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| WEBM > SEC Filings for WEBM > Form 10-K on 31-Mar-2009 | All Recent SEC Filings |
31-Mar-2009
Annual Report
Recent Developments
On February 23, 2009, we announced the closing of the previously announced sale of our Online images business to Getty Images, Inc. ("Getty Images") pursuant to the terms and conditions of a definitive stock purchase agreement dated October 22, 2008 by and between us and Getty Images (the "Agreement") for an aggregate purchase price of $96.0 million in cash, subject to a working capital purchase price adjustment (the "Sale"). Following the Sale, we will account for the operations of our Online images business as a discontinued operation commencing in the first quarter of 2009 and our continuing operations will be comprised solely of our Online media business.
As the Sale was consummated on February 23, 2009, our consolidated financial statements do not reflect the results of such Sale, including the receipt of the consideration or the discontinuing of our operations in the Online images business. Such changes will be reflected commencing with our consolidated financial statements for the first quarter ending March 31, 2009. Therefore, the data presented in our consolidated financial statements and in our discussion below are not indicative of our future operating results or financial position.
Overview
Prior to the Sale, we were a leading global provider of images, original information, job boards and events for information technology ("IT"), business and creative professionals. Our operations were classified into two principal segments: Online images and Online media. However, following the Sale, our continuing operations will be comprised solely of our Online media business.
Online images. Jupiterimages, our Online images business, was and is one of the leading images companies in the world with more than 18 million downloadable files, including images, video, audio, flash, animation, fonts and illustrations serving creative professionals with brands like BananaStock, Workbook Stock, Brand X Pictures, FoodPix, Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Bigshot Media, Goodshoot, Polka Dot Images, Stock Image, Pixland, Photos.com, Ablestock.com, PhotoObjects.net, Clipart.com, AnimationFactory.com, JupiterGreetings.com, RoyaltyFreeMusic.com, StudioCutz.com, eStockMusic.com and Stockxpert.com.
We generated our Online images revenues from paid subscriptions that provided access to our image and music libraries. Customers could purchase subscriptions, which were offered based on a variety of prices and terms, to access our image and music libraries. Once a customer became a subscriber, they had the ability to download copies of images or music within our libraries. We also derived revenue from granting rights to use images and music that were downloaded or delivered on CD-ROMs. Revenue was recognized when persuasive evidence of an arrangement existed, delivery had occurred or services had been rendered, the price was fixed or determinable and collectibility was reasonably assured. Delivery occurred upon shipment or upon the availability of the image or music for downloading by the customer. A product is considered delivered when it arrives at the customer's site via standard delivery methods of ground transportation or next day air delivery.
Our images and music were licensed online through our networks, through our direct sales force and through third party relationships. We had agreements with a number of distributors of images, music and footage clips, whereby the distributors made sales to third party customers and remitted a percentage of the sales to us. We recognized the revenue from the sale by the distributor at the time of the sale.
We also licensed a portion of our content to third parties for royalties based on the licensee's revenues generated by the licensed content.
The principal costs of our Online images business related to commissions paid to third party image suppliers, payroll costs for technology, production, sales and marketing personnel, advertising, technology
infrastructure, lead generation fees for sales referrals and credit card processing fees. However, following the Sale, our continuing operations will be comprised solely of our Online media business.
Online media. The media segment of WebMediaBrands includes three distinct online networks: internet.com for IT and business professionals and developers and Mediabistro.com and Graphics.com for media and creative professionals. The networks include more than 150 Web sites and 150 e-mail newsletters that are viewed by over 20 million users monthly. WebMediaBrands also includes specialized career Web sites for select professional communities which can be found on Mediabistro.com and JustTechJobs.com. In addition, WebMediaBrands includes Mediabistro events, which produce offline conferences and trade shows focused on IT, media and business-specific topics.
We generate our Online media revenues from:
• advertising and custom publishing on our Web sites, e-mail newsletters and online discussion forums;
• e-commerce agreements, which generally include a fixed advertising fee;
• fees charged for online job postings;
• attendee registration fees for our online and in-person training courses;
• advertiser sponsorships for our Webcasts;
• subscription sales for our paid e-mail newsletters and services;
• advertising, subscriptions and newsstand sales for our print magazines;
• attendee registration fees to our conferences and trade shows;
• exhibition space fees and vendor sponsorships to our conferences and trade shows;
• renting our permission based opt-in e-mail list names; and
• licensing our editorial content, software and brands to third parties for fixed fees and royalties based on the licensee's revenues generated by the licensed property.
Advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which directly affects our Online media business. Our results will also be impacted by the number and size of events we hold in each quarter. In addition, there may be fluctuations as events held in one period in the current year may be held in a different period in future years.
The principal costs of our Online media business relate to payroll for our editorial, technology, operations and sales personnel; technology related costs; facilities and equipment; paper and printing costs; and venue, speaker and advertising expenses for training and events.
Recent Acquisitions
On July 18, 2007, we acquired all of the shares of Mediabistro.com Inc. ("Mediabistro"). The consideration paid was $20.0 million in cash and a two year earn-out that could result in an additional $3.0 million in cash consideration. The acquisition of Mediabistro solidifies our position in the important media professionals market. The acquisition further diversifies our revenue sources since a significant percentage of Mediabistro's revenue is generated from online job postings and online and in-person training courses.
In 2007, we also made various smaller acquisitions to complement our current product and service offerings.
We expect to continue to develop and expand our current offerings through internal development and, where appropriate opportunities are identified, through strategic acquisitions of assets and content that would be complimentary to our business.
Results of Operations
Revenues
The following table sets forth, for the periods indicated, a year-over-year
comparison of our revenues by segment (dollars in thousands):
Year Ended December 31, 2007 vs. 2008
2007 2008 $ %
Online images $ 108,904 $ 96,263 $ (12,641 ) (12 )%
Online media 31,430 32,131 701 2
$ 140,334 $ 128,394 $ (11,940 ) (9 )%
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Online images. The decrease in revenues for the year ended December 31, 2008 is due primarily to declines in direct sales of royalty-free single images and CD-ROMs and in sales from third party distributors, partially offset by an increase in subscription revenues. The decrease in revenues was mainly due to changes in the images industry, including the emergence of competitive image offerings such as micropayment, and a downturn in the U.S. and global economy.
The following table sets forth, for the years ended December 31, 2007 and 2008 the components of our Online images revenues (in thousands):
Year Ended
December 31,
2007 2008
Single images and CD-ROMs $ 52,498 $ 44,805
Subscriptions 29,014 30,879
Distributors 22,951 16,509
Licensing and other 4,441 4,070
Total Online images $ 108,904 $ 96,263
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Due to the Sale, we will not realize any Online images revenues after February 23, 2009, which will affect our aggregate revenues and results of operations on a going forward basis and in subsequent reporting periods.
Online media. The increase in revenues for the year ended December 31, 2008 was due primarily to the acquisition of Mediabistro, which added an additional $4.3 million in revenues. This was partially offset by a reduction in advertising revenues due to a decline in advertising spending by technology companies and a downturn in the U.S. and global economy.
The following table sets forth, for the years ended December 31, 2007 and 2008 the components of our Online media revenues (in thousands):
Year Ended
December 31
2007 2008
Advertising $ 26,096 $ 23,613
Online job postings 2,175 3,928
Other 3,159 4,590
$ 31,430 $ 32,131
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The following table sets forth, for the periods indicated, the number of our Online media online advertisers and the average revenue derived from each advertiser (dollars in thousands):
Number of Average Revenue
Advertisers per Advertiser
2007 369 $ 66
2008 403 55
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Cost of revenues
The following table sets forth, for the periods indicated, a year-over-year comparison of our cost of revenues by segment (dollars in thousands):
Year Ended
December 31 2007 vs. 2008
2007 2008 $ %
Online images $ 44,563 $ 40,627 $ (3,936 ) (9 )%
Online media 14,599 17,833 3,234 22
$ 59,162 $ 58,460 $ (702 ) (1 )%
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Online images. Cost of revenues primarily consists of commissions paid to third party image suppliers, payroll and benefits costs for technology and production personnel, communications infrastructure, Web site hosting and storage for our image library. Cost of revenues excludes depreciation and amortization. The decrease in cost of revenues from 2007 to 2008 is due primarily to a decrease in commission expense of $3.6 million due primarily to a decrease in sales and a shift in sales from third party content to wholly owned content. The remaining decrease was due primarily to a decrease in employee related costs of $564,000. This decrease was partially offset by an increase in professional consulting and software licensing costs of $402,000. Due to the Sale, we will not incur additional cost of revenues in respect of the Online images business after February 23, 2009, which will affect our aggregate cost of revenues and results of operations on a going forward basis and in subsequent reporting periods.
Online media.Cost of revenues primarily consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and Web site hosting. Cost of revenues excludes depreciation and amortization. The increase in cost of revenues from 2007 to 2008 was primarily due to the acquisition of Mediabistro on July 18, 2007, which added $2.9 million to cost of revenues. The remaining increase was due primarily to an increase in employee related costs of $856,000, partially offset by a reduction in event related costs of $478,000.
We intend to make investments through internal development and, where appropriate opportunities arise, acquisitions to continue to expand our content offerings. We may need to increase our spending in order to create additional content related to new topics or offerings.
Advertising, promotion and selling
The following table sets forth, for the periods indicated, a year-over-year comparison of our advertising, promotion and selling expenses by segment (dollars in thousands):
Year Ended
December 31, 2007 vs. 2008
2007 2008 $ %
Online images $ 21,340 $ 20,591 $ (749 ) (4 )%
Online media 7,811 8,460 649 8
$ 29,151 $ 29,051 $ (100 ) - %
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Online images. Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel and advertising. The year-over-year decrease in advertising, promotion and selling expense from 2007 to 2008 is due primarily to a decrease in advertising costs of $1.1 million and a decrease in professional consulting and recruiting fees of $138,000, partially offset by an increase in employee related costs of $547,000. Due to the Sale, we will not incur additional advertising, promotion and selling expenses in respect of the Online images business after February 23, 2009, which will affect our aggregate advertising, promotion and selling expenses and results of operations on a going forward basis and in subsequent reporting periods.
Online media. Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel. The year-over-year increase in advertising, promotion and selling expense from 2007 to 2008 is due primarily to the acquisition of Mediabistro, which added $805,000 during 2008.
General and administrative
The following table sets forth, for the periods indicated, a year-over-year comparison of our general and administrative expenses by segment (dollars in thousands):
Year Ended
December 31, 2007 vs. 2008
2007 2008 $ %
Online images $ 8,188 $ 9,911 $ 1,723 21 %
Online media 1,540 2,621 1,081 70
Other 18,068 17,868 (200 ) (1 )
$ 27,796 $ 30,400 $ 2,604 9 %
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Online images. General and administrative expenses primarily consist of payroll and benefit costs for administrative personnel, office related costs, professional fees and provisions for losses on accounts receivable. The year-over-year increase from 2007 to 2008 in general and administrative expenses is due primarily to an increase in legal fees of $1.2 million related to the Agreement with Getty Images and an increase in bad debt expense of $966,000. The increase in bad debt expense is primarily due to the downturn in the U.S. and global economy. The increase in general and administrative expenses is partially offset by a decrease in employee related costs of $240,000 and a decrease in office related costs of $194,000. Due to the Sale, we will not incur additional general and administrative expenses in respect of the Online images business after February 23, 2009, which will affect our aggregate general and administrative expenses and results of operations on a going forward basis and in subsequent reporting periods.
Online media. General and administrative expenses primarily consist of office related costs and provisions of losses on accounts receivable. The increase in general and administrative expenses from 2007 to 2008 is primarily due to the impact of the acquisition of Mediabistro, which added $610,000 and an increase in bad debt expense of $303,000.
Other. General and administrative expenses primarily consist of payroll and benefit costs for administrative personnel, office related costs and professional fees. The decrease from 2007 to 2008 is primarily due to a decrease in professional fees of $2.0 million partially offset by an increase in stock based compensation of $1.2 million and an increase in payroll related costs of $780,000.
Depreciation and amortization
The following table sets forth, for the periods indicated, a year-over-year comparison of our depreciation and amortization expenses (dollars in thousands):
Year Ended December 31, 2007 vs. 2008 2007 2008 $ % Depreciation $ 4,447 $ 5,093 $ 646 15 % Amortization 13,222 16,072 2,850 22
Depreciation expense increased year-over-year from 2007 to 2008 due primarily to an increase in capital expenditures. Amortization expense increased year-over-year from 2007 to 2008 due primarily to the amortization of certain intangible assets acquired in connection with the acquisition of Mediabistro.
Due to the Sale, depreciation and amortization expense will decrease significantly after February 23, 2009, which will affect our aggregate depreciation and amortization expenses and results of operations on a going forward basis and in subsequent reporting periods. Our depreciation and amortization expenses may further vary in future periods based upon a change in our capital expenditure levels, any changes in any purchase accounting adjustments relating to our acquisitions or any future acquisitions.
Impairment of goodwill and long-lived assets
In conjunction with our annual impairment review as of October 1, 2007, we identified certain events or factors that indicated that goodwill and intangible assets may be impaired as of December 31, 2007. These indicators included a decline in our stock price and changes in the images industry, including the emergence of competitive image offerings such as micropayment, that impacted the projected operations and cash flows of the Online images reporting segment. As a result, we recorded an impairment charge of $87.2 million ($81.5 million after tax) to reduce the carrying amounts of goodwill and intangible assets to fair value.
During the third quarter of 2008, we received indications of interest from multiple market participants for our Online images business and concluded that the indications of interest being made were an indicator of impairment to goodwill as of September 30, 2008. Accordingly, we recorded an estimated impairment charge of $40.0 million during the third quarter of 2008. In the fourth quarter of 2008, we completed our valuation of impairment under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As a result, we recorded an additional impairment charge of $36.5 million to reduce the carrying amounts of goodwill and domain names to fair value for our Online images reporting segment.
Also during the fourth quarter of 2008, we identified certain indicators that the amortized intangible assets of our Online media business may be impaired. These indicators included a downturn in the U.S. and global economy that impacted the projected operations and cash flows of the Online media reporting segment. As a result, we recorded an impairment charge of $4.5 million and $86,000 to reduce the carrying amounts of the amortized intangible assets and property and equipment, respectively, to fair value for our Online media reporting segment under SFAS No. 144. The charge is not tax deductible because the acquisition that gave rise to the intangibles was structured as a stock transaction. The impairment charge, which is included in the line item "Impairment of goodwill and long-lived assets" in our 2008 consolidated statement of operations, is presented below by intangible asset (in thousands):
Year Ended
December 31,
2008
Customer and distributor relationships $ 4,184
Web site development costs 60
Non-compete agreements 179
Content development costs 108
Total $ 4,531
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Our impairment tests during 2008 resulted in a total non-cash impairment charge of $76.5 million related to the write-down of goodwill and domain names of our Online images reporting segment. The majority of the charge is not tax deductible because the majority of the acquisitions that gave rise to goodwill and domain names were structured as stock transactions. The impairment charge, which is included in the line item "Impairment of goodwill and long-lived assets" in the 2007 and 2008 consolidated statements of operations, is presented below by intangible asset (in thousands):
Year Ended December 31, 2007
Tax
Pre-Tax Benefit After-Tax
Goodwill $ 83,138 $ 5,708 $ 77,430
Domain names 4,048 - 4,048
Total $ 87,186 $ 5,708 $ 81,478
Year Ended December 31, 2008
Tax
Pre-Tax Benefit After-Tax
Goodwill $ 74,235 $ - $ 74,235
Domain names 2,256 - 2,256
Total $ 76,491 $ - $ 76,491
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The tax benefit of $5.3 million related to goodwill impairment for the year ended December 31, 2008 was subject to a full valuation allowance.
The fair value of goodwill is the residual fair value after allocating the total fair value of a reporting segment to its other assets, net of liabilities. The total fair value of each reporting segment was estimated using a combination of a discounted cash flow model (present value of future cash flows) and two market approach models (a multiple of various metrics based on comparable businesses and market transactions).
The fair value of the domain names was calculated by estimating the present value of future cash flows associated with each asset.
Other income, net
Other income of $103,000 and $676,000 during 2007 and 2008 was due primarily to foreign currency transaction gains and losses.
Interest income and interest expense
The following table sets forth, for the periods indicated, a year-over-year comparison of our interest income and interest expense (dollars in thousands):
Year Ended
December 31, 2007 vs. 2008
2007 2008 $ %
Interest income $ 184 $ 331 $ 147 80 %
Interest expense (7,146 ) (7,152 ) 6 -
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Interest expense relates primarily to borrowings under our senior credit facilities (see Liquidity and Capital Resources).
In connection with the Sale, on February 23, 2009, we (A) terminated the Credit and Security Agreement, dated as of July 12, 2007, among us, as borrower, the lenders party thereto (the "Lenders"), KeyBank National
Association ("KeyBank"), as the lead arranger, sole book runner and administrative agent, and Citizens Bank, N.A., as syndication agent (the "Credit Agreement"), as amended by the First Amendment Agreement to the Credit Agreement, dated as of October 10, 2008 ("Amendment No. 1") and (B) applied approximately $82 million of the gross proceeds from the sale of Jupiterimages to repay all outstanding indebtedness under (i) the Revolving Credit Note (as defined in the Credit Agreement), (ii) the Term Loan B Note (as defined in the Credit Agreement), and (iii) all other obligations under the Credit Agreement other than (a) a $500,000 letter of credit previously issued by Keybank (the "Outstanding Letter of Credit"), which has been fully cash collateralized by us and (b) a First Amendment to ISDA Master Agreement, dated as of February 23, 2009 (the "Swap Amendment"), with respect to that certain ISDA Master Agreement, dated as of July 19, 2007, including the Schedule and Confirmation, both dated as of July 19, 2007, by and between KeyBank and us (the "Original Swap Agreement" and, together with the Swap Amendment, the "Swap Agreement"). Due to the termination of the Credit Agreement, our interest expenses should decrease significantly, which will affect our results of operations on a going forward basis and in subsequent reporting periods.
Provision (benefit) for income taxes
A provision for income taxes of $18.7 million was recorded during the year ended December 31, 2008. The income tax provision is primarily related to the establishment of a valuation allowance on certain deferred tax assets that were recorded as of December 31, 2007. The income tax provision is also impacted by . . .
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