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