Exhibit 99.1
Expedia, Inc. Reports Fourth Quarter, Full-Year 2006 Results
BELLEVUE, Wash.—February 15, 2007—Expedia, Inc. (NASDAQ: EXPE) today announced financial
results for its fourth quarter and full-year ended December 31, 2006.
“Begun with adversity, 2006 was a year of change, challenge and investment that ended positively
for Expedia,” said Barry Diller, Expedia, Inc.’s Chairman and Senior Executive. “We believed our
results would improve, and they did in the form of 10% OIBA growth for the fourth quarter, with
robust international growth, a stabilized revenue margin and efficient expense control. At the same
time, we continued to make longer term strides for shareholders—fortifying our brand portfolio,
expanding and stabilizing supplier relations, extending our geographic reach in Europe and
Asia-Pacific and continuing our commitment to capital efficiency by issuing debt and taking steps
to reduce our share base nearly 15%, with an incremental authorization for 20 million shares still
outstanding. The result is an Expedia better positioned for sustained growth and value creation in
2007 and beyond.”
“We continued our progress this quarter in stabilizing the Company’s operating profitability,
resulting in OIBA at the high end of our expectations range for the year,” said Dara Khosrowshahi,
Expedia, Inc.’s CEO and President. “We enter 2007 with online travel’s vanguard brands, more than
50 unique points of sale across the globe and an intense commitment to innovation, but above all
with a firm eye toward re-accelerating growth at our flagship point of sale, Expedia.com®.”
Financial Summary & Operating Metrics (figures in $MM’s, except per share amounts)
| |
|
|
|
|
|
|
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|
|
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|
|
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|
|
| |
|
3 Months Ended |
|
3 Months Ended |
|
Y / Y |
|
|
Year Ended |
|
Year Ended |
|
Y / Y |
| Metric |
|
12.31.06 |
|
12.31.05 |
|
Growth |
|
|
12.31.06 |
|
12.31.05 |
|
Growth |
Gross bookings |
|
$ |
3,686.7 |
|
|
$ |
3,395.1 |
|
|
|
9 |
% |
|
|
$ |
17,160.6 |
|
|
$ |
15,551.5 |
|
|
|
10 |
% |
Revenue |
|
|
531.3 |
|
|
|
494.7 |
|
|
|
7 |
% |
|
|
|
2,237.6 |
|
|
|
2,119.5 |
|
|
|
6 |
% |
Revenue Margin |
|
|
14.4 |
% |
|
|
14.6 |
% |
|
(16 bps) |
|
|
|
13.0 |
% |
|
|
13.6 |
% |
|
(59 bps) |
Gross profit |
|
|
409.5 |
|
|
|
382.1 |
|
|
|
7 |
% |
|
|
|
1,734.9 |
|
|
|
1,639.2 |
|
|
|
6 |
% |
Operating income
before amortization*
(“OIBA”) |
|
|
146.2 |
|
|
|
132.9 |
|
|
|
10 |
% |
|
|
|
599.0 |
|
|
|
627.4 |
|
|
|
(5 |
%) |
Operating income |
|
|
99.5 |
|
|
|
85.7 |
|
|
|
16 |
% |
|
|
|
351.3 |
|
|
|
397.1 |
|
|
|
(12 |
%) |
Adjusted net income * |
|
|
98.1 |
|
|
|
72.7 |
|
|
|
35 |
% |
|
|
|
390.5 |
|
|
|
415.8 |
|
|
|
(6 |
%) |
Net income |
|
|
67.1 |
|
|
|
25.2 |
|
|
|
166 |
% |
|
|
|
244.9 |
|
|
|
228.7 |
|
|
|
7 |
% |
Adjusted EPS * |
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
|
40 |
% |
|
|
$ |
1.09 |
|
|
$ |
1.18 |
|
|
|
(8 |
%) |
Diluted EPS |
|
$ |
0.20 |
|
|
$ |
0.07 |
|
|
|
186 |
% |
|
|
$ |
0.70 |
|
|
$ |
0.65 |
|
|
|
8 |
% |
Free cash flow * |
|
|
(131.2 |
) |
|
|
(102.7 |
) |
|
|
(28 |
%) |
|
|
|
524.8 |
|
|
|
806.9 |
|
|
|
(35 |
%) |
* “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”
on pages 16-18 herein for an explanation of non-GAAP measures used throughout this release. Please
also see “Basis of Presentation” on page 19 for additional information on financial results for
full-year 2005 results presented throughout this release.
1 of 20
Discussion of Results — Fourth Quarter 2006
Gross Bookings & Revenue
Gross bookings increased 9% for the fourth quarter 2006 compared with fourth quarter 2005. Domestic
gross bookings increased 1% and international gross bookings increased 34%, or 27% excluding the
impact of foreign exchange rates.
Revenue increased 7% for the fourth quarter, primarily driven by increased worldwide merchant
hotel revenue, partially offset by a decline in our domestic air revenue. Domestic revenue growth
was 1%, and international revenue increased 25%.
Worldwide merchant hotel revenue increased 15% for the fourth quarter. The growth was primarily
driven by a 9% increase in revenue per room night, as well as by a 6% increase in room nights
stayed, including rooms delivered as a component of vacation packages. Revenue per room night
increased due to a 9% increase in worldwide average daily rates (“ADRs”), partially offset by a
small decline in hotel raw margin.
Worldwide air revenues decreased 14% for the fourth quarter due to a 15% decrease in revenue per
air ticket, partially offset by a 1% increase in air tickets sold. The decrease in revenue per air
ticket reflects decreased compensation from air carriers and global distribution system (“GDS”)
providers. Excluding merchant air tickets, worldwide air tickets sold would have increased 5%.
Lower availability of merchant air inventory also impacted our packages revenue, which increased 1%
compared with the prior year period.
Revenue as a percentage of gross bookings (“revenue margin”) was 14.4% for the fourth quarter,
a decrease of 16 basis points. Domestic revenue margin was flat at 14.0%, while international
revenue margin decreased 102 basis points to 15.5%. The fourth quarter decline in worldwide revenue
margin was primarily due to the decline in air revenue per ticket, coupled with an increase in
average worldwide airfares of 4%, as our remuneration generally does not vary with the price of the
ticket. This impact was nearly offset by an increased mix of merchant hotel and advertising
revenue, which have higher margins compared with our other product groups and services.
Profitability
Gross profit for the fourth quarter of 2006 was $410 million, an increase of 7% compared with the
fourth quarter of 2005 primarily due to increased revenue, partially offset by a 16 basis point
decline in gross margin to 77.1%. The gross margin decline was due in part to costs associated with
our GDS diversification, partially offset by an increased mix of merchant hotel revenue, which has
a higher gross margin than our overall business.
Operating Income Before Amortization (“OIBA”) for the fourth quarter increased 10% to $146
million, primarily driven by higher revenue. OIBA as a percentage of revenue increased 66 basis
points to 27.5%, primarily reflecting lower growth in general and administrative and technology and
content expenses excluding stock-based compensation compared to revenue growth during the quarter,
partially offset by a lower gross margin. Operating income increased 16% during the quarter to $100
million due to the same factors impacting OIBA, as well as lower amortization expense related to
intangibles, partially offset by higher stock-based compensation expense.
Adjusted net income for the fourth quarter increased $25 million due to an increase in OIBA, higher
interest income on increased cash balances and a lower effective tax rate, partially offset by an
increase in interest expense related to our Senior Notes. Net income increased $42 million due to a
lower effective tax rate, an increase in operating income, a net increase in income related to
derivative liabilities and increased interest income, partially offset by greater interest expense.
Fourth quarter adjusted EPS and diluted EPS were $0.28 and $0.20, respectively. These measures
increased 40% and 186% due to the same factors impacting adjusted net income and net income, as
well as lower share counts from share repurchase activity during 2006.
2 of 20
Discussion of Results — Full Year 2006
Gross Bookings & Revenue
Gross bookings increased 10% in 2006 compared with 2005. Domestic gross bookings increased 6% and
international gross bookings increased 26%, or 24% excluding the impact of foreign exchange
rates.
Revenue increased 6% for the year, primarily driven by increased worldwide merchant hotel
revenue, partially offset by a decline in our domestic air revenue. Domestic revenue growth was
flat, and international revenue increased 24%.
Worldwide merchant hotel revenue increased 13% in 2006. The growth was primarily driven by a 10%
increase in room nights stayed, including rooms delivered as a component of vacation packages, as
well as by a 2% increase in revenue per room night. Revenue per room night increased due to a 6%
increase in worldwide ADRs, partially offset by a decrease in hotel raw margins.
Worldwide air revenues decreased 14% in 2006 due to a 13% decrease in revenue per air ticket and a
2% decrease in air tickets sold. The decrease in revenue per air ticket reflects decreased
compensation from air carriers and GDS providers. Excluding merchant air, worldwide air tickets
sold would have increased 4%. Lower availability of merchant air inventory also impacted our
packages revenue, which increased 1% compared with 2005.
Revenue margin was 13.0% in 2006, a decrease of 59 basis points. Domestic revenue margin
decreased 76 basis points to 12.7%, while international revenue margin decreased 19 basis points to
13.9%. The decline in 2006 worldwide revenue margin was primarily due to the decline in air revenue
per ticket, coupled with an increase in average worldwide airfares of 9%.
Profitability
Gross profit for 2006 was $1.73 billion, up 6% compared to 2005 due to increased revenue. Gross
margin increased 19 basis points to 77.5%, due primarily to an increased mix of merchant hotel
revenue.
OIBA decreased 5% to $599 million due to higher operating expenses, partially offset by higher
revenue and the improvement in gross margin. OIBA as a percentage of revenue was down 283 basis
points to 26.8%, primarily reflecting higher growth in selling and marketing and general and
administrative expenses compared to revenue growth during the year. Operating income decreased 12%
during the year to $351 million, driven by the same factors impacting OIBA, as well as a $47
million intangible asset impairment, partially offset by lower amortization expense related to
intangible assets and lower stock-based compensation.
Adjusted net income for the year decreased by $25 million compared with 2005 due to lower OIBA,
decreased interest income from lower cash balances and increased interest expense related to our
Senior Notes issue. Net income increased by $16 million due to a lower effective tax rate, a net
increase in income related to derivatives and an asset write-off in the prior period, partially
offset by a decrease in operating income, lower net interest income and increased interest expense.
2006 adjusted EPS and diluted EPS were $1.09 and $0.70, respectively. These measures decreased 8%
and increased 8%, respectively, due to the same factors impacting adjusted net income and net
income.
Cash Flows & Working Capital
Net cash provided by operating activities in 2006 was $617 million and free cash flow was $525
million. Both measures include $133 million from a positive net change in operating assets and
liabilities, primarily driven by our merchant hotel business.
Free cash flow in 2006 decreased $282 million from 2005 due primarily to increased cash taxes,
increased capital expenditures, reduced benefit from working capital, lower OIBA and lower net
interest income due to reduced cash balances. In addition, we reclassified the effect of exchange
rates on our cash balances from “net cash provided by operating activities” to “effect of exchange
rate changes on cash and cash equivalents” in our statements of cash flows.
3 of 20
Recent Highlights
Global Presence
| • |
|
Expedia, Inc.’s international points of sale in Canada, the United Kingdom, Germany,
France, Italy, China, Australia, Japan and other countries accounted for a record 29% of
gross bookings and 31% of revenue in the fourth quarter, up from 23% of gross bookings and
26% of revenue in the prior year periods. For full-year 2006, international accounted for
26% of gross bookings and 28% of revenue, up from 23% and 24% in 2005. |
| • |
|
Expedia, Inc. entered the world’s second largest travel market with the launch of its
Japanese Web site, Expedia.co.jp, offering Japanese travelers a selection of over 30,000
properties worldwide and features to help them choose the hotel that best meets their
needs. |
Brand Portfolio
| • |
|
The Hotwire.com™ site was ranked “Highest Customer Satisfaction For Independent Travel
Web Sites” according to the J.D. Power and Associates’ 2006 Independent Travel Web Site
Satisfaction StudySM, which ranked customer satisfaction when booking a hotel,
airfare or rental car through an independent web site. (For J.D. Power and Associates award
information including information about the study see www.jdpower.com.) |
| • |
|
Expedia.com and WWTE® technology were selected by NYTimes.com, the #1 newspaper Web site
in the U.S., and Sam’s Club, a division of WalMart stores. Under these agreements
Expedia.com content will power the travel booking engine for these companies’ respective
websites. |
| • |
|
Expedia® Corporate Travel (“ECT”) added a record number of new client accounts during
the fourth quarter, and grew worldwide gross bookings 45% to over $1 billion in 2006. |
| • |
|
Hotels.com®, the fifth largest online travel agency in the world, grew its worldwide
gross bookings 20% to $2.3 billion in 2006, and expanded its presence to 35 countries. |
Content & Innovation
| • |
|
TripAdvisor®, the largest travel community in the world, was named the “best
website for travel information” by Zagat Survey. TripAdvisor continues to innovate on
behalf of travelers, most recently introducing its “save it and go” functionality, allowing
travelers to personalize their TripAdvisor experiences by adding maps, photos, their own
notes and travel plan details to their “MyTrips” folders . |
| • |
|
Expedia.com began testing a new homepage treatment at www.expedia.com, balancing
planning, inspiration and savings, including a real-time scrolling “Today’s Top Travel
Deals” widget. Expedia also debuted guest registration, empowering travelers to purchase
Expedia products and services without requiring a user account. |
| • |
|
ECT announced the launch of a new Global Flight Search platform for the European market,
offering European-based customers enhanced flight search and booking capabilities. ECT also
launched a new global reporting platform to help travel managers oversee travel programs
across multiple regions, giving them greater access to information and the ability to
better evaluate and optimize their travel decisions. |
| • |
|
Expedia.com.au™ and Expedia.ca™, Expedia’s websites in Australia and Canada, launched
“Destinations” tabs featuring TripAdvisor’s user generated “wiki” content. |
| • |
|
Travel Ticker™ by Hotwire now delivers promotional offers from 115 top brands to more
than 10 million U.S. subscribers. Every two weeks, geographically targeted editions of the
Travel Ticker newsletter feature handpicked deals for consumers in the East, West and
Central U.S. |
Partner Services Group (“PSG”)
| • |
|
Expedia, Inc. announced a new four-year strategic partnership agreement with AirTran
Airways, through which AirTran’s full range of products and services—including all fares,
schedules and inventory—will be marketed through Expedia.com®. |
| • |
|
Expedia, Inc. announced a partnership with Jin Jiang International Hotel Management
Company, the largest hotel owner and operator in China. Jin Jiang owns and operates more
than 250 hotels, from luxury lodging to economy accommodations, and will now make its
entire inventory of hotels available to Expedia® customers. |
4 of 20
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Year ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
531,288 |
|
|
$ |
494,749 |
|
|
$ |
2,237,586 |
|
|
$ |
2,119,455 |
|
Cost of revenue(1) |
|
|
121,781 |
|
|
|
112,612 |
|
|
|
502,638 |
|
|
|
480,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
409,507 |
|
|
|
382,137 |
|
|
|
1,734,948 |
|
|
|
1,639,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing(1) |
|
|
171,417 |
|
|
|
158,861 |
|
|
|
786,195 |
|
|
|
715,624 |
|
General and administrative(1) |
|
|
79,079 |
|
|
|
73,653 |
|
|
|
289,649 |
|
|
|
257,389 |
|
Technology and content(1) |
|
|
35,505 |
|
|
|
28,509 |
|
|
|
140,371 |
|
|
|
130,507 |
|
Amortization of intangible assets |
|
|
23,906 |
|
|
|
31,863 |
|
|
|
110,766 |
|
|
|
126,067 |
|
Impairment of intangible asset |
|
|
— |
|
|
|
— |
|
|
|
47,000 |
|
|
|
— |
|
Amortization of non-cash distribution and
marketing |
|
|
60 |
|
|
|
3,542 |
|
|
|
9,638 |
|
|
|
12,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
99,540 |
|
|
|
85,709 |
|
|
|
351,329 |
|
|
|
397,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from IAC/InterActiveCorp |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,089 |
|
Other interest income |
|
|
11,733 |
|
|
|
2,916 |
|
|
|
32,065 |
|
|
|
10,690 |
|
Interest expense |
|
|
(10,036 |
) |
|
|
(1,722 |
) |
|
|
(17,266 |
) |
|
|
(2,106 |
) |
Write-off of long-term investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(23,426 |
) |
Other, net |
|
|
1,721 |
|
|
|
(20,317 |
) |
|
|
18,770 |
|
|
|
(8,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
3,418 |
|
|
|
(19,123 |
) |
|
|
33,569 |
|
|
|
16,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest |
|
|
102,958 |
|
|
|
66,586 |
|
|
|
384,898 |
|
|
|
413,871 |
|
Provision for income taxes |
|
|
(35,928 |
) |
|
|
(42,082 |
) |
|
|
(139,451 |
) |
|
|
(185,977 |
) |
Minority interest in (income) loss of consolidated
subsidiaries, net |
|
|
110 |
|
|
|
730 |
|
|
|
(513 |
) |
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
67,140 |
|
|
$ |
25,234 |
|
|
$ |
244,934 |
|
|
$ |
228,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share available to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.20 |
|
|
$ |
0.07 |
|
|
$ |
0.72 |
|
|
$ |
0.68 |
|
Diluted |
|
|
0.20 |
|
|
|
0.07 |
|
|
|
0.70 |
|
|
|
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
330,294 |
|
|
|
339,746 |
|
|
|
338,047 |
|
|
|
336,819 |
|
Diluted |
|
|
343,586 |
|
|
|
363,632 |
|
|
|
352,181 |
|
|
|
349,530 |
|
|
(1) Includes stock-based compensation as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
1,772 |
|
|
$ |
2,370 |
|
|
$ |
8,399 |
|
|
$ |
9,503 |
|
Selling and marketing |
|
|
4,228 |
|
|
|
3,531 |
|
|
|
15,893 |
|
|
|
18,121 |
|
General and administrative |
|
|
11,394 |
|
|
|
8,347 |
|
|
|
36,877 |
|
|
|
45,874 |
|
Technology and content |
|
|
5,344 |
|
|
|
(2,422 |
) |
|
|
19,116 |
|
|
|
18,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
22,738 |
|
|
$ |
11,826 |
|
|
$ |
80,285 |
|
|
$ |
91,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 of 20
EXPEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
| ASSETS |
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
853,274 |
|
|
$ |
297,416 |
|
Restricted cash and cash equivalents |
|
|
11,093 |
|
|
|
23,585 |
|
Accounts and notes receivable, net of allowance of $4,874 and $3,914 |
|
|
211,430 |
|
|
|
174,019 |
|
Prepaid merchant bookings |
|
|
39,772 |
|
|
|
30,655 |
|
Deferred income taxes, net |
|
|
4,867 |
|
|
|
— |
|
Prepaid expenses and other current assets |
|
|
62,249 |
|
|
|
64,569 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,182,685 |
|
|
|
590,244 |
|
Property and equipment, net |
|
|
137,144 |
|
|
|
90,984 |
|
Long-term investments and other assets |
|
|
59,289 |
|
|
|
39,431 |
|
Intangible assets, net |
|
|
1,028,774 |
|
|
|
1,176,503 |
|
Goodwill |
|
|
5,861,292 |
|
|
|
5,859,730 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
8,269,184 |
|
|
$ |
7,756,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable, merchant |
|
$ |
600,192 |
|
|
$ |
534,882 |
|
Accounts payable, other |
|
|
120,545 |
|
|
|
107,580 |
|
Short-term borrowings |
|
|
— |
|
|
|
230,755 |
|
Deferred merchant bookings |
|
|
466,474 |
|
|
|
406,948 |
|
Deferred revenue |
|
|
10,317 |
|
|
|
7,068 |
|
Income taxes payable |
|
|
30,902 |
|
|
|
43,405 |
|
Deferred income taxes, net |
|
|
— |
|
|
|
3,178 |
|
Other current liabilities |
|
|
171,695 |
|
|
|
104,409 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,400,125 |
|
|
|
1,438,225 |
|
Long-term debt |
|
|
500,000 |
|
|
|
— |
|
Deferred income taxes, net |
|
|
369,297 |
|
|
|
368,880 |
|
Derivative liabilities |
|
|
28,991 |
|
|
|
105,827 |
|
Other long-term liabilities |
|
|
4,725 |
|
|
|
38,423 |
|
Minority interest |
|
|
61,756 |
|
|
|
71,774 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock $.001 par value |
|
|
— |
|
|
|
— |
|
Authorized
shares: 100,000,000 |
|
Series A shares issued and outstanding: 846 and 846 |
|
|
|
|
|
|
|
|
Common stock $.001 par value |
|
|
328 |
|
|
|
323 |
|
Authorized
shares: 1,600,000,000 |
Shares issued: 328,066,276 and 323,184,577 |
|
|
|
|
|
|
|
|
Shares outstanding: 305,901,048 and 321,979,486 |
|
|
|
|
|
|
|
|
Class B common stock $.001 par value |
|
|
26 |
|
|
|
26 |
|
Authorized shares: 400,000,000 |
Shares issued and outstanding: 25,599,998 and 25,599,998 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
5,903,200 |
|
|
|
5,695,498 |
|
Treasury stock — Common stock, at cost |
|
|
(321,155 |
) |
|
|
(25,464 |
) |
Shares: 22,165,228 and 1,205,091 |
|
|
|
|
|
|
|
|
Retained earnings |
|
|
309,912 |
|
|
|
64,978 |
|
Accumulated other comprehensive income (loss) |
|
|
11,979 |
|
|
|
(1,598 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
5,904,290 |
|
|
|
5,733,763 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
8,269,184 |
|
|
$ |
7,756,892 |
|
|
|
|
|
|
|
|
6 of 20
EXPEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
244,934 |
|
|
$ |
228,730 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
48,779 |
|
|
|
50,445 |
|
Amortization
of intangible assets, non-cash distribution and marketing
and stock-based compensation |
|
|
200,689 |
|
|
|
230,389 |
|
Deferred income taxes |
|
|
(10,652 |
) |
|
|
68,198 |
|
Unrealized (gain) loss on derivative instruments, net |
|
|
(8,137 |
) |
|
|
6,042 |
|
Equity in income of unconsolidated affiliates |
|
|
(2,541 |
) |
|
|
(1,668 |
) |
Minority interest in income (loss) of consolidated subsidiaries, net |
|
|
513 |
|
|
|
(836 |
) |
Write-off of long-term investment |
|
|
— |
|
|
|
23,426 |
|
Impairment of intangible asset |
|
|
47,000 |
|
|
|
— |
|
Foreign exchange (gain) loss on cash and cash equivalents, net |
|
|
(37,182 |
) |
|
|
9,292 |
|
Other |
|
|
1,100 |
|
|
|
1,161 |
|
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
(32,148 |
) |
|
|
(21,833 |
) |
Prepaid merchant bookings and prepaid expenses |
|
|
(20,694 |
) |
|
|
(22,492 |
) |
Accounts payable, other and other current liabilities |
|
|
59,858 |
|
|
|
150,944 |
|
Accounts payable, merchant |
|
|
63,246 |
|
|
|
90,623 |
|
Deferred merchant bookings |
|
|
59,450 |
|
|
|
45,051 |
|
Deferred revenue |
|
|
3,225 |
|
|
|
1,715 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
617,440 |
|
|
|
859,187 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(92,631 |
) |
|
|
(52,315 |
) |
Acquisitions, net of cash acquired |
|
|
(32,518 |
) |
|
|
10,547 |
|
Proceeds from sale of business to a related party |
|
|
13,163 |
|
|
|
— |
|
Increase in long-term investments and deposits |
|
|
(1,514 |
) |
|
|
(369 |
) |
Purchase of marketable securities |
|
|
— |
|
|
|
(63 |
) |
Proceeds from sale of marketable securities |
|
|
— |
|
|
|
1,000 |
|
Transfers to IAC/InterActiveCorp, net |
|
|
— |
|
|
|
(757,206 |
) |
Other, net |
|
|
— |
|
|
|
(2,937 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(113,500 |
) |
|
|
(801,343 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Short-term borrowings, net |
|
|
(231,036 |
) |
|
|
230,735 |
|
Proceeds from issuance of long-term debt, net of issuance costs |
|
|
495,346 |
|
|
|
— |
|
Changes in restricted cash and cash equivalents |
|
|
4,578 |
|
|
|
(9,495 |
) |
Proceeds from exercise of equity awards |
|
|
35,258 |
|
|
|
29,060 |
|
Excess tax benefit on equity awards |
|
|
1,317 |
|
|
|
— |
|
Withholding taxes for stock option exercises |
|
|
— |
|
|
|
(86,556 |
) |
Treasury stock activity |
|
|
(295,691 |
) |
|
|
— |
|
Distribution to IAC/InterActiveCorp, net |
|
|
— |
|
|
|
(52,844 |
) |
Other, net |
|
|
— |
|
|
|
(4,393 |
) |
|
|
|
|
|
|
aaaaaaaa
a |
|
Net cash provided by financing activities |
|
|
9,772 |
|
|
|
106,507 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
42,146 |
|
|
|
(8,603 |
) |
|
|
|
|
|
|
aaaaaaaa
a |
|
Net increase in cash and cash equivalents |
|
|
555,858 |
|
|
|
155,748 |
|
Cash and cash equivalents at beginning of year |
|
|
297,416 |
|
|
|
141,668 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
853,274 |
|
|
$ |
297,416 |
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
3,036 |
|
|
$ |
251 |
|
Income tax payments, net |
|
|
126,126 |
|
|
|
10,384 |
|
7 of 20
Income Statement Notes
Gross Bookings / Revenue
| • |
|
Expedia, Inc. makes travel products and services available on a merchant and agency
basis. Merchant transactions typically produce a higher level of net revenues per
transaction and are generally recognized when the customer uses the travel product or
service. Agency revenues are typically recognized at the time the reservation is booked. |
| • |
|
Agency bookings accounted for 61% and 59% of total gross bookings for the fourth quarter
and full-year 2006, and the fourth quarter and full-year 2005. The mix of agency and
merchant bookings remained constant year—over-year for both periods as the increase in
average worldwide airfares for agency bookings and the decrease in domestic merchant air
bookings were offset by an increase in our worldwide merchant hotel bookings. |
| • |
|
Agency revenue as a percentage of total revenue decreased for both the fourth quarter
and full-year 2006 compared with the prior year periods. |
Cost of Revenue
| • |
|
Cost of revenue primarily consists of: (1) costs of our data and call centers, including
telesales expense; (2) credit card merchant fees; (3) fees paid to fulfillment vendors for
processing airline tickets and related customer services; (4) costs paid to suppliers for
certain destination inventory; and (5) reserves and related payments to airlines for
tickets purchased with fraudulent credit cards. |
| • |
|
Cost of revenue was 23% of revenue for the fourth quarters of both 2006 and 2005.
Excluding stock-based compensation, cost of revenue was 23% of revenue for the fourth
quarter and 22% for the prior year period. Cost of revenue excluding stock-based
compensation increased 31 basis points as a percentage of revenue due to the increase in
costs from traveler care expense and costs associated with our transition of air segments
between GDS providers, partially offset by an increased mix of merchant hotel revenue,
which has a higher gross margin than our overall business. |
| • |
|
2006 cost of revenue was 22% of revenue compared with 23% in 2005, a decrease of 19
basis points as our mix of merchant hotel increased. Excluding stock-based compensation,
cost of revenue was 22% of revenue for both 2006 and 2005. |
| • |
|
Cost of revenue includes depreciation expense of $3 million for the fourth quarters of
2006 and 2005, and $10 million and $11 million for 2006 and 2005. |
Operating Expenses (non-GAAP)
(Stock-based compensation expense has been excluded from all calculations and discussions below)
| • |
|
Operating expenses as a percentage of revenue for the fourth quarters and full-years of
2006 and 2005 were as follows (some numbers may not add due to rounding): |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months |
|
|
Twelve months |
|
| |
|
ended December 31, |
|
|
ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Selling and marketing |
|
|
31.5 |
% |
|
|
31.4 |
% |
|
|
34.4 |
% |
|
|
32.9 |
% |
General and administrative |
|
|
12.7 |
% |
|
|
13.2 |
% |
|
|
11.3 |
% |
|
|
10.0 |
% |
Technology and content |
|
|
5.7 |
% |
|
|
6.3 |
% |
|
|
5.4 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
49.9 |
% |
|
|
50.8 |
% |
|
|
51.1 |
% |
|
|
48.2 |
% |
| • |
|
Operating expenses include depreciation expense of $10 million for the fourth
quarter of 2006 and 2005, and $39 million for both 2006 and 2005. |
Selling and Marketing (non-GAAP)
| |
• |
|
Selling and marketing expense primarily relates to direct advertising and
distribution expense, including television, radio and print spending, as well as
traffic generation costs from internet portals, search engines and our private label
and affiliate programs. |
| |
| |
• |
|
Approximately 27% of fourth quarter expense related to indirect costs
including personnel such as PSG staff, marketing teams and destination services desk
personnel, compared with 23% for the prior year period. |
8 of 20
| |
• |
|
Selling and marketing expense was relatively flat for the fourth quarter
as increased indirect costs were offset by slower growth of direct costs due to
reduced spend at our domestic points of sale. |
| |
| |
• |
|
The 1.5% increase in selling and marketing expense as a percentage of
revenue for full-year 2006 compared with 2005 was primarily due to a 25% increase in
indirect costs. Excluding indirect cost increases, selling and marketing expense
grew 7% year-over-year, nearly in-line with our 6% revenue growth. |
| |
| |
• |
|
We expect absolute amounts spent on selling and marketing to increase in
2007. The direction of this line item as a percentage of revenue in 2007 will
primarily depend on our ability to drive efficiencies in our various marketing
spends. |
General and Administrative (non-GAAP)
| |
• |
|
General and administrative expense consists primarily of
personnel-related costs for support functions that include our executive leadership,
finance, legal, tax and human resources functions, and fees for professional
services that include legal, tax and accounting. |
| |
| |
• |
|
The 0.5% year-over-year decrease in general and administrative expense as
a percentage of revenue for the fourth quarter was primarily due to decreased use of
external professional services as we transitioned to full-time employees, as well as
lower payroll taxes from option exercises compared with the prior year period,
partially offset by increased legal fees. |
| |
| |
• |
|
The 1.3% year-over-year increase in general and administrative expense as
a percentage of revenue in 2006 was due to the increased headcount and compensation
as an independent public company for the full year, as well as increased legal
expenses. |
| |
| |
• |
|
We expect general and administrative expense to increase in absolute
dollars but decrease as a percentage of revenue in 2007 as we have largely completed
our overhead additions as a stand-alone public company. |
Technology and Content (non-GAAP)
| |
• |
|
Technology and content expense includes product development expenses
principally related to payroll and related expenses, hardware and software
expenditures and amortization of software development costs. |
| |
| |
• |
|
The 0.6% year-over-year decrease in technology and content expense as a
percentage of revenue for the fourth quarter was due to the completed amortization
of capitalized spend impacting the prior year’s expense, and the capitalization of
current software development efforts which have yet to be placed into service. |
| |
| |
• |
|
Technology and content was relatively flat as a percentage of revenue in
2006 compared with 2005 as software development costs incurred during the year were
largely capitalized, and we completed the amortization of previously capitalized
amounts. |
| |
| |
• |
|
The $40 million increase in capital expenditures for 2006 compared with
2005 is primarily due to capitalized software costs, which are capitalized during
development and expensed as technology and content over a three year period
subsequent to the software being placed into service. We began putting significant
amounts of development work into service in the fourth quarter, and expect that to
continue in early 2007, which will significantly increase 2007 technology and
content expense. |
| |
| |
• |
|
Given our historical and ongoing investments in our enterprise data
warehouse, re-platforming, geographic expansion, data centers, redundancy, call
center technology, site merchandising, content management, site monitoring,
networking, corporate travel, supplier integration and other initiatives, we expect
technology and content expense to increase in absolute dollars and as a percentage
of revenue in both 2007 and 2008. |
Stock-Based Compensation Expense
| |
• |
|
Stock-based compensation expense relates primarily to expense for stock options and
restricted stock units (“RSUs”). Since February 2003, we have awarded RSUs as our primary
form of employee stock-based compensation. Our stock-based awards generally vest over five
years. |
| |
| |
• |
|
Fourth quarter stock-based compensation expense was $23 million, consisting of $15
million in expense related to RSUs and other equity compensation and $8 million in stock
option expense. $4 million of RSU expense and $1 million of option expense relate to a
change in estimate related to award forfeitures. |
9 of 20
| |
• |
|
Fourth quarter stock-based compensation increased $11 million primarily due to a $14
million reduction of the prior year amount due to a change in forfeiture rate estimates and
capitalization of software, partially offset by the $5 million in increased expense related
to the net change in estimate. |
| |
| |
• |
|
Stock-based compensation expense for 2006 was $80 million, consisting of $44 million in
stock options expense and $36 million in expense related to RSUs and other equity
compensation. Stock-based compensation decreased $11 million from the prior year amount due
to reduced compensation expense from options. |
| |
| |
• |
|
Assuming, among other things, no modification of existing awards or significant award
grants, we expect stock-based compensation expense for full-year 2007 will be less than $65
million, and will decrease further in 2008. |
| |
| |
• |
|
The adoption of SFAS 123(R) on January 1, 2006 did not have a material impact on our
financial position as we have been accounting for stock-based awards in accordance with
SFAS 123 since January 1, 2003. Per SFAS 123(R), 2006 “cash flow from financing activities”
includes $1 million of “excess tax benefit on equity awards.” |
Other, Net
| |
• |
|
The $22 million increase in other, net for the fourth quarter primarily relates to a $3
million net unrealized loss from our AskJeeves, Inc. (“Ask”) derivative liability (see
Balance Sheet Notes) compared with an $18 million unrealized loss in the prior year period.
In addition, we had a $7 million foreign exchange gain in the fourth quarter of 2006,
compared with a $2 million loss in the prior year period. |
| |
| |
• |
|
Other, net increased $27 million in 2006, primarily due to an $8 million net unrealized
gain on the Ask derivatives compared with a $6 million unrealized loss in 2005, and a
foreign exchange gain of $10 million in 2006 compared with a $1 million loss in 2005. |
Income Taxes
| |
• |
|
The effective tax rate on GAAP pre-tax income was 35% and 36% for the fourth quarter and
year-ended December 31, 2006 compared with 63% and 45% in the prior year periods. The
effective tax rates in the fourth quarter and for the year were affected by a lower state
tax rate, taxes applicable to foreign earnings and non-deductible losses related to our
derivative liabilities. Our effective rates in both 2005 periods were higher than the
statutory rate principally due to non-deductible stock-based compensation, non-deductible
losses related to our derivative liabilities and state income taxes. |
| |
| |
• |
|
The effective tax rate on pre-tax adjusted income was 36% and 37% for the fourth quarter
and year-ended December 31, 2006 compared with 45% and 38% in the prior year periods. The
effective tax rates in the fourth quarter and for the year were affected by a lower state
tax rate and taxes applicable to foreign earnings. The prior year period rates were higher
than the statutory rate principally due to state taxes and taxes applicable to foreign
earnings |
| |
| |
• |
|
Cash paid for income taxes in 2006 was $126 million, an increase of $116 million
compared with 2005 primarily due to IAC’s payment of taxes on behalf of Expedia prior to
our becoming an independent public company, at which point we became directly responsible
for our tax obligations. |
| |
| |
• |
|
During 2006 we utilized substantially all of our net operating loss carryforwards and
expect to be a full cash taxpayer in 2007. |
| |
| |
• |
|
We are currently assessing the impact of Financial Interpretation No. 48 on our
financial statements. |
Foreign Exchange, Acquisitions
| |
• |
|
As Expedia, Inc.’s reporting currency is the U.S. Dollar (“USD”), reported financial
results are affected by the strength or weakness of the USD in comparison to the functional
currencies of our international operations. Management believes investors may find it
useful to assess our growth rates with and without the impact of foreign exchange. |
| |
| |
• |
|
For the fourth quarter, worldwide gross bookings grew approximately 7% excluding the
impact of foreign exchange, compared with 9% prior to adjusting for foreign exchange.
International gross bookings in the fourth quarter grew approximately 27% excluding the
impact of foreign exchange, compared with 34% prior to adjusting for foreign exchange. |
| |
| |
• |
|
For the full-year 2006, worldwide gross bookings grew 10% both before and after
adjusting for the impact of foreign exchange. International gross bookings in 2006 grew
approximately 24% excluding the impact of foreign exchange, compared with 26% prior to
adjusting for foreign exchange. |
10 of 20
| |
• |
|
The benefit of foreign exchange on our cash balances denominated in foreign currency was
$42 million in 2006, and is included in “effect of exchange rate changes on cash and cash
equivalents” on our statements of cash flows. This amount showed a net increase of $51
million from 2005 due to the benefit of foreign currency appreciation during that time
period versus our reporting currency, as well as the increase in our cash balances. |
| |
| |
• |
|
There was minimal year-over-year impact from acquisition activity for both the fourth
quarter and full-year 2006. |
Balance Sheet Notes
Cash, Cash Equivalents and Restricted Cash
| |
• |
|
Cash, cash equivalents and current restricted cash totaled $864 million at December 31,
2006. This amount includes $11 million in restricted cash and equivalents related to
merchant air revenue transactions. |
| |
| |
• |
|
The $543 million increase in cash, cash equivalents and restricted cash for 2006
principally relates to $599 million in OIBA, $495 million in net proceeds from our senior
notes offering, and a $133 million increase in cash from net changes in operating assets
and liabilities, partially offset by $296 million in treasury stock activity primarily
related to our 20 million share repurchase, $231 million primarily related to pay down of
our revolver balance, $126 million in cash taxes paid and $93 million in capital
expenditures. |
Accounts and Notes Receivable
| |
• |
|
Accounts receivable include credit card receivables generally due within two to three
days from credit card agencies, as well as receivables from agency transactions, which are
generally due within 30 days from our airlines, global distribution partners and hotel
suppliers. |
| |
| |
• |
|
Accounts and notes receivable grew faster than overall bookings in 2006 due in part to
December 31st falling on a Sunday in 2006 compared with a Saturday in 2005, adding an extra
day of receivables to the year-end balance as payments are not received on weekend days. |
Prepaid Merchant Bookings
| |
• |
|
Prepaid merchant bookings primarily relate to our merchant air business and reflect
prepayments to our airline partners for their portion of the gross booking, prior to the
travelers’ dates of travel. Despite the decrease in merchant air booking volume in 2006,
prepaid merchant bookings increased $9 million due in part to higher airfares. |
Prepaid Expenses and Other Current Assets
| |
• |
|
Prepaid expenses and other current assets are primarily composed of prepaid marketing,
prepaid merchant fees, prepaid license and maintenance agreements and prepaid insurance. |
| |
| |
• |
|
Prepaid expenses and other current assets decreased in 2006 primarily due to the
decrease in prepaid marketing for non-cash distribution and marketing credits we received
from IAC as part of our Spin-Off. |
Long-Term Investments and Other Assets
| |
• |
|
Long-term investments and other assets include transportation equipment, collateral
deposits related to our cross-currency swap agreements, investments in joint ventures and
capitalized debt issuance costs. |
| |
| |
• |
|
Long-term investments and other assets increased $20 million in 2006 primarily due to
higher collateral deposits on our cross-currency swap agreements, capitalized debt issuance
costs related to our senior notes and an increase in the value of our joint venture
investment. |
Goodwill and Intangible Assets, Net
| |
• |
|
Goodwill and intangible assets, net primarily relates to the acquisitions of Hotels.com,
Expedia.com and Hotwire.com. |
| |
| |
• |
|
$867 million of intangible assets, net relates to intangible assets with indefinite
lives, which are not amortized. Our indefinite lived intangible assets relate principally
to trade names and trademarks acquired in various acquisitions. |
11 of 20
| |
• |
|
We determined that the carrying amount of our indefinite lived trade name intangible
asset related to Hotwire exceeded its fair value. As a result, in the third quarter of 2006
we recognized an impairment charge of $47 million. This impairment charge was not
deductible for tax purposes. |
| |
| |
• |
|
$162 million of intangible assets, net relates to intangible assets with definite lives,
which are generally amortized over a period of two to ten years. The majority of this
amortization is not deductible for tax purposes. |
| |
| |
• |
|
Amortization expense related to definite lived intangibles was $24 million for the
fourth quarter and $111 million for full-year 2006, compared with $32 million and $126
million for the prior year periods. Assuming no impairments or acquisitions, we expect
amortization expense for definite lived intangibles of $74 million in 2007 and $52 million
in 2008. |
Deferred Merchant Bookings and Accounts Payable, Merchant
| |
• |
|
Deferred merchant bookings consist of amounts received from travelers who have not yet
traveled. The payment to suppliers related to these bookings is not made until
approximately one week after booking for air travel and, for all other merchant bookings,
after the customer’s use of services and subsequent billing from the supplier, which
billing is reflected as accounts payable, merchant on our balance sheet. Therefore,
especially for merchant hotel, there is a significant period of time from the receipt of
cash from our travelers to supplier payment. |
| |
| |
• |
|
As long as the merchant hotel business continues to grow and our business model does not
change, we expect that changes in working capital will continue to be positive. If this
business declines or if the model changes, it would negatively affect our working capital. |
| |
| |
• |
|
Deferred merchant bookings generally mirror the seasonality pattern of our gross
bookings. |
| |
| |
• |
|
Accounts Payable, merchant contributed $27 million less to net cash flow provided by
operating activities in 2006 compared with 2005 due to faster supplier payment processing. |
Borrowings
| |
• |
|
Expedia, Inc. maintains a $1 billion five-year unsecured revolving credit facility that
bears interest based on our financial leverage, currently priced at 1-month LIBOR+0.50%. As
of December 31, 2006 we had no balance on our revolver and were in compliance with all
financial covenants under the credit facility. |
| |
| |
• |
|
In January 2007 we completed a modified “Dutch auction” tender offer, purchasing 30
million common shares of Expedia, Inc. at a total cost of $660 million, excluding
transaction fees and expenses. We borrowed $150 million against the credit facility to
finance a portion of the repurchase amount. |
| |
| |
• |
|
In August 2006 we completed the placement of $500 million 7.456% Senior Notes (the
“Notes”) due 2018 with plans to use the net proceeds of the offering for general corporate
purposes, which may include additional repurchases of common stock, repayment of debt,
acquisitions, investments, additions to working capital, capital expenditures and advances
to, or investments in, our subsidiaries. |
| |
| |
• |
|
The Notes are repayable in whole or in part on August 15, 2013 at the option of the note
holders. We may redeem the Notes at any time at our option. |
| |
| |
• |
|
Semi-annual interest expense related to the Notes is $19 million, to be paid on February
15 and August 15 of each year, beginning with February 2007. |
| |
| |
• |
|
On February 14, 2007, we commenced an offer to exchange the Notes for
publicly-traded notes with the same terms and conditions. The offer will expire, unless
extended, at 5:00 p.m. New York time on March 15, 2007. |
Other Current Liabilities
| |
• |
|
Other current liabilities principally relate to accruals for cost of service related to
our call center and internet services, accruals for service, bonus, salary and wage
liabilities and a reserve for occupancy taxes. |
| |
| |
• |
|
Other current liabilities increased $67 million in 2006 due to the net reclassification
from other long-term liabilities of $30 million related to our tax sharing agreement with
Microsoft, which we expect to pay in the fourth quarter of 2007, accrued interest expense
related to our Note payment due February 2007 and increased accrued liabilities associated
with the growth of our business. |
Derivative Liabilities
12 of 20
| |
• |
|
In connection with IAC’s acquisition of Ask, we issued 4.3 million shares of Expedia,
Inc. common stock into an escrow account, which shares (or cash in equal value) were due to
holders of Ask convertible notes upon conversion. These shares have been included in
diluted shares from the date of Spin-Off. |
| |
| |
• |
|
During 2006 notes were converted for 3.5 million shares, leaving 0.8 million shares of
Expedia common stock (or cash in equal value) due to Ask note holders upon conversion. |
| |
| |
• |
|
The estimated fair value of the Ask notes at December 31, 2006 was $16 million, recorded
as a derivative liability on our consolidated balance sheet. This compares with $105
million at year-end 2005. The $89 million decrease reflects the note conversions during
2006, as well as the decrease in our share price from year-end 2005 to year-end 2006. |
| |
| |
• |
|
For the fourth quarter we recorded a net unrealized loss of $3 million related to the
Ask notes due to the increase in our share price at the end of the fourth quarter compared
with the end of the third quarter. This loss is reflected as an increase in derivative
liabilities, is recorded in “other, net” on our consolidated statements of income and is
excluded from both our OIBA and adjusted net income calculations. |
| |
| |
• |
|
For 2006 we recorded a net gain of $8 million related to the Ask notes due to changes in
our share price during 2006. This gain is reflected as a decrease in our derivative
liabilities balance. |
| |
| |
• |
|
We anticipate recording a quarterly unrealized gain or loss in future quarters related
to any remaining liability as we adjust the fair value for changes in our stock price, as
measured at subsequent quarter-ends compared with the prior quarter-end. |
| |
| |
• |
|
The remaining $13 million of derivative liabilities at December 31, 2006
primarily relates to cross-currency swaps, which increased $12 million from December 31,
2005 due to the weakening of the USD compared with the Euro and rising interest rates. |
Other Long-Term Liabilities
| |
• |
|
The $34 million decrease in other long-term liabilities principally relates to the
reclassification to other current liabilities of a $36 million payable to Microsoft in
conjunction with a tax sharing agreement, $6 million of which we paid in the fourth quarter
of 2006, and $30 million of which we expect to pay in the fourth quarter of 2007. |
Minority Interest
| |
• |
|
Our minority interest primarily relates to our minority ownership position in eLong,
results for which are consolidated for all periods presented. |
| |
| |
• |
|
2006 minority interest decreased $10 million, reflecting our purchase of the remaining
minority interests in TripAdvisor and Egencia, offset by increased minority interest
associated with changes in our eLong equity holdings during the year. |
Purchase Obligations
| |
• |
|
At December 31, 2006 we have agreements with certain vendors under which we have future
minimum obligations of $29 million in 2007, $9 million in 2008 and $8 million in 2009.
These minimum obligations for telecom, loyalty, software and other support services are
less than our projected use for those periods, and we expect payment to be more than the
minimum obligations based on our actual use. In addition, if certain obligations are met by
our counterparties, our obligations will increase. |
| |
| |
• |
|
These obligations are not reflected on our consolidated balance sheets herein. |
Common Stock
| |
• |
|
During 2006 we repurchased 20 million shares of Expedia, Inc. common stock for $288
million at an average repurchase price of $14.42 per share, including transaction costs. |
| |
| |
• |
|
In August 2006 our Board of Directors authorized an additional repurchase of up to 20
million common shares. There is no fixed termination date for the repurchase, and as of the
date of this release we have not repurchased any shares under this authorization. |
| |
| |
• |
|
In January 2007 Expedia completed its tender offer, purchasing 30 million shares of its
common stock at a purchase price of $22.00 per share at a total cost of $660 million,
excluding transaction costs. |
13 of 20
Class B Common Stock
| |
• |
|
There are approximately 26 million shares of Expedia Class B common stock outstanding,
owned solely by Liberty Media Corporation and its subsidiaries (“Liberty”). Class B shares
are entitled to ten votes per share when voting on matters with the holders of Expedia
common and preferred stock. |
| |
• |
|
Through the common stock our Chairman and Senior Executive, Barry Diller, owns directly,
as well as the common stock and Class B stock for which he has been assigned an irrevocable
proxy by Liberty, Mr. Diller had a controlling 55% voting interest in Expedia, Inc. as of
December 31, 2006. As of January 19, 2007, following our repurchase of 30 million shares,
Mr. Diller’s voting interest increased to 58%. |
Warrants
| |
• |
|
As of December 31, 2006 we had 58.5 million warrants outstanding, which, if exercised in
full, would entitle holders to acquire 34.6 million common shares of Expedia, Inc. for an
aggregate purchase price of approximately $774 million (representing an average of $22 per
Expedia, Inc. common share). |
| |
• |
|
32.2 million of these warrants are privately held and expire in 2012, and 26.0 million
warrants are publicly-traded and expire in 2009. There are 0.3 million miscellaneous
warrants outstanding. |
Stock-Based Awards
| |
• |
|
At December 31, 2006 we had 31 million stock-based awards outstanding, consisting of
stock options to purchase 23 million common shares with a $16.52 weighted average exercise
price and weighted average remaining life of 3.4 years, and 8 million RSUs. |
| |
• |
|
During the fourth quarter we granted 0.7 million RSUs. For the year we granted 5 million
RSUs to employees, including approximately 1 million performance-related grants to certain
executives. |
| |
• |
|
For the year employee equity award grants net of cancellations, expirations and
forfeitures were 2.2 million, less than 1% of the prior year diluted share count. |
Basic, Fully Diluted and Adjusted Diluted Shares
| |
• |
|
Weighted average basic, fully diluted and adjusted diluted share counts are as
follows (in 000’s; some numbers may not add due to rounding): |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
3 Months Ended |
|
|
3 Months Ended |
|
|
|
12 Months Ended |
|
|
12 Months Ended |
|
| Shares |
|
12.31.06 |
|
|
12.31.05 |
|
|
|
12.31.06 |
|
|
12.31.05 |
|
Basic |
|
|
330,294 |
|
|
|
339,746 |
|
|
|
|
338,047 |
|
|
|
336,819 |
|
Options |
|
|
7,339 |
|
|
|
13,249 |
|
|
|
|
7,744 |
|
|
|
5,568 |
|
Warrants |
|
|
3,756 |
|
|
|
5,138 |
|
|
|
|
3,600 |
|
|
|
5,007 |
|
Derivative liabilities |
|
|
867 |
|
|
|
4,304 |
|
|
|
|
1,463 |
|
|
|
1,697 |
|
RSUs / RSAs |
|
|
1,323 |
|
|
|
419 |
|
|
|
|
1,092 |
|
|
|
145 |
|
Other |
|
|
7 |
|
|
|
776 |
|
|
|
|
235 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted |
|
|
343,586 |
|
|
|
363,632 |
|
|
|
|
352,181 |
|
|
|
349,530 |
|
RSUs / RSAs, Adjusted Net Income method |
|
|
5,849 |
|
|
|
4,648 |
|
|
|
|
6,189 |
|
|
|
2,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted |
|
|
349,435 |
|
|
|
368,280 |
|
|
|
|
358,370 |
|
|
|
351,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| • |
|
Our 30 million share repurchase completed pursuant to a tender offer in
January 2007 is not reflected in these share amounts. |
| • |
|
The decrease in basic, fully diluted and adjusted diluted shares for the
fourth quarter primarily relates to our open market repurchase of 20 million common shares,
completed in July 2006. |
| • |
|
Full-year 2006 shares increased from the prior year period despite the 20
million share repurchase as we did not include the dilutive effect of any securities other
than warrants prior to August 9, 2005 because we were not obligated to issue underlying
common stock for these potentially dilutive securities prior to the Spin-Off date (see
“Basis of Presentation” below for additional information on the Spin-Off). |
14 of 20
Expedia, Inc.
Operational Metrics — Fourth Quarter and Full-Year 2006
(All figures in millions)
| • |
|
The following metrics are intended as a supplement to the financial statements found in
this press release and in our filings with the SEC. In the event of discrepancies between
amounts in these tables and our historical financial statements, readers should rely on our
filings with the SEC and financial statements in our most recent earnings releases. |
| • |
|
We intend to periodically review and refine the definition, methodology and
appropriateness of each of our supplemental metrics. As a result, these metrics are subject
to removal and/or change, and such changes could be material. |
| • |
|
“Expedia” gross bookings constitute bookings from all Expedia-branded properties,
including our international sites and our worldwide ECT businesses. “Other” gross bookings
constitute bookings from all brands other than Expedia and Hotels.com. |
| • |
|
100% of TripAdvisor revenue is included in “Domestic” revenue. |
| • |
|
Metrics, with the exception of revenue items, include 100% of the results of an
unconsolidated joint-venture of which we own approximately 49.9%. |
| • |
|
These metrics do not include adjustments for one-time items, acquisitions, foreign
exchange or other adjustments. |
| • |
|
Some numbers may not add due to rounding. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2005 |
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 Y/Y |
|
|
|
|
|
|
|
|
|
|
|
|
2006 Y/Y |
|
|
| |
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
Growth |
|
|
|
2005 |
|
|
2006 |
|
|
|
Growth |
|
|
Gross Bookings by Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
$ |
3,160 |
|
|
$ |
3,208 |
|
|
$ |
3,031 |
|
|
$ |
2,604 |
|
|
|
$ |
3,508 |
|
|
$ |
3,455 |
|
|
$ |
3,095 |
|
|
$ |
2,628 |
|
|
|
|
1 |
% |
|
|
$ |
12,003 |
|
|
$ |
12,687 |
|
|
|
|
6 |
% |
|
International |
|
|
|
926 |
|
|
|
924 |
|
|
|
907 |
|
|
|
791 |
|
|
|
|
1,140 |
|
|
|
1,109 |
|
|
|
1,166 |
|
|
|
1,058 |
|
|
|
|
34 |
% |
|
|
|
3,548 |
|
|
|
4,473 |
|
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
4,086 |
|
|
$ |
4,133 |
|
|
$ |
3,938 |
|
|
$ |
3,395 |
|
|
|
$ |
4,648 |
|
|
$ |
4,565 |
|
|
$ |
4,261 |
|
|
$ |
3,687 |
|
|
|
|
9 |
% |
|
|
|
15,552 |
|
|
|
17,161 |
|
|
|
|
10 |
% |
|
Revenue by Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
$ |
378 |
|
|
$ |
430 |
|
|
$ |
447 |
|
|
$ |
364 |
|
|
|
$ |
371 |
|
|
$ |
443 |
|
|
$ |
434 |
|
|
$ |
368 |
|
|
|
|
1 |
% |
|
|
$ |
1,620 |
|
|
$ |
1,616 |
|
|
|
|
0 |
% |
|
International |
|
|
|
107 |
|
|
|
125 |
|
|
|
138 |
|
|
|
130 |
|
|
|
|
123 |
|
|
|
156 |
|
|
|
180 |
|
|
|
164 |
|
|
|
|
25 |
% |
|
|
|
500 |
|
|
|
622 |
|
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
485 |
|
|
$ |
555 |
|
|
$ |
585 |
|
|
$ |
495 |
|
|
|
$ |
494 |
|
|
$ |
598 |
|
|
$ |
614 |
|
|
$ |
531 |
|
|
|
|
7 |
% |
|
|
|
2,119 |
|
|
|
2,238 |
|
|
|
|
6 |
% |
|
Gross Bookings by Brand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expedia |
|
|
$ |
3,252 |
|
|
$ |
3,191 |
|
|
$ |
3,048 |
|
|
$ |
2,679 |
|
|
|
$ |
3,680 |
|
|
$ |
3,590 |
|
|
$ |
3,343 |
|
|
$ |
2,962 |
|
|
|
|
11 |
% |
|
|
|
12,169 |
|
|
$ |
13,575 |
|
|
|
|
12 |
% |
|
Hotels.com |
|
|
|
483 |
|
|
|
497 |
|
|
|
502 |
|
|
|
407 |
|
|
|
|
582 |
|
|
|
621 |
|
|
|
600 |
|
|
|
456 |
|
|
|
|
12 |
% |
|
|
|
1,890 |
|
|
|
2,259 |
|
|
|
|
20 |
% |
|
Other |
|
|
|
352 |
|
|
|
445 |
|
|
|
387 |
|
|
|
309 |
|
|
|
|
386 |
|
|
|
354 |
|
|
|
318 |
|
|
|
268 |
|
|
|
|
-13 |
% |
|
|
|
1,493 |
|
|
|
1,326 |
|
|
|
|
-11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
4,086 |
|
|
$ |
4,133 |
|
|
$ |
3,938 |
|
|
$ |
3,395 |
|
|
|
$ |
4,648 |
|
|
$ |
4,565 |
|
|
$ |
4,261 |
|
|
$ |
3,687 |
|
|
|
|
9 |
% |
|
|
|
15,552 |
|
|
|
17,161 |
|
|
|
|
10 |
% |
|
Gross Bookings by Agency/Merchant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
$ |
2,364 |
|
|
$ |
2,396 |
|
|
$ |
2,276 |
|
|
$ |
2,068 |
|
|
|
$ |
2,695 |
|
|
$ |
2,728 |
|
|
$ |
2,473 |
|
|
$ |
2,253 |
|
|
|
|
9 |
% |
|
|
$ |
9,103 |
|
|
$ |
10,150 |
|
|
|
|
11 |
% |
|
Merchant |
|
|
|
1,722 |
|
|
|
1,737 |
|
|
|
1,662 |
|
|
|
1,327 |
|
|
|
|
1,953 |
|
|
|
1,837 |
|
|
|
1,788 |
|
|
|
1,433 |
|
|
|
|
8 |
% |
|
|
|
6,448 |
|
|
|
7,011 |
|
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
4,086 |
|
|
$ |
4,133 |
|
|
$ |
3,938 |
|
|
$ |
3,395 |
|
|
|
$ |
4,648 |
|
|
$ |
4,565 |
|
|
$ |
4,261 |
|
|
$ |
3,687 |
|
|
|
|
9 |
% |
|
|
|
15,552 |
|
|
|
17,161 |
|
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packages Revenue |
|
|
$ |
114 |
|
|
$ |
124 |
|
|
$ |
128 |
|
|
$ |
106 |
|
|
|
$ |
114 |
|
|
$ |
131 |
|
|
$ |
125 |
|
|
$ |
107 |
|
|
|
|
1 |
% |
|
|
$ |
472 |
|
|
$ |
476 |
|
|
|
|
1 |
% |
|
Number of Transactions |
|
|
|
9.6 |
|
|
|
10.1 |
|
|
|
10.4 |
|
|
|
8.7 |
|
|
|
|
10.8 |
|
|
|
10.6 |
|
|
|
10.4 |
|
|
|
9.0 |
|
|
|
|
3 |
% |
|
|
|
38.8 |
|
|
|
40.7 |
|
|
|
|
5 |
% |
|
Merchant Hotel Room Nights |
|
|
|
7.3 |
|
|
|
8.8 |
|
|
|
10.2 |
|
|
|
8.3 |
|
|
|
|
8.1 |
|
|
|
10.1 |
|
|
|
11.1 |
|
|
|
8.7 |
|
|
|
|
6 |
% |
|
|
|
34.6 |
|
|
|
38.1 |
|
|
|
|
10 |
% |
|
Notes
& Definitions:
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,
including taxes, fees and other charges, and are generally not reduced for cancellations and
refunds.
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.
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.
15 of 20
Definitions of Non-GAAP Measures
Expedia, Inc. reports Operating Income Before Amortization, Adjusted Net Income, Adjusted EPS, Free
Cash Flow and non-GAAP operating expense (non-GAAP selling and marketing, non-GAAP general and
administrative and non-GAAP technology and content), 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 the most directly comparable GAAP
measures and descriptions of the reconciling items and adjustments to derive the non-GAAP measures.
Operating Income Before Amortization (“OIBA”) 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 and/or intangible asset impairment, if
applicable and (4) certain one-time items, if applicable. OIBA 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. Management believes this measure is useful to
investors because it corresponds more closely to the cash operating income generated from our core
operations by excluding significant non-cash operating expenses, it aids in forecasting and
analyzing future operating income as stock-based compensation, amortization of intangibles
(assuming no subsequent acquisitions), and non-cash distribution and marketing expenses have
declined and are likely to decline going forward and because it provides greater insight into
management decision making at Expedia, Inc. as OIBA is our primary internal metric for evaluating
the performance of our businesses. OIBA has certain limitations in that it does not take into
account the impact of certain expenses to Expedia, Inc.’s statements of income, including
stock-based compensation, non-cash payments to partners, acquisition-related accounting and certain
one-time items, if applicable. Due to the high variability and difficulty in predicting certain
items that affect net income, such as tax rates, stock price and interest rates, Expedia, Inc. is
unable to provide a reconciliation to net income on a forward-looking basis without unreasonable
efforts.
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 net of tax (1) amortization of non-cash distribution and marketing expense, (2) stock-based
compensation expense, (3) amortization of intangible assets and goodwill and/or intangible
impairment, if applicable, (4) one-time items, (5) mark to market gains and losses on derivative
liabilities, (6) discontinued operations and (7) the minority interest impact of the aforementioned
adjustment items. 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 core operations of our businesses.
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 RSUs 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 non-cash expenses not directly tied to the core operations of our businesses. Adjusted
Net Income and Adjusted EPS have similar limitations as OIBA. 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.
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
16 of 20
core operations of our businesses, such as financing activities, foreign exchange 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.
Non-GAAP cost of revenue, selling and marketing, general and administrative and technology and
content expenses excluding stock-based compensation exclude stock-based compensation related to
expenses for stock options, restricted stock units and other equity compensation under FAS 123(R).
Expedia, Inc. excludes stock-based compensation expenses from these measures primarily because they
are non-cash expenses that we do not believe are necessarily reflective of our ongoing cash
operating expenses and cash operating income. These expenses are also likely to decline in the near
future as we no longer award options as our primary form of equity compensation. In addition, due
to historical accounting charges and credits related to our spin-off, changes in forfeiture
estimates and other events, stock-based compensation has been highly variable in some historical
quarters, impairing year-on-year and quarter-to-quarter comparability. Moreover, because of varying
available valuation methodologies, subjective assumptions and the variety of award types that
companies can use when adopting FAS 123(R), management believes that providing non-GAAP financial
measures that exclude stock-based compensation allows investors to make meaningful comparisons
between our recurring core business operating results and those of other companies, as well as
providing management with an important tool for financial operational decision making and for
evaluating our own recurring core business operating results over different periods of time. There
are certain limitations in using financial measures that do not take into account stock-based
compensation, including the fact that stock-based compensation is a recurring expense and a valued
part of employees’ compensation. Therefore it is important to evaluate both our GAAP and non-GAAP
measures. See the Note to the Consolidated Statements of Income for stock-based compensation by
line item.
Tabular Reconciliations for Non-GAAP Measures
Operating Income Before Amortization
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Year ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
| |
|
(in thousands) |
|
OIBA |
|
$ |
146,244 |
|
|
$ |
132,940 |
|
|
$ |
599,018 |
|
|
$ |
627,441 |
|
Amortization of intangible assets |
|
|
(23,906 |
) |
|
|
(31,863 |
) |
|
|
(110,766 |
) |
|
|
(126,067 |
) |
Impairment of intangible asset |
|
|
— |
|
|
|
— |
|
|
|
(47,000 |
) |
|
|
— |
|
Stock-based compensation |
|
|
(22,738 |
) |
|
|
(11,826 |
) |
|
|
(80,285 |
) |
|
|
(91,725 |
) |
Amortization of non-cash distribution and marketing |
|
|
(60 |
) |
|
|
(3,542 |
) |
|
|
(9,638 |
) |
|
|
(12,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
99,540 |
|
|
|
85,709 |
|
|
|
351,329 |
|
|
|
397,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
1,697 |
|
|
|
1,194 |
|
|
|
14,799 |
|
|
|
48,673 |
|
Write-off of long-term investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(23,426 |
) |
Other, net |
|
|
1,721 |
|
|
|
(20,317 |
) |
|
|
18,770 |
|
|
|
(8,428 |
) |
Provision for income taxes |
|
|
(35,928 |
) |
|
|
(42,082 |
) |
|
|
(139,451 |
) |
|
|
(185,977 |
) |
Minority interest in (income) loss of consolidated
subsidiaries, net |
|
|
110 |
|
|
|
730 |
|
|
|
(513 |
) |
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
67,140 |
|
|
$ |
25,234 |
|
|
$ |
244,934 |
|
|
$ |
228,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 of 20
Adjusted Net Income & Adjusted EPS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
Year ended |
| |
|
December 31, |
|
December 31, |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
(in thousands, except per share data) |
| |
Net income |
|
$ |
67,140 |
|
|
$ |
25,234 |
|
|
$ |
244,934 |
|
|
$ |
228,730 |
|
Amortization of intangible assets |
|
|
23,906 |
|
|
|
31,863 |
|
|
|
110,766 |
|
|
|
126,067 |
|
Impairment of intangible asset |
|
|
— |
|
|
|
— |
|
|
|
47,000 |
|
|
|
— |
|
Stock-based compensation |
|
|
22,738 |
|
|
|
11,826 |
|
|
|
80,285 |
|
|
|
91,725 |
|
Amortization of non-cash distribution and marketing |
|
|
60 |
|
|
|
3,542 |
|
|
|
9,638 |
|
|
|
12,597 |
|
Write-off of long-term investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23,426 |
|
Unrealized loss (gain) on derivative instruments, net |
|
|
3,472 |
|
|
|
18,042 |
|
|
|
(8,137 |
) |
|
|
6,042 |
|
Minority interest |
|
|
(202 |
) |
|
|
(382 |
) |
|
|
(922 |
) |
|
|
(1,827 |
) |
Provision for income taxes |
|
|
(18,984 |
) |
|
|
(17,378 |
) |
|
|
(93,052 |
) |
|
|
(70,982 |
) |
| |
|
|
Adjusted net income |
|
$ |
98,130 |
|
|
$ |
72,747 |
|
|
$ |
390,512 |
|
|
$ |
415,778 |
|
| |
|
|
| |
GAAP diluted weighted average shares outstanding |
|
|
343,586 |
|
|
|
363,632 |
|
|
|
352,181 |
|
|
|
349,530 |
|
Additional restricted stock units |
|
|
5,849 |
|
|
|
4,648 |
|
|
|
6,189 |
|
|
|
2,366 |
|
| |
|
|
Adjusted weighted average shares outstanding |
|
|
349,435 |
|
|
|
368,280 |
|
|
|
358,370 |
|
|
|
351,896 |
|
| |
|
|
| |
Diluted earnings per share |
|
$ |
0.20 |
|
|
$ |
0.07 |
|
|
$ |
0.70 |
|
|
$ |
0.65 |
|
| |
|
|
Adjusted earnings per share |
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
$ |
1.09 |
|
|
$ |
1.18 |
|
| |
|
|
Free Cash Flow
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Year ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
| |
|
(in thousands) |
| |
Net cash provided by operating activities |
|
$ |
(106,128 |
) |
|
$ |
(91,280 |
) |
|
$ |
617,440 |
|
|
$ |
859,187 |
|
Less: capital expenditures |
|
|
(25,051 |
) |
|
|
(11,456 |
) |
|
|
(92,631 |
) |
|
|
(52,315 |
) |
|
|
|
Free cash flow |
|
$ |
(131,179 |
) |
|
$ |
(102,736 |
) |
|
$ |
524,809 |
|
|
$ |
806,872 |
|
|
|
|
Non-GAAP cost of revenue, selling and marketing, general and administrative and technology and
content expenses excluding stock-based compensation
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Year ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
| |
|
(in thousands) |
|
Cost of revenue |
|
$ |
121,781 |
|
|
$ |
112,612 |
|
|
$ |
502,638 |
|
|
$ |
480,219 |
|
Less: stock-based compensation |
|
|
(1,772 |
) |
|
|
(2,370 |
) |
|
|
(8,399 |
) |
|
|
(9,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue excluding stock-based compensation |
|
$ |
120,009 |
|
|
$ |
110,242 |
|
|
$ |
494,239 |
|
|
$ |
470,716 |
|
| |
Selling and marketing expense |
|
$ |
171,417 |
|
|
$ |
158,861 |
|
|
$ |
786,195 |
|
|
$ |
715,624 |
|
Less: stock-based compensation |
|
|
(4,228 |
) |
|
|
(3,531 |
) |
|
|
(15,893 |
) |
|
|
(18,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and marketing expense excluding
stock-based compensation |
|
$ |
167,189 |
|
|
$ |
155,330 |
|
|
$ |
770,302 |
|
|
$ |
697,503 |
|
General and administrative expense |
|
$ |
79,079 |
|
|
$ |
73,653 |
|
|
$ |
289,649 |
|
|
$ |
257,389 |
|
Less: stock-based compensation |
|
|
(11,394 |
) |
|
|
(8,347 |
) |
|
|
(36,877 |
) |
|
|
(45,874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense excluding
stock-based compensation |
|
$ |
67,685 |
|
|
$ |
65,306 |
|
|
$ |
252,772 |
|
|
$ |
211,515 |
|
| |
Technology and content expense |
|
$ |
35,505 |
|
|
$ |
28,509 |
|
|
$ |
140,371 |
|
|
$ |
130,507 |
|
Less: stock-based compensation |
|
|
(5,344 |
) |
|
|
2,422 |
|
|
|
(19,116 |
) |
|
|
(18,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and content expense excluding
stock-based compensation |
|
$ |
30,161 |
|
|
$ |
30,931 |
|
|
$ |
121,255 |
|
|
$ |
112,280 |
|
18 of 20
Conference Call
Expedia, Inc. will audiocast a conference call to discuss fourth quarter and full-year 2006
financial results and certain forward-looking information on Thursday, February 15, 2007 at 8:00
a.m. Pacific Time (PT). The audiocast will be open to the public and available via
http://www.expediainc.com/ir. Expedia, Inc. expects to maintain access to the audiocast on the IR
website for approximately three months subsequent to the initial broadcast.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
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, 2007 and assumptions which are inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. The use of words such as “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.
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; changes in our relationships with travel suppliers or GDS partners; adverse changes in
senior management; the rate of growth of the internet and online travel; our inability to recognize
the benefits of our investment in technologies; changes in the competitive environment, the
e-commerce industry and broadband access; declines or disruptions in the travel industry (including
those caused by decreased consumer and business spending, adverse weather, bankruptcies, health
risks, war, terrorism and/or general economic downturns); the rate of online migration in the
various geographies and markets in which Expedia, Inc. operates, including Asia; fluctuations in
foreign exchange rates; changing laws, rules and regulations and legal uncertainties relating to
our business; Expedia, Inc.’s ability to expand successfully in international markets; possible
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 any future corporate transactions or acquisitions; 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 most recent quarterly report on Form 10-Q and its annual report on Form
10-K for the year ended December 31, 2005.
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.
Basis of Presentation
On August 9, 2005, IAC separated into two companies. As a result, Expedia, Inc. became a separate
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.
About Expedia, Inc.
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
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offline retail travel agents. Expedia,
Inc.’s portfolio of brands include: Expedia.com®, hotels.com®, Hotwire®, Expedia®
Corporate Travel, TripAdvisor® and Classic Vacations®. Expedia, Inc.’s companies also operate
internationally with sites in Canada, the United Kingdom, Germany, France, Italy, the Netherlands,
Australia, Japan, Denmark, Sweden, Norway and China, through its investment in eLong™. For more
information, visit http://www.expediainc.com (NASDAQ: EXPE).
Expedia, Expedia.com, WWTE® and the Airplane logo are either registered trademarks or trademarks of
Expedia, Inc. in the U.S. and/or other countries. Classic Vacations and the Bird of Paradise logo
are either registered trademarks or trademarks of Classic Vacations, LLC 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 in the U.S. and/or other countries of Hotels.com, L.P., a subsidiary of
Hotels.com. Hotwire, Hotwire.com and Travel Ticker are either registered trademarks or trademarks
of Hotwire, Inc. in the U.S. and/or other countries. eLong and the eLong logo are either registered
trademarks or trademarks of eLong, Inc. in the U.S. and/or other countries. TripAdvisor, the Owl
Logo and Get The Truth. Then Go. are either registered trademarks or trademarks in the U.S. and/or
other countries of TripAdvisor LLC. Other logos and product or company names mentioned herein may
be the property of their respective owners.
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Contacts |
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Investor Relations
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Communications |
(425) 679-3555
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(425) 679-4317 |
ir@expedia.com
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press@expedia.com |
© 2007 Expedia, Inc. All rights reserved. CST 2029030-40.
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