Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2005, for Expedia, Inc. The filing represents the initial capitalization of Expedia, Inc., a Delaware corporation incorporated in April 2005 in preparation for a spin-off from IAC/InterActiveCorp. (IAC). As of the balance sheet date, Expedia, Inc. had no operating activities; the spin-off was completed on August 9, 2005, after which the company began trading on Nasdaq under the symbol "EXPE."
Key Financial Metrics
The legal entity "Expedia, Inc." reported minimal activity as it was newly formed. However, the filing provides Combined Financial Data reflecting the historical results of the Expedia businesses (including TripAdvisor, eLong, and others) as if they had been a standalone company.
| Metric | 3 Months Ended June 30, 2005 | 6 Months Ended June 30, 2005 |
|---|---|---|
| Revenue | $555,007,000 | $1,040,053,000 |
| Operating Income | $96,379,000 | $162,704,000 |
| Net Income | $73,432,000 | $121,461,000 |
| Operating Cash Flow | $783,450,000 | $657,132,000 |
| Total Assets (as of June 30, 2005) | $10,302,609,000 | |
| Current Liabilities (as of June 30, 2005) | $1,515,495,000 | |
| Long-term Liabilities (as of June 30, 2005) | $467,730,000 |
Note: The legal entity's balance sheet shows only $100 in cash and assets due to initial capitalization. The table above reflects the combined business data.
Material Changes vs. Prior Period
- Revenue Growth: Combined revenue increased 14% year-over-year for the three months ended June 30, 2005 ($555.0M vs. $487.0M) and 16% for the six-month period ($1.04B vs. $900.2M).
- Profitability: Operating income rose 31% year-over-year for the quarter ($96.4M vs. $73.5M) and 80% for the six-month period ($162.7M vs. $90.2M).
- Acquisitions: The 2005 data includes results from eLong, Inc. (acquired Jan 2005) and Premier Getaways (acquired Feb 2005). The 2004 comparative data includes Activity World, Egencia, and TripAdvisor, Inc., acquired in April 2004.
- Cash Flow: Operating cash flow for the six months ended June 30, 2005, was significantly higher than the prior year period, while financing activities showed a net outflow of $594.9M compared to $947.0M in the prior year.
Guidance, Outlook, and Risks
Management Commentary: Management states that the combined financial data assumes the transfer of all Expedia businesses to the new entity and the allocation of certain IAC corporate expenses. They believe the assumptions are reasonable but note that the data does not necessarily reflect future financial positions or what results would have been if the businesses had been standalone historically.
Risks and Contingencies: The filing highlights the pending spin-off from IAC as the primary context. The financial data is presented on a "combined" rather than "consolidated" basis because no direct ownership relationship existed among the businesses as of June 30, 2005. The filing does not provide specific forward-looking guidance or revenue targets for the post-spin-off entity.
Controls and Procedures: Management concluded that disclosure controls and procedures were effective as of the end of the period. No material changes to internal controls over financial reporting were identified.
Investor Verification Checklist
- Verify the final terms of the Separation Agreement between Expedia, Inc. and IAC regarding expense allocations and liability assumptions.
- Confirm the trading start date and initial market capitalization following the August 9, 2005, spin-off.
- Review the Form S-4/A (filed June 17, 2005) for detailed pro forma financial information and risk factors specific to the separation.
- Assess the impact of recent acquisitions (eLong, Premier Getaways) on the reported growth rates versus organic growth.
- Monitor the transition of corporate expenses from IAC to Expedia, Inc., as these were allocated in the combined data but may differ in actual standalone operations.