10-Q 1 e10-q.txt FORM 10-Q FOR CAREERBUILDER, INC. 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________. ------------------------ COMMISSION FILE NUMBER 000-25949 ------------------------ CAREERBUILDER, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 54-1779164 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 10790 PARKRIDGE BLVD 20191 SUITE 200 (ZIP CODE) RESTON, VIRGINIA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

703-259-5500 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 ____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. ~~Common Stock, $0.001 par value 23,883,294 Shares (Class) (Outstanding at July 31, 2000)~~

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 CAREERBUILDER, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Statements of Operations -- Three and Six Months Ended June 30, 2000 and 1999................ 3 Condensed Balance Sheets -- June 30, 2000 (unaudited) and December 31, 1999 ..................................... 4 Unaudited Condensed Statements of Cash Flows-Six Months Ended June 30, 2000 and 1999........................... 5 Notes to Unaudited Condensed Interim Financial Statements............................................. 6 Management's Discussion and Analysis of Financial Condition Item 2. and Results of Operations................................. 10 Quantitative and Qualitative Disclosures about Market Item 3. Risk...................................................... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 28 Item 2. Use of Proceeds............................................. 28 Item 4. Submission of Matters to a Vote of Security Holders......... 28 Item 5. Other Information........................................... 29 Exhibits, Financial Statement Schedules, and Reports on Form Item 6. 8-K....................................................... 31 Signatures........................................................... 32 Index of Exhibits.................................................... 33

2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAREERBUILDER, INC. CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED

See accompanying notes to unaudited condensed interim financial statements. 3 4 CAREERBUILDER, INC. CONDENSED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to the unaudited condensed interim financial statements. 4 5 CAREERBUILDER, INC. CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

See accompanying notes to unaudited condensed interim financial statements. 5 6 CAREERBUILDER, INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS NOTE 1 -- BASIS OF PRESENTATION The condensed financial statements include the accounts of CareerBuilder, Inc. ("CareerBuilder" or the "Company"). The condensed balance sheet as of June 30, 2000, the condensed statements of operations for the three and six months ended June 30, 2000 and 1999, and the condensed statements of cash flows for the six months ended June 30, 2000 and 1999 have been prepared by the Company, without audit. In the opinion of management, all adjustments have been made, which include normal recurring adjustments necessary to present fairly the interim financial statements. Operating results for the three and six months ended June 30, 2000, are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the related notes included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 28, 2000. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) REVENUE RECOGNITION Revenue consists of the sale of classified employment advertising on Company-owned and affiliate websites and is recognized ratably over the subscription period. Deferred revenue represents amounts billed or payments received in advance of the subscription period. (b) COST OF REVENUE Cost of revenue includes costs associated with hosting the network, including depreciation expense and commissions and fees paid to ADP, Inc. ("ADP") and affiliates. Amounts incurred for affiliates and ADP commissions were approximately $2.6 million and $4.9 million for the three and six months ended June 30, 2000, respectively. Total affiliate and ADP commission expense for the three and six months ended June 30, 1999 were $1.0 million and $1.7 million, respectively. (c) CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair value. (d) EQUITY BASED EXPENSE Equity based expense represents the amortization of the fair value of warrants issued to ADP, NBC and Microsoft. The warrants are amortized using the straight-line method over the life of the respective agreements. (e) NET INCOME (LOSS) PER SHARE The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per share is computed by dividing the net 6 7 CAREERBUILDER, INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) income (loss) to common stockholders (after deducting preferred dividend requirements) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) available per share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The Company has presented historical basic and diluted net income (loss) per share in accordance with SFAS No. 128. As the Company had a net loss in each of the periods presented, basic and diluted net income (loss) per share is the same. Pro forma basic and diluted net income (loss) per share for 1999, has been calculated assuming the conversion of all shares of preferred stock into common stock, as if the shares had converted immediately upon their issuance. (f) 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 period. Actual results may differ from those estimates. NOTE 3 -- LINES OF CREDIT The Company has a revolving credit facility in the amount of $2,000,000, for a term of 2 years, expiring in February 2002 secured by its cash balance collateral. The line of credit bears interest at the bank's prime rate plus 1/2%. The Company has issued a $1,600,000 letter of credit thereby reducing the Company's available credit by that amount. No other borrowings against this line of credit have been taken as of June 30, 2000. NOTE 4 -- EQUITY BASED EXPENSE In connection with the execution of the joint marketing and sales representative agreement with ADP in January 1998, the Company granted warrants to purchase up to 1,140,000 shares of the Company's common stock at an exercise price of $5.00 per share. The warrants contain anti-dilution provisions, which increase the number of shares ratably in connection with certain additional equity issuances by the Company. In connection with the issuance of Class E convertible redeemable preferred stock in July 1998, warrants in December 1998 and Class F convertible redeemable preferred stock in January 1999, the number of shares purchasable under the warrants was increased to 1,294,052. On March 5, 1999, the Company and ADP amended their joint marketing and sales representative agreement, extending the initial term of the agreement through January 2002. The Company amended and restated the warrant granted in January 1998, and warrants to purchase 380,000 shares of common stock, at an exercise price of $12.00 per share, were vested at that time. The estimated value of the warrant at the vesting date of $1,699,000 is being recognized as equity-based expense ratably over the extended term of the agreement, which is thirty-seven months. Warrants for the second and third installments of up to 380,000 shares of common stock each will vest on March 31, 2001 and March 31, 2002, respectively, based on ADP achieving specified revenue-based milestones. The revenue-based milestones are measured for a specific time period, by 7 8 CAREERBUILDER, INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 -- EQUITY BASED EXPENSE -- (CONTINUED) subtracting sales commissions paid to ADP from total revenue received from customers for which ADP has acted as a sales agent. In order for the minimum number of shares under the March 2001 installment of the warrant to vest, revenue minus sales commissions for the period from April 1, 2000 through March 31, 2001 must exceed $10.2 million, with $20.4 million required for the maximum number of shares issuable under the installment to vest. In order for the minimum number of shares under the March 2002 installment to vest, the milestone of revenue minus sales commission for the period from April 1, 2001 through March 31, 2002 must exceed $23.0 million, with $30.0 million required for the maximum number of shares issuable under the installment to vest. The exercise price for the second and third installments is $5.00 per share. In the event that ADP does not meet the specified sales levels, the associated warrants expire. If the Company issues additional equity securities primarily for financing purposes, excluding the shares of common stock sold in an underwritten public offering or through the Company's stock option plan, the number of shares of common stock issuable upon exercise of the warrant will increase for each of the second and third installments. If and when it becomes probable that the net revenue the Company will receive from ADP will reach the necessary level for either of the remaining installments of the warrant to vest, the Company would begin to record an expense reflecting the fair value of the warrants, which will be determined in part based on the then current market price of the common stock. The Company would begin to recognize this expense on the determination of probability that the revenue targets would be achieved, continuing through the actual vesting date. The Company would initially estimate the amount of the expense at the time of the determination that achievement is probable, based in part on the market price of the common stock at that time. At the time of actual vesting, the fair value of the warrant would be remeasured and, if different from the value used in initially estimating the expense, the difference would be reflected as an additional charge or credit at that time. As of June 30, 2000, the Company believes it is not yet probable that ADP will achieve the necessary sales level to earn the warrants to purchase the additional 914,052 shares of common stock. On March 5, 1999, the Company entered into an agreement with NBC Multimedia. Under this agreement, the Company will host the NBC Interactive career sites for participating NBC affiliates and NBC.com. Under this agreement, CareerBuilder granted warrants to purchase 93,750 shares of common stock at an exercise price of $8.00 per share and 53,571 shares at an exercise price of $14.00 per share. The warrants become exercisable in various amounts on the first, second, and third anniversaries of the agreement and expire five years from the date of grant. The estimated value of the warrants at the grant date of $706,000 is being recognized as equity-based expense ratably over the term of the agreement, which is two years. In addition, the Company is required to make certain mandatory minimum payments totaling $750,000 to NBC Interactive in 1999 and 2000. For the quarter ended June 30, 2000, $93,750 has been recognized as sales and marketing expense related to mandatory minimum payments. For the six months ended June 30, 2000, $187,500 has been recognized as mandatory minimum payments. In May 1999, the Company entered into a strategic arrangement with Microsoft Corporation. As part of its strategic arrangement, Microsoft invested $17,846,621, or $13.00 per share, for 1,372,817 shares of the Company's common stock. The Company also issued a warrant to Microsoft to purchase 873,534 shares of Common Stock at an exercise price of $13.00 per share. The Company is recognizing approximately $5.8 million of expense related to the warrant ratably between 1999 and 2001, reflecting the term of the strategic agreement. 8 9 CAREERBUILDER, INC. NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 -- EQUITY BASED EXPENSE -- (CONTINUED) In December 1998, the Company granted warrants to purchase 40,568 shares of common stock at an exercise price of $4.93 per share as consideration for obtaining a line of credit. The warrants expire in ten years. The estimated value of the warrants of approximately $109,000 was recorded as an other asset with the offsetting amount recorded as additional paid-in capital. NOTE 5 -- MERGER AGREEMENT On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc. and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation that is directly or indirectly owned jointly by Tribune Company ("TC"), a Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $0.001 per share, of the Company (the "Shares"), at a purchase price of $8.00 per Share, net to the seller in cash, without interest thereon (the "Offer Price"). Pursuant to the Merger Agreement, following the completion of the Offer and the satisfaction or waiver of certain other conditions, Sub will be merged with and into the Company (the "Merger") with the Company being the surviving corporation. In the Merger, each outstanding Share (other than (i) Shares held by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and (iii) Dissenting Shares (as defined in the Merger Agreement)) will be converted into the right to receive the Offer Price. In connection with the Merger Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16, 2000 (the "Investment Agreement"), to which the Company is an express third party beneficiary. The Offer is conditioned on, among other things, Tribune and Knight Ridder acquiring at least a majority of the outstanding stock of CareerBuilder on a fully diluted basis. Holders of approximately 44% of the outstanding shares of CareerBuilder have entered in stockholder agreements (the "Stockholder Agreements") pursuant to which they have agreed to tender their shares in the Offer and to vote their shares in favor of the merger agreement and against any other transaction, subject to the provisions of the Stockholder Agreement. The transaction is subject to other customary conditions, including Hart-Scott-Rodino Act anti-trust clearance. The Company, the members of its Board of Directors, Knight-Ridder, Inc. and Tribune Company were named as defendants in two shareholder lawsuits, (i) Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore, Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company, filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of the state of Delaware in connection with the proposed acquisition of the Company by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits in general alleges that the members of the Company's Board of Directors have breached their fiduciary duties by approving the transaction and that the consideration received by the Company's shareholders in connection with the transaction would be inadequate. The plaintiffs seeks injunctive relief against the transaction or if consummated, recission of the transaction and/or damages. CareerBuilder believes that the lawsuits are without merit and intend to defend the claims vigorously. 9 10 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INFORMATION REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections herein, including statements regarding the development of the Company's business, the markets for the Company's services, the Company's anticipated capital expenditures, and other similar statements, are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) which can be identified as any statement that does not relate strictly to historical or current facts. Forward-looking statements use such words as "plans", "expects", "will", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", "believes", "anticipates", "intends", "may", "should", "continue", "seek", "could" and other similar expressions. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. The important factors that could cause actual results to differ materially from those in the forward-looking statements herein (the "Cautionary Statements") include, without limitation, those factors set forth below under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results," as well as the other risks referenced from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K that the Company files in 2001. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. The Company does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's Condensed Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Certain Factors That May Affect Future Results" and elsewhere in this Quarterly Report. OVERVIEW CareerBuilder, Inc. ("CareerBuilder" or "the Company") provides comprehensive online recruitment offerings for employers, major media companies and job seekers. CareerBuilder was founded in November 1995 and has grown from 7 employees at June 30, 1996 to 257 employees at June 30, 2000. During the period from inception in November 1995 to September 1996, CareerBuilder had insignificant revenue and was primarily engaged in developing online recruiting technology, specifically TeamBuilder Software and the CareerBuilder.com career site. During July and August of 1996, CareerBuilder expanded its operations by adding direct sales and marketing personnel. CareerBuilder's sales commenced in September 1996. CareerBuilder began generating more significant revenue in the fourth quarter of 1996 through the sale of perpetual licenses for TeamBuilder Software and through customer service fees for monthly subscriptions. In May 1998, CareerBuilder launched the CareerBuilder Network by hosting the career sites located on the Internet sites of interactive media companies. The Company completed its initial public offering of Common Stock, at a price of $13.00 per share in May, 1999, and received net proceeds (after expenses of the offering) of approximately $60 million. In addition, on May 4, 1999 CareerBuilder entered into a service and distribution agreement with Microsoft. As part of this transaction, CareerBuilder agreed to provide career sites for the 10 11 Microsoft Network. These career sites have become members of the CareerBuilder Network. Microsoft purchased approximately 1.4 million shares of CareerBuilder's Common Stock for an aggregate purchase price of approximately $17.8 million, at $13.00 per share. In addition, for no additional cash consideration, CareerBuilder issued a warrant to Microsoft representing the right to purchase 873,534 shares of Common Stock with an exercise price of $13.00 per share. The warrant is immediately exercisable in full. The net proceeds of approximately $77.8 million from both the initial public offering and the Microsoft investment were added to the working capital of the Company. CareerBuilder's revenue is derived principally from subscription fees and individual posting fees. Customers typically subscribe for three-, six- or twelve-month subscriptions for multiple job postings. Customers may also subscribe on an individual posting basis for a one month period. The subscription fees are recognized ratably over the subscription period. For the quarter ended June 30, 2000, approximately 92% of CareerBuilder subscription revenue was derived from multiple-month subscriptions and approximately 8% of CareerBuilder subscription revenue was derived from individual postings. Other services included in revenue are advertising fees and recruiting service fees. Customers can post job advertisements on CareerBuilder.com as well as the career sites of the members of the CareerBuilder Network. The members of the CareerBuilder Network receive a portion of the subscription fee from customers that choose to post job advertisements on their respective career sites. The portion of the subscription fee paid to members of the CareerBuilder Network is included in cost of revenue. In addition, CareerBuilder pays fees, including advertising and marketing fees, to three current CareerBuilder Network members. CareerBuilder is party to a joint marketing and sales representative agreement with Automatic Data Processing, Inc. ("ADP"). Pursuant to the joint marketing and sales representative agreement, ADP receives a percentage of the total monthly revenue received by CareerBuilder from orders procured by ADP. This sales commission fee is included in CareerBuilder's cost of revenue and ranges from 33% to 50%. The sales commission fee as a percentage of revenue varies based on the relative job posting activity of these customers between CareerBuilder.com and the other sites on the CareerBuilder Network. CareerBuilder recognizes all of the revenue derived from the ADP sales channel. ADP is generally responsible for billing and collecting from these customers on CareerBuilder's behalf. Revenue from orders procured by ADP accounted for approximately 35% of CareerBuilder's total revenue for both the quarter ended June 30, 2000 and for the six months ended June 30, 2000. CareerBuilder's cost of revenue as a percentage of total revenue has increased in 2000 relative to 1999. This increase primarily resulted from an increase in fees paid to members of the CareerBuilder Network due to network revenue growth. In connection with the execution of the joint marketing and sales representative agreement and its amendment and the sale of shares of Series D preferred stock to ADP, CareerBuilder issued a warrant to ADP, which vests in three installments. The first installment of 380,000 shares vested at the signing of the amendment. In addition, if and when ADP achieves specified revenue milestones, CareerBuilder could incur additional equity-based expenses that could be substantial. For more information regarding the ADP warrant and these potential expenses, see "Certain Factors That May Affect Future Results -- We could be required to record significant expenses if ADP achieves revenue goals." In addition to the ADP and Microsoft warrants, CareerBuilder also issued two warrants representing the right to purchase up to an aggregate of 147,321 shares of Common Stock in connection with an agreement with NBC Multimedia, Inc., an affiliate member of the CareerBuilder Network. CareerBuilder recognized approximately $960,000 of expense related to the ADP, NBC, and Microsoft warrants in the second quarter of 2000 and expects to recognize approximately $5.5 million of expense related to these warrants between 2000 and 2002, ratably, based on the duration of these agreements. 11 12 Under its service and distribution agreement with Microsoft, CareerBuilder may be required to pay Microsoft up to $3.0 million in 2000 and up to $1.8 million in 2001 if Microsoft achieves agreed upon web site traffic goals. The Microsoft career site was launched in late September 1999 and as of June 30, 2000, approximately $1.2 million in fees due Microsoft had been incurred and $878,000 had been paid. CareerBuilder has incurred substantial net losses in every fiscal period since its inception in November 1995 and as of June 30, 2000 had an accumulated deficit of $68.2 million. Such net losses and the accumulated deficit resulted from CareerBuilder's significant costs incurred in developing and marketing its online recruitment offerings, including establishing the CareerBuilder Network. On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc. and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation that is directly or indirectly owned jointly by Tribune Company ("TC"), a Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $0.001 per share, of the Company (the "Shares"), at a purchase price of $8.00 per Share, net to the seller in cash, without interest thereon (the "Offer Price"). Pursuant to the Merger Agreement, following the completion of the Offer and the satisfaction or waiver of certain other conditions, Sub will be merged with and into the Company (the "Merger") with the Company being the surviving corporation. In the Merger, each outstanding Share (other than (i) Shares held by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and (iii) Dissenting Shares (as defined in the Merger Agreement)) will be converted into the right to receive the Offer Price. In connection with the Merger Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16, 2000 (the "Investment Agreement"), to which the Company is an express third party beneficiary. The Offer is conditioned on, among other things, Tribune and Knight Ridder acquiring at least a majority of the outstanding stock of CareerBuilder on a fully diluted basis. Holders of approximately 44% of the outstanding shares of CareerBuilder have entered in stockholder agreements (the "Stockholder Agreements") pursuant to which they have agreed to tender their shares in the Offer and to vote their shares in favor of the merger agreement and against any other transaction, subject to the provisions of the Stockholder Agreement. The transaction is subject to other customary conditions, including Hart-Scott-Rodino Act anti-trust clearance. The Company, the members of its Board of Directors, Knight-Ridder, Inc. and Tribune Company were named as defendants in two shareholder lawsuits, (i) Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore, Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company, filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of the state of Delaware in connection with the proposed acquisition of the Company by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits in general alleges that the members of the Company's Board of Directors have breached their fiduciary duties by approving the transaction and that the consideration received by the Company's shareholders in connection with the transaction would be inadequate. The plaintiffs seeks injunctive relief against the transaction or if consummated, recission of the transaction and/or damages. CareerBuilder believes that the lawsuits are without merit and intend to defend the claims vigorously. 12 13 A copy of each of the Merger Agreement, the Investment Agreement, a form of the Stockholder Agreement and the press release announcing the transaction are filed on a current report on Form 8-K filed by the company on July 18, 2000. Please note that there can be no assurance that the conditions to the Offer will be met or that the Merger will be consummated. RESULTS OF OPERATIONS THREE AND SIX-MONTH COMPARISONS REVENUE CareerBuilder total revenue increased 111% from $3.3 million for the quarter ended June 30, 1999 to $6.9 million for the quarter ended June 30, 2000. Total revenue also increased 106% from $6.1 million for the six months ended June 30, 1999 to $12.5 million for the six months ended June 30, 2000. The increases in total revenue were primarily due to an increase in subscriptions to the CareerBuilder Network as well as an increase in revenue per customer. This was a result of increased direct and telesales efforts and increased marketing and promotional activities. Revenue derived from ADP's efforts comprised 39% of total revenue for the quarter ended June 30, 1999 and 35% for the quarter ended June 30, 2000; revenues derived from ADP's efforts comprised of 37% of total revenue for the six months ended June 30, 1999 and 35% for the six months ended June 30, 2000. COST OF REVENUE Cost of revenue consists of commissions paid to ADP for its sales of CareerBuilder's online recruitment offerings, fees paid to CareerBuilder Network affiliates, and expense associated with the cost of hosting the career sites on the CareerBuilder Network, including depreciation. Cost of revenue also includes expenses associated with customer support and the delivery of professional services. Cost of revenue increased 149% from $1.5 million for the quarter ended June 30, 1999 to $3.6 million for the quarter ended June 30, 2000 and as a percentage of total revenue increased from 45% for 1999 to 53% for the quarter ended June 30, 2000. Cost of revenue increased 157% from $2.6 million for the six months ended June 30, 1999 to $6.6 million for the six months ended June 30, 2000 and as a percentage of revenue increased from 42% for the six months ended June 30, 1999 to 53% for the six months ended June 30, 2000. These increases were primarily due to commissions paid to ADP and fees paid to the members of the CareerBuilder Network which increase in absolute dollars as revenues increased. Other expenses include depreciation associated with hosting the career sites on the CareerBuilder Network and expenses associated with customer support and network operations. OPERATING EXPENSES Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related benefits for sales and marketing personnel, advertising and promotional expenses, trade show expenses, advertising and marketing fees paid to members of the CareerBuilder Network and depreciation expense on sales and marketing related assets. Sales and marketing expenses increased 132% from $5.1 for the quarter ended June 30, 1999 to $11.8 million for quarter ended June 30, 2000. Sales and marketing expenses increased 140% from $9.7 million for the six months ended June 30, 1999 to $23.3 million for the six months ended June 30, 2000. The increase in sales and marketing expenses for the quarter ended June 30, 2000 was primarily due to an increase in costs related to the development of CareerBuilder's marketing and branding campaigns and hiring additional sales and marketing personnel. Product Development. Product development expenses include expenses for research, design and development of CareerBuilder's proprietary technology incorporated in the CareerBuilder Network 13 14 offerings, and expenses associated with operating the CareerBuilder Network. Product development expenses increased 79% from approximately $455,000 for the quarter ended June 30, 1999 to $814,000 for the quarter ended June 30, 2000. Product development expenses increased 33% from $1.1 million for the six months ended June 30, 1999 to $1.4 million for the six months ended June 30, 2000. General and Administrative. General and administrative expenses consist primarily of compensation for administrative, technical support and executive staff, fees for professional services, bad debt expense, depreciation expense for property and equipment not associated with hosting career sites and general office expenses. General and administrative expenses increased 52% from $1.0 million for the quarter ended June 30, 1999 to $1.6 million for the quarter ended June 30, 2000. General and administrative expenses increased 74% from $1.7 million for the six months ended June 30, 1999 to $3.0 million for the six months ended June 30, 2000. The increase in general and administrative expenses was due primarily to the costs associated with developing the infrastructure necessary for supporting a growing public company such as directors and officers insurance, increased legal fees and an increase in administrative personnel. In February, 2000 the Company relocated its corporate headquarters which resulted in a loss on the disposal of furniture and fixtures and the write-off of leasehold improvements totaling $279,000. EQUITY-BASED EXPENSE Equity-based expense of $960,000 for the quarter ended June 30, 2000, and $1.9 million for the six months ended June 30, 2000 consists of expenses related to the issuance of warrants to Microsoft, ADP and NBC. Equity based expense for the quarter ended June 30, 1999 amounted to $715,000 and for the six months ended June 30, 1999 amounted to $791,000. NET INTEREST INCOME (EXPENSE) Net interest income was approximately $344,000 for the quarter ended June 30, 1999 and $680,000 for the quarter ended June 30, 2000. Net interest income was approximately $240,000 for the six months ended June 30, 1999 and $1.4 million for the six months ended June 30, 2000. Interest income was attributable to cash, cash equivalents and short-term investments primarily attributable to the net proceeds received by CareerBuilder from its initial public offering of Common Stock and from the Microsoft investment in May 1999. TAXES CareerBuilder has incurred significant operating losses for all periods from its inception in November 1995 through June 30, 2000. CareerBuilder has recorded a valuation allowance for 100% of its net deferred tax assets as the future realization of the tax benefit is not sufficiently assured. Accordingly, no income tax benefits have been recognized in any periods. Due to the Company's initial public offering in 1999, a change in control as defined under section 382 of the Internal Revenue Code of 1986, as amended, has occurred. This change in control limits the amount of net operating loss that the Company will be able to carry forward and potentially utilize. The pending merger will further limit the carry forward of net operating losses. LIQUIDITY AND CAPITAL RESOURCES Since its inception, CareerBuilder has financed its activities primarily through proceeds from private placements of equity securities, and its initial public offering, totaling approximately $107.7 million through May 17, 1999. 14 15 Net cash used in operating activities was $8.9 million and $18.4 million for the six months ended June 30, 1999 and June 30, 2000, respectively. Net cash used in operating activities resulted from net operating losses and increases in accounts receivable, partially offset by increases in accrued expenses. Cash provided by financing activities was $85.4 million and $349,000 for the six months ended June 30, 1999 and June 30, 2000, respectively. Net cash provided by financing activities for the six months ended June 30, 2000, was due to the exercise of stock options. For the six months ended June 30, 1999, net cash provided by financing activities was due primarily to proceeds from the initial public offering and the investment from Microsoft Corporation. In February 2000, the Company entered into a new revolving line of credit facility with PNC Bank. The revolving credit facility is in the amount of $2,000,000, for a term of 2 years, which expires in February 2002 and is secured by its cash balance collateral at an interest rate of the bank's prime rate plus 1/2%. The Company has issued a $1,600,000 letter of credit thereby reducing the Company's available credit by that amount. No other borrowings against this line of credit have been taken of June 30, 2000. As of June 30, 2000, CareerBuilder had $44.8 million of cash and cash equivalents. CareerBuilder anticipates it will spend up to $4.1 million for capital equipment in the remainder of 2000. CareerBuilder has also entered into agreements to pay advertising and marketing fees to three of its current CareerBuilder Network affiliates of $485,000 in the second quarter of 2000. In addition, under its service and distribution agreement with Microsoft, CareerBuilder may be required to pay to Microsoft up to $3.0 million in 2000 and up to $1.8 million in 2001 if Microsoft achieves agreed upon website traffic goals. The Microsoft career site was launched in late September 1999 and as of June 30, 2000, $1.2 million has been incurred under the agreement and CareerBuilder has paid $878,000 to Microsoft. CareerBuilder believes its existing cash and cash equivalents will be sufficient to meet its anticipated cash requirements for working capital and capital expenditures for at least the next 12 months. Although CareerBuilder currently believes that it has sufficient capital resources to meet its anticipated working capital and capital expenditure requirements beyond the next 12 months, unanticipated events and opportunities may make it necessary for CareerBuilder to return to the public markets, increase its current credit facilities or establish new credit facilities or raise capital in private transactions in order to meet its capital requirements. However, there can be no assurance that the Company will be successful in raising additional capital resources, or that such amounts will be sufficient to meet anticipated working capital and capital expenditure requirements. 15 16 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS WE ARE A YOUNG COMPANY SO WE HAVE ONLY A LIMITED OPERATING HISTORY WITH WHICH YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS We commenced operations in November of 1995, recorded our first revenue in the third quarter of 1996 and introduced the first commercial version of TeamBuilder Online in November 1997. Accordingly, we have only a limited operating history with which you can evaluate our business and prospects. In addition, our prospects must be considered in light of the uncertainties encountered by companies in the early stages of development in new and rapidly evolving markets, specifically the online recruitment market. Some of the uncertainties we face include: - our ability to attract and retain a larger number of employers to recruit online using the CareerBuilder Network instead of other online recruitment providers and traditional recruiting methods; - our ability to attract a larger number of job seekers to the CareerBuilder.com flagship site and our interactive media company affiliates' ability to continue to attract potential job seekers to the other sites on the CareerBuilder Network; and - our ability to maintain our current, and add new, online interactive media companies to the CareerBuilder Network. If we fail to manage these risks successfully, our business, results of operations and financial condition will be materially and adversely affected. WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE We have incurred substantial net losses in every fiscal period since we began operations. For the quarter ended June 30, 2000, our net loss was $11.3 million as of June 30, 2000, our accumulated deficit was approximately $68.2 million. We are not certain when we will become profitable, if at all. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis. Failure to achieve or maintain profitability may materially and adversely affect the market price of our common stock. We have generated relatively small amounts of revenue until recent fiscal quarters, while increasing operating expenditures in all areas, particularly in sales and marketing. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial condition will be materially and adversely affected. OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO FALL Our quarterly revenue and results of operations are difficult to predict and may fluctuate significantly from quarter to quarter. If our quarterly revenue or results of operations fall below expectations of investors or public market analysts, the price of our common stock could fall substantially. Our quarterly revenue is difficult to predict and our results of operations may fluctuate for several reasons, including: - the online recruitment market is at an early stage of development and therefore it is difficult to predict customer demand for online recruitment offerings; - ADP is our principal sales channel for customers with 100 to 1,000 employees and represented approximately 35% of our total revenue for the quarter ended June 30, 2000; we have no control over ADP's selling efforts and these efforts will significantly affect our results of operations in any quarter; 16 17 - customers may choose to pay for our services on a per-job posting basis, instead of a multi-month subscription basis; to the extent a greater proportion of our revenue is attributable to customers who choose to pay on a per-job posting basis, our operating results may fluctuate to a greater extent from period to period; revenue attributable to customers who chose to pay on a per-job posting basis accounted for approximately 8% of our total revenue for the quarter ended June 30, 2000; - our cost of revenue, and therefore our operating results, are affected by the allocation of our customers' job advertisements among the CareerBuilder.com site and the other sites on the CareerBuilder Network; and - our cost of revenue is affected by the relative mix of sales between our sales force and sales made through ADP; for the six months ended June 30, 2000, we paid sales commissions to ADP of $1.8 million. A significant percentage of our expenses, such as employee compensation and rent, are relatively fixed. Moreover, our expense levels are based, in part, on our expectations of future revenue. As a result, any shortfall in revenue in relation to our expectations could cause significant changes in our results of operations from quarter to quarter and could result in increased or continued quarterly losses. Because of these factors, we believe that period to period comparisons of our results of operations are not necessarily meaningful, and therefore you should not rely on our quarterly revenue and results of operations to predict our future performance. OUR EARNINGS MAY FLUCTUATE SEASONALLY, WHICH MAY AFFECT OUR FINANCIAL RESULTS Because our online recruitment business model is new, we do not know if the online recruitment market is subject to seasonal fluctuations. We believe that revenue from print media, recruiting search firms and other traditional recruiting services are generally lower in the months of August, November and December because of reduced recruiting and job search activity during vacation periods and holiday seasons. As the online recruitment market develops, we may find that similar seasonal and cyclical patterns characterize online recruiting or we may discover other seasonal patterns. In addition, we believe that we may experience lower sales through our ADP sales channel from November through January because of a year-end focus by ADP's sales force on ADP's core business, which may adversely affect our revenue. If seasonal fluctuations develop in the online recruitment market or as a result of ADP's selling efforts, our business, results of operations and financial condition could be materially and adversely affected. OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A RECESSION, WHICH MAY AFFECT OUR FINANCIAL RESULTS Online recruitment is a new industry and we do not know how sensitive our industry is to general economic conditions. Demand for online recruitment offerings may be significantly and adversely affected by the level of economic activity and employment in the United States and abroad. A recession could cause employers to reduce or postpone their recruiting efforts generally, and their online recruiting efforts in particular. Therefore, if a significant economic downturn or recession occurs in the United States or abroad, our business, results of operations and financial condition could be materially and adversely affected. WE ARE DEPENDENT ON ADP'S SALES FORCE FOR A SIGNIFICANT PORTION OF OUR REVENUE ADP is our principal sales channel for customers with between 100 and 1,000 employees. Sales of our offerings by ADP accounted for approximately 35% of our total revenue for the quarter ended June 30, 2000. Our existing agreement with ADP may be terminated by ADP at any time after 17 18 January 2002 upon 120 days notice. It is possible that ADP's sales force will not continue to market our services beyond January 2002. ADP may not continue to market our services at the current levels even during the remaining term of the agreement. Under our agreement, ADP is not required to achieve specific revenue targets. ADP must meet revenue-based milestones for installments under a warrant we issued to ADP to purchase shares of our common stock to vest. Our agreement with ADP generally prohibits us from entering into any reseller, distribution or similar agreement with any other payroll or benefits administration provider. Moreover, under the terms of the ADP agreement, if ADP determines that the CareerBuilder Network has material inadequacies that reduce their ability to perform competitively in relation to other online recruiting products, we must correct the deficiencies specified by ADP. If we fail to correct those deficiencies, ADP is free to market alternative online recruitment services, including those of our competitors, during the term of our agreement. Even after the termination of our agreement with ADP, ADP will continue to receive its share of recurring sales commission revenue derived from customers originally identified by ADP in its capacity as a sales agent for as long as these customers continue to receive any of our services for which orders were procured by ADP. We may not be able to attract a sufficient number of employer customers without the ADP sales channel. In addition, we may compete with ADP for sales of our services to companies employing between 100 and 1,000 persons. It is possible that we may not manage this channel conflict effectively and that our relationship with ADP could be materially and adversely affected. If our relationship with ADP is discontinued or damaged, or if the level of sales through the ADP channel is lower than expected, our business, results of operations and financial condition would be materially and adversely affected. WE COULD BE REQUIRED TO RECORD SIGNIFICANT EXPENSES IF ADP ACHIEVES REVENUE GOALS If ADP achieves specified revenue-based milestones, a warrant to purchase shares of common stock will become exercisable to purchase up to 380,000 shares of common stock commencing on each of March 31, 2001 and March 31, 2002 at an exercise price of $5.00 per share. The revenue-based milestones are measured for a specific time period by subtracting from total revenue received from customers for which ADP has acted as sales agent, sales commissions paid to ADP. In order for the minimum number of shares under the March 2001 installment of the warrant to vest, revenue minus sales commission for the period from April 1, 2000 through March 31, 2001 must exceed $10.2 million, with $20.4 million required for the maximum number of shares issuable under the installment to vest. In order for the minimum number of shares under the March 2002 installment to vest, revenue minus sales commission for the period from April 1, 2001 through March 31, 2002 must exceed $23.0 million, with $30.0 million required for the maximum number of shares issuable under the installment to vest. These milestones are not projections but are solely milestones ADP must achieve for their warrants to vest. The ADP warrant contains provisions that increase the number of shares for which the warrant is exercisable if we issue additional shares, particularly for financing purposes. The maximum number of shares that are issuable upon exercise of each remaining installment of the warrant is currently 516,824 shares based on current antidilution calculations. These provisions are limited so that the number of shares of common stock for which each of the installments of the warrant may be exercisable is limited to a maximum of 568,506 shares. If and when it becomes probable that the net revenue we will receive from ADP will reach the necessary level for either installment of the warrant to vest, we would begin to record an expense reflecting the fair value of the warrant, which will be determined in part based on the market price of the common stock. We would begin to recognize this expense on the determination of probability that 18 19 the revenue targets would be achieved, continuing through the actual vesting date. We would initially estimate the amount of the expense at the time of the determination that achievement is probable, based in part on the market price of the common stock at that time. At the time of actual vesting, the fair value of the warrant would be re-measured and, if different from the value used in initially estimating the expense, the difference would be reflected as an additional charge or credit at that time. Accordingly, the higher our stock price is at the time probability is determined, or the actual vesting occurs, the more significant would be the expense we would be required to record. That expense could be spread over multiple quarters or concentrated in one quarter. If we are required to record significant expense, our results of operations for that period could fall below the expectations of our investors or public market analysts, which could cause the price of our common stock to fall substantially. THE INTERNET IS UNPROVEN AS A RECRUITING MEDIUM Our future is highly dependent on a significant increase in the use of the Internet as a recruiting medium. The online recruitment market is new and rapidly evolving, and we cannot yet gauge its effectiveness as compared to traditional recruiting methods. As a result, demand and market acceptance of online recruitment offerings are uncertain. Most of our current and potential employer customers have little or no experience using the Internet for recruiting purposes and have allocated only a limited portion of their recruiting budgets to online recruiting. The adoption of online recruiting, particularly by those entities that have historically relied upon traditional methods of recruiting, requires the acceptance of a new way of conducting business, exchanging information and advertising for jobs. Such customers may find online recruiting to be less effective for meeting their hiring needs relative to traditional methods of recruiting employees. We cannot assure you that the online recruitment market will continue to emerge or become sustainable. If the online recruitment market fails to develop or develops more slowly than we expect, our business, results of operations and financial condition would be materially and adversely affected. OUR BUSINESS MODEL IS UNPROVEN We first recorded revenue in September 1996 from sales of TeamBuilder Software. At that time, software sales were a significant component of our revenue. Beginning in late 1997, we began offering online subscriptions by means of TeamBuilder Online and software sales became a smaller component of our revenue. In May 1998, we again evolved our business model when we introduced the CareerBuilder Network, enabling our customers to advertise job openings across a network of affiliate sites. Accordingly, our business model and profit potential are unproven. To be successful, we must develop and market online recruitment offerings that achieve broad market acceptance by employers, job seekers and interactive media companies. In addition, CareerBuilder.com and the CareerBuilder Network affiliate sites must generate sufficient job seeker traffic with demographic characteristics attractive to our employer customers. It is possible that we will be required to further adapt our business model in response to additional changes in the online recruitment market or if our current business model is not successful. If we are not able to anticipate changes in the online recruitment market or if our business model is not successful, our business, financial condition and results of operations would be materially and adversely affected. WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE "CAREERBUILDER.COM" BRAND NAME We believe that continuing to build awareness of the "CareerBuilder.com" brand name is critical to achieving widespread acceptance of our online recruitment offerings. Brand recognition is a key differentiating factor among providers of online recruitment offerings and we believe it could become more important as competition in the online recruitment market increases. From November 1995 to 19 20 June 30, 2000, we have recorded approximately $68.8 million in sales and marketing expenses. We may find it necessary to accelerate expenditures on our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness among potential customers. If we fail to successfully promote and maintain our brand or incur significant expenses in promoting our brand, our business, results of operations and financial condition could be materially and adversely affected. WE MAY HAVE DIFFICULTY MAINTAINING AND EXPANDING THE CAREERBUILDER NETWORK We believe that a primary reason the CareerBuilder Network is valuable to employers is that the websites of the premier interactive media companies who have executed agreements with us for the development of career sites to be a part of the CareerBuilder Network appeal to a variety of distinct Internet user communities in strategic broad-based, vertical, geographic and diversity categories. Our agreements with these CareerBuilder Network affiliate members generally have one-year terms, subject to extension. Although we do not know of any of our affiliate member's intent not to renew their current agreements, affiliate members have declined to renew in the past and we cannot be sure that in the future all affiliate agreements will be renewed. In addition, one of our key business strategies is to expand the CareerBuilder Network by adding additional interactive media affiliates targeting a variety of distinct online audiences. If an affiliate member declines to renew its agreement with us and withdraws from the CareerBuilder Network, and if we are unable to find a suitable replacement for that affiliate member, or if we otherwise are not successful in our efforts to expand the CareerBuilder Network, the CareerBuilder Network may be less valuable to employers, and our business, results of operations and financial condition could be materially and adversely affected. OUR PLANS FOR INTERNATIONAL EXPANSION MAY NOT SUCCEED Our strategy includes expansion into international markets through a combination of partnerships, acquisitions and internal business expansion. Our future international operations might not succeed for a number or reasons, including: - difficulties in staffing and managing foreign operations; - competition from local and foreign-based recruitment services; - legal uncertainties inherent in transnational operations such as export and import regulations, tariffs and other trade barriers; - taxation issues; - unexpected changes in trading policies, regulatory requirements and exchange rates; - operational issues such as longer customer payment cycles and greater difficulties in collecting accounts receivable; - seasonal reductions in business activity; - language and cultural differences; - issues relating to uncertainties of laws and enforcement relating to the protection of intellectual property; and - general political and economic trends. Accordingly, we may not be able to successfully execute our business plan in foreign markets. If revenue from international ventures is not adequate to cover our investment in those ventures, our business, results of operations and financial condition could be materially and adversely affected. 20 21 WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION OPPORTUNITIES Our business strategy includes the pursuit of strategic acquisitions. From time to time, we have engaged in discussions with third parties concerning potential acquisitions of product lines, technologies and businesses. In executing our acquisition strategy, we may be unable to identify suitable acquisition candidates. In addition, we expect to face competition from other providers of online recruitment solutions for acquisition candidates, making it more difficult to acquire suitable companies on favorable terms. PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS If we pursue any acquisition, our management could spend a significant amount of time and effort in identifying, negotiating and completing the acquisition. If we complete an acquisition, we may have to devote a significant amount of time and management and financial resources to integrate the acquired business with our existing business. To pay for an acquisition, we might use capital stock, or cash, or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience dilution. If we use cash or debt financing, our financial liquidity will be reduced. In addition, from an accounting perspective, an acquisition may involve non-recurring charges or involve amortization of significant amounts of goodwill that could adversely affect our results of operations. Despite the investment of these management and financial resources, an acquisition may not produce the revenue, earnings or business synergies that we anticipated, and an acquired service or technology may not perform as expected for a variety of reasons, including: - difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; - risks of entering markets in which we have no or limited prior experience; - the applicability of rules and regulations that might restrict our ability to operate; and - the potential loss of key employees of the acquired company. Accordingly, our acquisition efforts may not succeed, and the time, capital and management and other resources spent on an acquisition that failed to meet our expectations could cause our business, results of operations and financial condition to be materially and adversely affected. WE ARE EXPERIENCING RAPID GROWTH, WHICH MAY STRAIN OUR RESOURCES Our rapid growth has sometimes strained, and may in the future strain, our managerial and other resources. Our acquisition strategy and plans for international expansion could further increase our growth and place additional burdens on our resources. Our ability to manage growth will depend, in part, on our ability to continue to enhance our operating, financial and management information systems. Our personnel, systems, procedures and controls may not be adequate to support our growth. If we are unable to manage growth effectively, our business, results of operations and financial condition could be materially and adversely affected. IF WE LOSE THE SERVICES OF A NUMBER OF KEY EXECUTIVES, OUR BUSINESS COULD SUFFER Our future success depends upon the skills, experience and efforts of our executive officers and key technical employees, in particular Robert J. McGovern, our Chairman of the Board, President and Chief Executive Officer. Mr. McGovern founded CareerBuilder in 1995 and has been 21 22 instrumental in determining our structure, direction and focus. None of our employees have employment agreements with us. If we lose the services of Mr. McGovern or any of our other executive officers or other key employees, our business, results of operations and financial condition could be materially and adversely affected. WE MAY NOT BE ABLE TO HIRE AND RETAIN HIGHLY SKILLED EMPLOYEES, WHICH COULD AFFECT OUR ABILITY TO COMPETE EFFECTIVELY We depend upon the ability to attract, hire, train and retain highly skilled technical, sales and marketing, and support personnel, particularly with expertise in Internet solutions and online recruiting. Competition for qualified personnel throughout our industry is intense. If we fail to attract, hire or retain such personnel, our business, results of operations and financial condition could be materially and adversely affected. We may experience difficulty providing the proper level of service to our customers or incur increased costs due to rising salary and benefit levels. In particular, we plan to expand our sales and marketing and customer support organizations. Based on our experience, it takes an average of four months for a new salesperson to achieve targeted levels of productivity. If we are not successful in hiring additional qualified salespeople or increasing the productivity of our existing sales force, our business, results of operations and financial condition could be materially and adversely affected. WE MAY LOSE BUSINESS IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES Our success is dependent on our ability to develop new and enhanced software, services and related products to meet rapidly evolving requirements for online recruitment software and solutions. Trends that could have a critical impact on our success include: - rapidly changing technology in the area of online recruiting; - evolving industry standards, including both formal and de facto standards relating to online recruiting; - developments and changes relating to the Internet; - competing products and services that offer increased functionality; and - changes in employer and job seeker requirements. If we are unable to develop and introduce new products and services, or enhancements to existing products and services, in a timely and successful manner, our business, results of operations and financial condition could be materially and adversely affected. WE HAVE SIGNIFICANT COMPETITION FROM A VARIETY OF SOURCES We compete with companies, including recruiting search firms, which offer a single database "job board" solution, such as Monster.com and Hotjobs.com, as well as newspapers, magazines and other traditional media companies that provide online job search services, such as CareerPath.com. We also compete with large Internet information hubs, or portals, such as AOL.com. We may experience competition from potential customers to the extent that they develop their own online recruitment solutions internally. In addition, we compete with traditional recruiting services, such as newspapers and employee recruiting agencies, for a share of employers' total recruiting budgets. We expect to face additional competition as other established and emerging companies, including print media companies and employee recruiting agencies with established brands, enter the online recruitment market. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater brand recognition and a larger 22 23 installed customer base than we do. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships to expand their offerings and to offer more comprehensive solutions. We believe that there will be rapid business consolidation in the online recruitment industry. Accordingly, competitors may rapidly acquire significant market share. In addition, new technologies will likely increase the competitive pressures that we face. The development of competing technologies by market participants or the emergence of new industry standards may adversely affect our competitive position. As a result of these and other factors, if we are not able to compete effectively with current or future competitors, our business, results of operations and financial condition could be materially and adversely affected. OUR COMPUTER SYSTEMS AND THE COMPUTER SYSTEMS OF OUR CAREERBUILDER NETWORK AFFILIATES COULD FAIL OR OVERLOAD The success of our online recruitment offerings is highly dependent on the efficient and uninterrupted operation of our computer and communications hardware systems. Our communications hardware and other computer hardware operations that maintain the CareerBuilder Network are located at Global Center's facilities in Herndon, Virginia. Fire, floods, earthquakes, power loss, telecommunications failures and similar events could damage or cause interruptions in these systems. Computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect CareerBuilder.com or other sites on the CareerBuilder Network. If our systems or the systems of any of the Internet sites of the members of the CareerBuilder Network are affected by any of these occurrences, our business, results of operations and financial condition could be materially and adversely affected. Our insurance policies may not cover, or if covered, may not adequately compensate us for, any losses that may occur due to any failures or interruptions in our systems or the systems of the Internet sites of the members of the CareerBuilder Network. We do not presently have any secondary "off-site" systems or a formal disaster recovery plan. In addition, CareerBuilder.com and the Internet sites of the other members of the CareerBuilder Network must accommodate a high volume of traffic and deliver frequently updated information. CareerBuilder.com and the Internet sites of each of the members of the CareerBuilder Network have in the past and may in the future experience slower response times or decreased traffic for a variety of reasons. In addition, our users depend on Internet service providers and other Internet site operators for access to CareerBuilder.com and the Internet sites of the members of the CareerBuilder Network. Many of the Internet service providers have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. If we experience any of these problems, our business, results of operations and financial condition could be materially and adversely affected. WE RELY ON TECHNOLOGY THAT IS OWNED BY THIRD PARTIES We license technology that is incorporated into our services and related products from third parties. In light of the rapidly evolving nature of Internet technology, we may increasingly need to rely on technology from other vendors. Technology from others may not continue to be available to us on commercially reasonable terms, if at all. The loss or inability to access such technology could result in delays in our development and introduction of new services and related products or enhancements until equivalent or replacement technology could be accessed, if available, or developed internally, if feasible. If we experience such delays, our business, results of operations and financial condition could be materially and adversely affected. 23 24 OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR SOFTWARE CONTAINS BUGS Our software products, including TeamBuilder Online and TeamBuilder Software, could contain undetected errors or "bugs" that could adversely affect their performance. Additionally, we regularly introduce new releases and periodically introduce new versions of our software products. The occurrence of errors in our current products or new products or enhancements could result in loss of or delay in revenue, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation and damage to our efforts to build brand awareness, any of which could cause our business, results of operations and financial condition to be materially and adversely affected. OUR BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF THE INTERNET INFRASTRUCTURE Our success will depend, in large part, upon the development and maintenance of the Internet infrastructure as a reliable network backbone with the necessary speed, data capacity and security, and timely development of enabling products, such as high speed modems, for providing reliable Internet access and services. We cannot assure you that the Internet infrastructure will continue to effectively support the demands placed on it as the Internet continues to experience increased numbers of users, greater frequency of use or increased bandwidth requirements of users. Even if the necessary infrastructure or technologies are developed, we may have to spend considerable resources to adapt our offerings accordingly. Furthermore, in the past, the Internet has experienced a variety of outages and other delays. Any future outages or delays could affect the Internet sites on which our customers' job advertisements are posted and the willingness of employers and job seekers to use our online recruitment offerings. If any of these events occur, our business, results of operations and financial condition could be materially and adversely affected. BREACHES OF INTERNET SECURITY COULD ADVERSELY AFFECT OUR BUSINESS The need to securely transmit confidential information over the Internet has been a significant barrier to electronic commerce and communications over the Internet. Any well-publicized compromise of security on the Internet could deter more people from using the Internet or from using it to conduct transactions that involve transmitting confidential information, such as a job seeker's resume or an employer's hiring needs. We may be required to incur significant costs to protect against the threat of security breaches to CareerBuilder.com and the CareerBuilder Network or to alleviate problems caused by such breaches. If any of these events occur, our business, results of operations and financial condition could be materially and adversely affected. WE MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent, but the legislative and regulatory treatment of the Internet remains largely unsettled. The U.S. Congress recently adopted Internet laws regarding copyrights, taxation and the protection of children. In addition, a number of other legislative and regulatory proposals under consideration by federal, state, local and foreign governments could lead to additional laws and regulations affecting electronic commerce transactions, online content, user privacy, taxation, access charges and liability for third-party activities, among other things. For example, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. Although our transmissions originate from Virginia, the governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our 24 25 activities. The European Union recently enacted its own privacy regulations that may result in limits on the collection and use of user information. Courts in the U.S. and abroad may seek to apply existing laws not explicitly relating to the Internet in ways that could impact the Internet, and it may take years to determine whether and how laws such as those governing intellectual property, privacy, libel and taxation will affect the Internet and the online recruitment industry. Existing or future laws or regulations affecting the Internet and legal uncertainties relating to the Internet could lessen the growth in use of the Internet generally and decrease the acceptance of the Internet as a communications, commercial and advertising medium, and could reduce the demand for our services or increase our cost of doing business, all of which could cause our business, financial condition and results of operations to be materially and adversely affected. WE MAY BE LIABLE FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET We may be sued for defamation, negligence, copyright or trademark infringement, personal injury or other legal claims relating to information that is published or made available on CareerBuilder.com and the other sites on the CareerBuilder Network. These types of claims have been brought, sometimes successfully, against online services in the past. We could also be sued for the content that is accessible from CareerBuilder.com and the other CareerBuilder Network sites through links to other Internet sites or through content and materials that may be posted by members in chat rooms or bulletin boards. We also offer email services, which may subject us to potential risks, such as liabilities or claims resulting from unsolicited email or spamming, lost or misdirected messages, security breaches, illegal or fraudulent use of email, or interruptions or delays in email service. Our insurance does not specifically provide for coverage of these types of claims and therefore may not adequately protect us against these types of claims. In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events occur, our business, results of operations and financial condition could be materially and adversely affected. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY Our success depends to a significant degree upon the protection of our proprietary technology, including that associated with the CareerBuilder Network, Mega Job-Search and our Personal Search Agent. The unauthorized reproduction or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it. If this were to occur, our business, results of operations and financial condition could be materially and adversely affected. We rely upon a combination of patents, copyright, trade secret and trademark laws and non-disclosure and other contractual arrangements to protect our proprietary rights. The steps we have taken to protect our proprietary rights, however, may not be adequate to deter misappropriation of proprietary information. We may not be able to detect unauthorized use of our proprietary information and take appropriate steps to enforce our intellectual property rights. Moreover, the laws of other countries in which we may market our services in the future may afford little or no effective protection of our intellectual property. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk. OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY Although we attempt to avoid infringing known proprietary rights of third parties, we are subject to the risk of claims alleging infringement of third party proprietary rights. If we were to discover that any element of our online recruitment offerings violates third party proprietary rights, we might not be able to obtain licenses on commercially reasonable terms to continue offering our entire online 25 26 recruitment offerings without substantial reengineering and that any effort to undertake such reengineering might not be successful. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, which are confidential when filed, with regard to similar technologies. Any claim of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract our management from our business. Furthermore, a party making such a claim could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling our products. If any of these events occurred, our business, results of operations and financial condition could be materially and adversely affected. IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR BUSINESS MAY BE ADVERSELY AFFECTED As of June 30, 2000, the Company had cash and cash equivalents of $44.8 million. We anticipate that our available cash resources will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. We may need to raise additional capital, however, to fund more rapid expansion, both in the United States and internationally, to develop new and to enhance existing services to respond to competitive pressures, and to acquire complementary services, businesses or technologies. We have raised capital through the issuance of equity securities four times since January 1998. If we raise additional funds through further issuances of equity or convertible debt securities, the percentage of ownership of our current stockholders will be reduced and such securities may have rights, preferences and privileges senior to those of our current stockholders. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available or are not available on terms favorable to us, our business, results of operations and financial condition could be materially and adversely affected. IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD DEPRESS OUR STOCK PRICE Delaware corporate law and our certificate of incorporation and by-laws contain provisions that could have the effect of delaying, deferring or preventing a change in control of CareerBuilder or our management without the approval of the Board of Directors. These provisions could discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include: - authorize the issuance of "blank check" preferred stock, which is preferred stock that can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of common stock; - provide for a staggered Board of Directors, so that it would take three successive annual meetings to replace all directors; - prohibit stockholder action by written consent; and - establish advance notice requirements for submitting nominations for election to the Board of Directors and for proposing matters that can be acted upon by stockholders at a meeting. For more information concerning the proposed acquisition of the Company, see Part II, Item 5. 26 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no long term debt as of June 30, 2000. The Company invests in money market funds and, under its current policies, the Company does not use interest rate derivative instruments to manage its exposure to interest rate changes. 27 28 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company, the members of its Board of Directors, Knight-Ridder, Inc. and Tribune Company were named as defendants in two shareholder lawsuits, (i) Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore, Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company, filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of the state of Delaware in connection with the proposed acquisition of the Company by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits in general alleges that the members of the Company's Board of Directors have breached their fiduciary duties by approving the transaction and that the consideration received by the Company's shareholders in connection with the transaction would be inadequate. The plaintiffs seeks injunctive relief against the transaction or if consummated, recission of the transaction and/or damages. CareerBuilder believes that the lawsuits are without merit and intend to defend the claims vigorously. ITEM 2: USE OF PROCEEDS In connection with the Company's initial public offering of Common Stock (the "Offering"), on May 11, 1999, the Company's Registration Statement on Form S-1 (No. 333-73469) was declared effective by the Securities and Exchange Commission. Credit Suisse First Boston Corporation, BancBoston Robertson Stephens, Inc., Hambrecht & Quist LLC and Friedman, Billings, Ramsey & Co., Inc. served as the managing underwriters of the Offering. On May 17, 1999, the Company sold 5,175,000 shares of its Common Stock, including 100,000 shares sold on behalf of certain stockholders, at $13.00 per share. The aggregate proceeds to the Company from the Offering were $61.4 million. As of June 30, 2000, approximately (i) $1,400,000 of the net proceeds of the Offering had been used to pay expenses incurred in connection with the Offering, (ii) $2,300,000 of the net proceeds had been used to pay all of the principal and accrued interest on a note payable to PNC Bank in connection with a bridge loan and (iii) $4,200,000 of the net proceeds had been used to purchase property and equipment. The remainder of the net proceeds of the Offering have been invested in short-term, interest-bearing, investment grade securities. The entire amount of the net proceeds has been allocated for working capital and general corporate purposes. None of the proceed amounts were paid directly or indirectly to any director, officer, or general partner of the Company or its associates, persons owning 10 percent or more of any class of equity securities of the Company, or affiliate of the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were submitted to the stockholders at CareerBuilder's Annual Meeting of Stockholders held on May 11, 2000. Each of these matters were approved by a majority of the shares present at the meeting. 28 29 1. The uncontested election of two Class I directors for a three-year term expiring in 2003 and until their successors are duly elected and qualified. The following is a summary of the nominees and voting results:

CareerBuilder's Board of Directors is currently comprised of five members that are divided into three classes with overlapping three-year terms. The term for Class II director Gary C. Butler will expire at the annual meeting of stockholders to be held in 2001, and the term for Class III directors Robert J. McGovern and James A. Tholen will expire at the annual meeting of stockholders to be held in 2002. 2. The ratification of the selection of KPMG LLP as the independent auditors of CareerBuilder for the year ending December 31, 2000. Results of the voting included 18,111,487 shares for, 12,050 shares against, and 9,519 shares abstained. ITEM 5: OTHER INFORMATION On July 16, 2000, CareerBuilder, Inc. (the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Career Holdings, Inc. and CB Acquisition Corp. (the "Sub"), each a newly formed Delaware corporation that is directly or indirectly owned jointly by Tribune Company ("TC"), a Delaware corporation, and Knightridder.com ("KR"), a Delaware corporation and wholly owned subsidiary of Knight Ridder, Inc. Under the Merger Agreement, Sub commenced on July 25, 2000, a tender offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $0.001 per share, of the Company (the "Shares"), at a purchase price of $8.00 per Share, net to the seller in cash, without interest thereon (the "Offer Price"). Pursuant to the Merger Agreement, following the completion of the Offer and the satisfaction or waiver of certain other conditions, Sub will be merged with and into the Company (the "Merger") with the Company being the surviving corporation. In the Merger, each outstanding Share (other than (i) Shares held by the Company, (ii) Shares held by Parent or its wholly owned subsidiaries, and (iii) Dissenting Shares (as defined in the Merger Agreement))will be converted into the right to receive the Offer Price. In connection with the Merger Agreement, TC, KR and Parent entered into an Investment Agreement dated July 16, 2000 (the "Investment Agreement"), to which the Company is an express third party beneficiary. The Offer is conditioned on, among other things, Tribune and Knight Ridder acquiring at least a majority of the outstanding stock of CareerBuilder on a fully diluted basis. Holders of approximately 44% of the outstanding shares of CareerBuilder have entered in stockholder agreements (the "Stockholder Agreements") pursuant to which they have agreed to tender their shares in the offer and to vote their shares in favor of the merger agreement and against any other transaction, subject to the provisions of the Stockholder Agreement. The transaction is subject to other customary conditions, including Hart-Scott-Rodino Act anti-trust clearance. A copy of each of the Merger Agreement, the Investment Agreement, a form of the Stockholder Agreement and the press release announcing the transaction are filed on a current report on Form 8-K filed by the Company on July 18, 2000. Please note that there can be no assurance that the conditions to the Offer will be met or that they Merger will be consummated. 29 30 The Company, the members of its Board of Directors, Knight-Ridder, Inc. and Tribune Company were named as defendants in two shareholder lawsuits, (i) Caroline Teitelbaum v. Peter J. Barris, David C. Wetmore, Gary C. Butler, Robert J. McGovern, James A. Tholen, CareerBuilder, Inc., CB Acquisition Corp., Career Holdings, Inc., Knight-Ridder, Inc. and Tribune Company, and (ii) Charles Smith v. Robert J. McGovern, James A. Winchester, Peter J. Barris, David C. Wetmore, Gary C. Butler, CareerBuilder, Inc., Knight-Ridder, Inc. and Tribune Company, filed on July 18 and July 25, 2000, respectively, in the Court of Chancery of the state of Delaware in connection with the proposed acquisition of the Company by affiliates of Knight-Ridder, Inc. and Tribune Company. Each of the lawsuits in general alleges that the members of the Company's Board of Directors have breached their fiduciary duties by approving the transaction and that the consideration received by the Company's shareholders in connection with the transaction would be inadequate. The plaintiffs seeks injunctive relief against the transaction or if consummated, recission of the transaction and/or damages. CareerBuilder believes that the lawsuits are without merit and intend to defend the claims vigorously. 30 31 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits

--------------- * Incorporated by reference to the exhibit of the same number filed with the Company's Current Report on Form 8-K filed on July 18, 2000. (b) Reports on Form 8-K. While there were no 8-K forms filed for the three months ended June 30, 2000, there was an 8-K filed on July 18, 2000 for the tender offer filed by Tribune Company and KnightRidder.com 31 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 2000 CAREERBUILDER, INC. By: /s/ ROBERT J. MCGOVERN ------------------------------------ Robert J. McGovern Chief Executive Officer By: /s/ JAMES A. THOLEN ------------------------------------ James A. Tholen Chief Financial Officer (Principal Financial and Accounting Officer) 32 33 EXHIBIT INDEX

--------------- * Incorporated by reference to the exhibit of the same number filed with the Company's Current Report on Form 8-K filed on July 18, 2000. 33

CAREERBUILDER INC 10-Q