SECURITIES AND EXCHANGE COMMISSION
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 September 30, 2002
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: 0-29575
HOTELS.COM
| DELAWARE (State or other jurisdiction of incorporation or organization) |
75-2817683 (I.R.S. Employer Identification No.) |
8140 Walnut Hill Lane
Suite 800
Dallas, Texas 75231
(Address of principal executive offices)
214-361-7311
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required 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 September 30, 2002.
| Class | ||||
Class A Common Stock |
18,810,751 | |||
Class B Common Stock |
38,999,100 |
HOTELS.COM
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
| Page No. | ||||||
PART I — FINANCIAL INFORMATION |
||||||
Item 1. Condensed Consolidated Financial Statements |
||||||
Condensed Consolidated Balance Sheets as of September 30,
2002 (unaudited) and December 31, 2001 |
3 | |||||
Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and 2001 |
4 | |||||
Unaudited
Condensed Consolidated Statement of
Stockholders’ Equity for the Nine Months Ended September 30,
2002 |
5 | |||||
Unaudited Condensed Consolidated Statements of Cash Flow for
the Nine Months Ended September 30, 2002 and 2001 |
6 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements |
7 | |||||
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
9 | |||||
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
16 | |||||
Item 4. Controls and Procedures |
17 | |||||
PART II — OTHER INFORMATION |
||||||
Item 1. Legal Proceedings |
18 | |||||
Item 6. Exhibits and Reports on Form 8-K |
18 | |||||
SIGNATURES |
19 | |||||
CERTIFICATIONS |
20 | |||||
PART I — FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
HOTELS.COM
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| September 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | ||||||||||||
| ASSETS | ||||||||||||
CURRENT ASSETS |
||||||||||||
Cash and cash equivalents |
$ | 2,404 | $ | 44,269 | ||||||||
Restricted cash equivalents |
12,117 | 9,107 | ||||||||||
Marketable securities — available for sale |
382,625 | 165,581 | ||||||||||
Accounts and notes receivable, net of allowance of $129 at September 30, 2002,
and $132 at December 31, 2001 |
14,048 | 7,096 | ||||||||||
Prepaid hotel rooms |
623 | 1,363 | ||||||||||
Current portion of non-cash deferred distribution and marketing costs |
8,272 | 10,195 | ||||||||||
Deferred income taxes |
4,098 | 4,740 | ||||||||||
Other |
8,027 | 4,712 | ||||||||||
Total current assets |
432,214 | 247,063 | ||||||||||
PROPERTY AND EQUIPMENT |
||||||||||||
Computer equipment and software |
15,873 | 7,862 | ||||||||||
Buildings and leasehold improvements |
1,115 | 995 | ||||||||||
Furniture and other equipment |
3,284 | 2,597 | ||||||||||
| 20,272 | 11,454 | |||||||||||
Less accumulated depreciation and amortization |
(4,949 | ) | (2,755 | ) | ||||||||
| 15,323 | 8,699 | |||||||||||
OTHER ASSETS |
||||||||||||
Goodwill |
362,504 | 362,464 | ||||||||||
Non-cash deferred distribution and marketing costs, less current portion |
13,785 | 19,508 | ||||||||||
Intellectual property, net of amortization of $1,755 at September 30, 2002 and
$371 at December 31, 2001 |
22,037 | 10,834 | ||||||||||
Other assets |
31 | 8 | ||||||||||
| $ | 845,894 | $ | 648,576 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES |
||||||||||||
Accounts payable, trade |
$ | 92,038 | $ | 53,679 | ||||||||
Deferred revenue |
93,245 | 37,679 | ||||||||||
Income tax payable |
16,706 | 1,736 | ||||||||||
Intercompany payable |
1,345 | 1,394 | ||||||||||
Other accrued liabilities |
16,288 | 9,759 | ||||||||||
Total current liabilities |
219,622 | 104,247 | ||||||||||
DEFERRED INCOME TAXES |
5,144 | 2,441 | ||||||||||
COMMITMENTS AND CONTINGENCIES |
— | — | ||||||||||
STOCKHOLDERS’ EQUITY |
||||||||||||
Preferred stock, $.01 par value; 20,000,000 shares authorized,
none outstanding |
— | — | ||||||||||
Class A common stock, $.01 par value; 600,000,000 shares authorized,
18,810,751 and 18,138,452 shares outstanding at September 30, 2002, and
December 31, 2001, respectively |
188 | 182 | ||||||||||
Class B common stock, $.01 par value; 150,000,000 shares authorized,
38,999,100 shares outstanding at September 30, 2002 and December 31, 2001 |
390 | 390 | ||||||||||
Additional paid-in capital |
538,277 | 513,456 | ||||||||||
Accumulated other comprehensive income (loss) |
56 | (1 | ) | |||||||||
Retained earnings |
82,217 | 27,861 | ||||||||||
Total stockholders’ equity |
621,128 | 541,888 | ||||||||||
| $ | 845,894 | $ | 648,576 | |||||||||
The accompanying notes are an integral part of these statements.
3
HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
| Three Months | Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Revenues |
$ | 277,386 | $ | 151,241 | $ | 672,814 | $ | 394,829 | ||||||||
Cost of revenues |
192,233 | 105,692 | 466,754 | 274,755 | ||||||||||||
Gross profit |
85,153 | 45,549 | 206,060 | 120,074 | ||||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative |
45,661 | 23,774 | 107,920 | 61,483 | ||||||||||||
Non-cash distribution and marketing |
4,748 | 3,547 | 14,856 | 12,211 | ||||||||||||
Amortization of goodwill |
— | 11,827 | — | 34,610 | ||||||||||||
Depreciation |
612 | 265 | 1,562 | 701 | ||||||||||||
Amortization—other |
843 | 241 | 2,142 | 496 | ||||||||||||
Total operating expenses |
51,864 | 39,654 | 126,480 | 109,501 | ||||||||||||
Income from operations |
33,289 | 5,895 | 79,580 | 10,573 | ||||||||||||
Interest and other income, net |
1,462 | 1,979 | 4,113 | 6,927 | ||||||||||||
Loss from disposition of assets |
— | — | (68 | ) | — | |||||||||||
Income before income tax expense |
34,751 | 7,874 | 83,625 | 17,500 | ||||||||||||
Income tax expense |
12,162 | 6,268 | 29,269 | 9,398 | ||||||||||||
Net income |
$ | 22,589 | $ | 1,606 | $ | 54,356 | $ | 8,102 | ||||||||
Basic earnings per common share |
$ | 0.39 | $ | 0.03 | $ | 0.94 | $ | 0.14 | ||||||||
Diluted earnings per common share |
$ | 0.39 | $ | 0.03 | $ | 0.93 | $ | 0.14 | ||||||||
Weighted average number of shares
used to compute basic earnings per
common share |
57,809 | 56,989 | 57,687 | 56,260 | ||||||||||||
Weighted average number of shares
used to compute diluted earnings
per common share |
58,408 | 57,469 | 58,463 | 57,160 | ||||||||||||
The accompanying notes are an integral part of these statements.
4
HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
| Class A | Additional | Accumulated Other | |||||||||||||||||||||||
| Common | Class B | Paid-In | Comprehensive | Retained | |||||||||||||||||||||
| Total | Stock | Common Stock | Capital | Income (Loss) | Earnings | ||||||||||||||||||||
Balance at January 1, 2002 |
$ | 541,888 | $ | 182 | $ | 390 | $ | 513,456 | $ | (1 | ) | $ | 27,861 | ||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||
Net income for the three
months ended March 31,
2002 |
12,934 | — | — | — | 12,934 | ||||||||||||||||||||
Other comprehensive loss |
(263 | ) | (263 | ) | |||||||||||||||||||||
Comprehensive income |
12,671 | ||||||||||||||||||||||||
Net income for the three
months ended June 30,
2002 |
18,833 | 18,833 | |||||||||||||||||||||||
Other comprehensive income |
225 | 225 | |||||||||||||||||||||||
Comprehensive income |
19,058 | ||||||||||||||||||||||||
Net income for the three
months ended September
30, 2002 |
22,589 | 22,589 | |||||||||||||||||||||||
Other comprehensive income |
95 | 95 | |||||||||||||||||||||||
Comprehensive income |
22,684 | ||||||||||||||||||||||||
Issuance of common stock upon
exercise of warrants by
Internet affiliates |
6,347 | 1 | 6,346 | ||||||||||||||||||||||
Issuance of common stock upon
exercise of options |
12,212 | 5 | 12,207 | ||||||||||||||||||||||
Income tax benefit related to
stock options exercised |
5,407 | 5,407 | |||||||||||||||||||||||
Contribution from USA |
861 | 861 | |||||||||||||||||||||||
Balance at September 30, 2002 |
$ | 621,128 | $ | 188 | $ | 390 | $ | 538,277 | $ | 56 | $ | 82,217 | |||||||||||||
The accompanying notes are an integral part of these statements.
5
HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
| Nine Months | |||||||||||
| Ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Cash flow from operating activities: |
|||||||||||
Net income |
$ | 54,356 | $ | 8,102 | |||||||
Adjustment to reconcile net income to net cash provided by operating
activities: |
|||||||||||
Depreciation |
1,562 | 701 | |||||||||
Amortization — other |
2,142 | 496 | |||||||||
Amortization of goodwill |
— | 34,610 | |||||||||
Non-cash distribution and marketing |
14,856 | 12,211 | |||||||||
Loss from disposition of assets |
68 | — | |||||||||
Deferred income taxes |
3,344 | 7,492 | |||||||||
Changes in operating assets and liabilities, net of acquisitions |
|||||||||||
Restricted cash equivalent |
(3,010 | ) | (1,464 | ) | |||||||
Accounts and notes receivable |
(6,952 | ) | (162 | ) | |||||||
Prepaid hotel rooms |
740 | 384 | |||||||||
Accounts payable, trade |
38,359 | 19,231 | |||||||||