<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 7, 2000
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
TRAVELOCITY.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-30634 75-2855109
(STATE OR OTHER (COMMISSION FILE NO.) (IRS EMPLOYER
JURISDICTION OF INCORPORATION) IDENTIFICATION NO.)
4200 BUCKINGHAM BLVD.
MD 1400
FORT WORTH, TEXAS 76155
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 963-2923
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL STATEMENTS
(a) Financial Statements of Business Acquired.
On March 7, 2000, the transactions contemplated by the Agreement and Plan
of Merger, dated as of October 3, 1999 and amended as of January 24, 2000,
among us, Sabre Inc., Travelocity Holdings, Inc., a wholly-owned subsidiary
of Sabre Inc., and Preview Travel, Inc., were consummated. As a result of
these transactions, Preview Travel, Inc. was merged with and into us. A
full description of these transactions is contained in our proxy statement/
prospectus dated February 4, 2000. The financial statements as of and
for the year ended December 31, 1999 required to be filed by Item 7(a) of
Form 8-K are filed herewith as Exhibit 99.1. The financial statements
required for 1998 and 1997 are incorporated herein by reference from the
Proxy Statement/Prospectus dated February 4, 2000.
(b) Pro Forma Financial Information.
The pro forma financial information required to be filed by Item 7(b)
of Form 8-K is filed herewith as Exhibit 99.2.
(c) Exhibits.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
99.1 Consolidated Financial Statements of Preview Travel,
Inc. as of the year ended December 31, 1999 with
Report of Independent Auditors.
99.2 Unaudited Pro Forma Combined Condensed Balance Sheet
of Travelocity.com Inc. and Preview Travel, Inc. as
of December 31, 1999; and Unaudited Pro Forma
Combined Condensed Statements of Operations of
Travelocity.com Inc. and Preview Travel, Inc. for
the year ended December 31, 1999.
</TABLE>
<PAGE>
SIGNATURE
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 hereunto duly authorized.
TRAVELOCITY.COM INC.
By: /s/ Andrew B. Steinberg
------------------------
Name: Andrew B. Steinberg
Title: Executive Vice President, General
Counsel and Corporate Secretary
Date: March 31, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
99.1 Consolidated Financial Statements of Preview Travel,
Inc. as of the year ended December 31, 1999 with
Report of Independent Auditors.
99.2 Unaudited Pro Forma Combined Condensed Balance Sheet
of Travelocity.com Inc. and Preview Travel, Inc. as
of December 31, 1999; and Unaudited Pro Forma
Combined Condensed Statements of Operations of
Travelocity.com Inc. and Preview Travel, Inc. for
the year ended December 31, 1999.
</TABLE>
3
<PAGE>
EXHIBIT 99.1
Financial Statements
Preview Travel, Inc.
Year Ended December 31, 1999
with Report of Independent Accountants
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Accountants 5
Consolidated Financial Statements
Consolidated Balance Sheet 6
Consolidated Statement of Operations 7
Consolidated Statement of Stockholders' Equity 8
Consolidated Statement of Cash Flows 9
Notes to Consolidated Financial Statements 10
</TABLE>
4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Preview Travel, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Preview Travel, Inc. (the "Company") at December 31, 1999, and the results of
their operations and their cash flows for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
January 20, 2000
5
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999
----
<S> <C>
ASSETS
Cash and cash equivalents $ 979
Marketable securities 12,939
Accounts receivable, net of allowance for doubtful accounts of $195 6,698
Other assets 3,494
-------------------
Total current assets 24,110
Marketable securities - noncurrent 12,307
Property and equipment, net 5,303
Other assets 830
-------------------
Total assets $ 42,550
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 849
Accrued liabilities 5,500
Current portion of capital lease and other obligations 1,163
-------------------
Total current liabilities 7,512
Capital lease obligations, less current portion 847
Accrued liabilities, noncurrent 138
-------------------
Total liabilities 8,497
===================
Commitments (Note 5)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no
shares issued and outstanding -
Common stock, $0.001 par value; 50,000,000 shares authorized;
14,018,358 shares issued and outstanding 14
Additional paid-in capital 122,637
Other stockholders' equity (2,057)
Accumulated other comprehensive loss (292)
Accumulated deficit (86,249)
-------------------
Total stockholders' equity 34,053
-------------------
Total liabilities and stockholders' equity $ 42,550
===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
6
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999
----
<S> <C>
Revenues:
Transaction revenue $ 20,025
Advertising revenue 11,041
------------------
Total revenues 31,066
Cost of revenues 10,936
------------------
Gross profit 20,130
Operating expenses:
Marketing and sales 38,670
Technology operations and development 5,182
General and administrative 8,482
Stock based compensation expense 2,498
Merger expense 1,009
------------------
Total operating expenses 55,841
Operating loss (35,711)
Interest income, net 2,267
------------------
Loss before income taxes (33,444)
Income tax expense (61)
------------------
Net loss $ (33,505)
===================
Basic and diluted net loss per share $ (2.42)
===================
Shares used in computation of basic and diluted net loss per share 13,850
===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
7
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER OTHER TOTAL
PAID-IN STOCKHOLDERS' COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EQUITY INCOME DEFICIT EQUITY
------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 13,657 $ 14 $115,774 $ (357) $ - $(52,744) $ 62,687
Comprehensive loss
Net loss - - - - - (33,505) (33,505)
Unrealized loss on
marketable securities - - - - (292) - (292)
Total comprehensive
loss - - - - - - (33,797)
Issuance of common stock
under stock option and
purchase plan 361 - 2,720 - - - 2,720
Issuance of note
receivable - - - (55) - (55)
Deferred compensation in
connection with issuance of
stock options - - 4,143 (4,143) - - -
Amortization of deferred
compensation in connection
with issuance of stock
options - - - 2,498 - - 2,498
-----------------------------------------------------------------------------------------
Balance at December 31, 1999 14,018 $ 14 $122,637 $ (2,057) $ (292) $(86,249) $ 34,053
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
8
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (33,505)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,372
Amortization of deferred compensation 2,498
Provision for doubtful accounts 628
Changes in operating assets and liabilities:
Accounts receivable (4,903)
Other assets (647)
Accounts payable and accrued liabilities 226
------------------
Net cash used in continuing operating activities (33,331)
Net cash provided by discontinued operations 419
------------------
Net cash used in operations (32,912)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,471)
Purchase of short-term marketable securities (15,945)
Proceeds on sales of short-term marketable securities 19,473
Purchase of long-term marketable securities (4,066)
Proceeds on sales of long-term marketable securities 16,162
------------------
Net cash provided by investing activities 12,153
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on obligations under capital leases (1,290)
Proceeds from issuance of common stock, net 2,665
------------------
Net cash provided by financing activities 1,375
------------------
Net decrease in cash (19,384)
Cash and cash equivalents, beginning of period 20,363
------------------
Cash and cash equivalents, end of period $ 979
==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
9
<PAGE>
PREVIEW TRAVEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY:
Preview Travel, Inc. ("Preview Travel" or the "Company") is a leading
provider of branded online travel services for leisure and small business
travelers. The Company operates its own Web sites (www.previewtravel.com,
www.reservations.com and www.vacations.com), the primary travel service on
America Online, Inc. ("AOL") and a co-branded travel Web site with Excite, Inc.
("Excite") and with Lycos, Inc. ("Lycos"). In addition to its reservation and
ticketing service, the Company offers vacation packages, discounted and
promotional fares, travel news and destination content, including content
licensed from Fodor's Travel Publications, Inc. ("Fodor's").
On December 31, 1998, the Company completed a transaction pursuant to which
substantially all of the assets of the Company's television business, as
operated by the Company's wholly owned subsidiary, News Travel Network, Inc.
("NTN"), were transferred to NewsNet Central, Inc. ("NNC"). The Company
currently holds a minority equity interest in NNC. Prior to this transaction,
through its television business, Preview Travel produced entertainment
programming for broadcast and cable television and the in-flight market. The
television business also produced 90-second news inserts for local television
station newscasts.
In October 1999, the Company signed an agreement to merge with and into
Travelocity.com, Inc., subject to certain conditions and regulatory approval.
The merger was completed effective March 7, 2000. See Note 2.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Preview Travel Online, Inc. and NTN. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
REVENUE RECOGNITION:
TRANSACTION REVENUES:
Transaction revenues consist of commissions from travel suppliers for air
travel, hotel rooms, car rentals, vacation packages and cruises, net of
allowances for cancellations, and are recognized upon confirmation of the
reservation. In addition, transaction revenues include segment fees received
from global distribution services ("GDS") suppliers. Certain travel suppliers
also pay performance-based compensation, known as overrides which are recognized
on an accrual basis once the amount has been confirmed with the travel supplier,
which generally reflects the performance for a prior quarterly period.
ADVERTISING REVENUES:
Advertising revenues are derived primarily from the delivery of advertising
impressions on the Company's Web sites. Advertising revenues are recognized in
the period the advertising impressions are delivered. Advertising revenues also
includes marketing revenue, which is earned over the term of the contract.
10
<PAGE>
TECHNOLOGY OPERATIONS AND DEVELOPMENT:
Technology operations and development costs are expensed as incurred.
CASH EQUIVALENTS AND MARKETABLE SECURITIES:
The Company invests certain of its excess cash in debt instruments of the
U.S. Government and its agencies and high quality corporate and foreign
government issuers as well as money market funds and certificate of deposits.
All highly liquid instruments with an original maturity of 90 days or less
are considered cash equivalents; those with original maturities greater than
90 days and current maturities less than twelve months from the balance sheet
date are considered short-term marketable securities. Marketable securities
with maturity of twelve months or more from the balance sheet date are
considered marketable securities - noncurrent.
The Company has classified debt securities as available-for-sale.
Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of
which are included in interest income. Realized gains and losses are recorded
using the specific identification method and are recorded in interest income
(expense), net and are not material for the year ended December 31, 1999.
Available-for-sale securities were recorded at fair market value as of
December 31, 1999. The Company recorded an unrealized loss of $292,000 as of
December 31, 1999.
The following is a summary of available-for-sale securities at December
31, 1999 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED MARKET
COST LOSS VALUE
---------- --------------- ------------
<S> <C> <C> <C>
Corporate debt securities $ 13,559 $ (92) $ 13,467
U.S. government obligations 10,972 (198) 10,774
Foreign government obligations 1,007 (2) 1,005
Money market funds 487 - 487
---------- --------------- ------------
$ 26,025 $ (292) $ 25,733
========== =============== ============
Amounts included in cash and cash equivalents 487
Amounts included in marketable securities 12,939
Amounts included in marketable securities - noncurrent $ 12,307
------------
$ 25,733
============
</TABLE>
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
typically five years. Assets held under capital leases are amortized using
the straight-line method over the term of the lease or estimated useful
lives, whichever is shorter. Amortization of leasehold improvements is
computed using the shorter of the term of the Company's facility leases or
the estimated useful lives of the improvements.
ADVERTISING EXPENSE:
The cost of advertising is expensed as incurred. Such costs are included
in marketing and sales and totaled approximately $16,275,000 for the year
ended December 31, 1999.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have
11
<PAGE>
been included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the temporary
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
BUSINESS RISK AND CREDIT CONCENTRATION:
The Company operates in the online travel services industry, which is
new, rapidly evolving and intensely competitive. The Company competes
primarily with traditional travel agencies and online travel reservation
services. In the online travel services market, the Company competes with
other entities that maintain similar commercial Web sites. There can be no
assurance that the Company will achieve sufficient online traffic, travel
bookings or commissions to realize economies of scale that justify its
significant commitments to third parties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents, marketable
securities and accounts receivable. Cash equivalents and marketable
securities are maintained with two major financial institutions.
The Company's advertising customers are located across the United States
and are primarily in travel, internet and consumer businesses. The Company
does not perform formal credit evaluations of customers and does not require
collateral. Allowances are maintained for potential credit losses, and such
losses have been within management's expectations.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the carrying value of the
borrowings under the capital lease obligations approximate their fair value.
RECENT ACCOUNTING PRONOUNCEMENTS:
The Company implemented new accounting standards in fiscal 1999. The
adoption of these standards did not have a material effect on our financial
position or results of operations.
In 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1"), "
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on accounting for certain costs in
connection with obtaining or developing computer software for internal use
and requires that entities capitalize such costs once certain criteria are
met. The adoption of SOP 98-1 did not have an impact on our consolidated
financial position, results of operations or cash flows.
In June of 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not yet evaluated the effects
of this change on its operations.
In July 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS 133". SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under certain
circumstances. We are currently evaluating the impact of SAB 101 on our
financial statements and related disclosures. The accounting and disclosures
prescribed by SAB 101 will be effective for our fiscal year ended December
31, 2000.
2. MERGER:
On October 3, 1999, Preview Travel entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Sabre Inc. ("Sabre") whereby Preview
Travel would be merged with Sabre's wholly owned subsidiary, Travelocity.com
Inc. ("Travelocity"). At
12
<PAGE>
the effective date of the merger, Sabre and Preview Travel will own
approximately 70% and 30%, respectively, of the equity of the combined
businesses of Travelocity and Preview Travel. The stockholders approved the
merger on March 7, 2000 and the merger became effective. Merger expenses,
primarily consisting of legal fees, were $1.0 million for the year ended
December 31, 1999. In conjunction with the merger, and effective upon the
close of the merger, the Company incurred a one-time expense of approximately
$6.3 million. The fee, which was expensed in fiscal 2000, was related to a
fairness opinion and advisory services provided by the Company's investment
advisors.
3. BALANCE SHEET DETAIL:
Other current assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Prepaid online distribution expense $ 1,348
Other 2,146
--------------------
$ 3,494
====================
Property and equipment are summarized as follows (in thousands):
<CAPTION>
DECEMBER 31,
1999
----
Computer equipment $ 6,107
Furniture and fixtures 1,633
Leasehold improvements 1,643
--------------------
9,383
Less accumulated depreciation and amortization (4,080)
--------------------
Property and equipment, net $ 5,303
====================
Equipment under capital leases included in property and equipment amounted
to $1,571,000 (net of $2,196,000 accumulated depreciation) at December 31, 1999
and was primarily composed of computer equipment.
Accrued liabilities are comprised of the following (in thousands):
<CAPTION>
DECEMBER 31,
1999
----
Accrued trade payables $ 2,578
Accrued employee compensation 1,912
Deferred revenue 687
Accrued rent expense 206
Other 117
--------------------
$ 5,500
====================
</TABLE>
4. INCOME TAXES:
For the year ended December 31, 1999, the provision for income taxes is
comprised of minimum state tax expense. No provision for federal or state
income taxes has been recorded for the year ending December 31, 1999 as the
Company incurred net operating losses.
13
<PAGE>
Deferred tax asset as of December 31, 1999 is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Net Operating Loss carryforwards $ 33,755
Other 848
Deferred Rent 82
Property and Equipment 492
--------------------
35,177
Less Valuation Allowance (35,177)
--------------------
$ -
====================
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, the Company has placed a full valuation
allowance against its net deferred tax assets. The valuation allowance has
increased by $12,143,000 during 1999. Deferred tax assets and the related
valuation allowance include approximately $2,619,000 related to certain U.S.
operating loss carryforwards resulting from the exercise of employee stock
options, the tax benefit if which, when recognized, will be accounted for as
a credit to additional paid-in capital rather than a reduction of the income
tax provision.
The difference between the statutory rate of approximately 34% and the
tax benefit of zero recorded by the Company is primarily due to the Company's
full valuation allowance against its net deferred tax assets.
At December 31, 1999, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$91,624,000 and $44,613,000, respectively. These carryforwards expire from
2000 to 2019. Due to changes in the Company's ownership in 1996 and 1997,
future utilization of a portion of these net operating loss carryforwards will
be subject to certain limitations of annual utilization as defined by the Tax
Reform Act of 1986.
5. COMMITMENTS:
The Company leases its office space under non-cancelable operating lease
arrangements. The Company pays certain operating expenses and property taxes
related to the leased office space. In addition, the Company leases office
space that formerly housed the Company's television operations. The Company
has a sublease agreement with NNC for the former television operations space.
All leases and subleases expire from 2001 to 2003, with certain leases
containing an option for early termination in 2001. The Company also leases
certain office equipment and computers under capital leases expiring through
2003.
Future minimum annual lease payments for both operating and capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000 $ 1,667 $ 1,142
2001 991 664
2002 287 228
2003 287 9
------------------- -------------------
Total minimum lease payments $ 3,232 $ 2,043
=================== ===================
Less amounts representing interest 184
-------------------
Present value of minimum lease payments 1,859
Less current portion 1,012
-------------------
Noncurrent portion of capital lease obligations $ 847
===================
</TABLE>
14
<PAGE>
Total rent expense for office space was $854,000 for the year ended
December 31, 1999.
The Company has entered into distribution and licensing agreements with
AOL, a related party, Excite, Lycos and others under which these companies
are obligated to deliver minimum numbers of annual page views to the Company
through online areas featuring the Company's travel services. The Company is
also obligated to pay a percentage of commissions earned by the Company in
excess of certain thresholds and, to retain the right to be the primary
provider of travel services on AOL, must achieve specified levels of annual
travel service bookings.
In connection with these agreements, the Company is obligated to make
aggregate minimum payments to AOL, Excite (adjusted for amended amount, see
Note 12), Lycos and others as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 11,404
2001 10,529
2002 6,831
-------------------
Total minimum payments $ 28,764
===================
</TABLE>
6. STOCKHOLDERS' EQUITY:
STOCKHOLDER RIGHTS PLAN
In October 1998, the Board of Directors adopted a stockholders' rights
plan under which rights were distributed to stockholders of record on
November 12, 1998. The rights are not exercisable until ten days after a
person or group announces the acquisition of 20 percent or more of the
Company's outstanding Common Stock or the commencement of a tender offer
which would result in ownership by the person or group of 20 percent or more
of the outstanding Common Stock. Each right entitles stockholders to buy one
one-thousandth of a share of the Company's Series A Participating Preferred
Stock at an exercise price of $100. The Company will be entitled to redeem
the rights at $0.01 per right at any time on or before the tenth day
following acquisition by a person or group of 20 percent or more of the
Company's Common Stock. If a person or group acquires 20 percent or more of
The Company's Common Stock prior to redemption of the rights, the rights will
entitle stockholders other than the potential acquiror to purchase, at the
then current exercise price, that number of shares of the Company's Common
Stock (or, in certain circumstances as determined by the Board of Directors,
cash, other property or other securities) having a market value at that time
of twice the exercise price. If, after the tenth day following acquisition by
a person or group of 20 percent or more of the Company's Common Stock, the
Company sells more than 50 percent of its assets or earning power or is
acquired in a merger or other business combination transaction, the acquiror
must assume the obligations under the rights, and the rights will become
exercisable to acquire common stock of the acquiror at the discounted price.
Under certain circumstances, the Company's Board of Directors may also
exchange the rights (other than those owned by the acquiror or its
affiliates) for its Common Stock at an exchange ratio of one share of Common
Stock per right.
In October 1999, in accordance with the Merger Agreement the Company's
Board of Directors authorized an amendment to the stockholders' rights plan
in order to render the rights issued thereunder inapplicable to the Merger
Agreement.
PREFERRED STOCK:
In November 1997 the shareholders of the Company approved an amendment to
the Company's certificate of incorporation, authorizing 5,000,000 shares of
preferred stock of which the Board of Directors has the authority to issue
and to determine the rights, preferences and privileges. In October 1998, in
connection with the stockholders rights plan the Company designated 100,000
shares of preferred stock as Series A Participating Preferred Stock with
$0.001 par value per share.
OTHER STOCKHOLDERS' EQUITY
Other stockholders' equity comprise the following (in thousands):
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Deferred compensation $ (2,002)
Stockholder note receivable (55)
-------------------
$ (2,057)
===================
</TABLE>
The stockholder note receivable represents the amount due from a
stockholder in exchange for the issuance of common stock. The stockholder
note receivable and all accrued interest is due February 2003.
7. STOCK OPTION PLAN:
1988 STOCK OPTION PLAN:
In 1988, the stockholders of the Company approved the 1988 Stock Option
Plan (the "1988 Plan"), which, as amended, authorized 1,681,750 shares of the
Company's common stock as available for the granting of options. Under the
1988 Plan, the Board of Directors may grant options for common stock to
employees, directors and consultants either as incentive stock options or
nonstatutory options. Options granted as incentive stock options are at an
exercise price not lower than the fair market value of the stock at the date
the options are granted. Nonstatutory options are issued at between 85% and
100% of fair market value. Options granted under the 1988 Plan generally vest
25% on the first anniversary of the grant date and the remainder vest monthly
over the next three years. Generally, the terms of this plan provide that
options expire up to a maximum of five years from the date of grant.
1997 STOCK OPTION PLAN:
In November 1997, the stockholders of the Company approved the 1997 Stock
Option Plan (the "1997 Plan"), which authorized an additional 1,500,000
shares of the Company's common stock as available for the granting of options
with terms and conditions substantially similar to those of the 1988 Plan,
except that under this plan the options expire up to ten years from the date
of grant.
In May 1999, the Company's stockholders approved an amendment to the 1997
Plan that authorized the increase of the number of shares of common stock
reserved for issuance of stock options by 1,300,000 shares.
1997 DIRECTORS' STOCK OPTION PLAN:
In November 1997, the stockholders of the Company approved the 1997
Directors' Stock Option Plan (the "1997 Directors' Plan"), which authorized
an additional 250,000 shares of the Company's common stock as available for
the granting of options. Options granted under the 1997 Directors' Plan are
nonstatutory options and will be issued at 100% of fair market value at the
time of grant. Options granted become exercisable over four years and expire
up to ten years from the date of grant. The 1997 Directors' Plan calls for an
initial grant of shares for each new non-employee member of the Board of
Directors in addition to an automatic annual grant thereafter.
In April 1999, the Company's stockholders approved an amendment to the
1997 Directors' Plan that provided for the automatic grant of a stock option
to purchase 5,000 shares of common stock to each nonemployee director for
each committee of the Board of Directors on which such director serves.
OTHER STOCK OPTION AMENDMENTS:
In July 1999, the Board of Directors adopted a resolution that amended
the 1988 Plan, the 1997 Plan and the 1997 Directors' Plan. Under the
resolution, 50% of the unvested outstanding options granted under the
aforementioned plans will automatically vest upon a change of control
transaction. The Company's proposed merger with Travelocity qualifies as a
change in control transaction and will result in accelerated vesting at the
effective date of the merger. The stockholders of the Company approved the
merger on March 7, 2000. As a result, the merger became effective and 50% of
the unvested outstanding shares of the Company were automatically vested. See
Note 2.
At December 31, 1999, 3,475,000 shares of common stock were reserved for the
exercise of stock options. The following table summarizes activity under the
Company's stock option plans for the year ended December 31, 1999:
16
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------
WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
----------- ----------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1999 1,011 1,616 $ 10.43
Additional shares authorized for issuance 1,300 - $ -
Options granted (2,260) 2,260 $ 19.94
Options exercised - (244) $ 6.78
Options canceled 576 (576) $ 11.62
Options expired (208) - $ -
----------- -----------
Balance at December 31, 1999 419 3,056 $ 17.52
----------- -----------
Options exercisable at December 31, 1999 792 $ 11.16
</TABLE>
The following table summarizes information with respect to stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (THOUSANDS) LIFE (YEARS) PRICE (THOUSANDS) PRICE
- ----------------------- ---------------- ---------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.20 - 9.94 622 3.69 $ 4.65 486 $ 3.93
$ 9.95 - 15.69 579 9.32 $ 15.20 52 $ 13.72
$ 15.70 - 20.40 492 9.34 $ 19.29 56 $ 19.62
$ 20.41 - 22.94 478 9.25 $ 21.49 - $ 21.75
$ 22.95 - 26.88 747 9.41 $ 23.41 142 $ 23.61
$ 26.89 - 58.00 138 8.70 $ 33.39 56 $ 31.49
----------------- -------------
3,056 8.16 $ 17.52 792 $ 11.16
================= =============
</TABLE>
1997 EMPLOYEE STOCK PURCHASE PLAN:
In November 1997, the stockholders of the Company approved the 1997
Employee Stock Purchase Plan (the "ESPP") and reserved 500,000 shares of
common stock for sale to employees at a price no less than 85% of the lower
of the fair market value of the common stock at the beginning of the two-year
offering period or the end of each of the six-month purchase periods. As of
December 31, 1999, 158,539 shares had been issued under the plan and 341,461
shares were reserved for future issuance.
The following information concerning the Company's stock option plans is
provided in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company accounts for such plans in accordance with APB No.
25, "Accounting for Stock Issued to Employees."
The fair value of each option grant has been estimated on the date of
grant using the minimum value method for all years ended prior to the initial
public offering, and subsequently through the use of option pricing models,
even though such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models
also require subjective assumptions, including future stock volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
in 1999, with the following weighted average assumptions used for grants in
1999:
17
<PAGE>
<TABLE>
<CAPTION>
STOCK OPTION EMPLOYEE STOCK
PLAN PURCHASE PLAN
---- -------------
1999 1999
---- ----
<S> <C> <C>
Risk-free interest rate 4.70% 4.81%
Expected volatility 110% 110%
Expected life 5 years 6 months
Dividend rate - -
</TABLE>
The weighted average fair value per option granted in 1999 was $16.05.
The following pro forma net loss and net loss per share information has
been prepared as if the Company had followed the provisions of SFAS No. 123
(in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
----
<S> <C>
Net loss:
As reported $ (33,505)
Pro forma $ (40,893)
Basic and diluted net loss per share:
As reported $ (2.42)
Pro forma $ (2.95)
</TABLE>
These pro forma amounts may not be representative of the effects on
reported net income (loss) for future years as options vest over several
years and additional awards are generally made each year.
In connection with the completion in November 1997 of the Company's
initial public offering, certain options granted in 1997 have been considered
to be compensatory. Compensation associated with such options as of December
31, 1997 amounted to $570,000. Of that amount, $143,000 has been charged to
operations for the year ended December 31, 1999. The remaining $214,000 will
be charged to operations through 2001.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the year ended December 31, 1999, the Company made cash payments
for interest of approximately $271,000, and state franchise taxes of $112,000.
The following noncash investing and financing transactions occurred
during the year ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----
<S> <C>
Property and equipment obtained through capital leases $ 80
======================
Conversion of debt to capital lease $ 200
======================
Common stock issued for note receivable $ 55
======================
Unrealized loss on marketable securities $ 292
======================
</TABLE>
9. RELATED PARTY TRANSACTION:
In December 1998, the Company's Board of Directors adopted a plan to sell
the Company's television business, as operated by the Company's wholly-owned
subsidiary, NTN. See Note 1.
18
<PAGE>
In consideration of the transfer of the assets of NTN to NNC, the Company
received from NNC the following: (a) a convertible promissory note in the
principal amount of $250,000 (the "Note"), (b) a subordinated promissory note
in the principal amount of $1,000,000 (the "Subordinated Note"), which will
bear interest at the rate of 6% per annum and will be secured by certain
portions of the assets of NNC, including its fixed assets and the video
library, and (c) a warrant to purchase up to 2,275,445 shares of Common Stock
of NNC at an exercise price of $0.45 per share (the "Warrant"). In March
1999, the Note was automatically converted into shares of Series A Preferred
Stock of NNC at a conversion price of $4.50 per share.
As of December 31, 1999, James Hornthal, the Company's Chairman, holds
800,000 shares and the Company holds 829,000 shares of Common Stock of NNC,
which each purchased on November 15, 1998 at a price of $0.015 per share. In
addition, the Company owns 55,555 shares of the preferred stock of NNC. As of
December 31, 1999, the Company owns approximately 16.1% of NNC's voting stock.
In addition, during 1998 the Company and NNC entered into a Services
Agreement that provides for, among other things, the following: (a) the
sublease to NNC of the Company's facilities at One Beach Street in San
Francisco, (b) the Company's right to act as the co-exclusive advertising
sales representative for NTN's Travel Update programs, (c) a perpetual,
non-exclusive, royalty-free license to use NTN's travel video library
(including any enhancements thereto), and (d) the continued branding of NTN's
"Travel News" and "Travel Update" programs with "Preview Travel" marks. NNC
has also agreed not to provide online travel services for a period of five
years following the termination of the Services Agreement.
As the historical operations of the Company's television business were
not profitable, and due to significant risks inherent in the independent
television business, the Company has attributed no value to the Subordinated
Note and the Warrant. The net value of the Company's investment in NNC is
recorded at $250,000.
During the year ended December 31, 1999 the Company recorded marketing
expenses of $6,400,000 pursuant to an agreement with AOL, a stockholder of
the Company. The Company has a separate agreement with AOL under which
advertising revenue is shared based upon the terms of the agreement. In
relation to this agreement, the Company recorded advertising revenue of
approximately $1.6 million for the year ended December 31, 1999. The
remaining receivable related to advertising revenue was approximately
$711,000 as of December 31, 1999.
10. EARNINGS PER SHARE (EPS) DISCLOSURES:
In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," a reconciliation of the numerator
and denominator of basic and diluted EPS is provided as follows (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
----
<S> <C>
Numerator - Basic and diluted EPS
Net loss $ (33,505)
===================
Denominator - Basic and diluted EPS
Weighted average common stock outstanding 13,850
===================
Basic and diluted earnings per share $ (2.42)
===================
</TABLE>
Stock options outstanding as of December 31, 1999 of 3,056,000 at
weighted average prices of $17.52, have not been included in the diluted EPS
calculations as they are antidilutive.
11. SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS
The Company has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise", SFAS No. 131 changes
current practice under SFAS No. 14 by establishing a new framework on which
to base segment reporting and introduces requirements for interim reporting of
segment information. The Company has organized its operations into a single
operating segment, providing branded online travel service and local content.
Further, the Company derives the significant majority of its revenues from
operations in the United States.
For the year ended December 31, 1999 no customer accounted for more than 10%
of the Company's revenues.
19
<PAGE>
12. COMPREHENSIVE INCOME
The Company has adopted Statement of Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components in the financial statements.
Unrealized loss on marketable securities for 1999 represent the Company's
only component of comprehensive income, which is excluded from net income.
20
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
present the effects of the merger completed March 7, 2000 with Preview
Travel, Inc. ("Preview Travel"), the contribution agreements and other
agreements entered into at the effective time of the merger by
Travelocity.com LP ("the Partnership") and Sabre Inc. ("Sabre"). These
agreements are an access agreement, a technology services agreement, an
intellectual property agreement, a facilities agreement and an administrative
services agreement. A full description of these transactions and agreements
is contained in our proxy/prospectus dated February 4, 2000.
The unaudited pro forma condensed combined balance sheet presents the
combined financial position of Travelocity.com Inc. (the "Company"),
including the Travelocity business unit of Sabre, and Preview Travel as of
December 31, 1999 assuming the merger had occurred and the contribution
agreements and the intercompany agreements had been entered into as of
December 31, 1999. This pro forma information is based upon the historical
balance sheet data of the Company and the historical balance sheet data of
Preview Travel as of December 31, 1999.
The unaudited pro forma condensed combined statements of operations give
effect to the merger of the Company and Preview Travel and the contribution
agreements and the intercompany agreements as if such transactions had been
entered into on January 1, 1998. This pro forma information is based upon the
historical results of operations of the Travelocity business unit of Sabre
(the "Travelocity Division"), and the historical results of operations of
Preview Travel for the years ended December 31, 1999 and 1998.
Sabre has a majority equity interest in the Partnership and the general
presumption would be for Sabre to consolidate the Partnership into its
financial statements. Although it does not have a majority equity interest in
the Partnership, the Company controls the Partnership through the
Partnership's board of directors since it has the right to appoint a majority
of the directors. Accordingly, the general presumption is overcome and the
Company will consolidate the Partnership into its financial statements.
Furthermore, although Travelocity Holdings, Inc. ("Travelocity Holdings"), a
Sabre subsidiary, will manage the day to day operations of the Partnership
pursuant to the management services agreement, it is subject to the direction
and oversight of the Partnership's board of directors. As such, the
Partnership's board of directors has the unilateral ability to control the
management of the Partnership, thereby enabling the Company to consolidate
the Partnership in its separate financial statements.
The Company's consolidated financial statements will include the
financial statements of the Company and the Partnership, with Sabre's 62%
interest in the Partnership's results of operations presented as a single
line item, "Sabre's interest in partnership," in the Company's statement of
operations. The Company's consolidated results of operations and financial
position will consist of the total of 38% of the Partnership's results and
100% of the Company's results.
The columns in the pro forma condensed combined financial statements
present the following:
- TRAVELOCITY.COM INC. -- Represents the combined historical financial
position and results of operations of the Travelocity Division and
Travelocity.com Inc.
- PRO FORMA ADJUSTMENTS FOR THE AGREEMENTS -- Represents adjustments for
the impacts of the intercompany agreements and the contribution
agreements that Sabre and the Partnership will enter into.
- PRO FORMA TRAVELOCITY.COM INC. AS ADJUSTED FOR THE AGREEMENTS --
Represents the historical financial position and results of operations
adjusted for the pro forma impacts of the intercompany agreements and
the contribution agreements.
- PREVIEW TRAVEL HISTORICAL -- Represents the historical financial
position and results of operations of Preview Travel.
- PRO FORMA ADJUSTMENTS FOR THE MERGER -- Represents adjustments to
reflect the impacts of the merger and Sabre's interest in the
Partnership.
21
<PAGE>
- TRAVELOCITY.COM INC. COMBINED PRO FORMA -- Represents the financial
position and results of operations of the Company consolidated with the
Partnership reflecting the pro forma impacts of the merger and Sabre's
interest in the Partnership.
The unaudited pro forma condensed combined financial statements are based
on the estimates and assumptions set forth in the notes to the unaudited pro
forma condensed combined financial statements. These estimates and
assumptions are preliminary and have been made solely for purposes of
developing this pro forma information. The unaudited pro forma condensed
combined financial statements are not indicative of what the Company's actual
financial position or results of operations would have been had the merger
and the contribution agreements and intercompany agreements been entered into
on the dates described above, nor is it indicative of the future financial
position or results of operations of the Company.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and related
notes of the Company and "Management Discussion and Analysis" included in the
Company's 1999 Form 10-K and Preview Travel's 1999 consolidated financial
statements and related notes contained herein.
22
<PAGE>
TRAVELOCITY.COM INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
TRAVELOCITY.COM
PRO FORMA INC.
TRAVELOCITY.COM ADJUSTMENTS AS ADJUSTED
INC. FOR THE FOR THE
HISTORICAL AGREEMENTS AGREEMENTS
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............................. $ -- $ 52,680(1) $ 52,680
Marketable securities .................................. -- -- --
Accounts receivable, net ............................... 3,259 -- 3,259
Other assets ........................................... 195 -- 195
--------- --------- ---------
Total current assets ................................. 3,454 52,680 56,134
Total property and equipment, net ........................ 1,945 8,760(1) 10,705
Intercompany investment .................................. -- -- --
Intangible assets and goodwill ........................... 4,190 -- 4,190
Marketable securities-- noncurrent ....................... -- -- --
Other assets ............................................. 50 -- 50
--------- --------- ---------
Total assets ..................................... $ 9,639 $ 61,440 $ 71,079
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................... $ 7,114 $ -- $ 7,114
Other accrued liabilities .............................. 1,631 715(1) 2,346
Payable to affiliates .................................. 28 -- 28
--------- --------- ---------
Total current liabilities ............................ 8,773 715 9,488
Payable to affiliates .................................... 68,884 (68,884)(1) --
Other liabilities ........................................ 544 153 697
Sabre's interest in partnership .......................... -- -- --
Commitments and contingencies ............................
Stockholders' equity
Preferred stock: $.001 par value ....................... -- -- --
Common stock: $.001 par value .......................... -- -- --
Class A common stock: $.001 par value .................. 3 -- 3
Class B common stock: $.001 par value .................. -- -- --
Additional paid-in capital ............................. -- 137,294(1) 137,294
Other stockholders' equity ............................. -- -- --
Division equity (deficit) .............................. (76,403) 76,403 --
Contributions from affiliates .......................... 7,841 (7,841)(1) --
Accumulated equity (deficit) ........................... -- (76,403)(1) (76,403)
Stock subscription receivable from affiliate ........... (3) 3 (1) --
--------- --------- ---------
Total stockholders' equity ....................... (68,562) 129,456 60,894
--------- --------- ---------
Total liabilities and stockholders' equity ....... $ 9,639 $ 61,440 $ 71,079
========= ========= =========
<CAPTION>
PRO FORMA PRO FORMA
PREVIEW ADJUSTMENTS TRAVELOCITY.COM
TRAVEL FOR THE INC.
HISTORICAL MERGER COMBINED
---------- ------ --------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents .............................. $ 979 $50,000(2) $ 103,659
Marketable securities .................................. 12,939 -- 12,939
Accounts receivable, net ............................... 6,698 -- 9,957
Other assets ........................................... 3,494 -- 3,689
--------- ---------- ---------
Total current assets ................................. 24,110 50,000 130,244
Total property and equipment, net ........................ 5,303 -- 16,008
Intercompany investment .................................. -- 286,239 (3) --
(286,239)(4)
Intangible assets and goodwill ........................... -- 252,186 (4) 256,376
Marketable securities-- noncurrent ....................... 12,307 -- 12,307
Other assets ............................................. 830 -- 880
--------- ---------- ---------
Total assets ..................................... $ 42,550 $ 302,186 $ 415,815
--------- ---------- ---------
--------- ---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................... $ 849 $ 600 (3) $ 8,563
Other accrued liabilities .............................. 6,663 -- 9,009
Payable to affiliates .................................. -- -- 28
--------- ---------- ---------
Total current liabilities ............................ 7,512 600 17,600
Payable to affiliates .................................... -- -- --
Other liabilities ........................................ 985 -- 1,682
Sabre's interest in partnership .......................... -- 61,795 61,795
Commitments and contingencies ............................
Stockholders' equity
Preferred stock: $.001 par value ....................... -- 33 (5) 33
Common stock: $.001 par value .......................... 14 (14)(4) --
Class A common stock: $.001 par value .................. -- 1 (2) 15
14 (3)
(3)(5)
Class B common stock: $.001 par value .................. -- -- --
Additional paid-in capital ............................. 122,637 49,999 (2) 411,093
285,625 (3)
(122,637)(4)
(30)(5)
(61,795)(6)
Other stockholders' equity ............................. (2,349) 2,349 (4) --
Division equity (deficit) .............................. -- -- --
Contributions from affiliates .......................... -- -- --
Accumulated equity (deficit) ........................... (86,249) 86,249 (4) (76,403)
Stock subscription receivable from affiliate ........... -- -- --
--------- ---------- ---------
Total stockholders' equity ....................... 34,053 239,791 334,738
--------- ---------- ---------
Total liabilities and stockholders' equity ....... $ 42,550 $ 302,186 $ 415,815
========= ========== =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
23
<PAGE>
TRAVELOCITY.COM INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
TRAVELOCITY.COM
PRO FORMA INC. PRO FORMA PRO FORMA
TRAVELOCITY.COM ADJUSTMENTS AS ADJUSTED PREVIEW ADJUSTMENTS TRAVELOCITY.COM
INC. FOR THE FOR THE TRAVEL FOR THE INC.
HISTORICAL AGREEMENTS AGREEMENTS HISTORICAL MERGER COMBINED
------------ ------------ ------------- ------------ -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Transaction revenue ............. $ 54,567 $ (8,365)(7) $ 46,202 $ 20,025 $ 4,053(13) $ 70,280
Advertising ..................... 8,591 -- 8,591 11,041 -- 19,632
Licensing and royalty fees ...... 1,029 -- 1,029 -- -- 1,029
--------- --------- --------- --------- --------- ---------
Total revenues ................ 64,187 (8,365) 55,822 31,066 4,053 90,941
Cost of revenues ................ 40,255 (13,194)(8) 27,300 10,936 2,494(14) 40,730
239 (9)
--------- --------- --------- --------- --------- ---------
Gross profit (loss) ............... 23,932 4,590 28,522 20,130 1,559 50,211
Operating expenses
Selling and marketing ........... 29,532 (15)(10) 29,517 38,670 -- 68,187
Technology and
development ................... 9,624 (2,681)(11) 6,933 5,182 -- 12,115
(10)(10)
General and
administrative ................ 5,407 (13)(10) 5,700 8,482 -- 14,182
306 (12)
Stock based
compensation .................. -- -- -- 2,498 1,346(15) 3,844
Merger expense .................. -- -- -- 1,009 -- 1,009
Amortization of
intangibles ................... -- -- -- -- 84,062(16) 84,062
--------- --------- --------- --------- --------- ---------
Total operating expenses ...... 44,563 (2,413) 42,150 55,841 85,408 183,399
--------- --------- --------- --------- --------- ---------
Operating income (loss) ........... (20,631) 7,003 (13,628) (35,711) (83,849) (133,188)
Other, net ...................... -- -- -- 2,267 -- 2,267
--------- --------- --------- --------- --------- ---------
Loss before Sabre interest
and income taxes ................ (20,631) 7,003 (13,628) (33,444) (83,849) (130,921)
Sabre interest in partnership ..... -- -- -- -- 81,208(17) 81,208
--------- --------- --------- --------- --------- ---------
Loss before income taxes........... (20,631) 7,003 (13,628) (33,444) (2,641) (49,713)
Provision for income taxes ........ -- -- -- (61) -- (61)
--------- --------- --------- --------- --------- ---------
Net loss ................. $ (20,631) $ 7,003 $ (13,628) $ (33,505) $ (2,641) $ (49,774)
========= ========= ========= ========= ========= =========
Net loss per share-basic and
diluted(18) ..................... $ (2.42) $ (3.59)
========= =========
Weighted average shares
used in basic and diluted
per share calculations(18) ...... 13,850 13,850
========= =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
24
<PAGE>
TRAVELOCITY.COM INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
TRAVELOCITY.COM
PRO FORMA INC. PRO FORMA PRO FORMA
TRAVELOCITY.COM ADJUSTMENTS AS ADJUSTED PREVIEW ADJUSTMENTS TRAVELOCITY.COM
INC. FOR THE FOR THE TRAVEL FOR THE INC.
HISTORICAL AGREEMENTS AGREEMENTS HISTORICAL MERGER COMBINED
------------ ------------ ------------- ------------ -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Transaction revenue ............. $ 18,370 $ (2,714)(7) $ 15,656 $ 10,667 $ 3,003(13) $ 29,326
Advertising ..................... 2,821 -- 2,821 3,341 -- 6,162
Licensing and royalty fees ...... 47 -- 47 -- -- 47
--------- --------- --------- --------- --------- ---------
Total revenues ................ 21,238 (2,714) 18,524 14,008 3,003 35,535
Cost of revenues ................ 19,067 (1,706)(8) 17,540 6,093 1,267(14) 24,900
179(9)
--------- --------- --------- --------- --------- ---------
Gross profit (loss) ............... 2,171 (1,187) 984 7,915 1,736 10,635
Operating expenses
Selling and marketing ........... 10,608 35(10) 10,643 22,714 -- 33,357
Technology and
development .................... 8,483 (2,053)(11) 6,470 3,706 -- 10,176
40(10)
General and administrative ...... 4,360 28(10) 4,662 6,015 -- 10,677
274(12)
Stock based compensation ........ -- -- -- 143 1,346(15) 1,489
Amortization of intangibles ..... -- -- -- -- 84,062(16) 84,062
--------- --------- --------- --------- --------- ---------
Total operating expenses ...... 23,451 (1,676) 21,775 32,578 85,408 139,761
--------- --------- --------- --------- --------- ---------
Operating income (loss) from
continuing operations ........... (21,280) 489 (20,791) (24,663) (83,672) (129,126)
Other, net ...................... -- -- -- 2,636 -- 2,636
--------- --------- --------- --------- --------- ---------
Loss from continuing
operations before Sabre
interest and income taxes ....... (21,280) 489 (20,791) (22,027) (83,672) (126,490)
Sabre interest in partnership ..... -- -- -- -- 78,455(17) 78,455
--------- --------- --------- --------- --------- ---------
Loss from continuing
operations before taxes.......... (21,280) 489 (20,791) (22,027) (5,217) (48,035)
Provision for income taxes ........ -- -- -- (51) -- (51)
--------- --------- --------- --------- --------- ---------
Loss from continuing
operations ...................... $ (21,280) $ 489 $ (20,791) $ (22,078) $ (5,217) $ (48,086)
========= ========= ========= ========= ========= =========
Loss from continuing
operations per
share-basic
and diluted(18) ................. $ (1.73) $ (3.76)
========= =========
Weighted average shares
used in basic and diluted
per share calculations(18) ..... 12,796 12,796
========= =========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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TRAVELOCITY.COM INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTE A. GENERAL
THE TRANSACTION
On March 7, 2000, the merger with Preview Travel was closed. In the
merger, Preview Travel, which was also engaged in consumer direct Internet
travel distribution, was merged with and into the Company, with the Company
being the surviving corporation. Each share of Preview Travel common stock
was converted into one share of the Company's common stock. Approximately
14.4 million shares of the Company's common stock were issued to former
Preview Travel stockholders in the merger. The shares of the Company's common
stock beneficially held by Travelocity Holdings at December 31, 1999 were
converted in the merger into 33 million shares of Series A Preferred Stock.
The preferred stock is convertible into 3 million shares of the Company's
common stock, and the preferred stock receives dividends and distributions on
a basis as if it were converted into common stock. Travelocity Holdings also
has the right to exchange one partnership unit and one share of the preferred
stock for one share of the Company's common stock at any time. If Travelocity
Holdings exercised its right to convert its partnership units into common
stock, then the Company would have approximately 48.7 million common stock
equivalent shares outstanding, of which former Preview Travel stockholders
and Yahoo! would own 30% and Sabre would own 70%.
Travelocity Holdings also owns 1.2 million shares of the Company's common
stock from the investment of $50 million prior to the merger.
Economically, therefore, the Company has approximately 18.6 million
common stock equivalent shares outstanding after the merger. The shares of
common stock issued to former Preview Travel stockholders represent an
approximate 78% (14.4 million out of 18.6 million) equity interest in the
Company, and the shares of preferred stock plus common stock issued to Sabre
represents an approximate 22% (4.2 million out of 18.6 million) equity
interest in the Company.
Immediately prior to the consummation of the merger, Sabre and TSGL
Holding, Inc., a wholly owned subsidiary of Sabre, contributed all of the
assets and liabilities of the Travelocity Division and $52.7 million in cash
to Travelocity.com LP ("the Partnership") and received partnership units in
exchange. Sabre then contributed partnership units to Travelocity Holdings,
and Travelocity Holdings contributed a portion of those partnership units to
the Company, such that these entities became partners in the Partnership.
Immediately after the merger, the Company contributed all of the Preview
Travel assets and liabilities to the Partnership as well as the $50 million
received from Travelocity Holdings. In exchange, the Company received
partnership units representing in total an approximate 38% equity interest in
the Partnership. As a result, the Company became a holding company whose sole
asset is its interest in the Partnership.
As a result of the merger and Partnership contributions, the Preview
Travel stockholders became the Company's public stockholders and received
shares of common stock in the merger that equates to approximately a 30%
equity interest in the combined assets and liabilities of the Travelocity
Division and Preview Travel held by the Partnership -- that is, 78% (their
equity interest in the Company) of the 38% equity interest in the Partnership
held by the Company.
Sabre beneficially holds an approximate 70% equity interest in the
Partnership -- that is:
- a 62% equity interest held directly or through its affiliates, plus
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- an 8% equity interest held through Travelocity.com Inc. -- that is, 22%
(its equity interest in the Company) of 38% (the Company's equity interest
in the Partnership).
ACCOUNTING FOR THE TRANSACTION
Sabre has a majority equity interest in the Partnership and the general
presumption would be for Sabre to consolidate the Partnership into its
financial statements. Although Travelocity.com does not have a majority
equity interest in the Partnership, the Company controls the Partnership
through the Partnership's board of directors since the Company has the right
to appoint a majority of the directors. Accordingly, the general presumption
is overcome and the Company will consolidate the Partnership into its
financial statements. Furthermore, although Travelocity Holdings, a Sabre
subsidiary, will manage the day to day operations of the Partnership pursuant
to a management service agreement, it is subject to the direction and
oversight of the Partnership's board of directors. As such, the Partnership's
board of directors has the unilateral ability to control the management of
the Partnership, thereby enabling the Company to consolidate the Partnership
in its separate financial statements.
The Company's consolidated financial statements will include the
financial statements of the Company and the Partnership, with Sabre's 62%
interest in the Partnership's results of operations presented as a single
line item, "Sabre's interest in partnership," in the Company's statement of
operations. The Company's consolidated results of operations and financial
position will consist of the total of 38% of the Partnership's results and
100% of the Company's results.
The Company will account for the merger as a purchase of Preview Travel's
assets and liabilities. As a result of the merger, the Partnership will
record on its balance sheet:
- the fair market value of Preview Travel's assets and liabilities; and
- the direct costs of the acquisition incurred by Sabre and the Company
The Partnership will record approximately $252 million of intangible
assets and goodwill in the merger. The Partnership will amortize the
intangible assets and goodwill acquired in the merger over a 3-year period,
resulting in an approximate $84 million charge per year that will negatively
affect the Partnership's net income.
PURCHASE PRICE ALLOCATION
The accompanying unaudited pro forma condensed combined financial
statements reflect an estimate of the purchase price of approximately $286.2
million, measured as the fair market value of Preview Travel's outstanding
common stock on October 1, 1999, the last trading day before the merger
agreement was announced plus the fair market value of the vested options of
Preview Travel assumed by the Company in the merger, and other costs directly
related to the merger as follows (in thousands):
<TABLE>
<C> <C>
Fair market value of Preview Travel's common stock. $253,395
Fair market value of vested Preview Travel stock options 23,369
Investment advisor, legal, accounting and other professional
fees and expenses 8,875
Other costs directly related to the merger 600
--------
Total $286,239
========
</TABLE>
For purposes of the accompanying unaudited pro forma condensed combined
balance sheet, the Company has preliminarily allocated the purchase price to
the net assets acquired, with the remainder recorded as goodwill based on
estimates of fair values from information furnished by Preview Travel and
independent valuation professionals of the acquired assets, including
intangible assets. Although we do not expect the final valuation of the
assets to be acquired to result in values that are significantly different
from the estimates included in the unaudited pro forma
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<PAGE>
condensed combined balance sheet, we cannot assure you that they will not be.
NOTE B. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The accompanying unaudited pro forma condensed combined balance sheet
assumes the merger and intercompany agreements were signed on December 31,
1999 and reflects the following pro forma adjustments:
(1) To record each of the following actions taken in accordance with the
contribution agreements: the contribution of $52.6 million by Sabre to the
Partnership and the contribution by Sabre to the Partnership of
infrastructure assets and employee-related liabilities that are not included
in the Travelocity Division's historical balance sheet in exchange for 3
million partnership units which are contributed to the Company as additional
paid in capital, and the capitalization of the outstanding payable to Sabre.
(2) To record the investment of an additional $50 million in
Travelocity.com Inc. by Sabre at the time of the merger.
(3) To record the purchase price of Preview Travel of $286.2 million
resulting from the issuance of 14.4 million shares of the Company's common
stock to former Preview Travel stockholders, based on the number of shares
outstanding at March 7, 2000, and related merger costs.
(4) To record the allocation of the purchase price for the merger to the
assets and liabilities acquired as follows:
<TABLE>
<S> <C>
Working capital $ 16,598
Property and equipment 5,303
Marketable securities-- noncurrent 12,307
Other assets 830
Noncurrent liabilities (985)
Intangible assets and goodwill. 252,186
--------
Total $286,239
========
</TABLE>
(5) To record the conversion in the merger of the Company's 3 million
shares of Class A Common Stock into 33 million shares of Series A Preferred
Stock.
(6) To record Sabre's ownership interest in the Partnership,
representing 62/70ths of the net book value of assets and liabilities
contributed by Sabre and the direct costs of the acquisition that Sabre
incurs.
NOTE C. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma condensed combined statements of
operations have been prepared as if the merger and intercompany agreements
were completed as of January 1, 1998 and reflect the following pro forma
adjustments:
(7) To adjust historical booking fees paid by Sabre to the Travelocity
Division to the amount which would have been paid by Sabre to the
Partnership under the terms of the access agreement. The access agreement
provides pricing and other terms for the booking services, travel content
and other services provided by Sabre to the Partnership.
(8) To record the reduction in data processing expense under the terms
of the access agreement with Sabre. The access agreement provides that the
Partnership will pay Sabre a per-message fee for every travel segment
processed through the Travelocity.com Web site.
(9) To record the increase in network services and Web hosting expenses
as a result of the technology
28
<PAGE>
services agreement with Sabre. This agreement provides that Sabre will
generally provide these services to the Partnership at market rates.
(10) To record the change in rent expense paid to Sabre under the terms
of the facilities agreement with Sabre due to rate changes and additional
employees. The facilities agreement provides that Sabre will charge rent and
related expenses to the Partnership based on the number of employees in the
facilities.
(11) To record the reduction in the cost of development services
resulting from the Travelocity Division's employment of the developers
directly and the elimination of the intercompany charge from Sabre. Charges
from Sabre are based upon average rates used for internal allocations only.
Actual costs were calculated using salary information for the headcount to
be transferred.
(12) To record the increase in employee related and other general and
administrative expense under the terms of the administrative services
agreement with Sabre. Under the administrative services agreement, Sabre
will provide administrative services to the Partnership at Sabre's cost plus
a specified margin.
(13) To adjust Preview Travel's transaction revenue to the terms of the
access agreement.
(14) To record the increase in expense for Preview Travel segments under
the access agreement.
(15) To record compensation expense associated with the conversion of
existing unvested employee options to purchase Sabre stock to options to
purchase the Company's stock. This expense will be recognized over the
remaining vesting period of the options, which is estimated to average 20
months. The adjustment excludes compensation expense to be recorded in
connection with the acceleration of 50% of Preview Travel unvested options
to cause them to vest over the 12 months following the merger.
(16) To record the amortization of goodwill and other intangibles
resulting from the purchase price allocation. Goodwill is being amortized
over three years.
(17) To record Sabre's 62% interest in the Partnership's losses.
NOTE D. UNAUDITED PRO FORMA COMBINED EARNINGS PER COMMON SHARE DATA
(18) We computed the unaudited pro forma net loss per share, basic and
diluted, by dividing the pro forma net loss by the weighted average number
of shares of Preview Travel common stock outstanding for the respective
periods presented, assuming a one-to-one exchange ratio. We have excluded
common shares of approximately 1.2 million issued to Travelocity Holdings
for the additional cash investment of $50 million. As pro forma net losses
exist for each period presented, we excluded the effects of stock options
and the 33 million shares of preferred stock issued to Travelocity Holdings
in the merger from the calculation of pro forma loss per share.
29
