Filed by USA Networks, Inc.
Pursuant to Rule 165 and Rule 425
Under the Securities Act of 1933
Subject Company: Expedia, Inc.
Commission File No. 000-27429
USA PROVIDES INTERNAL BUDGET TO INVESTMENT COMMUNITY
As furnished to the Securities and Exchange Commission on October 24, 2001
USA Networks, Inc. (USA) has always been troubled, as we will explain below,
with the concept of "guidance" for future earnings. Nevertheless, we have gone
along with the way of the world in supplying guidance while attempting to do so
with greater detail than most.
Among our concerns is that over the years negotiating expectations externally
has moved from informal advisories into a cottage industry, first with
"whispers" and expectations managed - to a new world, post Reg FD, of extensive
filings and press releases if any material information is to be divulged.
This evolution has created its own sophisticated art form promoting and managing
expectations. Of course, this has nothing to do with actually operating a
business on a day-to-day basis, and is becoming at best a distraction from the
real work of a company...the `at worst' conjuring doesn't need detailing here.
While anyone interested wants to know how a company will perform as far into the
future as possible, the truth is that no one knows the future. Companies make
budgets with all sorts of assumptions and expectations, with base goals, stretch
goals, with the best of thinking and intentions...but, that's all they are:
planning budgets, subject to review based on real time information.
The process USA follows as part of its normal business practices is to
rigorously analyze each area of USA's operations, every profit and cost center,
every future capital expenditure, and roll them up into operating budgets for
the next year. Planning an overall budget for 2002 and beyond is particularly
difficult at this time due to ever deteriorating economic times and as a result
of the events of September 11th and thereafter, which have, only temporarily one
hopes, changed the way in which people in our country live their lives, spend
their money and feel about the future.
So, because of all these uncertainties, both internally and externally, USA has
decided to change its approach to the "guidance" ritual. For this and subsequent
years, USA will provide the investment community with our actual internal
budget, broken down by business segments. USA believes there's no better way to
let the investing community understand our goals and challenges than by bringing
the external world inside the company through the disclosure of USA's internal
budget. It's how we manage the company and it's a far more productive process
than attempting to manage the street.
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 1 of 6
USA NETWORKS, INC.
REVENUE - OPERATING BUDGET
(PRO FORMA $ IN MILLIONS) Growth
---------------------------------
2000 2001 2002 2003 '00 - '01 '01 - '02 '02 - '03
-------- -------- -------- -------- --------- --------- ---------
OPERATING BUSINESSES
Advertising & other A $ 467 $ 454 $ 407 $ 484 -3% -10% 19%
Affiliate fees 341 369 401 425 8% 9% 6%
-------- -------- -------- -------- ----- ---- ----
USA Network 808 823 808 909 2% -2% 13%
Advertising & other A,I 181 170 194 221 -6% 14% 14%
Affiliate fees 96 101 120 130 5% 19% 8%
-------- -------- -------- -------- ------ ----- -----
SCI FI 277 271 314 351 -2% 16% 12%
Studios USA, net B 446 528 521 577 18% -1% 11%
-------- -------- -------- -------- ------- ------ ------
Network and Studios 1,531 1,622 1,643 1,837 6% 1% 12%
HSN - U.S. 1,430 1,555 1,843 2,070 9% 19% 12%
HSN - Germany 260 294 374 450 13% 27% 20%
Ticketing 519 578 620 680 11% 7% 10%
Hotel Reservations 328 510 700 980 55% 37% 40%
Expedia H 157 280 360 470 79% 29% 31%
Precision Response 282 303 352 440 7% 16% 25%
Match.com 29 45 60 80 54% 33% 33%
-------- -------- -------- -------- ------- ------ ------
SUBTOTAL 4,535 5,187 5,952 7,007 14% 15% 18%
EMERGING BUSINESSES
Citysearch & related 51 47 50 70 -7% 6% 40%
HSN - Other International 21 27 45 60 27% 67% 33%
Trio, NWI, Crime, other emerging 20 24 30 50 18% 25% 67%
ECS / Styleclick 49 45 74 117 -7% 64% 58%
USA Films C 86 176 184 227 104% 5% 23%
-------- -------- -------- -------- ------- ------ ------
Subtotal 227 319 383 524 41% 20% 37%
Non-recurring items E -- 16 -- --
Foreign exchange conversion F (35) (58) (91) (110)
Disengaged HSN homes D 103 108 -- --
Intersegment elimination -- (12) (32) (32)
-------- -------- -------- -------- ------- ------ ------
TOTAL $4,830 $5,560 $6,212 $7,389 15% 12% 19%
======== ======== ======== ======== ======= ====== ======
BY GROUP -- Operating Businesses
Entertainment A $1,531 $1,622 $1,643 $1,837 6% 1% 12%
Electronic Retailing 1,690 1,849 2,217 2,520 9% 20% 14%
Information & Services 1,315 1,716 2,092 2,650 30% 22% 27%
-------- -------- -------- -------- ------- ------ ------
Total Operating Businesses $4,535 $5,187 $5,952 $7,007 14% 15% 18%
-------- -------- -------- -------- ------- ------ ------
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 2 of 6
USA NETWORKS, INC.
EBITDA - OPERATING BUDGET
(PRO FORMA $ IN MILLIONS) Growth
--------------------------------
2000 2001 2002 2003 '00 - '01 '01 - '02 02 - '03
-------- -------- -------- -------- --------- --------- --------
OPERATING BUSINESSES
USA Network A $ 395 $ 424 $ 391 $ 444 7% -8% 14%
SCI FI I 102 106 124 161 5% 17% 30%
Studios USA, net 51 69 83 90 36% 20% 8%
------- -------- -------- -------- ------- -------- -------
Network and Studios 548 600 598 695 9% 0% 16%
HSN - U.S. 215 216 285 350 0% 32% 23%
HSN - Germany 28 12 38 47 -59% 230% 24%
Ticketing 100 105 125 145 5% 19% 16%
Hotel Reservations 53 73 87 120 40% 19% 38%
Expedia H (44) 42 60 85 195% 43% 42%
Precision Response 44 37 41 61 -14% 9% 50%
Match.com 6 14 20 30 122% 43% 50%
Corporate and other (28) (33) (34) (36) -21% -2% -6%
------- -------- -------- -------- ------ ------- ------
SUBTOTAL 922 1,066 1,220 1,497 16% 15% 23%
Emerging Businesses
Citysearch & related (64) (45) (30) (13)
HSN - Other International (14) (26) (20) (20)
Trio, NWI, Crime, other emerging (7) (15) (35) (25)
ECS / Styleclick (71) (49) (19) (6)
USA Films C (7) 2 (28) (35)
------- -------- -------- -------- ------- ------- -------
Subtotal (163) (133) (132) (99) 18% 1% 25%
Non-recurring items E (6) (1) - -
Foreign exchange conversion F (4) (4) (9) (11)
Disengaged HSN homes D 15 15 - -
Intersegment elimination - (7) (22) (22)
------- -------- -------- -------- ------ ------- -------
TOTAL $ 765 $ 936 $1,057 $1,365 22% 13% 29%
======= ======== ======== ======== ====== ======= =======
BY GROUP -- Operating Businesses
Entertainment A $ 548 $ 600 $ 598 $ 695 9% 0% 16%
Electronic Retailing 244 228 323 397 -7% 42% 23%
Information & Services 158 272 333 441 72% 22% 33%
Corporate & other (28) (33) (34) (36) 21% -2% -6%
------- -------- -------- -------- ------ ------- -------
Total Operating Businesses $ 922 $1,066 $1,220 $1,497 16% 15% 23%
------- -------- -------- -------- ------ ------- -------
A A very weak advertising market is anticipated to continue through at least
the first half of 2002.
B Studios USA's 2001 revenue was favorably impacted by the syndication sale of
LAW & ORDER to TNT.
C USA Films' 2001 results were favorably impacted by the release of TRAFFIC.
D Reflects results generated by homes lost by HSN following disengagement of
USA Broadcasting to Univision. For further information, see separate HSN
DISENGAGEMENT section.
E 2001 and 2000 non-recurring items reflect income and expense items. For
2001, income of $16 million related to a special adjustment relating to
affiliate fees was recorded, impacting both revenue and EBITDA.
Offsetting this, $17 million of expense was recorded for non-recurring
costs related to restructuring operations, employee terminations, and
benefits. For 2000, $6 million of expense relates to one-time expenses
of the Ticketmaster and TMCS merger, an executive consulting arrangement
as part of a resignation agreement, offset by a one-time credit
recognized by HSN in connection with a favorable settlement.
F To present comparable results for HSN Germany, the results have been
translated from Euros to U.S. dollars at a constant exchange rate.
H Expedia estimates are pro forma USA's acquisition of Expedia, which is
expected to close in Q4 2001.
I SCI FI's 2002 advertising growth is expected to be favorably impacted by the
miniseries TAKEN in the fourth quarter.
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 3 of 6
USA NETWORKS, INC.
FREE CASH FLOW - OPERATING BUDGET
(PRO FORMA $ IN MILLIONS) 2000 2001 2002
-------- ------ ------
Total EBITDA $ 765 $ 936 $1,057
Capital expenditures (191) (140) (177)
Programming payments in excess of amortization (153) (93) (104)
Taxes, including distributions to LLC partners J (89) (44) (129)
Cable distribution fees (65) (59) (67)
Cash interest (64) (42) (36)
HSN disengagement costs K -- (5) (53)
Other, net L,M (241) (439) (145)
-------- ------- -------
$ (39) $ 114 $ 346
======== ======= =======
P&L - OPERATING BUDGET
(PRO FORMA $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2000 2001 2002 2003
-------- ------- ------- --------
Total EBITDA $ 765 $ 936 $1,057 $1,365
Amortization of goodwill N -- -- -- --
Depreciation / other amortization (319) (283) (293) (353)
Disengagement costs -- (5) (36) (18)
Interest income / (expense) (30) (27) (22) (24)
Other income / (expense) 47 (37) (21) (20)
-------- ------- ------- --------
Pre-tax net income 463 583 686 951
Income tax expense (136) (96) (110) (142)
Minority interest expense (322) (370) (396) (535)
-------- ------- ------- --------
Net income 5 118 180 273
======== ======= ======= ========
Average shares outstanding 423 431 431 431
-------- ------- ------- --------
EPS - diluted 0.01 0.27 0.42 0.63
======== ======= ======= ========
Fully converted EPS:
Pre-tax net income 463 583 686 951
Income tax expense (276) (216) (243) (317)
Minority interest expense 36 (34) (50) (78)
-------- ------- ------- --------
Net income $ 223 $ 334 $ 392 $ 556
======== ======= ======= ========
Average shares outstanding 784 792 792 792
-------- ------- ------- --------
EPS - diluted $ 0.28 $ 0.42 $ 0.50 $ 0.70
======== ======= ======= ========
J If the LLC structure were eliminated, 2002 tax payments would increase $136
million due to timing.
K For further information, see separate HSN DISENGAGEMENT section.
L 2001 excludes anticipated $690 million proceeds, net of tax, from sale of USA
Broadcasting to Univision.
M Includes investments, acquisitions, changes in working capital, and other
items.
N All years presented as if new accounting rules for goodwill amortization were
in place in order to present comparable information.
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 4 of 6
USA NETWORKS, INC.
OPERATING BUDGET
BUSINESS OUTLOOK for the YEAR 2002
We anticipate that our operating businesses will grow their revenue and EBITDA
by 15% in 2002. All of our operating businesses anticipate growing quite
significantly (at an average growth of over 20%), other than the USA Network,
which we anticipate will be particularly hit hard in the present advertising
environment. If advertising recovers more quickly than we anticipate, our EBITDA
may very well be higher, although it's possible that, in such a case, we'd
reinvest in the business and spend more on original programming. On the other
hand, it's more than possible that, in the present economic environment and with
ever changing world events, our EBITDA growth could be less than anticipated;
however, even under the worst circumstances, we expect we will do what's
necessary to make sure we don't perform at a level less than 2001 (which we
believe will end up with EBITDA growth for USA's operating businesses of 16%
over 2000).
It's also anticipated that the first six months of 2002 will be comparatively
worse than the second six months of the year. So it is possible that USA's
EBITDA numbers for the first and second quarters of 2002 will show negative
comparisons to the same quarters in 2001.
BUSINESS OUTLOOK for the FOURTH QUARTER 2001
For the fourth quarter, we expect EBITDA from our Operating Businesses to
decline by 12% to 16%, on flattish revenue growth, as compared to Q4 2000. This
weak quarterly performance is due largely to the continuing effects of the
national tragedy, including an accelerated downward impact on the advertising
market. HSN, however, has returned to its normal level of business, and,
therefore anticipates positive performance in the fourth quarter, but it's sales
results may be negatively affected by reduced computer sales (which contributed
almost $50m in sales during Q4 '00).
HSN DISENGAGEMENT
USA announced the sale of its broadcast television stations to Univision for
$1.1 billion in December 2000. The majority of these stations are located in the
largest markets in the country and air HSN on a 24-hour basis. As of January
2002, HSN will have switched its distribution in these markets directly to cable
carriage. As a result, HSN will lose approximately 12 million homes and
accordingly, HSN's operating results will be affected. Fortunately, sales from
broadcast only homes are very, very low in comparison to sales from cable homes.
So HSN's loses attributable to this disengagement is limited. HSN anticipates
losing sales, which translates on a pro forma basis for 2001, of $108 million
and EBITDA of $15 million. These anticipated loses are consistent with previous
disclosures in USA's 10k filing, in which it was stated that disengagement loses
would equal approximately 6% of HSN's sales and EBITDA.
Since the affect of disengagement is a one-time event, and in order to show
HSN's results on a meaningful comparative basis, the revenue and EBITDA that
were generated by the "lost" homes in prior periods will be pro forma eliminated
from HSN's core results in these prior periods.
In addition, in order to effectively transfer HSN's distribution to cable (which
has been accomplished), USA will incur charges of approximately $100 million in
the form of payments to cable operators and related marketing expenses. These
disengagement costs will not impact EBITDA. Approximately $5 million of these
costs will be incurred in 2001 and $53 million in 2002. In effect, this
approximately $100 million payment will reduce USA's pre-tax proceeds from the
Univision transaction to $1 billion. USA believes that its disengagement costs
increased to the higher end of USA's anticipated range of costs, since USA was
required to achieve a certain portion of disengagement after the Univision
announcement and with specified end-dates for continuing broadcast distribution.
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 5 of 6
USA NETWORKS, INC.
OPERATING BUDGET
IMPORTANT
This business outlook contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are necessarily estimates reflecting the best judgment of the senior
management of USA and involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the
forward-looking statements. These forward-looking statements should, therefore,
be considered in light of various important factors, including those set forth
herein and in the documents USA files with the Securities and Exchange
Commission. Important factors that could cause actual results to differ
materially from estimates or projections contained in the forward-looking
statements include, without limitation: material adverse changes in economic
conditions generally or in the markets served by USA, material changes in
inflation, future regulatory and legislative actions affecting USA's operating
areas, competition from others, product demand and market acceptance, the
ability to protect proprietary information and technology or to obtain necessary
licenses on commercially reasonable terms, the ability to expand into and
successfully operate in foreign markets, and obtaining and retaining skilled
workers and key executives. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. USA
does not undertake any obligation to update or revise these forward-looking
statements, whether as a result of new information, future events or any other
reason.
USA and Expedia, Inc. have filed a preliminary joint prospectus/proxy statement
and will file other relevant documents concerning USA's acquisition of Expedia
with the Securities and Exchange Commission (SEC). INVESTORS ARE URGED TO READ
THE JOINT PROSPECTUS/PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED OR
TO BE FILED IN THE FUTURE WITH THE SEC BECAUSE THOSE DOCUMENTS CONTAIN IMPORTANT
INFORMATION. Investors will be able to obtain such documents free of charge at
the SEC's website at www.sec.gov. In addition, such documents may also be
obtained free of charge by contacting USA Networks, Inc., 152 West 57th Street,
New York, New York, 10019, Attention: Investor Relations, or Expedia, Inc.,
13810 SE Eastgate Way, Suite 400, Bellevue, WA 98005, Attention: Investor
Relations.
* * *
READ IMPORTANT FOOTNOTES AND DISCLAIMER USA Operating Budget 10/24/01
AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
Page 6 of 6