BELLEVUE, Wash., Feb. 15 \/PRNewswire-FirstCall\/ — Expedia, Inc. (NASDAQ: EXPE) today announced financial results for its fourth quarter and year ended December 31, 2005.<\/p>\n
<\/p>\n
“Despite a fiercely competitive environment, headwinds in the hotel and airline industries and a mid-year spin-off, Expedia, Inc. delivered meaningful bookings, earnings and free cash flow for its stockholders in 2005,” said Expedia, Inc. Chairman and Senior Executive Barry Diller. “The Company approaches its second decade of operations with a solid foundation-a complementary portfolio of industry-leading brands, a broad and growing geographic footprint and an experienced, energized and focused management team.”<\/p>\n
<\/p>\n
“While the fourth quarter wasn’t as strong as we hoped it would be, The Expedia\u00ae Promise, Best Price Guarantee and Expedia\u00ae Trip Guides are fitting additions to what was a solid operational and financial year,” said Dara Khosrowshahi, Expedia, Inc.’s CEO and President. “These innovations are just the latest signposts marking Expedia’s multi-year evolution from efficient transaction engine to world class retailer of travel products and services. We are investing to transform the way travelers plan, purchase and enjoy their trips — again.”<\/p>\n
<\/p>\n
Financial Summary (figures in $MM's, except per share amounts)\n ::::::::::::::_\n 3 Months 3 Months Year Year\n Ended Ended Y \/ Y Ended Ended Y \/ Y\n Measure 12.31.05 12.31.04 Change 12.31.05 12.31.04 Change\n ::::::::::::::_\n Gross bookings $3,395.1 $2,894.9 17% $15,551.5 $12,773.9 22%\n ::::::::::::::_\n Revenue 494.7 439.0 13% 2,119.5 1,843.0 15%\n ::::::::::::::_\n Gross profit 384.5 342.6 12% 1,648.7 1,452.7 13%\n ::::::::::::::_\n Operating income\n before\n amortization* 132.9 143.3 (7%) 627.4 553.7 13%\n ::::::::::::::_\n Operating income 85.7 70.0 22% 397.1 240.5 65%\n ::::::::::::::_\n Adjusted net\n income * 72.7 91.9 (21%) 415.8 366.9 13%\n ::::::::::::::_\n Adjusted EPS * $0.20 $0.27 (26%) $1.18 $1.08 9%\n ::::::::::::::_\n Net income 25.2 44.1 (43%) 228.7 163.5 40%\n ::::::::::::::_\n Diluted EPS $0.07 $0.13 (46%) $0.65 $0.48 35%\n ::::::::::::::_\n Free cash flow * (105.2) 72.4 N\/A 797.6 749.4 6%\n ::::::::::::::_<\/pre>\n<\/p>\n
* “Operating income before amortization,” “Adjusted net income,” “Adjusted EPS” and “Free cash flow” are non-GAAP measures as defined by the Securities and Exchange Commission (the “SEC”). Please see “Definitions of Non-GAAP Measures” and “Tabular Reconciliations for Non-GAAP Measures” for an explanation of non-GAAP measures used throughout this release. Please also see “Basis of Presentation” below for additional information on financial results presented throughout this release.<\/p>\n
<\/p>\n
Discussion of Results - Fourth Quarter 2005<\/pre>\nGross Bookings & Revenue<\/p>\n
<\/p>\n
Gross bookings increased 17% for the fourth quarter 2005 compared with fourth quarter 2004. Domestic gross bookings increased 14% and international gross bookings increased 31%, or 38% excluding the impact of year-over-year changes in foreign exchange.<\/p>\n
<\/p>\n
Revenue increased 13% during the quarter, primarily driven by increased worldwide merchant hotel revenue, acquisitions and growth in our car rental business. Fourth quarter domestic revenue increased 8% and international revenue grew 30%, a reduced rate of growth compared with the first three quarters of 2005, reflecting continued challenges in the travel and competitive environments in Europe, particularly in the U.K., and the impact of foreign exchange.<\/p>\n
<\/p>\n
Worldwide merchant hotel revenue, which accounts for over 90% of worldwide hotel revenue, increased 9% for the fourth quarter, driven by 12% growth in room nights stayed, including rooms delivered as a component of vacation packages. Revenue per room night decreased 2%, resulting from a contraction in hotel raw margins (defined as hotel net revenue as a percentage of hotel gross bookings), partially offset by a 4% increase in average daily rates (“ADRs”).<\/p>\n
<\/p>\n
Worldwide air revenues decreased 4% during the quarter, due to an 11% decrease in revenue per air ticket, partially offset by an 8% increase in air tickets sold. The revenue per ticket decrease was more pronounced in the merchant air business, reflecting less inventory allocation and lower discounting of merchant air tickets, as the industry hit record load factors during the quarter.<\/p>\n
<\/p>\n
Revenue as a percentage of gross bookings (“revenue margin”) was 14.6% for the fourth quarter, down 59 basis points compared with fourth quarter 2004 and similar to the 58 basis point year-over-year decline experienced in the third quarter of 2005. Domestic revenue margin was down 72 basis points, while international was down 13 basis points. The fourth quarter decline in worldwide revenue margin was due primarily to lower domestic hotel margin and lower domestic air revenue per ticket, partially offset by higher revenue margins associated with our destination services businesses. In addition, average airfares increased 7% year-over-year, which has the effect of increasing gross bookings without a corresponding increase in per ticket air revenues as our remuneration generally does not vary with the cost of the ticket.<\/p>\n
<\/p>\n
Profitability<\/p>\n
<\/p>\n
Gross profit for the fourth quarter was $385 million, up $42 million, or 12% from fourth quarter 2004. Gross margin was down 33 basis points to 77.7%, driven by the inclusion of lower gross margin revenue from an acquired destination services company, which records its event ticketing revenue on a gross basis. Excluding this acquisition, gross margin would have increased 45 basis points.<\/p>\n
<\/p>\n
Operating Income Before Amortization (“OIBA”) decreased 7% to $133 million, driven by the Company’s more even distribution of selling and marketing expense throughout the year versus the prior year, hiring in our market management teams, increased general and administrative expenses to support the Company’s spin-off as an independent public company and increased hiring in our technology teams. OIBA as a percentage of revenue was down 577 basis points to 26.9% reflecting higher growth in operating expenses as compared to revenue growth during the quarter, and lower gross margin.<\/p>\n
<\/p>\n
Operating income grew 22% during the quarter to $86 million. Operating income growth was greater than OIBA growth due to a $25 million reduction in stock-based compensation expense and relatively flat amortization of intangibles expense.<\/p>\n
<\/p>\n
Adjusted net income and net income for the fourth quarter both decreased by $19 million compared to the same period in 2004. Adjusted net income declined due to lower operating income before amortization, lower interest income and a higher effective tax rate. Net income declined due to an $18 million unrealized loss on derivative liabilities, lower interest income and a higher effective tax rate, partially offset by higher operating income. Adjusted EPS was $0.20 for the fourth quarter, and diluted EPS was $0.07.<\/p>\n
<\/p>\n
Cash Flows & Working Capital<\/p>\n
<\/p>\n
For the three months ended December 31, 2005, net cash used in operating activities was $94 million. Free cash flow was negative $105 million. Both net cash used in operating activities and free cash flow for the quarter were negatively impacted by the timing of processing supplier payments.<\/p>\n
<\/p>\n
Discussion of Results - Full Year 2005<\/pre>\nGross Bookings & Revenue<\/p>\n
<\/p>\n
Gross bookings for 2005 increased 22% compared with 2004. Domestic gross bookings increased 15% and international gross bookings increased 50%, or 48% excluding the impact of year-over-year movements in foreign exchange. Revenue increased 15%, with domestic revenue increasing 8% and international revenue increasing 48%.<\/p>\n
<\/p>\n
Worldwide merchant hotel revenue for 2005 increased 10%, driven by a 9% increase in room nights and a 1% increase in revenue per room night. The increase in revenue per room night was fueled by a 7% increase in ADRs, offset by a contraction in hotel raw margin.<\/p>\n
<\/p>\n
Worldwide air revenue increased 5% in 2005, driven by a 17% increase in air tickets sold, offset by an 11% decline in air revenue per ticket. As in the fourth quarter, the decline in revenue per ticket was more pronounced in the merchant air business.<\/p>\n
<\/p>\n
Revenue margin for the year decreased 80 basis points from 14.4% to 13.6%, due largely to the decreases in hotel raw margin and air revenue per ticket. As in the fourth quarter, the revenue margin decline was more pronounced in Expedia’s domestic operations, with revenue margin down 90 basis points, compared with a 21 basis point decline internationally.<\/p>\n
<\/p>\n
Profitability<\/p>\n
<\/p>\n
Gross profit increased 13% to $1.65 billion, while gross margin was 77.8%, a decrease of 103 basis points compared with 78.8% in 2004, again due primarily to inclusion of the destination services company revenues on a gross basis.<\/p>\n
<\/p>\n
OIBA increased 13% to $627 million, while OIBA margin was down 44 basis points to 29.6% due to the decrease in gross margin, partially offset by a decrease in selling and marketing expense as a percentage of revenue due to offline marketing efficiency at Expedia.com\u00ae and Hotwire\u00ae.<\/p>\n
<\/p>\n
Operating income increased 65% to $397 million, due to an $80 million decrease in stock-based compensation, increased revenue, relatively flat amortization of non-cash marketing and amortization expenses and a decrease in other operating expenses as a percentage of revenue.<\/p>\n
<\/p>\n
Adjusted net income and net income increased by $49 million and $65 million respectively, both due primarily to increases in operating income, partially offset by lower interest income and correspondingly higher taxes. Adjusted EPS was $1.18 for full-year 2005, and diluted EPS was $0.65.<\/p>\n
<\/p>\n
For additional information on income statement items for both the three and twelve month periods ended December 31, 2005, please see the “Income Statement Notes” elsewhere in this release.<\/p>\n
<\/p>\n
Cash Flows & Working Capital<\/p>\n
<\/p>\n
For the twelve months ended December 31, 2005, net cash provided by operating activities was $850 million. Free cash flow was $798 million. Both net cash provided by operating activities and free cash flow for 2005 include inflows of $339 million from the increases in accounts payable, accrued liabilities and deferred merchant bookings.<\/p>\n
<\/p>\n
Highlights<\/pre>\n— Expedia and Hotels.com entered into a three-year strategic
\npartnership with Marriott International. The innovative, long-term
\nagreement is designed to reward Expedia for delivering business to
\nhoteliers during off-peak travel periods. As part of the agreement,
\nMarriott will expand its direct connect technology agreement with
\nExpedia globally, and provide Expedia travelers greater access to
\nMarriott inventory.
\n— Expedia, Inc.’s international points of sale in Canada, the United
\nKingdom, Germany, France, Italy, The Netherlands, China, Australia and
\nother countries accounted for 23% of gross bookings and revenue in the
\nfourth quarter, up from 21% of gross bookings and 20% of revenue in the
\nprior year period. For full-year 2005, international points of sale
\naccounted for 22% of gross bookings and revenue, up from 18% and 17% in
\n2004.
\n— Expedia, Inc. travelers worldwide can now book reservations with over
\n25,000 merchant hotel properties, including more than 10,000
\ninternational properties in Europe and the Asia Pacific region. Over
\n30% of merchant properties are now fully direct-connected, offering
\nreal-time availability, rates and inventory on our websites, benefiting
\nExpedia’s travelers and suppliers.
\n— Hotels.com\u00ae grew gross bookings 16% in the fourth quarter, its fourth
\nstraight quarter of accelerating growth. With nearly $1.9 billion in
\nannual gross bookings Hotels.com would be the world’s fifth largest
\nonline travel brand on a stand-alone basis.
\n— Expedia travelers have created over 100,000 qualified reviews of hotel
\nstays covering over 15,000 distinct properties since the feature
\nlaunched. Traveler reviews provide valuable, differentiated content to
\nExpedia travelers.
\n— Expedia, Inc. launched its eighth Expedia-branded website,
\nhttp:\/\/www.expedia.com.au\/<\/a>. Australia-based travelers now have access to an
\nunprecedented set of features to help them make informed decisions in
\nchoosing a hotel property that best meets their needs from a selection
\nof over 60,000 properties worldwide.
\n— Expedia\u00ae Corporate Travel (“ECT”) grew gross bookings in 2005 by more
\nthan 90% to over $700 million. In addition, ECT also launched
\noperations in Canada, and continued to add clients during the fourth
\nquarter, including CVS-America’s largest retail pharmacy.
\n— TripAdvisor™, the largest global travel information and advice
\ndestination, launched international sites in the United Kingdom,
\nGermany, France, Italy and Spain. The Company also published its first
\noffline print guide, The TripAdvisor™ Insider Spring & Summer Travel
\nGuide. This free 24-page color guide features tips, stories, secrets
\nand reviews about this year’s most desirable locations, including
\nAustralia, Las Vegas, Paris, New York City, London, China, Prague and
\nVenezuela.
\n— Expedia, Inc. and the United Nations Foundation announced the launch of
\nWorld Heritage Alliance, an innovative joint initiative to promote
\nsustainable tourism and awareness of World Heritage sites and
\ncommunities around the world.<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF INCOME
\n(in thousands, except per share data)
\n(Unaudited)<\/p>\nThree months ended Year ended
\nDecember 31, December 31,
\n::::___ ::::___
\n2005 2004 2005 2004
\n:: :: :: ::<\/p>\nRevenue $494,749 $438,999 $2,119,455 $1,843,013
\nCost of revenue 110,242 96,366 470,716 390,318
\n:: :: :: ::
\nGross profit 384,507 342,633 1,648,739 1,452,695<\/p>\nOperating expenses:
\nSelling and marketing 155,330 129,019 697,503 653,018
\nGeneral and
\nadministrative 65,306 46,989 211,515 160,965
\nTechnology and content 30,931 23,334 112,280 85,020
\nAmortization of
\nintangibles 31,863 32,571 126,067 125,091
\nStock-based
\ncompensation 11,826 37,006 91,725 171,400
\nAmortization of
\nnon-cash distribution
\nand marketing 3,542 3,701 12,597 16,728
\n:: :: :: ::
\nOperating income 85,709 70,013 397,052 240,473<\/p>\nOther income (expense):
\nInterest income:
\nInterest income from
\nIAC\/InterActiveCorp — 13,444 40,089 30,851
\nOther interest income
\n(expense), net 1,194 1,301 8,584 7,505
\nWrite-off of
\nlong-term investment — — (23,426) —<\/p>\nOther (20,317) (12,192) (8,428) (9,286)
\n:: :: :: ::
\nTotal other income
\n(expense), net (19,123) 2,553 16,819 29,070
\n:: :: :: ::
\nEarnings before
\nincome taxes and
\nminority interest 66,586 72,566 413,871 269,543
\nProvision for
\nincome taxes (42,082) (28,634) (185,977) (106,371)
\nMinority interest in
\nloss of consolidated
\nsubsidiaries 730 188 836 301
\n:: :: :: ::
\nNet income $25,234 $44,120 $228,730 $163,473
\n========== ========== ========== ==========
\nNet earnings per share
\navailable to common
\nstockholders:
\nBasic $0.07 $0.13 $0.68 $0.49
\nDiluted $0.07 $0.13 $0.65 $0.48<\/p>\nShares used in computing
\nearnings per share:
\nBasic 339,746 335,540 336,819 335,540
\nDiluted 363,632 340,549 349,530 340,549<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED BALANCE SHEETS
\n(in thousands)
\n(Unaudited)<\/p>\nDecember 31,
\n:::::ampersand_lt;br \/> 2005 2004
\n:: ::<\/p>\nASSETS<\/p>\n
Current assets:
\nCash and cash equivalents $297,416 $141,668
\nRestricted cash and cash equivalents 23,585 13,889
\nAccounts and notes receivable,
\nnet of allowance of $3,914 and $2,338 174,019 143,905
\nReceivables from IAC\/InterActiveCorp
\nand subsidiaries — 1,874,745
\nDeferred income taxes — 8,696
\nPrepaid merchant bookings 30,655 28,151
\nPrepaid expenses and other current assets 64,569 34,803
\n:: ::
\nTotal current assets 590,244 2,245,857
\nProperty and equipment, net 90,984 81,426
\nLong-term investments and other assets 39,431 140,432
\nIntangible assets, net 1,176,503 1,279,361
\nGoodwill 5,859,730 5,790,111
\n:: ::
\nTOTAL ASSETS $7,756,892 $9,537,187
\n========== ==========
\nLIABILITIES AND STOCKHOLDERS’ EQUITY<\/p>\nCurrent liabilities:
\nAccounts payable, merchant $515,561 $429,739
\nAccounts payable, trade 127,260 98,666
\nDeferred merchant bookings 406,948 361,199
\nDeferred revenue 7,068 5,353
\nIncome tax payable 43,405 421
\nDeferred income taxes 3,178 —
\nShort-term borrowings 230,755 13
\nOther current liabilities 104,050 86,788
\n:: ::
\nTotal current liabilities 1,438,225 982,179
\nDeferred income taxes 368,880 333,696
\nDerivative liabilities 105,827 12,812
\nOther long-term liabilities 38,423 37,436
\nMinority interest 71,774 18,435<\/p>\nCommitments and contingencies<\/p>\n
Total stockholders’ equity 5,733,763 8,152,629
\n:: ::
\nTOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $7,756,892 $9,537,187
\n========== ==========<\/p>\nEXPEDIA, INC.
\nCONSOLIDATED STATEMENTS OF CASH FLOWS
\n(in thousands)
\n(Unaudited)<\/p>\nYear ended
\nDecember 31,
\n:::::::
\n2005 2004 2003
\n:___ :___ :___
\nOperating activities
\nNet income $228,730 $163,473 $111,407
\nAdjustments to reconcile net
\nincome to net cash provided
\nby operating activities:
\nDepreciation 50,445 44,066 34,772
\nAmortization of non-cash
\ndistribution and marketing 12,597 16,728 41,974
\nStock-based compensation 91,725 171,400 95,781
\nAmortization of intangibles 126,067 125,091 76,073
\nAmortization of premium
\non investment securities — 161 2,392
\nDeferred income taxes 16,147 (5,295) 774
\nUnrealized loss on
\nderivative instruments 6,042 — —
\nEquity in income of
\nunconsolidated affiliates (1,668) (175) (9)
\nMinority interest in (loss)
\nincome of consolidated
\nsubsidiaries (836) (301) 46,889
\nWrite-off of long-term investment 23,426 — —
\nOther 1,161 — —
\nChanges in current assets
\nand current liabilities:
\nAccounts and notes receivable (21,833) 10,904 (52,007)
\nPrepaid merchant bookings
\nand prepaid expenses (22,492) 3,038 (23,043)
\nAccounts payable and
\naccrued liabilities 293,618 225,679 221,550
\nDeferred merchant bookings 45,051 54,872 69,474
\nDeferred revenue 1,715 (2,463) 13,981
\nOther, net — (4,325) 4,015
\n:___ :___ :___
\nNet cash provided by
\noperating activities 849,895 802,853 644,023
\n:___ :___ :___
\nInvesting activities
\nAcquisitions, net of
\ncash acquired 10,547 (261,390) (704,885)
\nCapital expenditures (52,315) (53,407) (46,183)
\nPurchase of marketable securities (63) (5,015) (1,259,388)
\nProceeds from sale of
\nmarketable securities 1,000 722,646 1,329,408
\n(Increase) decrease in
\nlong-term investments
\nand deposits (369) (62,441) 9,960
\nTransfers to
\nIAC\/InterActiveCorp, net (757,206) (1,272,714) (548,356)
\nOther, net (2,937) (85) (32,093)
\n:___ :___ :___
\nNet cash used in
\ninvesting activities (801,343) (932,406) (1,251,537)
\n:___ :___ :___
\nFinancing activities
\nShort-term borrowings 230,735 — —
\nChanges in restricted cash
\nand cash equivalents (9,495) (2,319) (583)
\nProceeds from sale of stock,
\nincluding stock options 29,060 — 57,358
\nWithholding taxes for
\nstock option exercises (86,556) — —
\nPurchase of treasury stock — — (98,492)
\nContribution from
\n(distribution to)
\nIAC\/InterActiveCorp, net (52,844) 103,807 628,681
\nPrincipal payments on long-term
\nobligations — (2,860) —
\nOther, net (4,393) 8,692 (1,216)
\n:___ :___ :___
\nNet cash provided by
\nfinancing activities 106,507 107,320 585,748
\nEffect of exchange rate
\nchanges on cash and
\ncash equivalents 689 (13,768) (3,232)
\n:___ :___ :___
\nNet increase (decrease) in
\ncash and cash equivalents 155,748 (36,001) (24,998)
\nCash and cash equivalents
\nat beginning of period 141,668 177,669 202,667
\n:___ :___ :___
\nCash and cash equivalents
\nat end of period $297,416 $141,668 $177,669
\n======== ======== ========<\/p>\nIncome Statement Notes<\/p>\n
Revenue
\n— Expedia, Inc. makes travel products and services available on a
\nmerchant and agency basis. Merchant transactions typically produce a
\nhigher level of net revenues per transaction, and are generally
\nrecognized when the customer uses the travel product or service. Agency
\nrevenues are typically recognized at the time the reservation is
\nbooked.
\n— Agency gross bookings were 61% and 59% of total gross bookings for the
\nthree and twelve month periods ended December 31, 2005, compared with
\n61% and 58% for the respective prior year periods.<\/p>\nExpense Reclassifications
\n— As disclosed in our October 25, 2005 8-K\/A filing with the SEC, we have
\nreclassified certain expense amounts relating to prior periods’ results
\nto conform to our 2005 results presentation. The reclassifications did
\nnot affect our cash balances, cash flows, revenue, operating income or
\nnet income for any periods.<\/p>\nCost of Revenue
\n— Cost of revenue consists of: (1) credit card merchant fees; (2) fees
\npaid to fulfillment vendors for processing airline tickets and related
\ncustomer services; (3) reserves and related payments to airlines for
\ntickets purchased with fraudulent credit cards; (4) costs of our data
\nand call centers and (5) costs paid to suppliers for certain
\ndestination inventory.
\n— Cost of revenue as a percentage of revenue was 22% for each of the
\nthree and twelve month periods ended December 31, 2005, compared with
\n22% and 21% for the comparable three and twelve month periods in 2004.
\nThe increase for full year 2005 is largely due to lower gross margin
\nrevenues associated with our acquisition of a destination services
\nprovider in February 2005 which records its ticketing revenue on a
\ngross basis.
\n— Cost of revenue includes depreciation expense of $3 million and
\n$11 million for the three and twelve month periods ended December 31,
\n2005, and $3 million and $12 million for the comparable prior year
\nperiods.<\/p>\nOperating Expenses
\n— Operating expenses as a percentage of revenue for the three and twelve
\nmonth periods were as follows (differences due to rounding):<\/p>\nThree months Twelve months
\nended December 31, ended December 31,
\n:::___ :::___
\n2005 2004 2005 2004
\n: :_ :_ :
\nSelling and marketing 31.4% 29.4% 32.9% 35.4%
\nGeneral and administrative 13.2% 10.7% 10.0% 8.7%
\nTechnology and content 6.3% 5.3% 5.3% 4.6%
\n:_ :_ :_ :_
\nTotal 50.8% 45.4% 48.2% 48.8%<\/p>\n— Operating expenses include depreciation expense of $10 million and
\n$39 million for the three and twelve month periods ended December 31,
\n2005, and $8 million and $32 million for the comparable prior year
\nperiods.<\/p>\nSelling and Marketing
\no Selling and marketing expenses relate to direct advertising and
\ndistribution expense, including traffic generation from Internet
\nportals, search engines, private label and affiliate programs. The
\nremainder of the expense relates to personnel costs, including
\nmarket manager staffing in our Partner Services Group (“PSG”) to
\nenhance supplier relationships and destination services desk
\npersonnel.
\no The 2.0% year-over-year increase in selling and marketing as a
\npercentage of revenue for the fourth quarter was primarily due to
\nincreased personnel costs.
\no The 2.5% year-over-year decrease in selling and marketing expense as
\na percentage of revenue for 2005 was due to reduced offline spend at
\nour Expedia.com and Hotwire brands and keyword search efficiencies,
\npartially offset by the higher personnel costs associated with PSG
\nteam expansion and destination services staffing assumed in our
\nacquisitions. Fixed personnel costs increased 1.4% as a percentage
\nof revenue in 2005.
\no While we remain focused on optimizing the efficiency of our various
\nsales and marketing channels, we expect absolute amounts spent in
\nsales and marketing to increase over time due to continued expansion
\nof our international businesses, reduced opportunities for offline
\nspend efficiencies, inflation in search-related and other traffic
\nacquisition vehicles, increased marketing volumes and the increased
\nfixed costs associated with our market management staffing
\nincreases. In 2006 we expect selling and marketing expense to
\nincrease as a percentage of revenue.<\/p>\nGeneral and Administrative
\no General and administrative expense consists primarily of
\n(1) personnel-related costs for support functions that include our
\nexecutive leadership, finance, legal, tax and human resources
\nfunctions, and (2) fees for professional services that include
\nlegal, tax and accounting.
\no General and administrative expense increased 2.5% and 1.3% as a
\npercentage of revenue for the quarter and full-year as we built our
\nexecutive teams and supporting staff levels largely to support our
\nbecoming a public company.
\no We expect absolute amounts spent on corporate personnel and
\nprofessional service to increase over time as we add headcount and
\ncontinue incurring incremental costs as a stand-alone public
\ncompany.<\/p>\nTechnology and Content
\no Technology and content expense includes product development expenses
\nsuch as payroll and related expenses for localization, and
\ndepreciation of website development costs.
\no Technology and content expense was up 1.0% and 0.7% as a percentage
\nof sales for the quarter and full year as we increased our software
\ndevelopment and engineering teams, and increased our level of site
\ninnovation.
\no Given the increasing complexity of our business, geographic
\nexpansion, initiatives in corporate travel, increased supplier
\nintegration, service-oriented architecture improvements and other
\ninitiatives, we expect absolute amounts spent in technology and
\ncontent to increase over time.<\/p>\nStock-Based Compensation Expense
\n— Stock-based compensation expense relates primarily to expense for stock
\noptions and restricted stock units (“RSUs”). Since February 2003, we
\nhave awarded RSUs as our primary form of employee stock-based
\ncompensation. Our stock-based awards generally vest over periods
\nbetween four and five years.
\n— Stock-based compensation expense for the fourth quarter was
\n$12 million, consisting of $17 million in expense related to stock
\noptions and $9 million in expense related to RSUs and other equity
\ncompensation, reduced by $14 million due to a change in forfeiture rate
\nestimates and capitalization of software development costs.
\n— Stock-based compensation for 2005 was $92 million, consisting of
\n$94 million in expense related to stock options, $32 million related to
\nRSUs and $10 million related to other equity compensation. 2005 expense
\nwas reduced by a $44 million net credit due to a change in our
\nforfeiture rate assumption for stock awards partially offset by a
\nmodification charge on stock option awards related to the Spin-Off, a
\nchange in the forfeiture rate estimates for RSUs and other equity
\ncompensation and capitalization of software development costs.
\n— We anticipate stock-based compensation expense in 2006 and beyond will
\ndecrease from the $136 million in 2005 (prior to the reductions).<\/p>\nNet Interest Income
\n— The reduction in interest income from the date of the Spin-Off relates
\nto the extinguishment in the Spin-Off of interest-bearing Receivables
\nfrom IAC. We expect that interest income will decline substantially in
\nthe first two quarters of 2006 versus 2005 due to lower relative cash
\nbalances.<\/p>\nIncome Taxes
\n— From January 1, 2005 through August 8, 2005, we were a member of the
\nIAC\u00ae consolidated tax group. Accordingly, we will file a federal
\nincome tax return and certain state income tax returns on a combined
\nbasis with IAC for this period. IAC will pay the income tax liability
\nrelated to these filings; as such, these amounts are not included in
\nour income taxes payable. As of December 31, 2005, our current income
\ntax payable represents amounts that we anticipate paying to the IRS and
\nother tax authorities based on our income tax after the Spin-Off.
\nHowever, this amount may change based on actual returns to be filed by
\nExpedia and IAC in accordance with the Tax Sharing Agreement.
\n— We have computed income taxes using our stand-alone tax rate.
\n— The effective tax rates on pre-tax adjusted income were 45% and 38% for
\nthe three and twelve months ended December 31, 2005 compared to 37% in
\nthe prior year periods. Fourth quarter and annual effective tax rates
\nwere higher than the federal statutory rate of 35% principally due to
\nstate taxes and the impact of foreign taxes including valuation
\nallowance on foreign losses.
\n— The effective tax rates on income for US GAAP pre-tax net income were
\n63% and 45% for the three and twelve months ended December 31, 2005,
\nrespectively, compared to 39% in the prior year periods. The fourth
\nquarter and annual effective tax rates were higher than the federal
\nstatutory rate of 35% principally due to state taxes, non-deductible
\nstock compensation, and unrealized derivative losses. Additionally,
\nthe full year rate was impacted by a third quarter investment
\nimpairment.<\/p>\nForeign Exchange
\n— As Expedia, Inc.’s reporting currency is the U.S. Dollar (“USD”),
\nreported financial results are affected by strength or weakness in the
\nUSD in comparison to the currencies of our international websites.
\nManagement believes investors may find it useful to assess 2005 growth
\nrates with and without the impact of foreign exchange. The estimated
\nimpact of foreign exchange was as follows:<\/p>\nThree Impact Twelve Impact
\nmonths Y\/Y on Y\/Y months Y\/Y on Y\/Y
\nended growth growth ended growth growth
\nDec. 31, rates rates Dec. 31, rates rates
\n2005 Y\/Y excluding from 2005 Y\/Y excluding from
\ngrowth foreign foreign growth foreign foreign
\nrates exchange exchange rates exchange exchange
\nmovements movements movements movements
\n::::::____ ::::::
\nGross
\nBookings 17.3% 18.6% (1.3%) 21.7% 21.4% 0.3%
\nRevenue 12.7% 13.8% (1.1%) 15.0% 15.4% (0.4%)
\nOperating
\nIncome 22.4% 23.4% (1.0%) 64.7% 68.8% (4.1%)
\nOperating
\nIncome
\nBefore
\nAmortization (7.2%) (6.6%) (0.6%) 13.3% 15.1% (1.8%)<\/p>\nAcquisitions & Investments
\n— A number of acquisitions and investments were completed during 2004 and
\n2005 that affected financial results during the time periods included
\nin this release, specifically our acquisitions and investments in
\nTripAdvisor, Egencia (“ECT Europe”) Activity World and WTM (“ECT U.K.”)
\nin 2004, and eLong and Premier Getaways in 2005.
\n— Management believes that investors may find it useful to assess 2005
\ngrowth rates both with and without the impact of acquisitions and
\ninvestments. The estimated impact of these items was as follows:<\/p>\nImpact Impact
\nY\/Y on Y\/Y Y\/Y on Y\/Y
\ngrowth growth growth growth
\nThree rates rates Twelve rates rates
\nmonths excluding from months excluding from
\nended acqui- acqui- ended acqui- acqui-
\nDec. 31, sitions sitions Dec. 31, sitions sitions
\n2005 Y\/Y and and 2005 Y\/Y and and
\ngrowth invest- invest- growth invest- invest-
\nrates ments ments rates ments ments
\n::::::____ ::::::
\nGross
\nBookings 17.3% 15.1% 2.2% 21.7% 19.1% 2.6%
\nRevenue 12.7% 9.4% 3.3% 15.0% 11.0% 4.0%
\nOperating
\nIncome 22.4% 24.1% (1.7%) 65.1% 62.5% 2.6%
\nOperating
\nIncome
\nBefore
\nAmortization (7.2%) (6.7%) (0.5%) 13.3% 11.1% 2.2%<\/p>\nBalance Sheet Notes
\nCash, Cash Equivalents, Current and Restricted Cash
\n— Cash, cash equivalents and current restricted cash were $321 million at
\nDecember 31, 2005. This amount includes $24 million in restricted cash
\nand equivalents, which includes amounts reclassified from prior year.<\/p>\nReceivables from IAC
\n— In connection with the Spin-Off, we extinguished substantially all IAC
\nintercompany receivables by recording a distribution to IAC, as
\nexplained in our Registration Statement on Form S-4, filed on
\nJune 17, 2005.<\/p>\nAccounts Receivable
\n— Accounts receivable include credit card receivables generally due
\nwithin two to three days from credit card agencies, as well as
\nreceivables from agency transactions, which are generally due within 30
\ndays from our airlines, global distribution and hotel suppliers.
\n— These receivables generally track with our gross bookings pattern,
\nbuilding throughout the first half of the year and decreasing in the
\nsecond half.<\/p>\nPrepaid expenses and other current assets
\n— Prepaid expenses and other current assets are primarily composed of
\nprepaid marketing, merchant fees, fulfillment and other prepaid
\nexpenses. 2005 amounts increased $30 million from 2004 for several
\nincremental prepaids, the largest of which was $10 million related to a
\ncontribution of media time from IAC as part of the Spin-Off.<\/p>\nGoodwill & Intangible Assets, net
\n— Goodwill and intangible assets, net relate primarily to Expedia’s
\nacquisitions of Hotels.com\u00ae, Expedia.com\u00ae and Hotwire.com\u00ae.
\n— Amortization of intangible assets with definite lives was $32 million
\nand $126 million for the three and twelve months ended December 31,
\n2005, compared with $33 million and $125 million for the three and
\ntwelve month periods ended December 31, 2004. These amounts are
\ngenerally not deductible for tax purposes.<\/p>\nLong-Term Investments and Other
\n— The $53 million reduction in our long-term investments at December 31,
\n2005 versus December 31, 2004 reflects our consolidation of eLong after
\nexercising our warrants to increase our ownership to a majority
\ninterest in January 2005, and the Company’s $23 million write-off of a
\nminority investment in the third quarter, both of which were partially
\noffset by our 50% ownership interest in an aircraft through a capital
\ncontribution from IAC.<\/p>\nDeferred Merchant Bookings and Accounts Payable, Merchant
\n— Deferred merchant bookings consist of amounts received from travelers
\nwho have not yet traveled. The payment to suppliers related to these
\nbookings is not made until approximately one week after booking for air
\ntravel and, for all other merchant bookings, after the customer’s use
\nand subsequent billing from the supplier. Therefore, especially for
\nmerchant hotel, which represents over 90% of Expedia’s overall merchant
\nbookings, there is generally some period of time from the receipt of
\ncash from travelers to supplier payment.
\n— As long as the merchant hotel business continues to grow positively, as
\nit has historically, and our business model does not change, we expect
\nthat changes in working capital will continue to be positive. If this
\nbusiness declines or if the model changes, it would negatively affect
\nour working capital.
\n— For the twelve months ended December 31, 2005, the change in deferred
\nmerchant bookings and accounts payable and accrued liabilities
\ncontributed $339 million to cash flow from operating activities.<\/p>\nRevolving Credit Facility
\n— The Company maintains a $1 billion five-year unsecured revolving credit
\nfacility which bears interest based on our financial leverage,
\ncurrently priced at a rate equal to LIBOR plus 0.50%, or approximately
\n5% as of December 31, 2005. As of year-end we were in compliance with
\nall financial covenants governing the facility.
\n— As of December 31, 2005 our revolver balance was $230 million,
\nreflecting our seasonal low in gross bookings proceeds and the payment
\nof accounts payable from prior period merchant bookings. We anticipate
\nour cash balance will build in the first half of 2006, affording us the
\noption of eliminating our revolver balance.
\n— Interest and other expenses associated with the facility were
\napproximately $2 million for the quarter and year ended December 31,
\n2005. These amounts are classified in net interest income on the
\nstatements of income.<\/p>\nDerivative Liabilities
\n— In connection with IAC’s acquisition of Ask Jeeves\u00ae (“Ask”), we
\nissued 4.3 million shares of Expedia, Inc. common stock into an escrow
\naccount, which shares (or cash in equal value) were due to holders of
\nAsk convertible notes upon conversion. These shares have been included
\nin Expedia’s diluted shares outstanding from the date of spin.
\n— The estimated fair value of this obligation and certain stock warrants
\nat December 31, 2005 was $105 million, recorded as a derivative
\nliability on our balance sheet.
\n— For the three and twelve months ended December 31, 2005, we recorded
\nunrealized losses of $18 million and $6 million respectively,
\nprincipally related to the Ask liability, due to the increase in our
\nshare price during the fourth quarter, partially offset by a decrease
\nin the share price in the third quarter. These non-cash losses are
\nrecorded in “other income” on our statements of income.
\n— In January 2006, Ask debt holders converted notes in exchange for 2.5
\nmillion Expedia common shares held in escrow, leaving 1.8 million
\nshares remaining in escrow.
\n— We anticipate recording a quarterly gain or loss in future quarters
\nrelated to the remaining escrow shares as we adjust the fair value of
\nthese long-term liabilities due to fluctuations in our stock price. The
\nsize or incidence of such gains or losses is not predictable.<\/p>\nMinority Interest<\/p>\n
<\/p>\n
Minority interest relates principally to minority ownership positions in eLong, ECT Europe and TripAdvisor, which are consolidated for all 2005 periods.<\/p>\n
<\/p>\n
-- The increase in minority interest from December 31, 2004 to December\n 31, 2005 relates to our consolidation of eLong as of January 1, 2005.<\/pre>\nExpedia Class B Common Stock
\n— There are approximately 26 million shares of Expedia Class B common
\nstock outstanding. Class B holders are entitled to ten votes when
\nvoting on matters together with the holders of Expedia common and
\npreferred stock.
\n— Our Chairman has voting authority for the Class B shares, affording him
\na controlling, 53% voting interest in Expedia, Inc.<\/p>\nWarrants
\n— As of December 31, 2005 Expedia, Inc. had approximately 59 million
\nwarrants outstanding, which if exercised in full would entitle their
\nholders to acquire approximately 35 million common shares of Expedia,
\nInc. for an aggregate purchase price of approximately $774 million (an
\naverage $22.33 per Expedia, Inc. common share).
\n— 32 million of these warrants are privately held and expire in 2012, and
\n26 million warrants are publicly-traded and expire in 2009.
\n— There are fewer than 1 million miscellaneous warrants outstanding.<\/p>\nStock-Based Awards – Outstanding & Granted
\n— At December 31, 2005, there were approximately 33.5 million stock-based
\nawards outstanding, primarily consisting of 27.7 million stock options
\nwith a $15.71 weighted average exercise price and a weighted average
\nremaining life of 4.3 years, and 5.6 million restricted stock units.
\n— We granted approximately 0.5 million stock awards during the fourth
\nquarter, consisting of restricted stock units. In 2005 Expedia,
\nInc. and IAC granted approximately 7.3 million stock awards to
\nExpedia employees, consisting of 3.8 million options with a five-year
\ncliff vest granted to our Chairman and Senior Executive with a weighted
\naverage exercise price of $32.12, and approximately 3.5 million RSUs
\ngranted to other employees.<\/p>\nExpedia, Inc.
\nSupplemental Information – Fourth Quarter & Full-Year 2005
\n(All figures in $millions or millions)<\/p>\n— The following metrics are intended as a supplement to the financial
\nstatements found in this press release and in our filings with the SEC.
\nIn the event of discrepancies between amounts in these tables and our
\nhistorical financial statements, readers should rely on our SEC filings
\nand the financial statements in our releases.
\n— As our business evolves and as we integrate our operations, we intend
\nto periodically review and refine the definition, methodology and
\nappropriateness of each of our supplemental metrics. As a result, these
\nmetrics are subject to removal and \/ or change, and such changes could
\nbe material.
\n— “Expedia” gross bookings constitute bookings from all Expedia-branded
\nproperties, including our international sites and our worldwide
\nExpedia\u00ae Corporate Travel businesses. “Other” gross bookings
\nconstitute bookings from all brands other than Expedia-branded
\nproperties and Hotels.com.
\n— Metrics, with the exception of revenue items, include 100% of the
\nresults of an unconsolidated joint-venture of which we own
\napproximately 49.9%.
\n— These metrics do not include adjustments for one-time items,
\nacquisitions, foreign exchange or other adjustments.
\n— Some numbers may not add due to rounding.<\/p>\n2004
\nQ1 Q2 Q3 Q4
\n:_ :_ :_ :_<\/p>\nGross Bookings by Geography
\nDomestic $2,771 $2,753 $2,630 $2,301
\nInternational 564 526 636 594
\n:_ :_ :_ :_
\nTotal $3,334 $3,279 $3,266 $2,895<\/p>\nNet Revenue by Geography
\nDomestic $353 $415 $414 $350
\nInternational 60 72 89 89
\n:_ :_ :_ :_
\nTotal $413 $487 $504 $439<\/p>\nGross Bookings by Brand
\nExpedia $2,538 $2,505 $2,525 $2,310
\nHotels.com 494 470 461 351
\nOther 302 304 280 234
\n:_ :_ :_ :_
\nTotal $3,334 $3,279 $3,266 $2,895<\/p>\nGross Bookings by
\nAgency\/Merchant
\nAgency $1,824 $1,888 $1,875 $1,760
\nMerchant 1,510 1,392 1,391 1,135
\n:_ :_ :_ :_
\nTotal $3,334 $3,279 $3,266 $2,895<\/p>\nPackages Revenue $ 95 $107 $109 $ 94
\nNumber of Transactions 8.2 8.5 9.2 7.6
\nMerchant hotel room nights 7.0 8.3 9.1 7.4<\/p>\n2005 Full Year
\nQ1 Q2 Q3 Q4 2004 2005
\n:_ :__ :_ :_ :__ :_<\/p>\nGross Bookings
\nby Geography
\nDomestic $3,184 $3,224 $3,051 $2,614 $10,454 $12,073
\nInternational 902 909 887 781 2,320 3,479
\n:_ :__ :_ :_ :__ :_
\nTotal $4,086 $4,133 $3,938 $3,395 $12,774 $15,552<\/p>\nNet Revenue
\nby Geography
\nDomestic $386 $440 $457 $379 $1,533 $1,662
\nInternational 99 115 128 115 310 457
\n:_ :__ :_ :_ :__ :_
\nTotal $485 $555 $585 $495 $1,843 $2,119<\/p>\nGross Bookings
\nby Brand
\nExpedia $3,252 $3,191 $3,048 $2,679 $9,878 $12,169
\nHotels.com 483 497 502 407 1,775 1,890
\nOther 352 445 387 309 1,121 1,493
\n:_ :__ :_ :_ :__ :_
\nTotal $4,086 $4,133 $3,938 $3,395 $12,774 $15,552<\/p>\nGross Bookings by
\nAgency\/Merchant
\nAgency $2,386 $2,421 $2,297 $2,082 $7,346 $9,186
\nMerchant 1,700 1,712 1,640 1,314 5,428 6,366
\n:_ :__ :_ :_ :__ :_
\nTotal $4,086 $4,133 $3,938 $3,395 $12,774 $15,552<\/p>\nPackages Revenue $114 $124 $128 $106 $406 $472
\nNumber of
\nTransactions 9.6 10.1 10.4 8.7 33.4 38.8
\nMerchant hotel
\nroom nights 7.3 8.8 10.2 8.3 31.7 34.6<\/p>\nNotes & Definitions:<\/p>\n
<\/p>\n
Gross Bookings — Total retail value of transactions booked for both agency and merchant transactions, recorded at the time of booking. Bookings include the total price due for travel by travelers, including taxes, fees and other charges, and are not reduced for some cancellations and traveler refunds.<\/p>\n
<\/p>\n
Number of Transactions — Quantity of purchases reported as booked, net of cancellations. Packages purchased using our packages wizard, which by definition include a merchant hotel, are recorded as a single transaction.<\/p>\n
<\/p>\n
Merchant Hotel Room Nights — Worldwide merchant hotel nights, net of cancellations. With the exception of Hotwire, which records room nights upon booking, nights are reported as stayed. This metric includes nights stayed on both a package and stand-alone basis.<\/p>\n
<\/p>\n
Definitions of Non-GAAP Measures<\/p>\n
<\/p>\n
Expedia, Inc. reports Operating Income Before Amortization, Adjusted Net Income, Adjusted EPS and Free Cash Flow, all of which are supplemental measures to GAAP, and are defined by the SEC as non-GAAP financial measures. These measures are among the primary metrics by which management evaluates the performance of the business, on which internal budgets are based and by which management is compensated. Management believes that investors should have access to the same set of tools that management uses to analyze our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP. We endeavor to compensate for the limitation of the non- GAAP measures presented by also providing comparable GAAP measures, GAAP financial statements, and descriptions of the reconciling items and adjustments, to derive the non-GAAP measures.<\/p>\n
<\/p>\n
Operating Income Before Amortization is defined as operating income plus: (1) amortization of non-cash distribution and marketing expense, (2) stock- based compensation expense, (3) amortization of intangible assets and goodwill impairment, if applicable and (4) certain one-time items, if applicable. Management believes this measure is useful to investors because it represents the combined operating results of Expedia, Inc.’s businesses, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the effects of other non-cash expenses that may not be indicative of our core business operations. Operating Income Before Amortization has certain limitations in that it does not take into account the impact to Expedia, Inc.’s statements of income of certain expenses, including non-cash compensation, non-cash payments to partners, and acquisition-related accounting. Due to the high variability and difficulty in predicting certain items that affect net income, such as interest rates and tax rates, Expedia, Inc. is unable to provide reconciliation to net income on a forward-looking basis without unreasonable efforts.<\/p>\n
<\/p>\n
Adjusted Net Income generally captures all items on the statements of income that have been, or ultimately will be, settled in cash and is defined as net income available to stockholders plus (1) amortization of non-cash distribution and marketing expense, (2) stock-based compensation expense, (3) amortization of intangible assets and goodwill impairment, if applicable, (4) one-time items, net of related tax, and minority interest, (5) mark to market gains and losses on derivative liabilities and (6) discontinued operations, net of tax. We believe Adjusted Net Income is useful to investors because it represents Expedia, Inc.’s combined results, taking into account depreciation, which management believes is an ongoing cost of doing business, but excluding the impact of other non-cash expenses and items not directly tied to the recurring core operations of our businesses.<\/p>\n
<\/p>\n
Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes. We include dilution from options and warrants per the treasury stock method and include all shares relating to restricted stock units (“RSU”) in shares outstanding for Adjusted EPS. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, Expedia’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of other non-cash expenses not directly tied to the core operations of our businesses. Adjusted Net Income and Adjusted EPS have the same limitations as Operating Income Before Amortization. In addition, Adjusted Net Income does not include all items that affect our net income and net income per share for the period. Therefore, we think it is important to evaluate these measures along with our consolidated statements of income.<\/p>\n
<\/p>\n
Free Cash Flow is defined as net cash flow provided by operating activities less capital expenditures. Management believes Free Cash Flow is useful to investors because it represents the operating cash flow that our operating businesses generate, less capital expenditures but before taking into account other cash movements that are not directly tied to the core operations of our businesses, such as financing activities or certain investing activities. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, it is important to evaluate Free Cash Flow along with the consolidated statements of cash flows.<\/p>\n
<\/p>\n
Tabular Reconciliations for Non-GAAP Measures<\/pre>\nOperating Income Before Amortization<\/p>\n
Three months ended Year ended
\nDecember 31, December 31,
\n:::___ :::___
\n2005 2004 2005 2004
\n:___ :___ :___ :___
\n(in thousands)
\n(Unaudited)<\/p>\nOIBA $132,940 $143,291 $627,441 $553,692
\nAmortization of intangibles (31,863) (32,571) (126,067) (125,091)
\nStock-based compensation (11,826) (37,006) (91,725) (171,400)
\nAmortization of non-cash
\ndistribution and marketing (3,542) (3,701) (12,597) (16,728)
\n:___ :___ :___ :___
\nOperating Income 85,709 70,013 397,052 240,473<\/p>\nNet interest income 1,194 14,745 48,673 38,356
\nWrite-off of
\nlong-term investment — — (23,426) —
\nOther (20,317) (12,192) (8,428) (9,286)
\nProvision for income taxes (42,082) (28,634) (185,977) (106,371)
\nMinority interest in loss
\nof consolidated subsidiaries 730 188 836 301
\n:___ :___ :___ :___
\nNet Income $25,234 $44,120 $228,730 $163,473
\n======== ======== ======== ========
\nAdjusted Net Income & Adjusted EPS<\/p>\nThree months ended Year ended
\nDecember 31, December 31,
\n:::___ :::___
\n2005 2004 2005 2004
\n:___ :___ :___ :___
\n(in thousands, except per share data)<\/p>\nNet income $25,234 $44,120 $228,730 $163,473
\nAmortization of intangibles 31,863 32,571 126,067 125,091
\nStock-based compensation 11,826 37,006 91,725 171,400
\nAmortization of non-cash
\ndistribution and marketing 3,542 3,701 12,597 16,728
\nWrite-off of long-term investment — — 23,426 —<\/p>\nUnrealized loss on
\nderivative instruments 18,042 — 6,042 —<\/p>\nMinority interest (382) (191) (1,827) (523)
\nProvision for income taxes (17,378) (25,328) (70,982) (109,251)
\n:___ :___ :___ :___
\nAdjusted net income $72,747 $91,879 $415,778 $366,918
\n======== ======== ======== ========<\/p>\nGAAP diluted weighted average
\nshares outstanding 363,632 340,549 349,530 340,549
\nAdditional restricted
\nstock units 4,648 — 2,366 —
\n:___ :___ :___ :___
\nAdjusted weighted average
\nshares outstanding 368,280 340,549 351,896 340,549
\n======== ======== ======== ========<\/p>\nDiluted earnings per share $0.07 $0.13 $ 0.65 $0.48
\n======== ======== ======== ========
\nAdjusted earnings per share $0.20 $0.27 $ 1.18 $1.08
\n:___ :___ :___ :___<\/p>\nFree Cash Flow<\/p>\n
Year ended
\nDecember 31,
\n::::::::_
\n2005 2004 2003
\n:____ :___ :___
\n(in thousands)
\nNet cash provided by
\noperating activities $849,895 $802,853 $644,023
\nLess: capital expenditures (52,315) (53,407) (46,183)
\n:___ :___ :___
\nFree cash flow $797,580 $749,446 $597,840
\n======== ======== ========<\/p>\nConference Call<\/p>\n
<\/p>\n
Expedia, Inc. will audiocast its conference call with investors and analysts discussing its fourth quarter financial results and certain forward-looking information on Wednesday, February 15, 2006 at 2:00 p.m. Pacific Time (PT). The audiocast will be open to the public and available via http:\/\/www.expediainc.com\/ir<\/a>. Expedia, Inc. expects to maintain access to the audiocast on the IR website for approximately one month subsequent to the initial broadcast.<\/p>\n
<\/p>\n
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995<\/p>\n
<\/p>\n
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance. These forward-looking statements are based on management’s expectations as of February 15, 2006, and assumptions which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements and may include statements relating to future revenues, expenses, margins, profitability, net income, earnings per share and other measures of results of operation and the prospects for future growth of Expedia, Inc.’s business.<\/p>\n
<\/p>\n
Actual results and the timing and outcome of events may differ materially from those expressed or implied in the forward-looking statements for a variety of reasons, including, among others: Expedia, Inc.’s ability to effectively update, automate and integrate disparate financial and accounting systems and approaches among its brands and businesses; the accuracy, integrity, security and redundancy of systems, including financial and accounting systems, and networks of Expedia, Inc.; reliance on newly implemented systems supporting our financial planning and projections; adverse changes in senior management; the rate of growth of the Internet and online travel; changes in global economic conditions; consumer spending, the competitive environment; the e-commerce industry and broadband access; world events (including adverse weather, health risks and terrorism); the rate of online migration in the various geographies and markets in which Expedia, Inc. operates, including Asia; fluctuations in foreign exchange rates; the health of the travel industry, including consumer and business spending on travel; Expedia, Inc.’s ability to expand successfully in international markets; possible one-time charges resulting from, among other events, integration and process review activities, platform migration and shared services efforts; failure to realize cost efficiencies; the successful completion of pending corporate transactions and the integration of current and acquired businesses; and other risks detailed in Expedia, Inc.’s public filings with the SEC, including Expedia, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.<\/p>\n
<\/p>\n
Except as required by law, Expedia, Inc. undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.<\/p>\n
<\/p>\n
Basis of Presentation<\/p>\n
<\/p>\n
On August 9, 2005, IAC separated into two independent companies. As a result, Expedia, Inc. became an independent public company (the “Spin-Off”). These financial statements present results of operations, financial position and cash flows on a combined basis until the Spin-Off and on a consolidated basis thereafter. The unaudited financial statements relating to periods prior to August 9, 2005 were prepared on a combined basis because there was no direct ownership relationship among any or all of the businesses that comprised Expedia, Inc. upon Spin-Off.<\/p>\n
<\/p>\n
About Expedia, Inc.<\/p>\n
<\/p>\n
Expedia, Inc. is the world’s leading online travel company, empowering business and leisure travelers with the tools and information they need to easily research, plan, book, and experience travel. Expedia, Inc. also provides wholesale travel to offline retail travel agents. Expedia, Inc.’s portfolio of brands include: Expedia.com\u00ae, Hotels.com\u00ae, Hotwire\u00ae, Expedia\u00ae Corporate Travel, TripAdvisor™ and Classic Vacations\u00ae. Expedia, Inc.’s companies also operate internationally with sites in Canada, the United Kingdom, Germany, France, Italy, the Netherlands, Australia and China, through its investment in eLong™. For more information, visit http:\/\/www.expediainc.com\/<\/a>. (NASDAQ: EXPE).<\/p>\n
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Expedia, Expedia.com, Enjoy Your Trip and the Airplane logo are either registered trademarks or trademarks of Expedia, Inc. in the U.S. and\/or other countries. Hotels.com, the Hotels.com logo, and We Know Hotels Inside And Out are either registered trademarks or trademarks of Hotels.com, LLP in the U.S. and\/or other countries. Hotwire and the Hotwire logo are either registered trademarks or trademarks of Hotwire, Inc. in the U.S. and\/or other countries. TripAdvisor, the TripAdvisor logo, and the Owl Logo are either registered trademarks or trademarks in the U.S. and\/or other countries of Trip Advisor LLC. Other product and company names mentioned herein may be trademarks of their respective owners.<\/p>\n
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CST 2029030-40<\/p>\n
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First Call Analyst:
\nFCMN Contact: shaas@expedia.com<\/a> <\/br\/><\/p>\n<\/p>\n
SOURCE: Expedia, Inc.<\/p>\n
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CONTACT: Investor Relations, Stu Haas, +1-425-679-3555, or
\nir@expedia.com<\/a>, or Wendy Grover, Communications, +1-425-679-7874, both of
\nExpedia, Inc.<\/br\/><\/br\/><\/p>\n<\/p>\n
Web site: http:\/\/www.expedia.com\/<\/a><\/p>\n
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