UNITED STATES
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 March 31, 2003
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: 000-29575
HOTELS.COM
| DELAWARE | 75-2817683 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
10440 North Central Expressway
Suite 400
Dallas, Texas 75231
(Address of principal executive offices)
214-361-7311
(Registrant’s telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 1, 2003.
| Class | ||||
Class A Common Stock |
18,084,045 | |||
Class B Common Stock |
38,999,100 |
HOTELS.COM
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS
| Page | ||||||
| PART I – FINANCIAL INFORMATION | ||||||
| Item 1. | Condensed Consolidated Financial Statements |
3 | ||||
Condensed Consolidated Balance Sheets as of March 31, 2003
(unaudited) and December 31, 2002 |
3 | |||||
Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002 |
4 | |||||
Unaudited Condensed Consolidated Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2003 |
5 | |||||
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002 |
6 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements |
7 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results
of Operations |
11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
19 | ||||
| Item 4. | Controls and Procedures |
19 | ||||
| PART II – OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings |
20 | ||||
| Item 2. | Changes in Securities and Use of Proceeds |
21 | ||||
| Item 6. | Exhibits and Reports on Form 8-K |
22 | ||||
| SIGNATURES | 23 | |||||
| EXHIBIT INDEX | 26 | |||||
PART I – FINANCIAL INFORMATION
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
HOTELS.COM
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| March 31, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
||||||||||
CURRENT ASSETS |
||||||||||
Cash and cash equivalents |
$ | 57,357 | $ | 6,058 | ||||||
Restricted cash equivalents |
14,677 | 12,151 | ||||||||
Marketable securities – available for sale |
327,252 | 377,661 | ||||||||
Accounts and notes receivable |
16,004 | 12,680 | ||||||||
Prepaid hotel rooms |
549 | 55 | ||||||||
Current portion of non-cash deferred distribution and marketing costs |
7,878 | 8,245 | ||||||||
Deferred income taxes |
— | 2,022 | ||||||||
Other current assets |
7,205 | 6,464 | ||||||||
Total current assets |
430,922 | 425,336 | ||||||||
PROPERTY AND EQUIPMENT |
||||||||||
Computer equipment and software |
24,090 | 19,525 | ||||||||
Buildings and leasehold improvements |
1,949 | 1,397 | ||||||||
Furniture and other equipment |
4,167 | 3,800 | ||||||||
| 30,206 | 24,722 | |||||||||
Less accumulated depreciation and amortization |
(7,461 | ) | (6,084 | ) | ||||||
| 22,745 | 18,638 | |||||||||
OTHER ASSETS |
||||||||||
Goodwill, net of amortization of $97,780 at both March 31, 2003 and
December 31, 2002 |
369,964 | 369,743 | ||||||||
Non-cash deferred distribution and marketing costs |
9,306 | 11,263 | ||||||||
Intangible assets, net of amortization of $3,019 at March 31, 2003
and $2,392 at December 31, 2002 |
21,314 | 21,825 | ||||||||
Other
assets |
79 | 79 | ||||||||
| $ | 854,330 | $ | 846,884 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
CURRENT LIABILITIES |
||||||||||
Accounts payable, trade |
$ | 91,768 | $ | 74,664 | ||||||
Deferred revenue |
112,127 | 76,356 | ||||||||
Income tax payable |
15,333 | 7,445 | ||||||||
Intercompany payable |
2,844 | 1,856 | ||||||||
Other accrued liabilities |
19,210 | 22,829 | ||||||||
Total current liabilities |
241,282 | 183,150 | ||||||||
Deferred income taxes |
5,472 | 5,998 | ||||||||
COMMITMENTS AND CONTINGENCIES |
— | — | ||||||||
STOCKHOLDERS’ EQUITY |
||||||||||
Preferred stock, $0.01 par value; 20,000,000 shares authorized, none
outstanding |
— | — | ||||||||
Class A common stock, $0.01 par value; 600,000,000 shares
authorized, 19,443,325 shares and 19,340,346 issued at March 31, 2003 and December 31, 2002, respectively, 17,893,325 shares and
19,340,346 shares outstanding at March 31, 2003 and December 31, 2002,
|
||||||||||
respectively |
195 | 194 | ||||||||
Class B common stock, $0.01 par value; 150,000,000 shares
authorized, 38,999,100 shares outstanding at March 31, 2003 and
December 31, 2002, respectively |
390 | 390 | ||||||||
Treasury stock (1,550,000 share at March 31, 2003) |
(73,480 | ) | — | |||||||
Additional paid-in capital |
561,582 | 556,876 | ||||||||
Accumulated other comprehensive gain |
309 | 326 | ||||||||
Retained earnings |
118,580 | 99,950 | ||||||||
Total stockholders’ equity |
607,576 | 657,736 | ||||||||
| $ | 854,330 | $ | 846,884 | |||||||
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 | |||||||||||
| Ended March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Net revenues |
$ | 277,427 | $ | 165,712 | |||||||
Cost of sales |
194,008 | 113,397 | |||||||||
Gross profit |
83,419 | 52,315 | |||||||||
Operating expenses: |
|||||||||||
Selling, general and administrative |
49,420 | 26,521 | |||||||||
Non-cash distribution and marketing |
4,661 | 6,072 | |||||||||
Non-cash compensation |
89 | — | |||||||||
Depreciation |
1,377 | 665 | |||||||||
Amortization – intangible assets |
626 | 289 | |||||||||
Total operating expenses |
56,173 | 33,547 | |||||||||
Income from operations |
27,246 | 18,768 | |||||||||
Other income: |
|||||||||||
Interest |
1,414 | 1,131 | |||||||||
Income before income tax expense |
28,660 | 19,899 | |||||||||
Income tax expense |
(10,030 | ) | (6,965 | ) | |||||||
Net income |
$ | 18,630 | $ | 12,934 | |||||||
Basic earnings per common share |
$ | 0.33 | $ | 0.22 | |||||||
Diluted earnings per common share |
$ | 0.32 | $ | 0.22 | |||||||
Weighted average number of basic common shares outstanding |
57,066 | 57,531 | |||||||||
Weighted average number of diluted common shares
outstanding |
57,563 | 58,445 | |||||||||
The accompanying notes are an integral part of these statements.
4
HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
| Class A Common | Class B Common | Accumulated | ||||||||||||||||||||||||||||||||||
| Total | Stock | Stock | Additional | Other | ||||||||||||||||||||||||||||||||
| Stockholders' | Treasury | Paid-in | Retained | Comprehensive | ||||||||||||||||||||||||||||||||
| Equity | Shares | $ | Shares | $ | Stock | Capital | Earnings | Income (Loss) | ||||||||||||||||||||||||||||
Balance at January 1, 2003 |
$ | 657,736 | 19,340,346 | $ | 194 | 38,999,100 | $ | 390 | $ | — | $ | 556,876 | $ | 99,950 | $ | 326 | ||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||
Net income for the three
months ended March 31,
2003 |
18,630 | 18,630 | ||||||||||||||||||||||||||||||||||
Accumulated other
comprehensive loss, net
of taxes of $9 |
(17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income |
18,613 | |||||||||||||||||||||||||||||||||||
Issuance of common stock
upon exercise of warrants |
2,337 | 41,198 | — | 2,337 | ||||||||||||||||||||||||||||||||
Issuance of common stock
upon exercise of options |
1,801 | 61,781 | 1 | 1,800 | ||||||||||||||||||||||||||||||||
Stock-based compensation |
89 | 89 | ||||||||||||||||||||||||||||||||||
Income tax benefit
related to stock options
exercised |
480 | 480 | ||||||||||||||||||||||||||||||||||
Purchase of Treasury stock |
(73,480 | ) | (1,550,000 | ) | (73,480 | ) | ||||||||||||||||||||||||||||||
Balance at March 31, 2003 |
$ | 607,576 | 17,893,325 | $ | 195 | 38,999,100 | $ | 390 | $ | (73,480 | ) | $ | 561,582 | $ | 118,580 | $ | 309 | |||||||||||||||||||
The accompanying notes are an integral part of these statements.
5
HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| Three Months | |||||||||||
| Ended March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net income |
$ | 18,630 | $ | 12,934 | |||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
|||||||||||
Depreciation |
1,377 | 665 | |||||||||
Amortization – intangible assets |
626 | 289 | |||||||||
Non-cash deferred distribution and marketing costs |
4,661 | 6,072 | |||||||||
Non-cash compensation |
89 | — | |||||||||
Deferred income taxes |
1,496 | 3,203 | |||||||||
Income tax benefit upon exercise of employee
stock options |
480 | 3,246 | |||||||||
Changes in current assets and liabilities, net of
acquisitions: |
|||||||||||
Restricted cash equivalents |
(2,526 | ) | (2,945 | ) | |||||||
Accounts and notes receivable |
(3,324 | ) | (4,838 | ) | |||||||
Prepaid hotel rooms |
(494 | ) | 783 | ||||||||
Other current assets |
(741 | ) | (827 | ) | |||||||
Accounts payable, trade |
17,104 | 13,152 | |||||||||
Deferred revenue |
35,771 | 44,903 | |||||||||
Income tax payable |
7,898 | 506 | |||||||||
Intercompany payables |
988 | 590 | |||||||||
Other accrued liabilities |
(3,619 | ) | 830 | ||||||||
Net cash provided by operating activities |
78,416 | 78,563 | |||||||||
Cash flows from investing activities: |
|||||||||||
Acquisitions, net of cash acquired |
(221 | ) | (15 | ) | |||||||
Capital expenditures |
(5,484 | ) | (2,595 | ) | |||||||
Purchase of intangible assets |
(116 | ) | (2,094 | ) | |||||||
Net purchases of marketable securities |
— | (58,371 | ) | ||||||||
Net proceeds from sale of marketable securities |
50,383 | — | |||||||||
Other, net |
— | (23 | ) | ||||||||
Net cash provided by (used in) investing activities |
44,562 | (63,098 | ) | ||||||||
Cash flows from financing activities: |
|||||||||||
Purchase of treasury stock |
(73,480 | ) | — | ||||||||
Net proceeds from exercise of stock options |
1,801 | 6,806 | |||||||||
Net cash provided by (used in) financing activities |
(71,679 | ) | 6,806 | ||||||||
Net increase in cash and cash equivalents |
51,299 | 22,271 | |||||||||
Cash and cash equivalents at beginning of period |
6,058 | 44,269 | |||||||||
Cash and cash equivalents at end of period |
$ | 57,357 | $ | 66,540 | |||||||
Supplemental Cash Flow Information: |
|||||||||||
Cash paid for income taxes |
$ | 155 | $ | 11 | |||||||
Supplemental Disclosure of Non Cash Financing Information: |
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