this transaction.
No options have been granted under
the Plan during the year ended
December 31, 2002. In the year
ended December 31, 2002, a total of
344,862 options were exercised.
40
Activity under the Company’s stock option plans is summarized as follows:
F I N A N C I A L
S T A T E M E N T S
Number of
Options
Options outstanding
as of December 31, 2000
Options granted in companies acquired
Options exercised
Options expired
Options cancelled
Options outstanding
Options exercised
Options expired
Options cancelled
Options outstanding
The Company accounts for stockbased compensation using the
intrinsic value method prescribed
by Accounting Principles Board
Opinion No. 25 “Accounting for
Stock issued to Employees”, under
which no compensation cost for
stock options is recognized for stock
options granted with an exercise
price at or above fair market value.
Had compensation expense for the
In thousand Euro
9,055,334
13.47
1,755,616
(1,271,126)
(2,164,909)
5.30
8.09
10,49
7,374,915
13.33
(344,862)
(333,978)
(3,698,682)
0.58
12.22
13.78
2,997,393
14.35
Company’s and its subsidiaries
stock-based compensation plan been
determined based upon fair values at
the grant dates for awards under those
plans in accordance with SFAF No.
148, “Accounting for Stock-Based
Compensation—Transition
and
Disclosure”, the Company’s net loss
and loss per share would have been
increased to the pro forma amounts
indicated below.
Year ended
Year ended
December 31,
December 31,
2001
2002
(Unaudited)
Net loss
As reported
(178,967)
(909,438)
Pro forma
(183,210)
(920,964)
As reported
(0.57)
(2.89)
Pro forma
(0.58)
(2.93)
Loss per share
14. Related Party Transactions
The Company engages in various
related party transactions with
both TerraLycos and Bertelsmann,
which include revenue and expense
transactions.
The transactions with Bertelsmann are
41
Weighted
average
exercise
price per
share
booked on accounts with Bertelsmann
and generally settled within thirty
days of the relevant transaction.
The billing rates are set at rates,
which are believed to approximate
fair value.
The receivables from and liabilities to related parties are as follows:
In thousand Euro
2002
2001
Due from related parties:
Other trade receivables
(TerraLycos)
Other trade receivables
(Bertelsmann)
Due from related parties
798
-
162
121
960
121
Other trade payable (TerraLycos)
146
150
Other trade payable (Bertelsmann)
144
1,515
Due to related parties
290
1,665
Due to related parties:
Within the accrued expenses and other current liabilities accruals were made
up of the following related party amounts:
In thousand Euro
TerraLycos
Bertelsmann
Total
2002
2001
1,040
2,207
217
4
1,257
2,211
The following table summarizes the principal transactions of the Company
with related parties:
In thousand Euro
Year ended
Year ended
2002
2001
(Unaudited)
Net revenues from related parties:
Advertising
23,698
30,286
(13,231)
(22,651)
(445)
(3,058)
General and administrative
expenses
(3,240)
(4,591)
Research and development
expenses
(286)
(1,198)
Interest income
Interest expense
Other income
2,114
-
1,556
(15)
523
Cost of revenues
Sales and marketing expenses
On July 1, 2002, the Company sold its German subsidiary, NZ Netzeitung
GmbH to BertelsmannSpringer, a subsidiary of Bertelsmann AG, for a
consideration of EUR 1. NZ Netzeitung is a German online newspaper and
was loss making.
42
F I N A N C I A L
S T A T E M E N T S
15. Pension
43
The Company provides limited defined pension benefits to an officer of the
Company. The pension payments are calculated on the basis of years of service
and average income (whereby a maximum is set for calculating the pension
payments) in the three years prior to retirement. No plan assets exist in connection
with this pension obligation.
The assumed discount rate and the rate of increase in remuneration, which are
used for calculating the projected benefit obligation, are as follows:
Year ended
Year ended
2002
2001
Assumed discount rate
5.75 %
6.00 %
Long-term rate of increase for
remuneration
5.00 %
5.00 %
The following table shows the composition and development of the initial and
final balance of the pension obligations including the net periodic pension cost and
contained in the statement of operations:
In thousand Euro
Benefit obligation, December 31, 2001
Periodic pension cost:
Service cost: Present value of benefit
earned
Interest costs on projected benefit
obligation
Total net periodic pension cost
Benefit obligation, December 31, 2002
Year ended
December
31, 2002
Year ended
December 31,
2001
98
87
29
6
8
5
37
135
11
98
16. Segment Information
The revenues are attributed to geographic regions on the basis of the language
and target audience to which the relevant website is directed and with which the
corresponding revenues are generated. Revenue is attributed to individual countries
according to the international online property that generated the revenue.
This segmentation is consistent with the data made available to the Company’s
management to assess performance and make decisions. The Company does not
allocate any operating or other costs to its geographic regions or business segments,
as management does not use this information to measure the performance of the
geographic regions and business segments. Management does not believe that
allocation of these expenses is material in evaluating segment performance.
The revenues from the geographic regions are made up as follows:
In thousand Euro
Year ended
Year ended
2002
2001
(Unaudited)
Germany
37,724
56,349
Sweden
19,155
16,183
France
13,300
17,973
United Kingdom
13,879
16,277
Other countries
33,986
43,924
118,044
150,706
Total
The revenues from the business segments are made up as follows:
In thousand Euro
Year ended
December 31,
2002
Year ended
December 31,
2001
(Unaudited)
Advertising
69,940
98,363
Paid services and shopping
23,365
16,889
Interconnect
22,302
31,483
Other
2,437
3,971
Total
118,044
150,706
No long-lived assets are allocated to geographic regions and business
segments. Management does not believe that allocation of these long-lived
assets is material in evaluating segment performance.
17. Subsequent Events
Following the reshaping of Frankfurt
Stock Exchange´s trading segments,
Lycos Europe decided to list on the
Prime Standard.
Lycos Europe´s stock will not be
traded on Neuer Markt any longer but
will be listed on the Prime Standard as
of January 1, 2003.
On January 17, 2003, during the
Extraordinary General Meeting of
Shareholders of the Company, Juan
Antonio García-Urgelés Capdevila and
Stephen Killeen voluntarily resigned
from the Supervisory Board and were
replaced
by
Javier
Martinez
Diez and José F. Mateu Isturiz.
On January 17, 2003, during the
Extraordinary General Meeting of
Shareholders of the Company, the
shareholders accepted cancellation
of treasury stock in the amount of
27,277,144 class B shares.
The purpose of this cancellation is
to increase the Company’s ability
to repurchase its own shares, which
Dutch law authorizes only up to 10
percent of the Company’s issued
share capital.
44
3. Independent Auditors’ Report
F I N A N C I A L
S T A T E M E N T S
To Lycos Europe N.V., Haarlem
45
We have audited the accompanying
consolidated balance sheets of Lycos
Europe N.V. and subsidiaries as
of December 31, 2002 and 2001,
and the consolidated statement of
operations, statement of changes in
shareholders’ equity, and cash flows
for the year ended December 31,
2002. These consolidated financial
statements which have been prepared
in accordance with United States
Generally Accepted Accounting
Principles (US-GAAP), are the
responsibility of the Company’s
management. Our responsibility is
to express an opinion, whether the
consolidated financial statements
are in accordance with accounting
principles generally accepted in the
United States (US-GAAP) based on
our audit.
We conducted our audit in accordance
with International Standards on
Auditing (ISA). 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 audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated
financial statements referred to above
present fairly, in all material respects,
the financial position of Lycos Europe
N.V. as of December 31, 2002 and
2001, and the results of its operations
and its cash flows for the year ended
December 31, 2002, in conformity
with accounting principles generally
accepted in the United States.
The accompanying consolidated
statement of operations, statement
of changes in shareholders’ equity
and cash flows for the year ended
December 31, 2001, were not
audited by us, and accordingly, we
do not express an opinion on these
statements.
We have provided the services
described above on behalf of Lycos
Europe N.V. We have carried out
our engagement on the basis of the
General Engagement Terms included
in our engagement agreement dated
as of January 1, 2002. By taking
note of and using the information as
contained in our Auditors` Report the
recipient confirms to have taken note
of the terms and conditions stipulated
in the aforementioned General
Engagement Terms (including the
liability limitations specified in No.
9 included therein) and acknowledges
their validity in relation to us.
Düsseldorf, February 4, 2003
KPMG Deutsche TreuhandGesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
Stefan Haas
Independent Auditor
Charlotte Niessen
Independent Auditor
4. Quarterly Financial Information (Unaudited)
In thousand Euro (except
share data)
Quarter
ended
March 31,
2001
Revenues
Operating loss
Net loss before cumulative
effect of accounting change
Net loss
Net loss per share basic
and diluted (1)
EBITDA (2)
In thousand Euro (except
share data)
Net loss per share
basic and diluted before
cumulative effect of
accounting change (1)
Net loss per share basic
and diluted (1)
EBITDA (2)
(1) The sum of net loss per share does
not equal earnings per share for
the year due to equivalent share
calculations, which are impacted by
the timing (weighting) of the shares
issued.
(2) EBITDA is Earnings Before
Interest, Taxes, Depreciation and
Amortization.
The
Company
considers EBITDA an important
indicator of the performance of
its business including the ability
to provide cash flows to fund
capital expenditures. EBITDA,
however should not be considered
an alternative to operating result
or net result as an indicator of the
performance of the Company, or
as an alternative to cash flows
provided by (used in) operating
activities as a measure of liquidity,
in each case determined in
Quarter
ended
September
30, 2001
Quarter
ended
December
31, 2001
41,620
(96,163)
40,240
(756,527)
32,881
(41,098)
35,965
(33,933)
(90,433)
(751,508)
(38,626)
(28,871)
(90,433)
(751,508)
(38,626)
(28,871)
(0.29)
(2.40)
(0.12)
(0.09)
(45,405)
(39,762)
(27,216)
(20,907)
Quarter
ended
March 31,
2002 (3)
Revenues
Operating loss
Net loss before cumulative
effect of accounting change
Net loss
Quarter
ended
June 30,
2001
Quarter
ended
June 30,
2002 (3)
Quarter
ended
September
30, 2002
Quarter
ended
December
31, 2002 (4)
32,101
(23,231)
30,005
(29,143)
27,166
(31,574)
28,772
(6,381)
(19,284)
(27,461)
(30,378)
(1,450)
(119,678)
(27,461)
(30,378)
(1,450)
(0.06)
(0.09)
(0.10)
(0.00)
(0.38)
(0.09)
(0.10)
(0.00)
(17,351)
(22,441)
(15,651)
1,541
accordance
with
accounting
principles generally accepted in
the United States (“US GAAP”).
(3) The cumulative effect of the
accounting change was presented
in the financial results for the three
months ended March 31, 2002, in
accordance with FASB Statement
No. 3, “Reporting Accounting
changes in Interim Financial
Statements”.
(4) The quarter ended December 31,
2002, showed strong improvement
compared to previous quarters.
This is the result of both operational
improvements such as a reduction
in sales and marketing expenses and
non-recurring items such as the
settlement of litigations and the
accruals.
46
F I N A N C I A L
S T A T E M E N T S
47
The Management Board of Lycos
Europe N.V. kept its supervisory
bodies well informed about the
situation and course of business at
the Company during the period under
review, January 1, 2002, to December
31, 2002. The course of business was
discussed on the basis of monthly
reports
containing
comparative
figures relating to the budget, sales
and page views trends, developments
in the regional markets, marketing
expenditures, and numbers of staff.
In addition, the Supervisory Board
engaged in extensive discussions
with the Management Board on
fundamental issues of corporate policy
and significant business developments
in joint Supervisory Board Meetings
and in telephone conferences. The
Supervisory Board was thus able to
conclude that business was being
managed properly.
On October 31, 2002, Dr. Jens Uwe
Intat, COO/CFO, left Lycos Europe to
pursue other opportunities.
The Supervisory Board thanks Dr.
Intat for his contribution to the
development of the Company and
wishes him all the best in the future.
The Supervisory Board participated
in all the resolutions as provided by
the Company statutes. We specifically
discussed the strategic orientation
of the Company and lend it our
unreserved support.
The consolidated financial statements,
notes to the consolidated financial
statements and management report
of Lycos Europe N.V. for the fiscal
year extending from January 1, 2002,
to December 31, 2002, as submitted
by the Management Board were
prepared in the form of a consolidated
report in accordance with USGAAP. These financial statements
have been audited by KPMG
Deutsche
Treuhand-Gesellschaft
Aktiengesellschaft Düsseldorf and an
unqualified audit opinion was issued.
The Supervisory Board has accepted
and approved the results of the audit
and, subsequent to its own review of
the financial statements, the appendix
and the management report, has no
objections to it. The Supervisory
Board approves the financial reports
as drawn up by the Management
Board, and it is therefore deemed
approved.
We wish the entire staff and the
Management Board at Lycos Europe
N.V. every success for the upcoming
business year.
Amsterdam, February 13, 2003
Chairman of the Supervisory Board
Supervisory Board
(During the year ended December 31, 2002)
Chairman of the Supervisory Board for the whole year ended December 31, 2002
Chief Executive Officer of Pixelpark AG
Joaquim Agut
Member of the Supervisory Board for the whole year ended December 31, 2002
Executive Chairman of Terra Networks, S.A.
Member of the Boards of Directors of Terra Networks, S.A., Lycos, Inc.,
A Tu Hora, S.A., Red Universal de Marketing y Booking online, S.A.,
Teleinformatica y comunicaciones, S.A.U., and Grupo J. Uriach, S.A.
Dr. Dieter Bohnert
Senior Partner Heuking Kühn Lüer Wojtek
Member of the Supervisory Board of Schneider Electric GmbH
Juan Antonio García-Urgelés Capdevila
Member of the Supervisory Board since June 13, 2002
Consumer Business Unit Director of Vodafone, Spain
Stephen Killeen
President and Chief Executive Officer of World Winner, Inc.
Member of the Advisory Board of Protégent, Inc. and member of the Board of
Directors of Molecular, Inc.
Dr. Siegfried Luther
Member of the Management Board and Chief Financial Officer Bertelsmann AG
Member of the Supervisory Boards of WestLB AG, Gruner + Jahr AG,
Springer Verlag GmbH & Co.KG, RTL Group S.A., Bertelsmann Buch AG
Juan Rovira
Executive Vice President Terra Networks, S.A.
Member of the Management Board Deremate.com, Inc.
Burkhard Schmidt
Managing Director Jahr Holding GmbH & Co. KG and member of the
Shareholders´ Committee at Henkel KGaA
Robert J. Davis
Deputy Chairman of the Supervisory Board until June 13, 2002
Vice Chairman TerraLycos and Venture Partner Highland Capital Partners
48
6. Group Structure
F I N A N C I A L
S T A T E M E N T S
(Direct and Indirect Holdings as of December 31, 2002)
Subsidiaries of Lycos Europe N.V. included in the consolidated Financial
Statements are as follows:
49
Company
Ownership
Country
Akabi BV
100 %
The Netherlands
Angelfire SL
100 %
Spain
Annunci Srl
100 %
Italy
Bottnia Internet Provider AB
(“BIP AB”)
100 %
Sweden
Bottnia Internet Provider AS
(“BIP AS”)
100 %
Norway
Brience cjsc
100 %
Armenia
Fireball Netsearch GmbH
100 %
Germany
Hotbot SL
100 %
Spain
IBO GmbH
100 %
Germany
Jubii A/S
100 %
Denmark
Lycos Austria GmbH
100 %
Austria
Lycos Eastern Europe GmbH
100 %
Germany
Lycos Espana Internet Services SL
100 %
Spain
Lycos Europe GmbH
100 %
Germany
Lycos Europe R+D center
India pr.ltd
100 %
India
Lycos France SA
100 %
France
Lycos Italia Srl
100 %
Italy
Lycos Netherlands BV
100 %
The Netherlands
Lycos Norway AS
100 %
Norway
Lycos Poland sp.zo.o
100 %
Poland
Lycos Portugal Lda
100 %
Portugal
Lycos Switzerland GmbH
100 %
Switzerland
Lycos UK Ltd
100 %
United Kingdom
Sonique S.L.
100 %
Spain
Spray Network AB
100 %
Sweden
Spray Network GmbH
100 %
Germany
Spray Network N.V.
100 %
The Netherlands
Spray Network Services AB
100 %
Sweden
Triangular Popular Domains S.L.
100 %
Spain
Yarps International AB
100 %
Sweden
50
Lycos Europe N.V.
Richard Holkade 36
2033 PZ Haarlem
The Netherlands
Lycos Design-Competence-Center

Europe - Jubii

Transcription

Similar documents

Investor Presentation

LYCOS Europe AGM 2006

The Internet Communication Company

Registration Form COFRET ` 10

Business Zone Brinje – Križpolje

OPENINGS - Minetti S.p.A.

FOL-1-FORMA 2 - Service Alberta

Teleplan Annual Report 2007 from website

Teleplan_GB_2006_Final

Circular No 1