-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TE2Y/pTV9DHFnYqXB8tBjg06JqlP4eT7AXBiOhnR1v1DrOjRmVKsgpoiSLWTUKF5 SYfcAX0yxC5pS9GjY6tXaw== 0000912057-00-024169.txt : 20000516 0000912057-00-024169.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETMASTER ONLINE CITYSEARCH INC CENTRAL INDEX KEY: 0001006637 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 954546874 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25041 FILM NUMBER: 630927 BUSINESS ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: STE 200 CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 6264050050 MAIL ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: SUITE 200 CITY: PASADENA STATE: CA ZIP: 91101 FORMER COMPANY: FORMER CONFORMED NAME: CITYSEARCH INC DATE OF NAME CHANGE: 19980617 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q ----------------------- (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended March 31, 2000 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-25041 TICKETMASTER ONLINE -- CITYSEARCH, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4546874 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 790 E. COLORADO BOULEVARD, SUITE 200, PASADENA, CA 91101 (Address of principal executive offices) TELEPHONE NUMBER (626) 405-0050 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of March 31, 2000 there were 36,325,539 shares of the Registrant's Class B Common Stock outstanding. ================================================================================ TICKETMASTER ONLINE -- CITYSEARCH, INC. FORM 10-Q INDEX
Page No. ---- PART I -FINANCIAL INFORMATION.....................................................................................3 Item 1. Financial Statements (unaudited)...................................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............7 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................11 PART II -OTHER INFORMATION.......................................................................................12 Item 1. Legal Proceedings.................................................................................12 Item 6. Exhibits and Reports on Form 8-K..................................................................13 SIGNATURES.................................................................................................14
-2- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
ASSETS MARCH 31, DECEMBER 31, 2000 1999 ---------- --------------- (unaudited) (see note 1) Current assets: Cash and cash equivalents................................................... $ 58,359 $ 61,455 Marketable securities available for sale.................................... 18,042 26,299 Accounts receivable (net of allowance for doubtful accounts of $809 and $738 respectively).......................................... 4,218 3,774 Related party receivable.................................................... 1,916 1,942 Due from licensees.......................................................... 1,754 830 Prepaid expenses and other current assets................................... 4,399 3,826 -------------- ----------- Total current assets.................................................... 88,688 98,126 Investments...................................................................... 18,818 23,085 Computers, software, equipment and leasehold improvements, net................... 19,674 16,831 Goodwill and other intangibles, net.............................................. 645,532 662,921 Other long-term assets........................................................... 3,364 3,706 -------------- ----------- Total assets............................................................ $ 776,076 $ 804,669 ============== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................ $ 2,823 $ 4,537 Accrued expenses............................................................ 10,673 9,100 Deferred revenue............................................................ 6,666 5,979 Current portion of capital lease obligations................................ 918 957 -------------- ----------- Total current liabilities............................................... 21,080 20,573 Other long-term liabilities...................................................... 1,135 1,170 Capital lease obligations, net of current portion................................ 91 333 Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares--2,000,000 at March 31, 2000 Issued and outstanding--none ........................................... -- -- Class A Common Stock, $0.01 par value: Authorized shares --100,000,000 at March 31, 2000 Issued and outstanding--49,438,326 and 52,840,565 at March 31, 2000 and December 31, 1999, respectively......................................... 494 529 Class B Common Stock--$0.01 par value: Authorized shares--250,000,000 at March 31, 2000 Issued and outstanding--36,325,539 and 32,104,352 at March 31, 2000 and December 31, 1999, respectively......................................... 363 321 Class C Common Stock--$0.01 par value: Authorized shares--2,883,506 at March 31, 2000 Issued and outstanding--none............................................ -- -- Additional paid-in capital.................................................. 939,010 919,348 Accumulated deficit......................................................... (186,035) (137,413) Accumulated other comprehensive loss........................................ (62) (192) -------------- ----------- Total stockholders' equity.............................................. 753,770 782,593 -------------- ----------- Total liabilities and stockholders' equity.......................... $ 776,076 $804,669 ============== =========== See accompanying notes.
-3- TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
THREE MONTHS ENDED MARCH 31, ----------------------------- 2000 1999 -------------- ------------- (unaudited) Revenues: Ticketing operations........................................................ $ 28,632 $ 9,386 City guide and related...................................................... 14,378 5,553 Sponsorship and advertising................................................. 3,510 1,032 -------------- ------------- Total revenues.......................................................... 46,520 15,971 Operating costs and expenses: Ticketing operations........................................................ 21,426 6,851 City guide and related...................................................... 12,731 4,607 Sales and marketing......................................................... 17,666 6,200 Research and development.................................................... 1,688 1,933 General and administrative.................................................. 5,856 3,287 Amortization of goodwill and other intangibles.............................. 34,575 11,976 -------------- ------------- Total costs and expenses................................................ 93,942 34,854 -------------- ------------- Loss from operations............................................................. (47,422) (18,883) Interest income, net............................................................. 1,100 1,200 Equity in loss of unconsolidated affiliates...................................... (2,126) -- -------------- ------------- Loss before income taxes......................................................... (48,448) (17,683) Income tax provision............................................................. 174 57 -------------- ------------- Net loss ........................................................................ $ (48,622) $ (17,740) ============== ============= Basic and diluted net loss per share............................................. $ (0.57) $ (0.25) Shares used to compute basic and diluted net loss per ============== ============= share....................................................................... 85,409 71,555 ============== =============
See accompanying notes. -4- TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 --------------- ------------- (unaudited) Operating activities Net loss......................................................................... $ (48,622) $ (17,740) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................................... 36,560 12,854 Deferred marketing...................................................... 313 -- Loss in unconsolidated affiliates....................................... 2,126 -- Advertising contributed by USAi......................................... 165 -- Deferred executive compensation......................................... 343 -- Changes in operating assets and liabilities: Accounts receivable................................................ (20) 89 Related party receivable........................................... 26 536 Due from licensees................................................. (924) (1,207) Prepaid expenses and other current assets.......................... (717) (276) Accounts payable................................................... (2,213) (1,083) Accrued expenses................................................... 913 (419) Related party payable.............................................. -- 1,020 Deferred revenue................................................... 599 33 --------------- ------------- Net cash used in operating activities.......................... (11,451) (6,193) Investing activities Capital expenditures........................................................ (4,009) (1,013) Investment in unconsolidated affiliates..................................... (22) -- Proceeds from sale of investment in unconsolidated affiliates............... 2,167 -- Acquisitions, net of cash acquired.......................................... (97) 13 Proceeds from sale of marketable securities available for sale.............. 8,257 -- Other....................................................................... 29 -- --------------- ------------- Net cash provided by (used in) investing activities............ 6,325 (1,000) Financing activities Net proceeds from exercise of options....................................... 2,311 296 Costs associated with initial public offering............................... -- (336) Payments on capital leases.................................................. (281) (393) --------------- ------------- Net cash provided by (used in) financing activities............ 2,030 (433) --------------- ------------- Net decrease in cash and cash equivalents........................................ (3,096) (7,626) Cash and cash equivalents at beginning of period................................. 61,455 106,910 --------------- ------------- Cash and cash equivalents at end of period....................................... $ 58,359 $ 99,284 =============== =============
See accompanying notes. -5- TICKETMASTER ONLINE-CITYSEARCH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Ticketmaster Online-CitySearch, Inc. (the "Company") has combined CitySearch and Ticketmaster.com (formerly Ticketmaster Online) to create a leading provider of local city guides, local advertising and live event ticketing on the Internet. The Company has integrated its local CitySearch city guides with its Ticketmaster.com live events ticketing and merchandise distribution capabilities to offer online ticketing, merchandise, electronic coupons and other transactions to a broader audience of consumers. In 1999, the Company acquired the Sidewalk.com entertainment city guide assets of Microsoft Corporation, CityAuction, Inc., an online auction company and Match.Com, Inc. and Web Media Ventures, L.L.C., both online personals companies. In 2000, the Company acquired 2b Technology, Inc., a box office software and ticketing company. The Company has integrated these acquisitions into its other online offerings. BASIS OF PRESENTATION On September 28, 1998, CitySearch, Inc. ("CitySearch") and Ticketmaster Multimedia Holdings, Inc. ("Ticketmaster.com") formed Ticketmaster Online-CitySearch, Inc. (the "Merger"). The Merger was accounted for using the "reverse purchase" method of accounting, pursuant to which Ticketmaster.com was treated as the acquiring entity for accounting purposes, and the assets acquired and liabilities assumed of CitySearch were recorded at their respective fair values. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. SEGMENTS The Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company identifies its operating segments based on business activities, management responsibility and geographical location. The Company's chief operating decision makers review financial information to manage the business consistent with the manner presented in the condensed consolidated financial statements. During the three months ended March 31, 2000 and 1999, the Company operated in a single business segment operating as a local portal and online consumer service primarily in the United States. Through March 31, 2000, foreign operations have not been significant in revenue. As the Company acquires and integrates new businesses it continues to evaluate, based on the -6- nature, size and integration and management strategies of its businesses, whether it has separate reportable segments. BASIC AND DILUTED LOSS PER SHARE Basic loss per share is determined by dividing the net loss by the weighted average shares of Common Stock outstanding during the period. Diluted loss per share is determined by dividing the net loss by the weighted average shares of Common Stock outstanding plus the dilutive effects of stock options, warrants and other convertible securities. Basic and diluted loss per share are the same for the three months ended March 31, 2000 and 1999 because the effects of outstanding stock options and warrants are antidilutive. RECLASSIFICATIONS Certain reclassifications have been made to the prior year's balances to conform to the current year presentation. NOTE 2 -- BUSINESS COMBINATIONS Acquisition of 2b Technology, Inc. On January 31, 2000, the Company completed the acquisition of 2b Technology, Inc ("2b Technology"), a ticketing and software licensing company. In connection with the acquisition, the Company issued 458,005 shares of Class B Common Stock to the former owners of 2b Technology representing a purchase price of approximately $17.1 million. The purchase price will be increased for additional shares to be granted upon achievement of revenue targets based on the stock price at that time. The acquisition is being accounted for using the purchase method of accounting. The acquisition resulted in $16.9 million of goodwill being recorded initially with adjustments to be made at the issuance of additional shares if the revenue targets are achieved. The total amount of goodwill recorded approximates the purchase price which is being amortized by the Company over a period of five years. The results of operations of 2b Technology are included in the accompanying statement of operations from the date of acquisition. PRO FORMA FINANCIAL DATA (UNAUDITED) The following unaudited pro forma information presents a summary of results of the Company assuming the acquisition of CityAuction, Match.Com, Web Media Ventures and 2b Technology had occurred as of January 1, 1999, with pro forma adjustments to give effect to amortization of goodwill. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effective on January 1, 1999.
THREE MONTHS ENDED MARCH 31, 2000 1999 --------- ----------- (in thousands, except per share data) Net loss.................................. (48,904) (23,965) Net loss per share........................ (0.57) (0.32)
In addition to the above pro forma results, the Sidewalk transaction resulted in an increase in our intangible assets. The amortization of these additional intangibles for the three months ended March 31, 1999, in addition to the goodwill from the acquisitions discussed above, had these transactions occurred on January 1, 1999, would have resulted in a net loss of $40.6 million and a net loss per share of $0.49 on a pro forma basis. The pro forma information above excludes the impact of revenues and expenses associated with the acquisitions as the impact is not material. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH BELOW AND ELSEWHERE IN THIS REPORT. OVERVIEW Ticketmaster Online-CitySearch, Inc. is a leading local portal and electronic commerce company that provides in-depth local content and services to help people get things done online. We offer practical tools for living that make the Internet an important part of peoples' everyday lives. Our principal operations are online city guides, online ticketing and online personals. Our family of Web sites includes citysearch.com, ticketmaster.com, match.com, museumtix.com, cityauction.com, astroabby.com and livedaily.com, among others. In September 1998, our company was created by combining CitySearch, Inc. and Ticketmaster.com, then the wholly-owned online subsidiary of Ticketmaster Corp., to create Ticketmaster Online-CitySearch. -7- We derive revenues from three sources: online ticketing, city guide and related services (which includes online personals subscriptions) and sales of sponsorships and advertising. We view our operations as being in one segment, with ongoing integration. Online ticketing operations revenues are primarily comprised of convenience charges which are charged on a per ticket purchased basis and shipping and handling fees which are collected on a per order basis. The sale of tickets for an event often begins several months prior to the scheduled date of the event. Ticket operations revenue is recognized when the ticket is sold. If credit card chargeback or refund activity is likely to occur with respect to an event, for example, due to the cancellation of such event, an allowance is established for potential convenience charge refunds. Merchandise sale revenues are recognized when the products are shipped. In our owned and operated city guide markets, we derive our revenues primarily from subscription fees resulting from the creation, hosting and maintenance of local business Web sites. Business Web site customers typically enter into one-year agreements that automatically convert to month-to-month contracts upon expiration. We recognize revenue from sales of local business Web sites on a monthly basis over the term of each contract as services are rendered. In partner-led markets, we derive licensing and royalty revenues from the licensing of our technology and business systems, from consulting services and from providing back office and hosting services. We do not expect entering into additional domestic partnerships to launch city guides to be a critical piece of our strategy going forward. Licensing revenue under license agreements is recognized over the term of the license agreement or the period over which the relevant services are delivered for use of our business and technology systems pursuant to Statement of Position ("SOP") No. 97-2, as amended by SOP No. 98-1. Royalty revenue is recognized as earned and is typically a percentage of partner-led market revenues from Web site subscriptions, banners, advertisements, sponsorships and other ancillary offerings. Additionally, we derive revenue from providing back office services, including business Web site design, hosting, customer service and billing, to certain of our partners. In our integrated personals operations, we derive subscription fee revenue from customers who subscribe for our online matching and dating services for one to twelve months. Revenues are recognized monthly over the contract term. Sponsorship and advertising revenues are derived from local and national advertisers and are primarily recognized ratably over the term of the promotion. OPERATING LOSSES The Company incurred net losses of $48.6 million and $17.7 million for the three months ended March 31, 2000 and 1999, respectively. At March 31, 2000, the Company had an accumulated deficit of $186.0 million. RESULTS OF OPERATIONS TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $28.6 million and $9.4 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 204%. The increase is primarily attributable to a significant increase in the number of tickets sold (from 1.6 million to 4.2 million tickets), and a 15.5% increase in average convenience charge revenue per ticket (from $5.62 to $6.49). Revenues also increased, to a lesser extent, due to the acquisition of 2b Technology in January 2000. The Company recognized no revenues from 2b Technology in the three months ended March 31, 1999. CITY GUIDE AND RELATED REVENUES. City guide and related revenues were $14.4 million and $5.6 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 157%. The increase was principally attributable to the acquisition of the personals businesses, Match.Com and One and -8- Only Network, and also to the expansion of the city guide network of owned & operated markets from 12 markets in the first quarter of 1999 to 32 markets in the first quarter of 2000. The Company recognized no revenues from personals operations in the three months ended March 31, 1999. SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues were $3.5 million and $1.0 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 250%. The increase was primarily attributable to the Company's growing success in leveraging its expanded footprint of local cities to appeal to national advertisers, including a significant advertising relationship with the Microsoft Corporation. TICKETING OPERATIONS EXPENSES. Ticketing operations expenses consist primarily of expenses associated with ticket fulfillment (including the license fee to Ticketmaster Corp.), Web site maintenance, service and network infrastructure maintenance and data communications. Ticketing operations expenses were $21.4 million and $6.9 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 210%. Our gross margins in ticketing operations slightly declined to approximately 25% in the three months ended March 31, 2000 from approximately 27% in the three months ended March 31, 1999 as a result of both an increase in staffing needed to maintain the Web site and variable costs that are factors of the average gross ticket transaction value. Ticketing operations expenses are primarily variable in nature and fluctuate in relation to fluctuations in ticketing revenue. In addition, the Company expects that ticketing operations expenses will increase proportionally with ticketing revenues as a result of expenses associated with the Ticketmaster License Agreement. Expenses also increased, to a lesser extent, from increases in technology staffing and technical consultant expenses and due to the acquisition of 2b Technology in January 2000. The Company recognized no expenses from 2b Technology in the three months ended March 31, 1999. CITY GUIDE AND RELATED EXPENSES. City guide and related expenses consist primarily of the expenses associated with the design, layout, photography, customer service and editorial resources used in the production and maintenance of business Web sites and editorial content, network infrastructure maintenance, the costs of consulting services in partner-led city guide markets and costs associated with online personals operations. In addition, expenses associated with our personals operations include costs of affiliate referral commissions, customer service and network infrastructure maintenance. City guide and related expenses were $12.7 million and $4.6 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 176%. The increase is attributable to growth in the city guide operations throughout 1999, including the addition of 20 additional owned and operated markets in the periods following the three months ended March 31, 1999. Expenses also increased as a result of the inclusion of costs associated with our personals operations acquired in 1999. The Company recognized no personals costs in the three month period ended March 31, 1999. Our gross margins in city guide operations declined to 11% in the three months ended March 31, 2000 from 17% in the three months ended March 31, 1999 as a result of costs associated with the expansion into new markets where sales have only recently commenced. City guide and related expenses have both fixed and variable components and may continue to increase in future periods to the extent city guide and related revenues increase during such periods. SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of costs related to the compensation of sales and marketing personnel, advertising and travel associated with developing our owned and operated city guide markets and our personals businesses. Sales and marketing expenses were $17.7 million and $6.2 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 185%. The increase for the three months ended March 31, 2000, as compared to the three months ended March 31, 1999, is attributable to the growth of our city guide operations throughout 1999 from 12 markets to 32 markets, and, to a lesser extent, the addition of sales and marketing expenses associated with our personals operations. There were no personals costs in the three months ended March 31, 1999. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the costs to develop, test and upgrade our online service and the enterprise management systems primarily for our city -9- guide operations. These costs consist primarily of salaries for product development personnel, contract labor expense, consulting fees, software licenses, hardware costs and recruiting fees. Research and development expenses were $1.7 million and $1.9 million for the three months ended March 31, 2000 and 1999, respectively, a decrease of 11%. These costs were essentially flat period to period due to less contractor staffing, offset by additional full-time employees during the 2000 period. The Company believes that timely deployment of new and enhanced products and technology is critical to attaining its strategic objectives and to remaining competitive. Accordingly, the Company intends to continue recruiting and hiring experienced research and development personnel and making other investments in research and development. As such, the Company expects that research and development expenditures will increase in absolute dollars in future periods. The Company has expensed research and development costs as incurred. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of administrative and executive personnel costs. General and administrative expenses were $5.9 million and $3.3 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 79%. The increase for the three month period ended March 31, 2000 was due primarily to the costs of additional personnel needed for the continued growth of the Company's city guide and personals operations and, to a lesser extent, increased depreciation expense resulting from capital expenditures during 1999. The Company expects that general and administrative expenses will increase in absolute dollars. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles consists of goodwill associated with the acquisition of Ticketmaster Corp. by USAi, the merger of CitySearch and Ticketmaster.com and the acquisitions of CityAuction, Match.Com, Web Media Ventures, 2b Technology and the Sidewalk assets. Amortization of goodwill and other intangibles was $34.6 million and $12.0 million for the three months ended March 31, 2000 and 1999, respectively, an increase of 188%. The increase is attributable to the Company's acquisitions which took place in the periods following the three months ended March 31, 1999. INTEREST INCOME, NET. Net interest income consists primarily of interest earned on the Company's cash, cash equivalents and marketable securities available for sale, less interest expense on capital lease obligations. The Company had net interest income of $1.1 million and $1.2 million for the three months ended March 31, 2000 and 1999, respectively. The Company invests its cash balances in short-term investment grade, interest-bearing securities. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of unconsolidated affiliates of $2.1 million during the three months ended March 31, 2000 represents the Company's portion of net losses of foodline.com, Inc. and ActiveUSA.com, Inc., two companies in which the Company invested in late 1999. The Company did not have equity investments in these companies during the three months ended March 31, 1999. INCOME TAXES. The provision for income taxes was $174,000 and $57,000 for the three months ended March 31, 2000 and 1999, respectively. This provision reflects the income tax expense incurred by the Company's foreign subsidiaries, and has increased as a result of increased ticketing profits in those markets. The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of foreign income taxes and operating losses not benefited. The Company expects that its tax provision will remain nominal for the balance of 2000 due to the availability of net operating losses of CitySearch. However, net operating loss carryforwards of CitySearch existing at the Merger date will not be available to further offset taxable income of the Company. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $11.5 and $6.2 million for the three months ended March 31, 2000 and 1999, respectively. Net cash used in operating activities was primarily due to net losses, offset -10- in large part by non-cash depreciation and amortization expense of $36.6 million and $12.9 million, respectively. Net cash provided by investing activities was $6.3 million for the three months ended March 31, 2000 and net cash used in investing activities was $1.0 million for the three months ended March 31, 1999. Net cash provided by investing activities in the three months ended March 31, 2000 resulted mostly from the sale of marketable securities to fund operations and proceeds from the sale of an equity investment, offset in part by capital expenditures for computers, software, equipment and leasehold improvements. Net cash used in investing activities in the three months ended March 31, 1999 consisted primarily of capital expenditures for computers, software, equipment and leasehold improvements. Net cash provided by financing activities was $2.0 million for the three months ended March 31, 2000 and net cash used in financing activities was $433,000 for the three months ended March 31, 1999. Net cash provided by financing activities for the three months ended March 31, 2000 was primarily attributable to proceeds of $2.3 million from employee stock option exercises. Net cash used in financing activities for the three months ended March 31, 1999 was attributable to costs associated with the Company's initial public offering and payments on capital leases. We had cash, cash equivalents and marketable securities available for sale of $76.4 million and $87.8 million at March 31, 2000 and December 31, 1999, respectively. We currently have no unfunded material commitments other than those under existing capital and operating lease agreements. We have experienced a substantial increase in our capital expenditures and investing activities consistent with our infrastructure build out and expansion into other businesses that compliment our current offerings. We will continue to evaluate possible acquisitions of, or investments in, businesses, products and technologies that are complementary to ours, which may require the use of cash. Our management believes that existing cash, cash equivalents and marketable securities available for sale will be sufficient to meet our working capital and capital expenditures requirements through 2000. Thereafter, we may be required to raise additional funds. No assurance can be given that we will not choose to or be required to raise additional financing prior to such time. If additional funds are raised through the issuance of equity securities, our stockholders may experience significant dilution. Furthermore, there can be no assurance that additional financing will be available when needed or that, if available, such financing will include terms favorable to us or our stockholders. If such financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company has not used derivative financial instruments in its investment portfolio. The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limits the amount of credit exposure to any one issuer. The Company protects and preserves its invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carries a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if the Company sells securities which have declined in market value due to changes in interest rates. -11- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and its wholly-owned subsidiary, CityAuction, Inc., have settled the previously announced lawsuit brought by Snap!, LLC ("Snap"). Due to the fact that the Company assumed the liability relating to the lawsuit in connection with the acquisition of CityAuction, Inc., the settlement payment was capitalized as a portion of the purchase consideration and will be amortized with the other purchase consideration over five years. CASH DISCOUNT LITIGATION On or about December 17, 1999, a purported class action lawsuit entitled ADRIANA GARZA, ET AL. V. SOUTHWEST TICKETING, INC., D/B/A TICKETRON, TICKETMASTER AND RAINBOW TICKETMASTER, TICKETMASTER TEXAS MANAGEMENT, TICKETMASTER LLC, TICKETMASTER GROUP, INC., TICKETMASTER ONLINE-CITYSEARCH, INC. AND THE MAY DEPARTMENT STORES COMPANY, Case No. C-5714-99-B, was filed in state court in the District Court of Hidalgo County, Texas, 93rd Judicial District. The lawsuit challenges the cash discounts offered by Ticketmaster's outlets in Texas, and alleges that Defendants impose a surcharge on credit card users. On January 14, 2000, Defendants removed the case to a federal court, and filed an Answer on January 24, 2000 denying the allegations. Plaintiff filed a motion to remand to state court, to which Defendants filed a response on February 18, 2000. On March 8, 2000, the federal court granted the Plaintiff's motion to remand the case to state court. Plaintiff filed a motion for partial summary judgment on March 24, 2000 and, on May 1, 2000, Defendants filed a cross-motion for summary judgment. Ticketmaster Online-City Search, Inc. contends in the cross-motion for summary judgment that, in addition to the fact that the cash discounts offered at outlets are legal, it has no liability because it was not involved in the sale of tickets to the Plaintiff and, further, that it does not sell any tickets for which cash discounts are available. There is no hearing date yet for the motions for summary judgment. On April 3, 2000, plaintiff amended her petition. The amended petition incldues allegations by the plaintiff of her desire to represent a class of plaintiffs from the State of Texas, Oklahoma, Kansas, New York, Florida, Connecticut, Maine, Massachusetts and Colorado. In addition, Plaintiff also stated her desire for the proposed class to include not only credit card purchasers of tickets at outlets but also credit card purchasers of tickets over the telephone and the Internet. Plaintiff filed her Motion for Class Certification on April 11, 2000. Hearing is not yet scheduled on this motion. Ticketmaster Online-City Search, Inc. intends to vigorously defend this action. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Sales of Unregistered Securities In January 2000, the Company issued an aggregate of 458,005 shares of Class B Common Stock as part of the consideration for the 2b Technology acquisition. The shares were issued to the shareholders of 2b Technology. In March 2000, the Company issued an aggregate of 65,793 shares of Class B Common Stock as part of the consideration for the Web Media Ventures acquisition which closed in September 1999. This issuance was part of an earn-out payment agreed upon at the time the acquisition was closed. The shares were issued to former shareholders of Web Media Ventures. -12- The issuance of these securities was deemed to be exempt from registration under the Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.44 Form of Restricted Stock Agreement under 1999 Stock Plan 10.45 Form of Agreement entered into between the Registrant and each of John Pleasants and Dan Marriott 27.1 Financial Data Schedule (b) Reports on Form 8-K On January 28, 2000, the Company filed a Report on Form 8-K relating to the announcement of the Company's results for the quarter and year ended December 31, 1999. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 12, 2000 TICKETMASTER ONLINE-CITYSEARCH, INC. By: /s/ JOHN PLEASANTS ----------------------------- John Pleasants Chief Executive Officer (Principal Executive Officer) By: /s/ THOMAS MCINERNEY ------------------------------ Thomas McInerney Chief Financial Officer, Executive Vice President, Finance and Administration and Treasurer (Principal Financial and Accounting Officer) -14- INDEX TO EXHIBITS EXHIBITS ---------- 10.44 Form of Restricted Stock Agreement under 1998 Stock Plan 10.45 Form of Agreement entered into between the Registrant and each of John Pleasants and Dan Marriott 27.1 Financial Data Schedule -15- EX-10.44 2 EXHIBIT 10.44 TICKETMASTER ONLINE-CITYSEARCH, INC. 1998 STOCK OPTION PLAN RESTRICTED STOCK AGREEMENT Unless otherwise defined herein, the terms defined in the 1998 Stock Option Plan shall have the same defined meanings in this Restricted Stock Agreement. I. RESTRICTED STOCK GRANT 1 GRANT. Effective [Date], Ticketmaster Online-CitySearch, Inc. (the "Company") has granted to [________] the right to purchase [_______] shares of the Company's Class B Common Stock at $[___] per share. The total purchase price of the shares subject to this Agreement is $[___]. The Company shall have the right to repurchase each of the shares purchased hereunder by the Optionee for the price of $___ per share for a limited period of time. The Company shall not exercise its rights to repurchase the shares subject to repurchase rights hereunder so long as the Optionee continues to be a Service Provider. The Company's repurchase rights will lapse at the following times with respect to the following amounts of the shares: [Date] - [_____] shares; [Date] - [____] shares; and [Date] - [_____] shares. Notwithstanding the foregoing, if the Optionee ceases to be a Service Provider prior to the date that the Company's repurchase rights have lapsed with respect to all of the shares subject to this Agreement due to death, Disability, or by action taken by the Company without cause, all repurchase rights shall immediately lapse with respect to all shares still subject to such rights. II. AGREEMENT 1 GRANT OF RESTRICTED STOCK. The Plan Administrator of the Company hereby grants to the Optionee named above the restricted stock set forth above, subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. 2 NON-TRANSFERABILITY OF RESTRICTED STOCK. The shares subject to this Agreement may not be transferred in any manner otherwise than by will or by the laws of descent or distribution until such time as the repurchase rights with respect to such shares shall lapse. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 3 ENTIRE AGREEMENT; Governing Law. The Plan attached hereto is incorporated herein by reference. The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware. 4 NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. 5 ACCELERATION UPON CHANGE OF CONTROL. Notwithstanding anything in the Plan to the contrary, in the event of a merger of the Company with or into another corporation, the sale of substantially all of the assets of the Company or any other transaction in which the Company is no longer directly or indirectly controlled by USA Networks, Inc. , all repurchase rights with respect to the shares subject to this Agreement shall lapse immediately upon consummation of such transaction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the first date written above: OPTIONEE: TICKETMASTER ONLINE- CITYSEARCH, INC. By: - --------------------------------------- ----------------------------------- Signature Its: ----------------------------------- EX-10.45 3 EXHIBIT 10.45 AGREEMENT THIS AGREEMENT ("Agreement") is entered into by and between [name] ("Executive") and Ticketmaster Online-CitySearch, Inc., a Delaware corporation (the "Company"), and is effective December 31, 1999 (the "Effective Date"). WHEREAS, the Company and the Company's ultimate parent company, USA Networks, Inc. ("USA") have provided the Executive with stock based incentives with regard to Executive's efforts while employed by the Company and desires to establish an arrangement for Executive to provide consulting services to the Company and to USA after Executive separates from the Company for any reason (except death) on the terms and conditions hereinafter set forth, and Executive has accepted such stock based incentives and is willing to accept such consulting agreements on such terms and conditions. NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by both parties, Executive and the Company have agreed and do hereby agree as follows: 1. TERM OF AGREEMENT. The term ("Term") of this Agreement shall commence on the Effective Date and shall expire on the second anniversary of the separation of Executive from his employment with the Company for any reason. 2. CONFIDENTIAL INFORMATION. Executive acknowledges that while employed by the Company Executive will occupy a position of trust and confidence. Executive shall not, except as may be required to perform Executive's duties hereunder or as required by applicable law, without limitation in time or until such information shall have become public other than by Executive's unauthorized disclosure, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company or any of its subsidiaries or affiliates. "Confidential Information" shall mean information about the Company, USA or any of their respective subsidiaries or affiliates, and their clients and customers that is not disclosed by the Company or any of its subsidiaries or affiliates for financial reporting purposes and that was learned by Executive in the course of employment by the Company or any of its subsidiaries or affiliates, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information and client and customer lists and all papers, resumes, and records (including computer records) of the documents containing such Confidential Information. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company and its subsidiaries or affiliates, and that such information gives the Company and its subsidiaries or affiliates a competitive advantage. Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of Executive's employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by the Company and its subsidiaries or affiliates or prepared by Executive in the course of Executive's employment by the Company and its subsidiaries or affiliates. As used in this Agreement, "subsidiaries" and "affiliates" shall mean any company controlled by, controlling or under common control with the Company or USA as the case may be. 3. CONSULTING SERVICES. During the two-year period commencing immediately upon the termination of Executive's employment for any reason (other than Executive's death) (the "Consulting Period"), Executive shall be available for consultation with the Company and its subsidiaries and affiliates concerning their general operations and the industries in which they engage in business. In addition, during the Consulting Period, Executive will aid, assist and consult with the Company and its subsidiaries and affiliates with respect to their dealings with clients and the enhancement of their recognition and reputation. During the Consulting Period, Executive shall devote such time and energies to the affairs of the Company and its subsidiaries and affiliates as may be reasonably required to carry out his duties hereunder without jeopardizing Executive's then full-time, non-Company business employment opportunities; provided, however, that Executive shall not be obligated to devote more than 50 hours per year to the performance of such duties. In consideration of Executive's consulting services, and in consideration of Executive's covenants contained in this Agreement, the Company shall pay to Executive $_______ during each full year of the Consulting Period, payable in equal monthly installments. The Company further agrees to reimburse Executive for all reasonable and necessary business expenses incurred by Executive in the performance of his consulting services in accordance with the Company's reimbursement policy, including, without limitation, the submission of supporting evidence as reasonably required by the Company. 4. NON-COMPETITION. During the Term, Executive shall not, without the prior written consent of the Company, directly or indirectly engage in or assist any activity which is the same as, similar to or competitive with the Company's Businesses (as defined below) (other than on behalf of the Company, USA or their respective subsidiaries or affiliates) including, without limitation, whether such engagement or assistance is an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 5% of the outstanding capital stock of a publicly traded corporation), guarantor, consultant, advisor, agent, sales representative or other participant, anywhere in the world that the Company or any of its subsidiaries or affiliates has been engaged, including, without limitation, the United States, Canada, Mexico, England, Ireland, Scotland, Europe and Australia. The Company's Businesses are defined as (A) the principal businesses of the Company as of the date hereof, namely (i) the operation of Internet websites known as "city guides" which primarily provide local information and build and/or host infosites for small businesses in a searchable database format, (ii) the operation of Internet websites which primarily provide live event ticket sales, and (iii) the operation of Internet websites which primarily provide classified matchmaking personals and (B) the principal businesses of the Company at the time that the Executive ceases to be a Company employee. The determination of the principal businesses of the Company at the time the Executive ceases to be a Company employee will be made with reference to the definition of the principal businesses as of the date hereof in terms of the relative importance of the businesses to the Company at that time compared to its other activities. 5. NON-SOLICITATION/NON-HIRE OF EMPLOYEES. Executive recognizes that he will possess confidential information about other employees of the Company and its subsidiaries or affiliates relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of the Company and its subsidiaries or affiliates. Executive recognizes that the information he will possess about these other employees is not generally known, is of substantial value to the Company and its subsidiaries or affiliates in developing their respective businesses and in securing and retaining customers, and will be acquired by Executive because of Executive's business position with the Company. Executive agrees that, until the first anniversary of the date the Executive ceases to be an employee of the Company, Executive will not without the prior written consent of the Company, directly or indirectly, solicit or recruit any employee of the Company or any of its subsidiaries or affiliates for the purpose of being employed by Executive or by any business, individual, partnership, firm, corporation or other entity on whose behalf Executive is acting as an agent, representative or employee and that Executive will not hire any such employee of the Company. Further, Executive will not convey any such confidential information or trade secrets about other employees of the Company or any of its subsidiaries or affiliates to any other person except within the scope of Executive's duties hereunder. 6. REMEDIES FOR BREACH. Executive expressly agrees and understands that the remedy at law for any breach by Executive of this Agreement will be inadequate and that damages flowing from such breach are not usually susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon Executive's violation of any provision of this Agreement the Company shall be entitled to obtain from any court of competent jurisdiction immediate injunctive relief and obtain a temporary order restraining any threatened or further breach as well as an equitable accounting of all profits or benefits arising out of such violation. Nothing in this Agreement shall be deemed to limit the Company's remedies at law or in equity for any breach by Executive of any of the provisions of this Agreement which may be pursued by or available to the Company. 7. SURVIVAL OF PROVISIONS. The obligations contained in this Agreement shall, to the extent provided in this Agreement, survive the termination or expiration of Executive's employment with the Company and, as applicable, shall be fully enforceable thereafter in accordance with the terms of this Agreement. If it is determined by a court of competent jurisdiction in any state that any restriction in this Agreement is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. Further, in the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any law or public policy, only the portions of this Agreement that violate such law or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement. 8. TERMINATION OF PRIOR AGREEMENTS. This Agreement constitutes the entire agreement between the parties and terminates and supersedes any and all prior agreements and understandings (whether written or oral) between the parties with respect to the subject matter of this Agreement. 9. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by first-class mail, certified or registered with return receipt requested or hand delivery acknowledged in writing by the recipient personally, and shall be deemed to have been duly given three days after mailing or immediately upon duly acknowledged hand delivery to the respective persons named below: If to the Company: Ticketmaster Online-Citysearch, Inc. 790 E. Colorado Blvd., Suite 200 Pasadena, CA 91101 Attention: General Counsel With a copy to USA Networks, Inc. 152 West 57th Street New York, NY 10019 Attention: General Counsel If to Executive: -------------- -------------- Either party may change such party's address for notices by notice duly given pursuant hereto. 10. GOVERNING LAW; JURISDICTION. This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the internal laws of the State of New York without reference to the principles of conflicts of laws. Any and all disputes between the parties which may arise pursuant to this Agreement will be heard and determined before an appropriate federal court in New York City, or, if not maintainable therein, then in an appropriate New York state court. The parties acknowledge that such courts have jurisdiction to interpret and enforce the provisions of this Agreement, and the parties consent to, and waive any and all objections that they may have as to, personal jurisdiction and/or venue in such courts. 11. COUNTERPARTS; INCORPORATION BY REFERENCE. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered by its duly authorized officer and Executive has executed and delivered this Agreement on February 21, 2000. TICKETMASTER ONLINE-CITYSEARCH, INC. By: -------------------------------------- Title: --------------------------------------- [Name] EX-27.1 4 EXHIBIT 27.1
5 1,000 3-MOS 3-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 MAR-31-2000 DEC-31-1999 58,359 61,455 18,042 26,299 8,697 7,284 (809) (738) 0 0 4,399 3,826 27,288 22,461 (7,614) (5,630) 776,076 804,669 21,080 20,573 0 0 0 0 0 0 857 850 752,913 781,743 776,076 804,669 46,520 15,971 46,520 15,971 0 0 93,942 34,854 1,026 (1,200) 0 0 0 0 (48,448) (17,683) 174 57 (48,622) (17,740) 0 0 0 0 0 0 (48,622) (17,740) (0.57) (0.25) (0.57) (0.25)
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