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To: neverenough who wrote (3616)	1/9/1999 11:03:00 AM
From: puborectalis	Respond to of 19700

January 7, 1999 CMG INFORMATION SERVICES INC (CMGI) Annual Report (SEC form 10-K) - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the 1998 Annual Report to Shareholders, referred to in Item 8(a) below, is incorporated herein by reference and is filed herewith as Exhibit 13.2. ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The carrying values of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and notes payable, approximate fair value because of the short maturity of these instruments. The carrying value of long-term debt approximates its fair value, as estimated by using discounted future cash flows based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The Company uses derivative financial instruments primarily to reduce exposure to adverse fluctuations in interest rates on its borrowing arrangements. The Company does not enter into derivative financial instruments for trading purposes. As a matter of policy all derivative positions are used to reduce risk by hedging underlying economic exposure. The derivatives the Company uses are straightforward instruments with liquid markets. At July 31, the Company was primarily exposed to the London Interbank Offered Rate (LIBOR) interest rate on the outstanding borrowings under its line of credit and other bank borrowing arrangements. Information about the Company's borrowing arrangements including principal amounts and related interest rates appears in Note 12 to the Consolidated Financial Statements included herein. The Company has historically had very low exposure to changes in foreign currency exchange rates, and as such, has not used derivative financial instruments to manage foreign currency fluctuation risk. As the Company expands globally, the risk of foreign currency exchange rate fluctuation may dramatically increase. Therefore, in the future, the Company may consider utilizing derivative instruments to mitigate such risks. ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) The following consolidated financial statements of the Company and independent auditors' report set forth in the 1998 Annual Report to Shareholders are incorporated herein by reference and are filed herewith as Exhibit 13.3: - Consolidated Balance Sheets as of July 31, 1998 and 1997 - Consolidated Statements of Operations for the three years ended July 31, 1998 - Consolidated Statements of Stockholders' Equity for the three years ended July 31, 1998 - Consolidated Statements of Cash Flows for the three years ended July 31, 1998 - Notes to Consolidated Financial Statements - Independent Auditors' Report (b) Selected Quarterly Financial Data (unaudited) is set forth in Note 18 of the Notes to Consolidated Financial Statements referred to in Item 8 (a) above and incorporated herein by reference. ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE