<PAGE>
PROSPECTUS SUPPLEMENT
The attached constitutes a supplement (the "Prospectus Supplement") to that
certain amended Prospectus dated September 1, 1999 (the "Amended Prospectus")
contained within the document entitled Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission ("SEC") on September 1, 1999.
The Amended Prospectus amended and restated the original prospectus dated
July 9, 1999 (the "Prospectus") filed on July 12, 1999 under Rule 424(b)(3)
as part of the Registration Statement on Form S-1 (File No. 333-81761) filed
by the Registrant on June 29, 1999.
Except as specifically supplemented hereby, the Amended Prospectus has not
fundamentally changed.
This Prospectus Supplement is being filed under Rule 424(b)(3) of the
Securities Act of 1933 as part of the Registration Statement on Form S-1
(File No. 333-81761).
The date of this Prospectus Supplement is November 19, 1999.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999
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 Identification
Incorporation or Number)
organization)
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 October 29, 1999, there were 27,942,287 shares of the Registrant's Class B
Common Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TICKETMASTER ONLINE - CITYSEARCH, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
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.......... 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...................................... 13
PART II-OTHER INFORMATION................................................ 14
Item 2. Changes in Securities and Use of Proceeds.............. 14
Item 6. Exhibits and Reports on Form 8-K....................... 14
SIGNATURES............................................................... 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -----------------
(unaudited) (see note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 67,962 $ 106,910
Accounts receivable (net of allowance for doubtful accounts of $485
and $58,respectively)................................................... 3,123 1,249
Related party receivable.................................................... 1,793 813
Due from licensees.......................................................... 1,274 1,440
Prepaid expenses............................................................ 1,632 777
------------- -------------
Total current assets.................................................... 75,784 111,189
Computers, software, equipment and leasehold improvements, net................... 13,467 5,893
Investments...................................................................... 5,285 --
Goodwill and other intangibles, net.............................................. 700,966 299,643
------------- -------------
Total assets............................................................ $ 795,502 $ 416,725
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 3,011 $ 2,734
Accrued expenses............................................................ 6,713 4,551
Deferred revenue............................................................ 4,122 1,882
Current portion of capital lease obligations................................ 1,057 1,331
------------- -------------
Total current liabilities............................................... 14,903 10,498
Other long-term liabilities...................................................... 1,312 1,557
Capital lease obligations, net of current portion................................ 533 1,082
Stockholders' equity:
Class A Common Stock, $0.01 par value: Authorized shares --100,000,000 at
September 30, 1999 Issued and outstanding--55,321,556 and 63,291,653
at September 30, 1999 and December 31, 1998, respectively............... 553 633
Class B Common Stock--$0.01 par value: Authorized shares--250,000,000 at
September 30, 1999 Issued and outstanding--27,755,851 and 8,167,000 at
September 30, 1999 and December 31, 1998, respectively.................. 278 82
Class C Common Stock--$0.01 par value:
Authorized shares--2,883,506 at September 30, 1999
Issued and outstanding--none............................................ -- --
Additional paid-in capital.................................................. 866,385 418,918
Accumulated deficit......................................................... (88,482) (16,038)
Foreign Currency Translation................................................ 20 (7)
------------- -------------
Total stockholders' equity.............................................. 778,754 403,588
------------- -------------
Total liabilities and stockholders' equity.......................... $ 795,502 $ 416,725
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------
1999 1998 1999 1998
--------- -------- --------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Ticketing operations.................................. $ 16,634 $ 4,624 $ 43,812 $10,571
Sponsorship and advertising........................... 1,800 2,111 4,009 4,555
City guide and related................................ 8,977 112 21,089 112
--------- -------- --------- -------
Total revenues...................................... 27,411 6,847 68,910 15,238
Operating costs and expenses:
Ticketing operations.................................. 12,305 2,496 32,612 5,947
City guide and related................................ 8,582 97 19,052 97
Sales and marketing................................... 13,990 362 29,569 832
Research and development.............................. 2,051 38 5,589 38
General and administrative............................ 4,087 460 9,994 1,467
Amortization of goodwill and other intangibles........ 18,606 4,027 44,294 4,027
Merger and other transactions costs................... 514 -- 3,285 --
--------- -------- --------- -------
Total costs and expenses............................ 60,135 7,480 144,395 12,408
--------- -------- --------- -------
Income (loss) from operations........................... (32,724) (633) (75,485) 2,830
Interest income (expense) net........................... 986 (1) 3,223 (1)
--------- -------- --------- -------
Income (loss) before income taxes....................... (31,738) (634) (72,262) 2,829
Income tax provision.................................... 49 1,482 182 2,993
--------- -------- --------- -------
Net (loss)............................................. $ (31,787) $ (2,116) $ (72,444) $ (164)
--------- -------- --------- -------
--------- -------- --------- -------
Basic and diluted net (loss) per share................. $ (0.41) $ (0.06) $ (0.99) $ --
--------- -------- --------- -------
--------- -------- --------- -------
Shares used to compute basic and diluted net
(loss) per share........................................ 76,908 37,238 73,537 37,238
--------- -------- --------- -------
--------- -------- --------- -------
</TABLE>
See accompanying notes.
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Operating activities
Net (loss)................................................................ $ (72,444) $ (164)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................... 47,075 4,175
Changes in operating assets and liabilities:
Accounts receivable................................................ (1,693) (262)
Related party receivable........................................... (980) --
Due from licensees................................................. 167 --
Prepaid expenses................................................... (286) 58
Accounts payable................................................... (763) 441
Accrued expenses................................................... 1,683 312
Deferred revenue................................................... 404 1,278
--------- ---------
Net cash provided by (used in) operating activities............ (26,837) 5,838
Investing activities
Capital expenditures............................................................. (7,123) (405)
Investment in Fairmarket, Inc. .................................................. (5,285) --
Acquisition transaction costs.................................................... (285) --
Deferred purchase price of subsidiary............................................ (223) --
--------- ---------
Net cash used in investing activities.......................... (12,916) (405)
Financing activities
Net distributions to Ticketmaster Corp...................................... -- (5,433)
Net proceeds from exercise of options and warrants.......................... 2,471 --
Payment of costs of initial public offering................................. (861) --
Payments on capital leases.................................................. (1,027) --
--------- ---------
Net cash provided by (used in) financing activities............ 583 (5,433)
Effect of exchange rate changes on cash & cash equivalents....................... 39 --
Net cash acquired in CitySearch Merger.......................................... -- 57,877
Net cash acquired in CityAuction Merger.......................................... 13 --
Net cash acquired in Match.com Merger............................................ 18 --
Net cash acquired in Web Media Ventures Merger................................... 152 --
--------- ---------
Net decrease in cash and cash equivalents........................................ (38,948) 57,877
Cash and cash equivalents at beginning of period................................. 106,910 --
--------- ---------
Cash and cash equivalents at end of period....................................... $ 67,962 $ 57,877
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
<PAGE>
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") combined
CitySearch and 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
Online 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 CityAuction, Inc., an online auction company and Match.com, Inc. and
Web Media Ventures, L.L.C. both online personals companies. The Company has
integrated these acquisitions into its other online offerings.
BASIS OF PRESENTATION
Prior to the Merger (as defined below), Ticketmaster Multimedia
Holdings, Inc. (the predecessor company) ("Ticketmaster Online") was a wholly
owned subsidiary of Ticketmaster Corporation ("Ticketmaster Corp.").
Ticketmaster Corp. is a wholly owned subsidiary of Ticketmaster Group, Inc.
("Ticketmaster Group"), which is a wholly owned subsidiary of USA Networks,
Inc. ("USAi").
In July 1997, USAi acquired a controlling interest in Ticketmaster
Group through the issuance of shares of USAi common stock (the "Ticketmaster
Acquisition"). In June 1998, USAi completed its acquisition of Ticketmaster
Group in a tax-free merger (collectively with the Ticketmaster Acquisition,
the "Ticketmaster Transaction"), pursuant to which each outstanding share of
Ticketmaster Group common stock not owned by USAi was exchanged for 1.126
shares of USAi common stock. A portion of the Ticketmaster Group acquisition
cost has been allocated to the assets acquired and liabilities assumed of
Ticketmaster Online based on the fair value of the respective portion of
Ticketmaster Online acquired in the Ticketmaster Transaction.
On September 28, 1998, pursuant to an Amended and Restated Agreement
and Plan of Reorganization dated as of August 12, 1998 (the "Merger
Agreement"), by and among CitySearch, Inc. ("CitySearch"), USAi, Ticketmaster
Group, Ticketmaster Online and Tiberius, Inc., a wholly-owned subsidiary of
CitySearch, Tiberius was merged with and into Ticketmaster Online, with
Ticketmaster Online continuing as the surviving corporation and as a
wholly-owned subsidiary of CitySearch (the "Merger"). In connection with the
Merger Agreement, all issued and outstanding shares of Ticketmaster Online's
Common Stock held by Ticketmaster Corp. were converted into an aggregate of
37,238,000 shares of CitySearch Common Stock and such shares were
subsequently reclassified as Class A Common Stock of the Company. The Merger
was accounted for using the "reverse purchase" method of accounting, pursuant
to which Ticketmaster Online 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
financial statements prior to the Merger reflect the financial position,
results of operations and cash flows of Ticketmaster Online. The accompanying
financial statements, subsequent to the Merger, include the assets and
liabilities of CitySearch and the results of operations of CitySearch from
September 29, 1998.
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)
<PAGE>
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The balance sheet at December 31, 1998 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 eleven months ended December 31, 1998.
PRO FORMA FINANCIAL DATA (UNAUDITED)
The following unaudited pro forma information presents a summary of
the results of the Company assuming the Merger, the Ticketmaster Transaction
and the tender offer by USAi to purchase shares of Common Stock from
CitySearch stockholders in connection with the Merger had all occurred as of
January 1, 1998, with pro forma adjustments to give effect to amortization of
goodwill, certain other adjustments to conform to the terms of the License
and Services Agreement dated August 12, 1998 by and among Ticketmaster Corp.,
Ticketmaster Online and USAi (the "Ticketmaster License Agreement"), and the
related income tax effects. The pro forma information also gives effect to
the Company's change in year end from January 31 to December 31. The pro
forma financial information is not necessarily indicative of the results of
operations as they would have been had the transactions occurred as of
January 1, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
(in thousands)
<S> <C>
Revenues............................................... $ 26,555
Net loss............................................... $ (56,802)
Basic and diluted net loss per share................... $ (.92)
</TABLE>
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are determined by dividing the net
earnings (loss) by the weighted average shares of Common Stock outstanding
during the period. Diluted earnings (loss) per share are determined by
dividing the net earnings (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 earnings (loss) per share are
the same for the nine months ended September 30, 1999 because the effects of
outstanding stock options are antidilutive. Basic and dilutive earnings
(loss) per share are the same for the nine months ended September 30, 1998
because there were no dilutive securities outstanding during those periods.
The number of shares used in computing basic and diluted earnings
(loss) per share for the nine months ended September 30, 1998 represent the
number of shares of CitySearch Common Stock exchanged in the Merger.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's balances to
conform to the current year presentation.
<PAGE>
NOTE 2 -- BUSINESS COMBINATIONS
Acquisition of CityAuction, Inc.
On March 29, 1999, the Company completed the acquisition of
CityAuction, Inc. ("CityAuction"), a person-to-person online auction
community. In connection with the acquisition, the Company issued an
aggregate of approximately 800,000 shares of its Class B Common Stock for all
the outstanding capital stock of CityAuction, Inc. representing an aggregate
purchase price of $27.2 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $28.1 million
of goodwill which is amortized over five years. The results of operations of
CityAuction are included in the accompanying statement of operations from the
date of acquisition.
Acquisition of Match.com, Inc.
On June 14, 1999, the Company completed the acquisition of
Match.com, Inc ("Match.com"), an Internet personals company. In connection
with the acquisition, the Company issued 1,924,777 shares of Class B Common
Stock to the former owners of Match.com representing a total purchase price
of approximately $43.3 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $42.6 million
of goodwill which is being amortized over five years. The results of
operations of Match.com are included in the accompanying statement of
operations from the date of acquisition.
Acquisition of Web Media
On September 13, 1999, the Company purchased all the outstanding
limited liability company units ("Units") of Web Media Ventures, L.L.C. ("Web
Media"). Web Media is an Internet personals company distributing its services
through a network of affiliated Internet sites. In connection with the
acquisition, the Company issued 1,204,215 million shares of Class B Common
Stock in exchange for all of the Web Media Units and became obligated to
issue $2.2 million of Class B Common Stock payable in two quarterly
installments and an additional number of shares of Class B Common Stock no
later than 270 days after the closing of the transaction. The number of
shares to be issued upon payment of the quarterly installments and contingent
consideration will be determined by dividing the value of the consideration
required to be issued by the stock price at the time of issuance subject to
certain minimum and maximum prices. The last installment is subject to
adjustment based on the achievement of certain 1999 calendar revenue targets
by Web Media. The maximum number of shares to be issued in the quarterly
installments and upon the achievement of certain revenue targets is
1,131,924. The total purchase price recorded at September 13, 1999 was $36.6
million, representing the consideration value attributed to the initial
issuance of 1,204,215 million shares of Class B Common Stock, the two
quarterly installments and that portion of the final payment which is
certain. The purchase price will be increased to reflect the additional
shares to be issued upon achievement of the revenue targets based on the
stock price at that time. The acquisition was accounted for using the
purchase method of accounting. The acquisition has resulted in $36.4 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 to be recorded will approximate the purchase price which
is being amortized by the Company over a period of five years. The results of
operations of Web Media are included in the accompanying statement of
operations from the date of acquisition. Web Media conducts operations under
the name of One and Only Networks.
Transaction Regarding Sidewalk.com
On September 18, 1999, the Company acquired certain assets associated
with the entertainment city guide (A&E) portion of the Sidewalk.com web site
("Sidewalk") from Microsoft Corporation ("Microsoft"). The Company also entered
into a four year distribution agreement with Microsoft pursuant to which the
Company will become the exclusive provider of local city guide content on the
Microsoft Network ("MSN") and the Company's internet personals Web sites will
become the premier provider of personals content to MSN. In addition, the
Company and Microsoft entered into additional cross-promotional arrangements. In
connection
<PAGE>
with these transactions, the Company issued to Microsoft 7,000,000 shares of
its Class B Common Stock and two warrants to purchase an aggregate of
4,500,000 shares of its Class B Common Stock. The first warrant for 3,000,000
shares has an initial exercise price of $30 per share, which adjusts downward
by $1/16 for each $1/16 increase in the price of the Class B Common Stock
over $30 at the time the warrant is exercised. The second warrant for
1,500,000 shares has a fixed exercise price of $60 per share of Class B
Common Stock. The Company granted Microsoft certain registration rights in
connection with the transaction. The impact of the Company's ownership of the
Sidewalk assets is included in the accompanying statement of operations from
the date the transaction closed.
The fair value of the consideration provided in exchange for the Sidewalk assets
and distribution agreement amounted to $338 million and has been recorded in
goodwill and other intangibles in the accompanying condensed consolidated
balance sheet. The Sidewalk intangible is being amortized over five years. The
distribution agreement is being amortized over four years with the amortization
expense included in sales and marketing.
Investments
In September 1999, the Company purchased a minority equity position in
FairMarket, Inc., a privately-held, online auction company in exchange for cash
and other consideration consisting of a license to FairMarket of the CityAuction
auction technology and the Company's agreement to a multi-year Auction Services
Agreement with FairMarket, Inc. The FairMarket investment will be accounted for
using the cost method of accounting.
NOTE 3-- SUBSEQUENT EVENT
Investment in foodline.com
In October 1999, the Company purchased a minority equity position in
foodline.com, Inc., a privately-held, online restaurant reservations company in
exchange for $5,000,000 cash. The Company and foodline.com also entered into a
multi-year content sharing and distribution agreement. The foodline.com
investment will be accounted for using the equity method of accounting.
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 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. CAPITALIZED TERMS USED BELOW HAVE THE
MEANING ASCRIBED TO THEM IN THE SECTIONS ABOVE.
OVERVIEW
The Company combined CitySearch and 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 Online live events ticketing and merchandise
distribution capabilities to offer online ticketing, merchandise, electronic
coupons and other transactions to a broader audience of consumers. CitySearch
was founded in September 1995 and Ticketmaster Online launched its online
ticketing services in November 1996 as a wholly-owned subsidiary of Ticketmaster
Corp. On September 28, 1998, pursuant to the Merger, a wholly-owned subsidiary
of CitySearch merged into Ticketmaster Online, with Ticketmaster Online
continuing as the surviving corporation and as a wholly-owned subsidiary of
CitySearch. The Merger was accounted for using the "reverse purchase" method of
accounting pursuant to which Ticketmaster Online was treated as the acquiring
<PAGE>
entity for accounting purposes. In 1999, the Company acquired CityAuction,
Inc., an online auction company and Match.com, Inc. and Web Media Ventures,
L.L.C. both online personals companies. The Company has integrated these
acquisitions into its other online offerings.
OPERATING LOSSES
The Company incurred net losses of $72.4 million and $0.2 million
for the nine months ended September 30, 1999 and 1998, respectively. At
September 30, 1999, the Company had an accumulated deficit of $88.5 million.
RESULTS OF OPERATIONS
TICKETING OPERATIONS REVENUES. Ticketing operations revenues were
$16.6 million and $43.8 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $4.6 million and $10.6
million for the corresponding periods of the preceding year. The increase is
primarily attributable to a significant increase in the number of tickets
sold (from 858,000 to 2,536,000 tickets for the three months ended September
30, 1998 and 1999, respectively and from 1,967,000 to 6,755,000 tickets for
the nine months ended September 30, 1998 and 1999, respectively).
Additionally, the average convenience charge increased 20.8% in the three
months ended September 30, 1999 over the corresponding period in 1998 and
increased 19.5% in the nine months ended September 30,1999 over the same
period in 1998, respectively. The convenience charge increased due to
generally higher ticket prices.
SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising
revenues were $1.8 million and $4.0 million for the three months and nine
months ended September 30, 1999, respectively, as compared to $2.1 million
and $4.6 million for the corresponding periods of the preceding year. The
decrease was primarily attributable to a decrease in sponsorship and
promotion activity with one strategic marketing partner with which our
relationship ended in December 1998.
CITY GUIDE AND RELATED REVENUES. City guide and related revenues
were $9.0 million and $21.1 million for the three months and nine months
ended September 30, 1999, respectively, representing the CitySearch city
guide and related revenues of the CitySearch business acquired and the
additional revenues represented by the acquisitions of the auction and
personals businesses.
TICKETING OPERATIONS EXPENSES. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, licenses and
royalties, Web site design and layout, service and network infrastructure
maintenance and data communications. Ticketing operations expenses were $12.3
million and $32.6 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $2.5 million and $5.9
million for the corresponding periods of the preceding year. Ticketing
operations expenses are primarily variable in nature and have increased
during the periods presented in conjunction with the increase in ticketing
operations revenue and the payment of the license fee to Ticketmaster Corp.
and can be expected to increase in future periods to the extent ticketing
operations revenues increase during such periods.
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 and network
infrastructure maintenance. This category also includes the costs of
consulting services in partner-led markets and customer service, network
infrastructure and affiliate referral costs for the auction and personals
businesses. City guide and related expenses were $8.6 million and $19.1
million for the three months and nine months ended September 30, 1999,
respectively. City guide and related expenses are expensed as incurred. City
guide and related expenses can be expected to increase in future periods as
city guide and related sales increase, as new cities are added to the city
guide network in future periods and as the full impact of the personals
acquisitions are included in future periods.
<PAGE>
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of costs related to the compensation of sales and marketing
personnel, advertising and travel. Sales and marketing expenses were $14.0
million and $29.6 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $0.4 million and $0.8
million for the corresponding periods of the preceding year. The increase for
the nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998 is due primarily to the sales and marketing costs of
CitySearch amounting to $28.2 million and increased salary related and
operating support costs associated with the growth in sales and marketing
activities. The Company expects that sales and marketing expenses will
increase in absolute dollars as the Company continues to roll out its
nationwide network of city guide cities and the full impact of the personals
acquisitions are included in future periods.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include the costs to develop, test and upgrade the Company's online service
and the enterprise management systems. 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 $2.1 million and $5.6 million for the
three months and nine months ended September 30, 1999, respectively, which
represents primarily the research and development cost of CitySearch. 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 can be expected to increase in absolute
dollars in future periods. In accordance with applicable accounting
requirements, the Company has expensed research and development costs as
incurred for product maintenance and has capitalized such costs for new
product functionality.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of administrative and senior management personnel
costs. General and administrative expenses were $4.1 million and $10.0
million for the three months and nine months ended September 30, 1999,
respectively, as compared to $0.5 and $1.5 million in the corresponding
periods of the preceding year. The substantial increase for the nine month
period ended September 30, 1999 was due primarily to general and
administrative expenses of CitySearch amounting to $9.3 million. The Company
expects that general and administrative expenses will increase in absolute
dollars to support the Company's growth.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of
goodwill and other intangibles consists of goodwill associated with the
Ticketmaster Acquisition, the Merger and the acquisitions of CityAuction,
Match.com, Web Media and the Sidewalk assets. Amortization of goodwill and
other intangibles was $18.6 million and $44.3 million for the three months
and nine months ended September 30, 1999 as compared to $4.0 million for both
the three months and nine months ended September 30, 1998, respectively,
primarily relating to the Merger and Ticketmaster Acquisition. Amortization
of goodwill in the prior year periods began during the three month period
ending September 30, 1998 as the Ticketmaster Acquisition did not occur until
the end of June 1998.
MERGER AND OTHER TRANSACTIONS COSTS. Merger and other transaction
costs were $0.5 million and $3.3 million for the three month and nine month
periods ended September 30, 1999, respectively. 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., as well as
certain expenses related to the operation of Sidewalk city guides before the
integration of these properties into the CitySearch network.
INTEREST INCOME, NET. Net interest income consists primarily of
interest earned on the Company's cash and cash equivalents, less interest
expense on capital lease obligations. The Company had net interest income of
$1.0 million and $3.2 million for the three months and nine months ended
September 30, 1999, respectively, and had no interest expense in the
corresponding periods of the preceding year. The Company invests its cash
balances in short-term, investment grade, interest-bearing securities.
INCOME TAXES. The provision for income taxes was $0.04 million and
$0.2
<PAGE>
million for the three months and nine months ended September 30, 1999,
respectively as compared to $1.5 million and $3.0 million for the
corresponding periods in the preceding year. The Company's effective tax rate
differs from the statutory federal income tax rate, primarily as a result of
state income taxes, operating losses not benefited and non-deductible
goodwill. The Company expects that its tax provision will remain nominal for
the balance of 1999 and 2000 due to the availability of net operating losses
of CitySearch. However, certain net operating loss carryforwards, 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 of $26.8 million for the nine
months ended September 30, 1999 arose primarily from the difference between
net loss from operations, the change in working capital and the amortization
of goodwill relating to the Ticketmaster Acquisition and Merger. The cash
provided by operating activities of $5.8 million for the nine month period
ended September 30, 1998 arose primarily from the income from operations
before depreciation and amortization and the prepayment of revenue associated
with advertising activities.
Net cash used in investing activities was $12.9 million and $0.4
million for the nine months ended September 30, 1999 and September 30, 1998,
respectively, and consisting primarily of capital expenditures for computers,
purchased software and software development, equipment and leasehold
improvements and the investment in Fairmarket, Inc.
Net cash provided in financing activities was $0.6 million and net
cash used in financing activities was $5.4 million for the nine month periods
ended September 30, 1999 and 1998, respectively. The $6.0 million reduction
in the cash used in financing activities arose as the relationship between
Ticketmaster Online and Ticketmaster Corp. changed as a result of the Merger.
Prior to the Merger Ticketmaster Online did not operate as an independent
company therefore all financing activities were accounted for through
intercompany means.
At September 30, 1999, the Company's cash and cash equivalents were
$68.0 million. Existing cash and cash equivalents are expected to be
sufficient to meet working capital and capital expenditure requirements for
at least the next six to nine months. The Company is currently considering
various alternatives to raise additional funds, including without limitation,
through a private sale of equity, a public sale of equity and debt financing.
If additional funds are raised through the issuance of equity securities,
stockholders of the Company 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
the Company or its stockholders. If such financing is not available when
required or is not available on acceptable terms, the Company may be unable
to develop or enhance its products and services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
YEAR 2000
The widespread use of computer programs that rely on two-digit dates
to perform computation and decision-making functions may cause computer
systems, including systems and software used by the Company and its Web
services, to malfunction prior to or in the Year 2000 and lead to significant
business delays and disruptions in the Company's business and operations in
the United States and internationally. The Company has developed a plan to
minimize the impact of this Year 2000 problem. Pursuant to such plan, the
Company has established a Year 2000 Committee consisting of senior managers
from relevant functional areas and an independent Year 2000 professional
consultant. The Year 2000 Committee has reviewed all areas of the Company's
business and operations that may be affected and has assigned responsibility
for each area to individuals knowledgeable about their respective areas. The
Year 2000 Committee has made these individuals responsible for the initial
assessment of risk and initial estimate of hardware cost, software cost and
time required to achieve compliance. The Company concluded its initial
assessment in the fourth quarter
<PAGE>
of 1998 and is implementing remediation necessary to achieve compliance.
Remediation will continue through year-end 1999. The Company estimates that
the dollar cost of Year 2000 compliance is approximately $350,000 through the
end of 1999. However, the Company continues to review and update its
assessment of remediation requirements and costs including those associated
with its recent and pending acquisitions and actual costs could materially
differ.
Several systems provided by third parties are required for the
operation of the Company's services, any of which may contain software code
that is not Year 2000 compliant. These systems include server software used
to operate the Company's network servers, software controlling routers,
switches and other components of the Company's data network, disk management
software used to control the Company's data disk arrays, firewall, security,
monitoring and back- up software used by the Company, as well as desktop PC
applications software. In most cases, the Company employs widely available
software applications and other products from leading third party vendors,
and expects that such vendors will provide any required upgrades or
modifications in a timely fashion. However, any failure of third party
suppliers to provide Year 2000 compliant versions of the products used by the
Company could result in a temporary disruption of the Company's services or
otherwise disrupt the Company's operations. In addition, the Company's
partners may operate their city guide sites in proximity to other
applications that may not be Year 2000 compliant. While the Company has
assigned an individual to coordinate each partner's compliance efforts to
ensure uninterrupted operations, the Company has limited ability to influence
decisions by its partners. Non-compliant systems that adjoin partners' city
guide applications could result in interruption or disruption of the city
guide service, which in turn could reduce royalties or other amounts due to
the Company and could tarnish the Company's public image as a technology
company. There can be no assurance that the Company, its third party
suppliers or its partners will be Year 2000 compliant at the end of the
millennium. Failure to achieve compliance could result in complete failure or
inaccessibility of the Company's or its partners' services, and could
adversely affect the Company's business, financial condition and results of
operations.
Year 2000 compliance problems could also undermine the general
infrastructure necessary to support the Company's operations. For instance,
the Company depends on third party Internet service providers for
connectivity to the Internet. Any interruption of service from the Company's
Internet service providers could result in a temporary interruption of the
Company's services. Moreover, the effects of Year 2000 compliance
deficiencies on the integrity and stability of the Internet are difficult to
predict. A significant disruption in the ability of businesses and consumers
to reliably access the Internet or portions of it would have an adverse
effect on demand for the Company's services and adversely impact the
Company's 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 forced to sell
securities which have declined in market value due to changes in interest
rates.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
In September 1999, the Company issued 7,000,000 shares of
Class B Common Stock as consideration for the acquisition of the Sidewalk
assets. The Company also issued two warrants to purchase an aggregate of
4,500,000 shares in connection with such transaction. The shares and warrants
were issued to the former owner of the Sidewalk assets. In September 1999,
the Company issued an aggregate of 1,204,000 shares of Class B Common Stock
as partial consideration for the Web Media acquisition. The shares were
issued to the former owners of Web Media. The issuances of these securities
were 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
10.39 FairMarket, Inc. Series D Preferred Stock Purchase Agreement dated as
of September 15, 1999 between FairMarket, Inc. and the Registrant.
10.40 Series A Preferred Stock Purchase Agreement by and between
foodline.com, Inc. and the Registrant dated as of October 25, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On September 29, 1999, the Company filed a Report on Form 8-K relating to the
Acquisition of the Sidewalk assets.
<PAGE>
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: November 15, 1999 TICKETMASTER ONLINE - CITYSEARCH, INC.
By: /s/ CHARLES CONN
-----------------------------------------------
Charles Conn
Chief Executive Officer
(Principal Executive Officer)
By: /s/ THOMAS MCINERNEY
-----------------------------------------------
Thomas McInerney
Chief Financial Officer and Executive Vice
President
(Principal Financial and Accounting Officer)
