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December 14, 2004
Mail Stop 0407
Joseph C. Lawler
President and Chief Executive Officer
CMGI, Inc.
1100 Winter Street
Waltham, Massachusetts 02451
Re: Form 10-K for fiscal year ended July 31, 2004
Filed October 14, 2004
Form 8-K filed August 2, 2004
File No. 00-23262
Dear Mr. Lawler:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
* * * * *
Form 10-K for fiscal year ended July 31, 2004
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 11
Overview, page 11
1. The Overview section appears to merely repeat information
contained in the Business section. As stated in Release No. 33-
8350,
the introduction or overview section should not be a duplicative
layer of disclosure that merely repeats the more detailed
discussion
and analysis contained in the filing. Please amend so that your
Overview section focuses on discussing the most important matters
that management considers when evaluating the company`s financial
condition and operating performance. As suggested by the Release,
consider identifying and discussing key performance indicators,
including non-financial performance indicators, that management
uses
to manage its business and that would be material to investors.
For
example, in light of the diverse nature of the two lines of
businesses, consider identifying any differences in the indicators
that management uses to evaluate the performance of its supply
chain
management business and venture capital business.
Results of Operations, page 13
2. It is the position of the SEC staff that the MD&A section
should
provide an adequate discussion of the underlying drivers of the
business. The discussion should provide investors with an analysis
and identification of significant issues as seen through the eyes
of
management.
* We note that on page 13 you identify a number of factors that
affected revenue. Please revise your disclosure to quantify the
impact of each factor.
* On page 14, you identified that the decrease of gross margin was
attributed mainly to changes in the composition of products
distributed and overall lower average per unit selling prices.
Please
revise your disclosure to quantify the impact of each factor.
* On page 15, you have identified a number of factors that
contributed to the decline of G&A by 40%. Please revise your
disclosure to quantify the impact of each factor.
For additional guidance, refer to Item 303 of Regulation S-K and
SEC
Interpretive Release No. 33-8350, "Commission Guidance Regarding
Management`s Discussion and Analysis of Financial Condition and
Results of Operations," which is located on our website at:
http://www.sec.gov/rules/interp/33-8350.htm.
3. We note management`s forward-looking statement relating to
future
revenues as a result of its acquisition of Modus. Please amend to
provide more detail as to the future timing of management`s
expectation that its supply chain management business will
eventually
achieve "nearly $1 billion in annual revenue."
4. Please amend to explain why your "[v]isibility remains
relatively
low" (page 14) and discuss any steps that you are taking to
increase
visibility.
Liquidity and Capital Resources, page 26
5. The discussion of a registrant`s liquidity should not be overly
general. A generic statement, such as the last sentence of your
liquidity discussion, is unhelpful to an investor`s understanding
of
the company`s financial condition. Therefore, in addition to
identifying the sources of liquidity, please amend to identify and
discuss any trends, demands, events, or uncertainties that are
reasonably likely to affect your liquidity (including, if
possible,
quantified disclosure regarding the impact on liquidity) as well
as
how you intend to address any potential liquidity deficiencies.
See
Release No. 33-8056 and Release No. 33-8350. For example, you
note
on page 12 that competition in the market for supply chain
management
services, as well as industry consolidation, are expected to
increase
in the future. In light of your historical dependence on cash
from
operations to meet your financial needs, you should explain how
such
trends will affect your liquidity. In addition, it appears that a
large percentage of the cash received during fiscal years 2004 and
2003 was derived from investing activities, such as the sale of
Overture Services shares by Alta Vista. In light of this
dependence
on investment income, consider discussing how certain known trends
or
uncertainties, such as market volatility or decline in the overall
performance of the technology sector (as described on page 35 of
the
Form 10-K) could affect your future liquidity.
Finally, your amended filing should distinguish between your
ability
to meet short-term liquidity needs and your ability to meet long-
term
liquidity needs. We consider "long-term" to be in excess of the
next
12 months. See Section III.C. of Release No. 33-6835 and footnote
43
of Release No. 33-8350. You should clarify whether you will have
sufficient cash and other financial resources to fund operations
for
the next twelve months as well as beyond the next twelve months.
Contractual Obligations, page 28
6. We refer to your disclosure on pages 7,12 and 36 that "the
Company
is often required to purchase and maintain adequate levels of
inventory in order to meet customer needs rapidly and on a timely
basis." Clarify to us if the requirement could be considered
purchase obligations. If material, include in the table of
Contractual Obligations.
7. We note the statement on page 28 that the "Company anticipates
an
increase in contractual obligations in fiscal 2005 as a result of
the
acquisition of Modus." Supplementally, please describe the nature
of
these "contractual obligations" and the estimated amounts of these
obligations, if known. To the extent that these obligations are
discussed elsewhere, please refer us to the relevant disclosure.
8. Supplementally, please clarify whether the $13.1 million of the
company`s guarantees of its subsidiaries` indebtedness is already
included in the existing table of contractual obligations on page
28.
Critical Accounting Policies, page 29
9. Critical accounting estimates and assumptions are based on
matters
that are highly uncertain. For this reason, you are required to
analyze their specific sensitivity to change, based on other
outcomes
that are reasonably likely to occur and would have a material
effect
on financial condition or operating performance and provide
quantitative as well as qualitative disclosure when quantitative
information is reasonably available and will provide material
information to investors. Please revise your disclosure to
provide
greater insight into the quality and variability of information
regarding financial condition and operating performance by
discussing
how accurate the estimates/assumptions have been in the past, and
by
providing sensitivity analysis depicting reasonably likely
scenarios
had other variables been chosen in the determination of your
estimates. Refer to SEC Interpretive Release No. 33-8350,
"Commission
Guidance Regarding Management`s Discussion and Analysis of
Financial
Condition and Results of Operations."
Income Taxes, page 32
10. Addressing relevant guidance, tell us why it was appropriate
to
reduce by $76.4 million in fiscal year 2004 the company`s estimate
of
certain tax liabilities previously included in accrued income
taxes.
Factors That May Affect Future Results, page 34
11. Clarify to us the extent of the guarantees entered into on
behalf
of your current and former operating companies. Tell us how you
have
considered these guarantees in light of FIN 45.
Financial Statements
Note 2 - Summary of significant accounting policies
Revenue recognition, page 50
12. We note that you revised your revenue recognition policy to
comply with the provisions of EITF 00-21. Tell us in detail about
the types of contracts in which you are recognizing revenue in
accordance with EITF 00-21. Identify the deliverables in those
contracts that contain multiple deliverables and tell us more
about
their nature.
Investments, page 52
13. Tell us and disclose in future filings the composition by
affiliate of the impairment losses included in "other gains
(losses),
net." Also, provide a schedule by affiliate of the amounts
included
in "Equity in losses of affiliates, net." Provide both schedules
for
each of the three years ended July 31, 2004.
14. Tell us how you considered the total impairment charges in
your
conclusion that you were not required to file financial statements
for any of your equity investees in accordance with Rule 3-09 of
Regulation S-X. Supplementally, provide the supporting
calculation.
15. In future filings, you should disclose any impairment charges
for
your equity investees together with their respective equity in
income
(loss) pick up.
16. Please provide the disclosures required by Rules 4-08 (g) of
Regulation S-X for those investees that meet the criteria in
section
210.1-02(w) for a significant subsidiary. When computing the
income
significance test, you should include any write-down of the
investment. Revise or provide the supporting calculation.
Note 3. Segment Information, page 58
17. It appears that you have determined that you operate in only
one
segment. Tell us your basis for concluding that you operate in
one
reportable segment in accordance with SFAS 131. If you aggregated
your operating segments into one reportable segment, explain to us
how your operating segments met the aggregation criteria under
paragraph 17 of SFAS 131, in particular, the requirement that the
operating segments have similar economic characteristics.
18. We note the statement that the "Company believes that its Non-
GAAP measure of operating income/(loss) provides investors with an
useful supplemental measure of the Company`s operating
performance."
Supplementally, please explain in more detail why you believe the
measure labeled as "Non-GAAP operating income (loss)" is an useful
indicator of operating performance. Specifically, since capital
items are necessary to enable you to generate revenues, it is
unclear
how a financial measure that omits depreciation could be a
relevant
and useful measure of operating performance. Consider including
such
an expanded explanation in documents containing non-GAAP measures
that are filed or furnished in the future.
Note 9. Impairment of Long-Lived Assets, Goodwill and Other
Intangible Assets, page 64
19. Addressing paragraph 30 of SFAS 142, tell us in detail how you
determined that you have one reporting unit. Also, addressing
paragraphs 34 and 35 of SFAS 142, tell us in detail how you
assigned
goodwill to your reporting unit.
Note 14 - Commitments and contingencies, page 71
20. Tell us about the nature and terms of the exclusive naming and
sponsorship rights agreement at inception and as amended. Tell us
about the nature of the $20 million one- time charge recorded in
2002. Tell us how you accounted for this agreement at inception,
at
the amendment date and prospectively.
Form 8-K furnished on August 2, 2004
21. We note that the audit report for Modus Media, Inc is not
signed
by the auditors. You need to comply with Article 2 of Regulation
S-X.
* * * * *
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendments to expedite our review. Please furnish a cover
letter
with your amendments that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendments and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact Alonso Rodriguez at (202) 824-5497 or Ivette
Leon at (202) 942-1982 if you have questions regarding comments on
the financial statements and related matters. Please contact Ted
Yu
at (202) 824-5684 or me at with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
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CMGI, Inc.
Form 10-K for fiscal year ended July 31, 2004
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