-----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, FGZchZjUolLUgojCD8k+WdlxoRJ/r+l0jx7MaYP6A8CpC0Y4cndPEkQqfkFAnZYl J8StThpeA/OUn7QZJJrx6g== /in/edgar/work/0000912057-00-045920/0000912057-00-045920.txt : 20001027 0000912057-00-045920.hdr.sgml : 20001027 ACCESSION NUMBER: 0000912057-00-045920 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETMASTER ONLINE CITYSEARCH INC CENTRAL INDEX KEY: 0001006637 STANDARD INDUSTRIAL CLASSIFICATION: [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: 745964 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 a2028484z10-q.txt 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 September 30, 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 (I.R.S. Employer jurisdiction of incorporation or Identification organization) 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 September 30, 2000 there were 40,640,517 shares of the Registrant's Class B Common Stock outstanding and 47,982,121 shares of the Registrant's Class A Common Stock outstanding. Only the Company's Class B Common Stock is publicly traded. ================================================================================ TICKETMASTER ONLINE - CITYSEARCH, INC. FORM 10-Q INDEX
PAGE NO. ---- PART I -FINANCIAL INFORMATION.........................................................................................3 Item 1. Financial Statements................................................................................3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............8 Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................................13 PART II -OTHER INFORMATION...........................................................................................14 Item 1. Legal Proceedings..................................................................................14 Item 6. Exhibits and Reports on Form 8-K...................................................................15 SIGNATURES..................................................................................................16
-2- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- --------------- (unaudited) (see note 1) ASSETS Current assets: Cash and cash equivalents................................................... $ 30,297 $ 61,455 Marketable securities available for sale.................................... 17,583 26,299 Accounts receivable (net of allowance for doubtful accounts of $1,380 and $738 respectively)........................ 8,896 3,774 Related party receivable.................................................... -- 1,942 Due from licensees.......................................................... 1,500 830 Prepaid expenses and other current assets................................... 5,225 3,826 ----------- -------- Total current assets.................................................... 63,501 98,126 Investments...................................................................... 20,028 23,085 Computers, software, equipment and leasehold improvements, net................... 23,788 16,831 Goodwill and other intangibles, net.............................................. 613,607 662,921 Other long-term assets........................................................... 3,833 3,706 ----------- -------- Total assets............................................................ $ 724,757 $ 804,669 =========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................ $ 2,822 $ 4,537 Accrued expenses............................................................ 14,279 9,100 Related party payable....................................................... 840 -- Deferred revenue............................................................ 8,836 5,979 Current portion of capital lease obligations................................ 481 957 ----------- -------- Total current liabilities............................................... 27,258 20,573 Other long-term liabilities...................................................... 1,050 1,170 Capital lease obligations, net of current portion................................ 96 333 Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares--2,000,000 at September 30, 2000 Issued and outstanding--none -- -- Class A Common Stock, $0.01 par value: Authorized shares --100,000,000 at September 30, 2000 Issued and outstanding--47,982,121 and 52,840,565 at September 30, 2000 and December 31, 1999, respectively..................................... 480 529 Class B Common Stock--$0.01 par value: Authorized shares--250,000,000 at September 30, 2000 Issued and outstanding--40,640,517 and 32,104,352 at September 30, 2000 and December 31, 1999, respectively..................................... 406 321 Class C Common Stock--$0.01 par value: Authorized shares--2,883,506 at September 30, 2000 Issued and outstanding--none............................................ -- -- Additional paid-in capital.................................................. 976,072 919,348 Accumulated deficit......................................................... (280,481) (137,413) Accumulated other comprehensive loss........................................ (124) (192) ----------- -------- Total stockholders' equity.............................................. 696,353 782,593 ----------- -------- Total liabilities and stockholders' equity.......................... $ 724,757 $804,669 =========== ========
See accompanying notes. -3- TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ----------- Revenues: (unaudited) (unaudited) Ticketing operations............................ $ 34,065 $ 16,634 $ 102,745 $ 43,812 City guide and related.......................... 17,743 8,977 49,174 21,089 Sponsorship and advertising..................... 5,254 1,800 13,064 4,009 ----------- ----------- ----------- ----------- Total revenues.............................. 57,062 27,411 164,983 68,910 Operating costs and expenses: Ticketing operations............................ 26,030 12,305 77,568 32,612 City guide and related.......................... 12,886 8,582 39,015 19,052 Sales and marketing............................. 21,056 13,990 57,007 29,569 Research and development........................ 1,374 2,051 4,641 5,589 General and administrative...................... 7,048 4,087 19,808 9,994 Amortization of goodwill and other intangibles.. 36,994 18,606 107,265 44,294 Merger and other transaction costs.............. -- 514 -- 3,285 ----------- ----------- ----------- ----------- Total costs and expenses.................... 105,388 60,135 305,304 144,395 ----------- ----------- ----------- ----------- Loss from operations................................. (48,326) (32,724) (140,321) (75,485) Interest income, net................................. 556 986 2,346 3,223 Equity in loss of unconsolidated affiliates.......... (1,194) -- (3,774) -- Other expenses....................................... (11) -- (289) -- ----------- ----------- ----------- ----------- Loss before income taxes............................. (48,975) (31,738) (142,038) (72,262) Income tax provision................................. 168 49 1,033 182 ----------- ----------- ----------- ----------- Net loss ............................................ $ (49,143) $ (31,787) $ (143,071) $ (72,444) =========== =========== =========== =========== Basic and diluted net loss per share................. $ (0.55) $ (0.41) $ (1.65) $ (0.99) =========== =========== =========== =========== Shares used to compute basic and diluted net loss per share............................................ 88,548 76,908 86,909 73,537 =========== =========== =========== ===========
-4- TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2000 1999 -------------- --------------- (unaudited) Operating activities Net loss......................................................................... $ (143,071) $ (72,444) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................................... 113,774 47,075 Deferred marketing...................................................... 937 -- Loss in unconsolidated affiliates....................................... 3,774 -- Advertising contributed by USA Networks, Inc........................... 1,607 -- Stock compensation...................................................... 1,030 -- Loss on disposal of fixed asset......................................... 229 -- Changes in operating assets and liabilities: Accounts receivable................................................ (3,978) (1,693) Related party receivable........................................... 1,942 (980) Due from licensees................................................. (670) 167 Prepaid expenses and other current assets.......................... (1,237) (286) Accounts payable................................................... (2,432) (763) Accrued expenses................................................... 3,985 1,683 Related party payable.............................................. 840 -- Deferred revenue................................................... 2,416 404 -------------- --------------- Net cash used in operating activities.......................... (20,854) (26,837) Investing activities Capital expenditures........................................................ (12,360) (7,123) Investment in unconsolidated affiliates..................................... (10,064) (5,285) Proceeds from sale of investment in unconsolidated affiliates............... 2,167 -- Acquisitions, net of cash acquired.......................................... (1,675) (102) Proceeds from sale of marketable securities available for sale.............. 17,762 -- Purchase of marketable securities available for sale........................ (8,840) -- Loan to unconsolidated affiliate............................................ (859) -- Other....................................................................... 37 (223) -------------- --------------- Net cash used in investing activities.......................... (13,832) (12,733) Financing activities Net proceeds from exercise of options....................................... 4,338 2,471 Costs associated with initial public offering............................... -- (861) Payments on capital leases.................................................. (722) (1,027) -------------- --------------- Net cash provided by financing activities...................... 3,616 583 Effect of exchange rate changes on cash and cash equivalents..................... (88) 39 -------------- --------------- Net decrease in cash and cash equivalents........................................ (31,158) (38,948) Cash and cash equivalents at beginning of period................................. 61,455 106,910 -------------- --------------- Cash and cash equivalents at end of period....................................... $ 30,297 $ 67,962 ============== ===============
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") 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 people's 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, ticketweb.com, cityauction.com, astroabby.com and livedaily.com, among others. In September 1998, our company was created by combining Citysearch, Inc. ("Citysearch") and Ticketmaster Multimedia Holdings, Inc. (Ticketmaster.com), then a wholly-owned online subsidiary of Ticketmaster Corporation, to create Ticketmaster Online-Citysearch, a leading provider of local city guides, local advertising and live event ticketing on the Internet. 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, and TicketWeb, Inc., a web-based live event ticketing company. The Company has integrated these acquisitions into its other online offerings. BASIS OF PRESENTATION On September 28, 1998, Citysearch and "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 nine month period ended September 30, 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 nine months ended September 30, 2000 and 1999, the Company operated in a single business segment operating as a local portal and online consumer service -6- primarily in the United States. Through September 30, 2000, foreign operations have not been significant in revenue. As the Company acquires and integrates new businesses it continues to evaluate, based on the 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 and nine months ended September 30, 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 issued 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 $17.3 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 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. Acquisition of TicketWeb, Inc. On May 26, 2000, the Company completed the acquisition of TicketWeb, Inc ("TicketWeb"), a web-based live event ticketing company. In connection with the acquisition, the Company issued 1,840,238 shares of Class B Common Stock to the former owners of TicketWeb representing a purchase price of approximately $35.3 million. The acquisition is being accounted for using the purchase method of accounting. The acquisition resulted in $31.9 million of goodwill being recorded. The total amount of goodwill recorded is being amortized by the Company over a period of five years. The results of operations of TicketWeb 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 acquisitions of CityAuction, Match.com, Web Media Ventures, 2b Technology and TicketWeb 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. -7-
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands, except per share data) Net loss................................ $(49,143) $(36,108) $(145,928) $(91,624) Net loss per share...................... (0.55) (0.46) (1.65) (1.16)
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 and nine months ended September 30, 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 $50.4 million and $139.4 million, respectively, and a net loss per share of $0.59 and $1.63, respectively, 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. NOTE 3 -- SUBSEQUENT EVENT Pending Transaction Regarding Ticketmaster Corporation On October 23, 2000, the Company announced that it had called a meeting of its Board of Directors to appoint a committee of independent directors to consider possible transactions with Ticketmaster Corporation, a wholly owned subsidiary of USA Networks, Inc. ("USAi"), which would allow the companies to capture the benefits of jointly operating the ticketing and reservation businesses of the Company and Ticketmaster Corporation. The Board meeting was called at the request of USAi in order for the independent committee to consider such possible transactions, which may include a merger or other transaction which could involve the issuance to USAi of additional shares of the Company's common stock. USAi is the Company's largest stockholder. Also on October 23, 2000, the Company's Board of Directors met and appointed the independent committee. There can be no assurance that any transaction will occur or, if a transaction occurs, what the structure or terms of such transaction would be. 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. THE FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S EXPECTATIONS AS OF THE DATE OF THIS DOCUMENT AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE STATEMENTS. THE FORWARD-LOOKING STATEMENTS HEREIN DO NOT INCLUDE THE POTENTIAL IMPACT OF ANY MERGERS, ACQUISITIONS OR OTHER BUSINESS COMBINATIONS THAT MAY BE COMPLETED AFTER SEPTEMBER 30, 2000. 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 people's 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, ticketweb.com, cityauction.com, astroabby.com and livedaily.com, among others. -8- 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. Such ticket sales are seasonal in nature with the third quarter of the year generally experiencing fewer onsales and the second quarter experiencing the most onsales. Ticketing 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. In our owned and operated city guide markets, we derive our revenues primarily from the sale to local businesses of Web sites which we create, host and maintain, as well as place in our directory listings so that the businesses receive exposure to our users. 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 to enter into additional domestic partnerships to launch city guides 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. 98-9. Royalty revenue is recognized as earned and is typically a percentage of partner-led market revenues from Web site sales, banners, advertisements, sponsorships and other ancillary offerings. In our integrated personals operations, we derive subscription fee revenue from customers who subscribe for our online matchmaking 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 over the term of the promotion either ratably or based on our fulfillment of advertising campaign milestones. OPERATING LOSSES The Company incurred net losses of $49.1 million and $143.1 million for the three months and nine months ended September 30, 2000, respectively, and $31.8 million and $72.4 million for the corresponding periods of the preceding year. At September 30, 2000, the Company had an accumulated deficit of $280.5 million. RESULTS OF OPERATIONS TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $34.1 million and $102.7 million for the three months and nine months ended September 30, 2000, respectively, and $16.6 million and $43.8 million for the corresponding periods of the preceding year. This represents increases of 105% and 135%, respectively. The increases are primarily attributable to a significant increase in the number of tickets sold on ticketmaster.com (from 2.5 million to 4.7 million tickets for the three months ended September 30, 1999 and 2000, respectively, and from 6.8 million to 14.4 million tickets for the nine months ended September 30, 1999 and 2000, respectively). Additionally, the average convenience charge for tickets sold on ticketmaster.com increased 4% in the three months ended September 30, 2000 over the corresponding period in 1999 (from $6.45 to $6.72) and increased 7% in the nine months ended September 30, 2000 over the corresponding period in 1999 (from $6.34 to $6.79). Revenues also increased, to a lesser extent, due to the acquisitions of 2b Technology in January 2000 and TicketWeb in May 2000. -9- The Company recognized no revenues from 2b Technology and TicketWeb in the three months and nine months ended September 30, 1999. CITY GUIDE AND RELATED REVENUES. City guide and related revenues were $17.7 million and $49.2 million for the three months and nine months ended September 30, 2000, respectively, and $9.0 million and $21.1 million for the corresponding periods of the preceding year. This represents increases of 98% and 133%, respectively. The increases are principally attributable to the acquisition of the personals companies, Match.com and Web Media Ventures, the expansion of the city guide network of owned & operated markets (where we had local staff in 25 markets in the third quarter of 1999 and in 33 markets in the third quarter of 2000), increases in partner-led market consulting fees and also to revenue from new city guide advertising products and services. Revenues from the personals operations represented a significant portion of total city guide and related revenues in the three months and nine months ended September 30, 2000. The Company began recognizing revenues from the Match.com and Web Media Ventures portions of personals operations in the second and third quarters of 1999, respectively. SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues were $5.3 million and $13.1 million for the three months and nine months ended September 30, 2000, respectively, and $1.8 million and $4.0 million for the corresponding periods of the preceding year. This represents increases of 192% and 226%, respectively. The increases are 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 Corporation), Web site maintenance, service and network infrastructure maintenance and data communications. Ticketing operations expenses were $26.0 million and $77.6 million for the three months and nine months ended September 30, 2000, respectively, and $12.3 million and $32.6 million for the corresponding periods of the preceding year. This represents increases of 112% and 138%, respectively. Our gross margins in ticketing operations slightly decreased to approximately 24% and 25% in the three months and nine months ended September 30, 2000 from approximately 26% in each of the three months and nine months ended September 30, 1999 as a result of an increase in variable costs related with ticket fulfillment. 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. Expenses also increased, to a lesser extent, due to the acquisitions of 2b Technology in January 2000 and TicketWeb in May 2000 and from an increase in Ticketmaster.com technology staffing. The Company recognized no expenses from 2b Technology and TicketWeb in the three months and nine months ended September 30, 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; editorial content and network infrastructure maintenance in connection with the city guide operations; and costs of affiliate referral commissions, customer service and network infrastructure maintenance associated with online personals operations. City guide and related expenses were $12.9 million and $39.0 million for the three months and nine months ended September 30, 2000, respectively, and $8.6 million and $19.1 million for the corresponding periods of the preceding year. This represents increases of 50% and 105%, respectively. The increases are attributable to the growth in the city guide operations throughout 1999, including the addition of eight additional owned and operated markets in the periods following the nine months ended September 30, 1999 and the inclusion of costs associated with our personals operations acquired in 1999. The Company began recognizing personals costs from the Match.com and Web Media Ventures portions of personals operations in the second and third quarters of 1999, respectively. Our gross margins in city guide and related operations increased to 27% and 21% in the three months and nine months ended September 30, 2000, respectively, from 4% and 10% in the corresponding periods of the preceding year. In the three months ended September 30, 2000 gross margin improvements in the -10- Company's city guide operations was the principal driver of the improvement. In the nine months ended September 30, 2000 the improvement resulted from the inclusion of the personals operations (which carry a higher gross margin) for the full period as opposed to the inclusion for only part of the 1999 period. 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 and both online and offline advertising expense. Sales and marketing expenses were $21.1 million and $57.0 million for the three months and nine months ended September 30, 2000, respectively, and $14.0 million and $29.6 million for the corresponding periods of the preceding year. This represents increases of 51% and 93%, respectively. The increase for the three months and nine months ended September 30, 2000, as compared to the three months and nine months ended September 30, 1999, is attributable to the growth of our city guide operations following the period ended September 30, 1999 from 25 markets to 33 markets, advertising contributed by USAi for which no consideration was paid by the Company and, to a lesser extent, the addition of sales and marketing expenses associated with our personals operations. The Company began recognizing sales and marketing costs from the Match.com and Web Media Ventures portions of personals operations in the second and third quarters of 1999, respectively. 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 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 $1.4 million and $4.6 million for the three months and nine months ended September 30, 2000, respectively, and $2.1 million and $5.6 million for the corresponding periods of the preceding year. This represents decreases of 33% and 17% for the three months and nine months ended September 30, 2000. The decreases are attributable to a reclassification of a portion of such costs to city guide and related expenses and, to a lesser extent, a reduction in full-time employees expensed to research and development 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 to continue to experience significant research and development expenditures 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 $7.0 million and $19.8 million for the three months and nine months ended September 30, 2000, respectively, and $4.1 million and $10.0 million for the corresponding periods of the preceding year. This represents increases of 72% and 98%, respectively. The increases for the three months and nine months ended September 30, 2000 are due primarily to the costs of additional personnel needed for the continued growth of the Company's city guide, increased depreciation expense resulting from capital expenditures during 1999 and 2000 and the inclusion of expenses associated with 2b Technology and TicketWeb which were acquired in January 2000 and May 2000, respectively. The Company expects that general and administrative expenses will increase in absolute dollars in future periods. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles consists of goodwill associated with the acquisition of Ticketmaster Corporation by USAi, a portion of which was attributed to Ticketmaster.com, the merger of Citysearch and Ticketmaster.com and the acquisitions of CityAuction, Match.com, Web Media Ventures, 2b Technology, TicketWeb and the Sidewalk assets. Amortization of goodwill and other intangibles was $37.0 million and $107.3 million for the three months and nine months ended September 30, 2000, respectively, and $18.6 million and $44.3 million for the corresponding periods of the preceding year. This represents increases of 99% and 142%. The increases are attributable to recognizing more of the full year impact of these acquisitions in the 2000 periods. MERGER AND OTHER TRANSACTION COSTS. Merger and other transaction costs were not present in the three months and nine months ended September 30, 2000 and were $514,000 and $3.3 million for the -11- corresponding periods of the preceding year. These costs are primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the terminated merger between the Company, certain assets owned by the Company's majority shareholder and Lycos, Inc. 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 $556,000 and $2.3 million for the three months and nine months ended September 30, 2000, respectively, and $1.0 million and $3.2 million for the corresponding periods of the preceding year. The changes in net interest income are primarily attributable to changes in the amount of invested assets. 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 $1.2 million and $3.8 million for the three months and nine months ended September 30, 2000, respectively, represents the Company's portion of net losses of foodline.com, Inc. and ActiveUSA.com, Inc., two companies in which the Company made minority equity investments in late 1999. The Company is only obligated to recognize a portion of the gain or loss in these unconsolidated affiliates in periods during which the Company's holdings of those companies' securities exceed specified percentages and the Company is deemed to exercise a measure of control over those companies as a result. The Company did not have equity investments in these companies during the three months and nine months ended September 30, 1999. INCOME TAXES. The provision for income taxes was $168,000 and $1.0 million for the three months and nine months ended September 30, 2000, respectively, and $49,000 and $182,000 for the corresponding periods of the preceding year. 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, and due to foreign taxes on the Company's Japanese partner-led market consulting income which was recognized in the second quarter of 2000. 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 small for the balance of 2000 and throughout 2001 due to the availability of the Company's consolidated net operating losses. 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 $20.9 million and $26.8 million for the nine months ended September 30, 2000 and 1999, respectively. Net cash used in operating activities was primarily due to net losses, offset in large part by non-cash depreciation and amortization expense of $113.8 million and $47.1 million, respectively. Net cash used in investing activities was $13.8 million and $12.7 million for the nine months ended September 30, 2000 and 1999, respectively. Net cash used in investing activities in the nine months ended September 30, 2000 resulted mostly from purchases of capital expenditures for computers, software, equipment and leasehold improvements, investments in unconsolidated affiliates and purchases of marketable securities available for sale, offset in part from the sale of marketable securities to fund operations and proceeds from the sale of an equity investment. Net cash used in investing activities in the nine months ended September 30, 1999 consisted primarily of capital expenditures for computers, software, equipment and leasehold improvements and investments in unconsolidated affiliates. Net cash provided by financing activities was $3.6 million and $583,000 for the nine months ended September 30, 2000 and 1999, respectively. Net cash provided by financing activities in the nine months ended September 30, 2000 and 1999 was primarily attributable to proceeds from employee stock option exercises, offset by payments on capital leases. -12- We had cash, cash equivalents and marketable securities available for sale of $47.9 million and $87.8 million at September 30, 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 complement 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 for the next six months. 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. -13- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-Citysearch, Inc. (collectively, "Ticketmaster"), filed a Complaint for Damages and Injunctive Relief against Tickets.com, Inc. "Tickets.com"), entitled TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH, INC. V. TICKETS.COM, INC., Case No. 99-07654 HLH, in the United States District Court, Central District of California. Ticketmaster claims that Tickets.com violates Ticketmaster's legal and contractual rights by, among other things, (i) providing deep-links to Ticketmaster's internal web pages without Ticketmaster's consent, (ii) systematically, deceptively and intentionally accessing Ticketmaster's computers and computer systems and copying verbatim Ticketmaster event pages daily and extracting and reprinting Ticketmaster's Uniform Resource Locators ("URLs") and event data and information in complete form on Tickets.com's web site and (iii) providing false and misleading information about Ticketmaster, the availability of tickets on the Ticketmaster Web Site, and the relationship between Ticketmaster and Tickets.com. On January 7, 2000, Ticketmaster filed a First Amended Complaint. Tickets.com filed a motion to dismiss Ticketmaster's First Amended Complaint on or about February 23, 2000, claiming that Tickets.com did not violate the Copyright Act or Lanham Act and that Ticketmaster's state law claims were preempted and/or did not state a valid claim for relief. The Court denied Tickets.com's motion as to Ticketmaster's claims for copyright infringement, violations of the Lanham Act, state law unfair competition and interference with prospective economic advantage. The Court granted Tickets.com's motion, but gave Ticketmaster leave to amend, as to Ticketmaster's claims for breach of contract, trespass, unjust enrichment and misappropriation. Ticketmaster filed a Second Amended Complaint on April 21, 2000. On March 3, 2000, Ticketmaster and TMCS filed a motion for preliminary injunction, requesting the Court to enjoin Tickets.com from, among other things, deep-linking to Ticketmaster's internal web pages, accessing Ticketmaster's computers and computer systems and copying Ticketmaster's event pages, and providing misleading and false information about Ticketmaster, the availability of tickets on the Ticketmaster Web Site and the relationship between Ticketmaster and Tickets.com. On July 31, 2000 the Court held a hearing. The Court took the matter under submission, and on August 11, 2000 issued a ruling denying Ticketmaster's and TMCS's motion for preliminary injunction. On October 20, 2000 Ticketmaster and TMCS filed an appeal of the denial of their request for a preliminary injunction with the Court of Appeals for the Ninth Circuit. No hearing on that appeal has yet been set. On May 30, 2000, Tickets.com filed its Answer to Ticketmaster's Second Amended Complaint and Counterclaims against Ticketmaster Corporation and Ticketmaster Online-Citysearch, Inc. Tickets.com alleges claims for relief against Ticketmaster for violations of the Sherman Act, sections 1 and 2, violations of California's Cartwright Act, violations of California's Business and Professions Code section 17200, violations of common law restraint of trade and unfair competition and business practices, interference with contract and declaratory relief. Tickets.com claims that Ticketmaster Corporation's exclusive agreements with Ticketmaster Online-Citysearch, Inc., venues, promoters and other third parties injure competition, violate antitrust laws, constitute unfair competition and interfere with Tickets.com's prospective economic advantages. On July 19, 2000, Ticketmaster filed a motion to dismiss any claim based in whole or in part on Ticketmaster's alleged litigation conduct as well as Tickets.com's ninth claim for relief under California's antitrust laws (the Cartwright Act). On September 25, 2000 that motion was denied. On October 24, 2000 Ticketmaster and TMCS filed their Answer to Tickets.com's counterclaims against Ticketmaster Corporation and Ticketmaster Online-Citysearch, Inc. Ticketmaster intends to vigorously defend this litigation. There can be no assurance that we or Ticketmaster Corporation or our affiliates will not become the subject of future governmental investigations or inquiries or be named as a defendant in claims alleging violations of federal or state antitrust laws or any other laws. Any adverse outcome in such litigation, investigation or proceeding against us or Ticketmaster Corporation or our affiliates could limit or prevent ticketmaster.com from engaging in its online ticketing business or subject us to potential damage assessments, all of which could have a material adverse effect on our business, financial condition or results of operations. -14- Regardless of its merit, source or outcome, any such litigation, investigation or proceeding would at a minimum be costly and could divert the efforts of our management and other personnel from productive tasks, which could have a material adverse effect on our business, financial condition or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K On August 2, 2000, the Company filed a Report on Form 8-K relating to the announcement of the Company's results for the quarter ended June 30, 2000. -15- 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: October 25, 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) -16- INDEX TO EXHIBITS EXHIBITS ----------- 27.1 Financial Data Schedule -17- EX-27.1 2 a2028484zex-27_1.txt EXHIBIT 27.1
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 30,297 17,583 11,776 (1,380) 0 63,501 35,895 (12,107) 724,757 27,257 0 0 0 886 695,467 724,757 0 164,983 0 305,304 (1,717) 0 0 (142,038) 1,033 (143,071) 0 0 0 (143,071) (1.65) (1.65)
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