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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 June 30, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-25041
TICKETMASTER ONLINE - CITYSEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4546874
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
790 E. COLORADO BOULEVARD, SUITE 200, PASADENA, CA 91101
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(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 June 30, 2000 there were 39,536,211 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................................................................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 13
PART II - OTHER INFORMATION............................................................................................ 14
Item 1. Legal Proceedings.................................................................................... 14
Item 2. Changes in Securities and Use of Proceeds............................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 15
Item 6. Exhibits and Reports on Form 8-K..................................................................... 16
SIGNATURES.................................................................................................... 17
</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>
DECEMBER 31,
JUNE 30, 2000 1999
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ASSETS (unaudited) (see note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 39,751 $ 61,455
Marketable securities available for sale.................................... 20,827 26,299
Accounts receivable (net of allowance for doubtful accounts
of $990 and $738 respectively)........................... 6,268 3,774
Related party receivable.................................................... 329 1,942
Due from licensees.......................................................... 583 830
Prepaid expenses and other current assets................................... 4,563 3,826
--------- ---------
Total current assets.................................................... 72,321 98,126
Investments...................................................................... 21,145 23,085
Computers, software, equipment and leasehold improvements, net................... 21,625 16,831
Goodwill and other intangibles, net.............................................. 650,437 662,921
Other long-term assets........................................................... 3,358 3,706
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Total assets............................................................ $ 768,886 $ 804,669
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 2,930 $ 4,537
Accrued expenses............................................................ 10,966 9,100
Deferred revenue............................................................ 10,241 5,979
Current portion of capital lease obligations................................ 698 957
--------- ---------
Total current liabilities............................................... 24,835 20,573
Other long-term liabilities...................................................... 1,551 1,170
Capital lease obligations, net of current portion................................ 99 333
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares--2,000,000 at June 30, 2000
Issued and outstanding--none
Class A Common Stock, $0.01 par value: -- --
Authorized shares --100,000,000 at June 30, 2000
Issued and outstanding--48,849,360 and 52,840,565 at June 30, 2000 and
December 31, 1999, respectively......................................... 488 529
Class B Common Stock--$0.01 par value:
Authorized shares--250,000,000 at June 30, 2000
Issued and outstanding--39,536,211 and 32,104,352 at June 30, 2000 and
December 31, 1999, respectively......................................... 395 321
Class C Common Stock--$0.01 par value:
Authorized shares--2,883,506 at June 30, 2000
Issued and outstanding--none............................................ -- --
Additional paid-in capital.................................................. 972,925 919,348
Accumulated deficit......................................................... (231,340) (137,413)
Accumulated other comprehensive loss........................................ (67) (192)
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Total stockholders' equity.............................................. 742,401 782,593
--------- ---------
Total liabilities and stockholders' equity.......................... $ 768,886 $ 804,669
========= =========
</TABLE>
See accompanying notes.
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Ticketing operations.............................. $ 40,048 $ 17,792 $ 68,680 $ 27,178
City guide and related............................ 17,053 6,559 31,431 12,112
Sponsorship and advertising....................... 4,300 1,177 7,810 2,209
-------- -------- -------- --------
Total revenues................................ 61,401 25,528 107,921 41,499
Operating costs and expenses:
Ticketing operations.............................. 30,112 13,455 51,538 20,307
City guide and related............................ 13,398 5,861 26,129 10,469
Sales and marketing............................... 18,285 9,379 35,951 15,578
Research and development.......................... 1,580 1,605 3,268 3,538
General and administrative........................ 6,904 3,291 12,760 5,907
Amortization of goodwill and other intangibles.... 35,696 13,713 70,271 25,689
Merger and other transaction costs................ -- 2,100 -- 2,771
-------- -------- -------- --------
Total costs and expenses...................... 105,975 49,404 199,917 84,259
-------- -------- -------- --------
Loss from operations................................... (44,574) (23,876) (91,996) (42,760)
-------- -------- -------- --------
Interest income, net................................... 692 1,037 1,792 2,237
Equity in loss of unconsolidated affiliates............ (454) -- (2,580) --
Other expenses......................................... (278) -- (278) --
-------- -------- -------- --------
Loss before income taxes............................... (44,614) (22,839) (93,062) (40,523)
Income tax provision................................... 691 77 865 134
-------- -------- -------- --------
Net loss .............................................. $(45,305) $(22,916) $(93,927) $(40,657)
======== ======== ======== ========
Basic and diluted net loss per share................... $ (0.52) $ (0.31) $ (1.09) $ (0.56)
======== ======== ======== ========
Shares used to compute basic and diluted net loss per
share .............................................. 86,753 72,926 86,081 72,249
======== ======== ======== ========
</TABLE>
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TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
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(unaudited)
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Operating activities
Net loss......................................................................... $(93,927) $(40,656)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................... 74,460 27,537
Deferred marketing...................................................... 625 --
Loss in unconsolidated affiliates....................................... 2,580 --
Advertising contributed by USAi......................................... 150 --
Stock compensation...................................................... 687 --
Loss on disposal of fixed asset......................................... 219 --
Changes in operating assets and liabilities:
Accounts receivable................................................ (1,350) (721)
Related party receivable........................................... 1,613 (699)
Due from licensees................................................. 247 (1,535)
Prepaid expenses and other current assets.......................... (580) (694)
Accounts payable................................................... (2,324) (898)
Accrued expenses................................................... 434 2,524
Deferred revenue................................................... 4,322 576
-------- --------
Net cash used in operating activities.......................... (12,844) (14,566)
Investing activities
Capital expenditures........................................................ (7,867) (3,228)
Investment in unconsolidated affiliates..................................... (9,973) --
Proceeds from sale of investment in unconsolidated affiliates............... 2,167 --
Acquisitions, net of cash acquired.......................................... (1,493) 31
Proceeds from sale of marketable securities available for sale.............. 14,312 --
Purchase of marketable securities available for sale........................ (8,840) --
Other....................................................................... 32 (223)
-------- --------
Net cash used in investing activities.......................... (11,662) (3,420)
Financing activities
Net proceeds from exercise of options....................................... 3,304 1,132
Costs associated with initial public offering............................... -- (836)
Payments on capital leases.................................................. (502) (726)
-------- --------
Net cash provided by (used in) financing activities............ 2,802 (430)
-------- --------
Net decrease in cash and cash equivalents........................................ (21,704) (18,416)
Cash and cash equivalents at beginning of period................................. 61,455 106,910
-------- --------
Cash and cash equivalents at end of period....................................... $ 39,751 $ 88,494
======== ========
</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") is a leading local
portal and electronic commerce company that provides in-depth local content and
services to help people get things done online. We offer practical tools for
living that make the Internet an important part of people's everyday lives. Our
principal operations are online city guides, online ticketing and online
personals. Our family of Web sites includes citysearch.com, ticketmaster.com,
match.com, museumtix.com, ticketweb.com, cityauction.com, astroabby.com and
livedaily.com, among others. In September 1998, our company was created by
combining CitySearch, Inc. and Ticketmaster Multimedia Holdings, Inc.
(Ticketmaster Online), then a wholly-owned online subsidiary of Ticketmaster
Corporation, to create Ticketmaster Online-CitySearch, a leading provider of
local city guides, local advertising and live event ticketing on the Internet.
In 1999, the Company acquired the Sidewalk.com entertainment city guide assets
of Microsoft Corporation, CityAuction, Inc., an online auction company and
Match.Com, Inc. and Web Media Ventures, L.L.C., both online personals companies.
In 2000, the Company acquired 2b Technology, Inc., a box office software and
ticketing company, and TicketWeb, Inc., a web-based live event ticketing
company. The Company has integrated these acquisitions into its other online
offerings.
BASIS OF PRESENTATION
On September 28, 1998, CitySearch, 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 six month period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
SEGMENTS
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company identifies its
operating segments based on business activities, management responsibility and
geographical location. The Company's chief operating decision makers review
financial information to manage the business consistent with the manner
presented in the
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condensed consolidated financial statements. During the six months ended June
30, 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 June 30, 2000, foreign operations have not been significant in revenue.
As the Company acquires and integrates new businesses it continues to evaluate,
based on the nature, size and integration and management strategies of its
businesses, whether it has separate reportable segments.
BASIC AND DILUTED LOSS PER SHARE
Basic loss per share is determined by dividing the net loss by the
weighted average shares of Common Stock outstanding during the period. Diluted
loss per share is determined by dividing the net loss by the weighted average
shares of Common Stock outstanding plus the dilutive effects of stock options,
warrants and other convertible securities. Basic and diluted loss per share are
the same for the three months and six months ended June 30, 2000 and 1999
because the effects of outstanding stock options and warrants are antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's balances to
conform to the current year presentation.
NOTE 2 - BUSINESS COMBINATIONS
Acquisition of 2b Technology, Inc.
On January 31, 2000, the Company completed the acquisition of 2b
Technology, Inc ("2b Technology"), a ticketing and software licensing company.
In connection with the acquisition, the Company issued 458,005 shares of Class B
Common Stock to the former owners of 2b Technology representing a purchase price
of approximately $17.1 million. The purchase price will be increased for
additional shares to be issued upon achievement of revenue targets based on the
stock price at that time. The acquisition is being accounted for using the
purchase method of accounting. The acquisition resulted in $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 is being amortized by the Company over a period of five years.
The results of operations of 2b Technology are included in the accompanying
statement of operations from the date of acquisition.
Acquisition of TicketWeb, Inc.
On May 26, 2000, the Company completed the acquisition of TicketWeb, Inc
("TicketWeb"), a web-based live event ticketing company. In connection with the
acquisition, the Company issued 1,840,238 shares of Class B Common Stock to the
former owners of TicketWeb representing a purchase price of approximately $35.3
million. The acquisition is being accounted for using the purchase method of
accounting. The acquisition resulted in $31.9 million of goodwill being
recorded. The total amount of goodwill recorded is being amortized by the
Company over a period of five years. The results of operations of TicketWeb are
included in the accompanying statement of operations from the date of
acquisition.
Pro Forma Financial Data (Unaudited)
The following unaudited pro forma information presents a summary of
results of the Company assuming the acquisitions of CityAuction, Match.Com, Web
Media Ventures, 2b Technology and TicketWeb had occurred as of January 1, 1999,
with pro forma adjustments to give effect to amortization of goodwill.
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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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss.................................. $(46,284) $(29,452) $(96,785) $(55,529)
Net loss per share........................ (0.52) (0.37) (1.10) (0.71)
</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 and six months ended June 30, 1999,
in addition to the goodwill from the acquisitions discussed above, had these
transactions occurred on January 1, 1999, would have resulted in a net loss of
$46.2 million and $89.0 million, respectively, and a net loss per share of $0.54
and $1.04, respectively, on a pro forma basis. The pro forma information above
excludes the impact of revenues and expenses associated with the acquisitions as
the impact is not material.
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 people's everyday lives. Our principal
operations are online city guides, online ticketing and online personals. Our
family of Web sites includes citysearch.com, ticketmaster.com, match.com,
museumtix.com, ticketweb.com, cityauction.com, astroabby.com and livedaily.com,
among others.
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. Ticketing operations revenue is recognized when the ticket is sold.
If credit card chargeback or refund activity is likely to occur with respect to
an event, for example, due to the cancellation of such event, an allowance is
established for potential convenience charge refunds.
In our owned and operated city guide markets, we derive our revenues
primarily from the sale to local businesses of Web sites which we create, host
and maintain, as well as place in our directory listings so that the businesses
receive exposure to our users. Business Web site customers typically enter into
one-year
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agreements that automatically convert to month-to-month contracts upon
expiration. We recognize revenue from sales of local business Web sites on a
monthly basis over the term of each contract as services are rendered. In
partner-led markets, we derive licensing and royalty revenues from the licensing
of our technology and business systems, from consulting services and from
providing back office and hosting services. We do not expect to enter into
additional domestic partnerships to launch city guides going forward. Licensing
revenue under license agreements is recognized over the term of the license
agreement or the period over which the relevant services are delivered for use
of our business and technology systems pursuant to Statement of Position ("SOP")
No. 97-2, as amended by SOP No. 98-9. Royalty revenue is recognized as earned
and is typically a percentage of partner-led market revenues from Web site
sales, banners, advertisements, sponsorships and other ancillary offerings. In
our integrated personals operations, we derive subscription fee revenue from
customers who subscribe for our online matchmaking and dating services for one
to twelve months. Revenues are recognized monthly over the contract term.
Sponsorship and advertising revenues are derived from local and national
advertisers and are primarily recognized over the term of the promotion either
ratably or based on our fulfillment of advertising campaign milestones.
OPERATING LOSSES
The Company incurred net losses of $45.3 million and $93.9 million for the
three months and six months ended June 30, 2000, respectively, and $22.9 million
and $40.7 million for the corresponding periods of the preceding year. At June
30, 2000, the Company had an accumulated deficit of $231.3 million.
RESULTS OF OPERATIONS
TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $40.0
million and $68.7 million for the three months and six months ended June 30,
2000, respectively, and $17.8 million and $27.2 million for the corresponding
periods of the preceding year. This represents increases of 125% and 153%,
respectively. The increases are primarily attributable to a significant increase
in the number of tickets sold on ticketmaster.com (from 2.6 million to 5.4
million tickets for the three months ended June 30, 1999 and 2000, respectively,
and from 4.2 million to 9.7 million tickets for the six months ended June 30,
1999 and 2000, respectively). Additionally, the average convenience charge for
tickets sold on ticketmaster.com increased 6% in the three months ended June 30,
2000 over the corresponding period in 1999 (from $6.68 to $7.08) and increased
9% in the six months ended June 30, 2000 over the corresponding period in 1999
(from $6.27 to $6.82). Revenues also increased, to a lesser extent, due to the
acquisitions of 2b Technology in January 2000 and TicketWeb in May 2000. The
Company recognized no revenues from 2b Technology and TicketWeb in the three
months and six months ended June 30, 1999.
CITY GUIDE AND RELATED REVENUES. City guide and related revenues were
$17.1 million and $31.4 million for the three months and six months ended June
30, 2000, respectively, and $6.6 million and $12.1 million for the corresponding
periods of the preceding year. This represents increases of 160% for both
periods. The increase was principally attributable to the acquisition of the
personals companies, Match.Com and One and Only Network, revenue from new city
guide programs, such as the CitySearch Career Center, and also to the expansion
of the city guide network of owned & operated markets where we had local staff
from 19 markets in the second quarter of 1999 to 32 markets in the second
quarter of 2000. The Company began recognizing revenues from the Match.Com
portion of personals operations in the six months ended June 30, 1999, but no
revenues were recorded from the One and Only Networks portion of personals
operations during that same period.
SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues
were $4.3 million and $7.8 million for the three months and six months ended
June 30, 2000, respectively, and $1.2 million and $2.2 million for the
corresponding periods of the preceding year. This represents increases of 265%
and 254%,
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respectively. 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 $30.1 million and $51.5 million for the three months and six
months ended June 30, 2000, respectively, and $13.5 million and $20.3 million
for the corresponding periods of the preceding year. This represents increases
of 124% and 154%, respectively. Our gross margins in ticketing operations
slightly increased to approximately 25% in the three months ended June 30, 2000
from approximately 24% in the three months ended June 30, 1999 as a result of a
decrease in variable costs related with ticket fulfillment. Ticketing operations
expenses are primarily variable in nature and fluctuate in relation to
fluctuations in ticketing revenue. In addition, the Company expects that
ticketing operations expenses will increase proportionally with ticketing
revenues. Expenses also increased, to a lesser extent, due to the acquisitions
of 2b Technology in January 2000 and TicketWeb in May 2000 and from increase in
Ticketmaster.com technology staffing. The Company recognized no expenses from 2b
Technology and TicketWeb in the three months and six months ended June 30, 1999.
CITY GUIDE AND RELATED EXPENSES. City guide and related expenses consist
primarily of the expenses associated with the design, layout, photography,
customer service and editorial resources used in the production and maintenance
of business Web sites; editorial content and network infrastructure maintenance
in connection with the city guide operations; and costs of affiliate referral
commissions, customer service and network infrastructure maintenance associated
with online personals operations. City guide and related expenses were $13.4
million and $26.1 million for the three months and six months ended June 30,
2000, respectively, and $5.9 million and $10.5 million for the corresponding
periods of the preceding year. This represents increases of 129% and 150%,
respectively. The increases are attributable to growth in the city guide
operations throughout 1999, including the addition of 13 additional owned and
operated markets in the periods following the six months ended June 30, 1999.
Expenses also increased as a result of the inclusion of costs associated with
our personals operations acquired in 1999. The Company began recognizing
personals costs from the Match.Com portion of personals operations in the six
months ended June 30, 1999, but no personals costs were recorded from the One
and Only Networks portion of personals operations during that same period. Our
gross margins in city guide and related operations increased to 21% and 17% in
the three months and six months ended June 30, 2000, respectively, from 11% and
14% in the corresponding periods of the preceding year as a result of the
relatively higher margins from the personals operations which more than offset
the increased costs associated with the aforementioned city guide expansion.
City guide and related expenses have both fixed and variable components and may
continue to increase in future periods to the extent city guide and related
revenues increase during such periods.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of costs related to the compensation of sales and marketing personnel
and both online and offline advertising expense. Sales and marketing expenses
were $18.3 million and $36.0 million for the three months and six months ended
June 30, 2000, respectively, and $9.4 million and $15.6 million for the
corresponding periods of the preceding year. This represents increases of 95%
and 131%, respectively. The increase for the three months and six months ended
June 30, 2000, as compared to the three months and six months ended June 30,
1999, is attributable to the growth of our city guide operations throughout 1999
from 19 markets to 32 markets, and the addition of sales and marketing expenses
associated with our personals operations. The Company began recognizing sales
and marketing costs from the Match.Com portion of personals operations in the
six months ended June 30, 1999, but no sales and marketing costs were recorded
from the One and Only Networks portion of personals operations during that same
period.
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RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include the costs to develop, test and upgrade our online service and the
enterprise management systems primarily for our city guide operations. These
costs consist primarily of salaries for product development personnel, contract
labor expense, consulting fees, software licenses, hardware costs and recruiting
fees. Research and development expenses were $1.6 million and $3.3 million for
the three months and six months ended June 30, 2000, respectively, and $1.6
million and $3.5 million for the corresponding periods of the preceding year.
This represents no change for the three months ended June 30, 2000 and a
decrease of 8% for the six months ended June 30, 2000. 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 $6.9 million and $12.8 million for the three months
and six months ended June 30, 2000, respectively, and $3.3 million and $5.9
million for the corresponding periods of the preceding year. This represents
increases of 110% and 116%, respectively. The increases for the three months and
six months ended June 30, 2000 were due primarily to the costs of additional
personnel needed for the continued growth of the Company's city guide, ticketing
and personals operations, increased depreciation expense resulting from capital
expenditures during 1999 and 2000 and expenses due to the acquisitions of 2b
Technology in January 2000 and TicketWeb in May 2000. The Company expects that
general and administrative expenses will increase in absolute dollars in future
periods.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles consists of goodwill associated with the acquisition of
Ticketmaster Corporation by USAi, the merger of CitySearch and Ticketmaster.com
and the acquisitions of CityAuction, Match.Com, Web Media Ventures (dba One and
Only), 2b Technology, TicketWeb and the Sidewalk assets. Amortization of
goodwill and other intangibles was $35.7 million and $70.3 million for the three
months and six months ended June 30, 2000, respectively, and $13.7 million and
$25.7 million for the corresponding periods of the preceding year. This
represents increases of 160% and 174%. The increase is attributable to the
Company's acquisitions of Web Media Ventures, 2b Technology, TicketWeb and the
Sidewalk assets which all took place subsequent to the June 30, 1999 period.
MERGER AND OTHER TRANSACTION COSTS. Merger and other transaction costs
were not present in the three months and six months ended June 30, 2000 and were
$2.1 million and $2.8 million for the corresponding periods of the preceding
year. These costs are primarily a result of advisory fees, regulatory filing
fees and legal and accounting costs related to the terminated merger between the
Company, certain assets owned by the Company's majority shareholder and Lycos,
Inc.
INTEREST INCOME, NET. Net interest income consists primarily of interest
earned on the Company's cash, cash equivalents and marketable securities
available for sale, less interest expense on capital lease obligations. The
Company had net interest income of $692,000 and $1.8 million for the three
months and six months ended June 30, 2000, respectively, and $1.0 million and
$2.2 million for the corresponding periods of the preceding year. 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 $454,000 and $2.6 million for the three months and
six months ended June 30, 2000, respectively, represents the Company's portion
of net losses of foodline.com, Inc. and ActiveUSA.com, Inc., two companies in
which the
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Company invested in late 1999. In March 2000 and April 2000 the Company ceased
reporting the equity in loss of unconsolidated affiliates for foodline.com and
ActiveUSA.com, respectively, due to dilution of the Company's investments in
those companies. The Company did not have equity investments in these companies
during the three months and six months ended June 30, 1999.
INCOME TAXES. The provision for income taxes was $691,000 and $865,000 for
the three months and six months ended June 30, 2000, respectively, and $77,000
and $134,000 for the corresponding periods of the preceding year. This provision
reflects the income tax expense incurred by the Company's foreign subsidiaries,
and has increased as a result of increased ticketing profits in those markets
and due to foreign taxes on the Company's Japanese partner-led market consulting
income The Company's effective tax rate differs from the statutory federal
income tax rate, primarily as a result of foreign income taxes and operating
losses not benefited. The Company expects that its tax provision will remain
small for the balance of 2000 due to the availability of the Company's
consolidated net operating losses. However, net operating loss carryforwards of
CitySearch existing at the Merger date will not be available to further offset
taxable income of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $12.8 million and $14.6 million
for the six months ended June 30, 2000 and 1999, respectively. Net cash used in
operating activities was primarily due to net losses, offset in large part by
non-cash depreciation and amortization expense of $74.5 million and $27.5
million, respectively.
Net cash used by investing activities was $11.7 million and $3.4 million
for the six months ended June 30, 2000 and 1999, respectively. Net cash used by
investing activities in the six months ended June 30, 2000 resulted mostly from
investments in unconsolidated affiliates, purchases of marketable securities
available for sale and capital expenditures for computers, software, equipment
and leasehold improvements, offset in part from the sale of marketable
securities to fund operations and proceeds from the sale of an equity
investment. Net cash used in investing activities in the six months ended June
30, 1999 consisted primarily of capital expenditures for computers, software,
equipment and leasehold improvements.
Net cash provided by financing activities was $2.8 million for the six
months ended June 30, 2000 and net cash used in financing activities was
$430,000 for the six months ended June 30, 1999. Net cash provided by financing
activities for the six months ended June 30, 2000 was primarily attributable to
proceeds of $3.3 million from employee stock option exercises, offset by
payments on capital leases. Net cash used in financing activities for the six
months ended June 30, 1999 was attributable to costs associated with the
Company's initial public offering and payments on capital leases, offset by
proceeds from employee stock option exercises.
We had cash, cash equivalents and marketable securities available for sale
of $60.6 million and $87.8 million at June 30, 2000 and December 31, 1999,
respectively. We currently have no unfunded material commitments other than
those under existing capital and operating lease agreements. We have experienced
a substantial increase in our capital expenditures and investing activities
consistent with our infrastructure build out and expansion into other businesses
that 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
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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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the Ticketmaster Cash Discount litigation 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, previously reported in the Company's 10-Q, on May 12, 2000, the
plaintiff filed an amended class action petition in state court on June 20, 2000
asserting an additional claim that the cash discount program in question
violates a provision in a Merchant Services Bankcard Agreement between
Ticketmaster and Chase Merchant Services L.L.C. and First Financial Bank.
Plaintiff claims all consumers using VISA and MasterCard to purchase tickets
from Ticketmaster are third-party beneficiaries of this contract. Plaintiff also
filed on July 14, 2000 an amended class certification motion. In addition to the
nine-state class sought by Plaintiff's original class certification request, the
amended motion seeks the certification of a nationwide class of VISA and
MasterCard customers since approximately April 1998 to prosecute the alleged
third-party beneficiary claim. Ticketmaster filed a summary judgment motion on
May 1, 2000 and Plaintiff filed a second amended motion for partial summary
judgment on May 24, 2000. Currently no hearing is set on any of these motions.
On July 20, 2000, Ticketmaster removed the case to federal court in McAllen,
Texas on the grounds that the newly added third-party beneficiary claim raises a
federal question under the Truth-in-Lending Act. On August 1, 2000, Plaintiff
filed a motion to remand the case to state court. Hearing on the motion to
remand is currently anticipated to occur on September 7, 2000. Ticketmaster
Online-CitySearch, Inc. continues to believe that plaintiff's claims lack merit
and expects to continue to vigorously defend itself in this case.
On July 23, 1999, Ticketmaster Corporation and Ticketmaster
Online-CitySearch, Inc. (collectively, "Ticketmaster"), filed a Complaint for
Damages and Injunctive Relief against Tickets.com, Inc. "Tickets.com"), entitled
TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH, INC. V.
TICKETS.COM, INC., Case No. 99-07654 HLH, in the United States District Court,
Central District of California. Ticketmaster claims that Tickets.com violates
Ticketmaster's legal and contractual rights by, among other things, (i)
providing deep-links to Ticketmaster's internal web pages without Ticketmaster's
consent, (ii) systematically, deceptively and intentionally accessing
Ticketmaster's computers and computer systems and copying verbatim Ticketmaster
event pages daily and extracting and reprinting Ticketmaster's Uniform Resource
Locators ("URLs") and event data and information in complete form on
Tickets.com's web site and (iii) providing false and misleading information
about Ticketmaster, the availability of tickets on the Ticketmaster Web Site,
and the relationship between Ticketmaster and Tickets.com. On January 7, 2000,
Ticketmaster filed a First Amended Complaint. Tickets.com filed a motion to
dismiss Ticketmaster's First Amended Complaint on or about February 23, 2000,
claiming that Tickets.com did not violate the Copyright Act or Lanham Act and
that Ticketmaster's state law claims were preempted and/or did not state a valid
claim for relief. The Court denied Tickets.com's motion as to Ticketmaster's
claims for copyright infringement, violations of the Lanham Act, state law
unfair competition and interference with prospective economic advantage. The
Court granted Tickets.com's motion, but gave Ticketmaster leave to amend, as to
Ticketmaster's claims for breach of contract, trespass, unjust enrichment and
misappropriation. Ticketmaster filed a Second Amended Complaint on April 21,
2000.
On March 3, 2000, Ticketmaster and TMCS filed a motion for preliminary
injunction, requesting the Court to enjoin Tickets.com from, among other
things, deep-linking to Ticketmaster's internal web pages, accessing
Ticketmaster's computers and computer systems and copying Ticketmaster's
event pages, and providing misleading and false information about
Ticketmaster, the availability of tickets on the Ticketmaster Web Site and
the relationship between Ticketmaster and Tickets.com. On July 31, 2000 the
Court held a hearing. The Court took the matter under submission, and on
August 11, 2000 issued a ruling denying Ticketmaster and TMCS's motion for
preliminary injunction. On May 30, 2000, Tickets.com filed its Answer to
Ticketmaster's Second Amended Complaint
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and Counterclaims against Ticketmaster Corporation and Ticketmaster
Online-CitySearch, Inc. Tickets.com alleges claims for relief against
Ticketmaster for violations of the Sherman Act, sections 1 and 2, violations of
California's Cartwright Act, violations of California's Business and Professions
Code section 17200, violations of common law restraint of trade and unfair
competition and business practices, interference with contract and declaratory
relief. Tickets.com claims that Ticketmaster Corporation's exclusive agreements
with Ticketmaster Online-CitySearch, Inc., venues, promoters and other third
parties injure competition, violate antitrust laws, constitute unfair
competition and interfere with Tickets.com's prospective economic advantages. On
July 19, 2000, Ticketmaster filed a motion to dismiss any claim based in whole
or in part on Ticketmaster's alleged litigation conduct as well as Tickets.com's
ninth claim for relief under California's antitrust laws (the Cartwright Act).
Ticketmaster intends to vigorously defend this litigation. There can be no
assurance that we or Ticketmaster Corporation or our affiliates will not become
the subject of future governmental investigations or inquiries or be named as a
defendant in claims alleging violations of federal or state antitrust laws or
any other laws. Any adverse outcome in such litigation, investigation or
proceeding against us or Ticketmaster Corporation or our affiliates could limit
or prevent ticketmaster.com from engaging in its online ticketing business or
subject us to potential damage assessments, all of which could have a material
adverse effect on our business, financial condition or results of operations.
Regardless of its merit, source or outcome, any such litigation, investigation
or proceeding would at a minimum be costly and could divert the efforts of our
management and other personnel from productive tasks, which could have a
material adverse effect on our business, financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
In May 2000, the Company issued an aggregate of 1,840,238 shares of Class
B Common Stock as consideration for the TicketWeb acquisition which closed at
that time . The shares were issued to former shareholders of TicketWeb. In
connection with the TicketWeb acquisition, the Company also issued certain stock
options and warrants in substitution for then outstanding TicketWeb stock
options and warrants which were assumed by the Company in the acquisition.
In June 2000, the Company issued an aggregate of 560,380 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 the final portion of the earn
out payment agreed upon at the time the acquisition was closed. The shares were
issued to the shareholders of Web Media Ventures.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's 2000 Annual Meeting of Stockholders was held on May 10, 2000.
At that meeting, the Company's stockholders elected the following persons to
serve as directors of the Company until the next Annual Meeting of Stockholders
and until their successors are duly elected and qualified with the following
votes for, withheld, abstained and broker non-votes:
<TABLE>
<CAPTION>
BROKER
DIRECTOR YES VOTES NO VOTES ABSTAINING VOTES NON-VOTES
---------------------------------- ------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Charles Conn 688,202,240 -- 63,656 --
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
John Pleasants 688,177,865 -- 88,031 --
Barry Baker 688,202,238 -- 63,658 --
Terry Barnes 688,202,238 -- 63,658 --
Barry Diller 688,202,240 -- 63,656 --
Joseph Gleberman 688,202,240 -- 63,656 --
William Gross 688,202,240 -- 63,656 --
Alan Grubman 688,202,238 -- 63,658 --
Lawrence Jacobson 688,202,238 -- 63,658 --
Victor Kaufman 688,202,238 -- 63,658 --
Dara Khosrowshahi 688,202,240 -- 63,656 --
Bryan Lourd 688,202,238 -- 63,658 --
Bill Savoy 688,202,238 -- 63,658 --
Alan Spoon 688,202,238 -- 63,658 --
Tom Unterman 688,202,240 -- 63,656 --
</TABLE>
In addition to the election of directors, the Company's Stockholder's approved
the adoption of the Company's 1999 Stock Option Plan and ratified the
appointment of the Company's independent auditors, Ernst & Young for 2000. The
stockholders approved the 1999 Stock Option Plan with 673,666,226 votes in
favor, 4,009,997 votes against, 52,924 votes abstained and 10,536,749 broker
non-votes. The stockholders ratified the appointment of Ernst & Young with
688,237,729 votes in favor, 12,536 votes against, 15,631 votes abstained and 0
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 20, 2000, the Company filed a Report on Form 8-K relating to the
announcement of the Company's results for the quarter ended March 31, 2000.
On June 6, 2000, the Company filed a Report on Form 8-K relating to the
announcement of the Company's acquisition of TicketWeb on May 26, 2000.
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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: August 14, 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)
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INDEX TO EXHIBITS
EXHIBITS
---------------
27.1 Financial Data Schedule
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