##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                        
|[x]        |  | Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

for the Quarterly Period Ended March 31, 2003

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

for the Transition Period from                    to

COMMISSION FILE NUMBER: 000-29575

HOTELS.COM

(Exact name of registrant as specified in its charter)


|                                |  |                    
|------------------------------- |  | -------------------
|DELAWARE                        |  | 75-2817683         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

10440 North Central Expressway
Suite 400
Dallas, Texas 75231
(Address of principal executive offices)

214-361-7311
(Registrants telephone number, including area code)



---

Indicate by check mark whether registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [x] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).

Yes [x] No [  ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock as of May 1, 2003.

|                     |  |  |            | 
|-------------------- |  |  | ---------- | 
|Class                |  |  |            | 
|                     |  |  |            | 
|Class A Common Stock |  |  | 18,084,045 | 
|Class B Common Stock |  |  | 38,999,100 | 





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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                                    |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                  
|                                                 | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                                                 |                                                                                               | CONSOLIDATED BALANCE SHEETS                                       
|                                                 |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME             
|                                                 |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|                                                 |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                                                 |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    
|                                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                 | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II   OTHER INFORMATION                    
|                                                 | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                                 | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                                 | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                      
|CERTIFICATIONS                                  
|EXHIBIT INDEX                                   
|EX-99.1 Certification of Chief Executive Officer
|EX-99.2 Certification of Chief Financial Officer



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##### Table of Contents



HOTELS.COM
FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2003

TABLE OF CONTENTS

|                               |  |                                                                                                                         |    |      |    | 
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                               |  |                                                                                                                         |    | Page
|                               |  |                                                                                                                         |    |     
|PART I  FINANCIAL INFORMATION |  |                                                                                                                         |    |     
|Item 1.                        |  | Condensed Consolidated Financial Statements                                                                             |    |      | 3  | 
|                               |  | Condensed Consolidated Balance Sheets as of March 31, 2003
(unaudited) and December 31, 2002                            |    |      | 3  | 
|                               |  | Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002                |    |      | 4  | 
|                               |  | Unaudited Condensed Consolidated Statement of Changes in Stockholders
Equity for the Three Months Ended March 31, 2003 |    |      | 5  | 
|                               |  | Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002            |    |      | 6  | 
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                          |    |      | 7  | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations                                   |    |      | 11 | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |    |      | 19 | 
|Item 4.                        |  | Controls and Procedures                                                                                                 |    |      | 19 | 
|PART II  OTHER INFORMATION    |  |                                                                                                                         |    |     
|Item 1.                        |  | Legal Proceedings                                                                                                       |    |      | 20 | 
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                               |    |      | 21 | 
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                        |    |      | 22 | 
|SIGNATURES                     |  |                                                                                                                         | 23 |     
|EXHIBIT INDEX                  |  |                                                                                                                         | 26 |     





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##### Table of Contents






PART I  FINANCIAL INFORMATION




|        |  |                                            
|------- |  | -------------------------------------------
|ITEM 1. |  | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




HOTELS.COM
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |         |         | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                                                                                                                                                                                                   |                            |         | March 31,   |         | December 31,
|                                     |                                                                                                                                                                                                                                                                   |                            |         | 2003        |         | 2002        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |             
|                                     |                                                                                                                                                                                                                                                                   |                            |         | (Unaudited) |         |              |         |        
|ASSETS                               |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|CURRENT ASSETS                       |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     | Cash and cash equivalents                                                                                                                                                                                                                                         |                            | $       | 57,357      |         |              | $       | 6,058   |        
|                                     | Restricted cash equivalents                                                                                                                                                                                                                                       |                            |         | 14,677      |         |              |         | 12,151  |        
|                                     | Marketable securities  available for sale                                                                                                                                                                                                                        |                            |         | 327,252     |         |              |         | 377,661 |        
|                                     | Accounts and notes receivable                                                                                                                                                                                                                                     |                            |         | 16,004      |         |              |         | 12,680  |        
|                                     | Prepaid hotel rooms                                                                                                                                                                                                                                               |                            |         | 549         |         |              |         | 55      |        
|                                     | Current portion of non-cash deferred distribution and marketing costs                                                                                                                                                                                             |                            |         | 7,878       |         |              |         | 8,245   |        
|                                     | Deferred income taxes                                                                                                                                                                                                                                             |                            |         |            |         |              |         | 2,022   |        
|                                     | Other current assets                                                                                                                                                                                                                                              |                            |         | 7,205       |         |              |         | 6,464   |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   | Total current assets       |         |             | 430,922 |              |         |         | 425,336 | 
|PROPERTY AND EQUIPMENT               |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     | Computer equipment and software                                                                                                                                                                                                                                   |                            |         | 24,090      |         |              |         | 19,525  |        
|                                     | Buildings and leasehold improvements                                                                                                                                                                                                                              |                            |         | 1,949       |         |              |         | 1,397   |        
|                                     | Furniture and other equipment                                                                                                                                                                                                                                     |                            |         | 4,167       |         |              |         | 3,800   |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   |                            | 30,206  |             |         |              | 24,722  |        
|                                     | Less accumulated depreciation and amortization                                                                                                                                                                                                                    |                            |         | (7,461      | )       |              |         | (6,084  | )      
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   |                            | 22,745  |             |         |              | 18,638  |        
|OTHER ASSETS                         |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     | Goodwill, net of amortization of $97,780 at both March 31, 2003 and
December 31, 2002                                                                                                                                                                             |                            |         | 369,964     |         |              |         | 369,743 |        
|                                     | Non-cash deferred distribution and marketing costs                                                                                                                                                                                                                |                            |         | 9,306       |         |              |         | 11,263  |        
|                                     | Intangible assets, net of amortization of $3,019 at March 31, 2003
and $2,392 at December 31, 2002                                                                                                                                                                |                            |         | 21,314      |         |              |         | 21,825  |        
|                                     | Other
assets                                                                                                                                                                                                                                                      |                            |         | 79          |         |              |         | 79      |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   | $                          | 854,330 |             |         | $            | 846,884 |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|CURRENT LIABILITIES                  |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     | Accounts payable, trade                                                                                                                                                                                                                                           |                            | $       | 91,768      |         |              | $       | 74,664  |        
|                                     | Deferred revenue                                                                                                                                                                                                                                                  |                            |         | 112,127     |         |              |         | 76,356  |        
|                                     | Income tax payable                                                                                                                                                                                                                                                |                            |         | 15,333      |         |              |         | 7,445   |        
|                                     | Intercompany payable                                                                                                                                                                                                                                              |                            |         | 2,844       |         |              |         | 1,856   |        
|                                     | Other accrued liabilities                                                                                                                                                                                                                                         |                            |         | 19,210      |         |              |         | 22,829  |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   | Total current liabilities  |         |             | 241,282 |              |         |         | 183,150 | 
|                                     | Deferred income taxes                                                                                                                                                                                                                                             |                            |         | 5,472       |         |              |         | 5,998   |        
|COMMITMENTS AND CONTINGENCIES        |                                                                                                                                                                                                                                                                   |                            |        |             |         |              |        |        
|STOCKHOLDERS EQUITY                 |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     | Preferred stock, $0.01 par value; 20,000,000 shares authorized, none
outstanding                                                                                                                                                                                  |                            |         |            |         |              |         |        |        
|                                     | Class A common stock, $0.01 par value; 600,000,000 shares
authorized, 19,443,325 shares and 19,340,346 issued at March 31, 2003 and December 31, 2002, respectively, 17,893,325 shares and
19,340,346 shares outstanding at March 31, 2003 and December 31, 2002, |                            |         |             |         |              |         |         |        
|                                     | respectively                                                                                                                                                                                                                                                      |                            |         | 195         |         |              |         | 194     |        
|                                     | Class B common stock, $0.01 par value; 150,000,000 shares
authorized, 38,999,100 shares outstanding at March 31, 2003 and
December 31, 2002, respectively                                                                                                         |                            |         | 390         |         |              |         | 390     |        
|                                     | Treasury stock (1,550,000 share at March 31, 2003)                                                                                                                                                                                                                |                            |         | (73,480     | )       |              |         |        |        
|                                     | Additional paid-in capital                                                                                                                                                                                                                                        |                            |         | 561,582     |         |              |         | 556,876 |        
|                                     | Accumulated other comprehensive gain                                                                                                                                                                                                                              |                            |         | 309         |         |              |         | 326     |        
|                                     | Retained earnings                                                                                                                                                                                                                                                 |                            |         | 118,580     |         |              |         | 99,950  |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   | Total stockholders equity |         |             | 607,576 |              |         |         | 657,736 | 
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |        
|                                     |                                                                                                                                                                                                                                                                   | $                          | 854,330 |             |         | $            | 846,884 |        
|                                     |                                                                                                                                                                                                                                                                   |                            |         |             |         |              |         |         |        

The accompanying notes are an integral part of these statements.

3



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HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

|                                                             |                                     |          |                          |        |                 |        |         |        |       |        | 
|------------------------------------------------------------ | ----------------------------------- | -------- | ------------------------ | ------ | --------------- | ------ | ------- | ------ | ----- | ------ | 
|                                                             |                                     |          |                          |        | Three Months   
|                                                             |                                     |          |                          |        | Ended March 31,
|                                                             |                                     |          |                          |        |                
|                                                             |                                     |          |                          |        | 2003            |        | 2002   
|                                                             |                                     |          |                          |        |                 |        |        
|Net revenues                                                 |                                     | $        | 277,427                  |        |                 | $      | 165,712 |       
|Cost of sales                                                |                                     |          | 194,008                  |        |                 |        | 113,397 |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Gross profit                                                 |                                     |          | 83,419                   |        |                 |        | 52,315  |       
|Operating expenses:                                          |                                     |          |                          |        |                 |        |         |       
|                                                             | Selling, general and administrative |          |                          | 49,420 |                 |        |         | 26,521 |      
|                                                             | Non-cash distribution and marketing |          |                          | 4,661  |                 |        |         | 6,072  |      
|                                                             | Non-cash compensation               |          |                          | 89     |                 |        |         |       |      
|                                                             | Depreciation                        |          |                          | 1,377  |                 |        |         | 665    |      
|                                                             | Amortization  intangible assets    |          |                          | 626    |                 |        |         | 289    |      
|                                                             |                                     |          |                          |        |                 |        |         |       
|                                                             |                                     |          | Total operating expenses |        |                 | 56,173 |         |        |       | 33,547 | 
|                                                             |                                     |          |                          |        |                 |        |         |       
|Income from operations                                       |                                     |          | 27,246                   |        |                 |        | 18,768  |       
|Other income:                                                |                                     |          |                          |        |                 |        |         |       
|                                                             |                                     | Interest |                          |        | 1,414           |        |         |        | 1,131 |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Income before income tax expense                             |                                     |          | 28,660                   |        |                 |        | 19,899  |       
|Income tax expense                                           |                                     |          | (10,030                  | )      |                 |        | (6,965  | )     
|                                                             |                                     |          |                          |        |                 |        |         |       
|Net income                                                   |                                     | $        | 18,630                   |        |                 | $      | 12,934  |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Basic earnings per common share                              |                                     | $        | 0.33                     |        |                 | $      | 0.22    |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Diluted earnings per common share                            |                                     | $        | 0.32                     |        |                 | $      | 0.22    |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Weighted average number of basic common shares outstanding   |                                     |          | 57,066                   |        |                 |        | 57,531  |       
|                                                             |                                     |          |                          |        |                 |        |         |       
|Weighted average number of diluted common shares
outstanding |                                     |          | 57,563                   |        |                 |        | 58,445  |       
|                                                             |                                     |          |                          |        |                 |        |         |       

The accompanying notes are an integral part of these statements.

4



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HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands)

|                                                         |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  
|-------------------------------------------------------- |  | ------------- | ------- | ------ |  | -------------- | ---------- | -------------- |  | ------- | --- | ---------- |  | ------------- | ---------- | -------- |  | ------------- | --- |  |  | ----------- | ------- | - |  | - | ------- |  |  | - | ------- |  |  | - | --- | -
|                                                         |  |               |         |        |  | Class A Common |            | Class B Common |  |         |     |            |  |               |            |          |  |               |     |  |  | Accumulated
|                                                         |  | Total         |         | Stock  |  | Stock          |            |                |  |         |     | Additional |  |               |            |          |  | Other        
|                                                         |  | Stockholders' |         |        |  |                |            | Treasury       |  | Paid-in |     | Retained   |  | Comprehensive
|                                                         |  | Equity        |         | Shares |  | $              |            | Shares         |  | $       |     | Stock      |  | Capital       |            | Earnings |  | Income (Loss)
|                                                         |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |              
|Balance at January 1, 2003                               |  | $             | 657,736 |        |  |                | 19,340,346 |                |  | $       | 194 |            |  |               | 38,999,100 |          |  | $             | 390 |  |  | $           |        |   |  | $ | 556,876 |  |  | $ | 99,950  |  |  | $ | 326 |  
|Comprehensive income:                                    |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  
|Net income for the three
months ended March 31,
2003     |  |               | 18,630  |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   | 18,630  |  |  |   |     |  
|Accumulated other
comprehensive loss, net
of taxes of $9 |  |               | (17     | )      |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   | (17 | )
|                                                         |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  
|Comprehensive income                                     |  |               | 18,613  |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  
|Issuance of common stock
upon exercise of warrants       |  |               | 2,337   |        |  |                | 41,198     |                |  |         |    |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   | 2,337   |  |  |   |         |  |  |   |     |  
|Issuance of common stock
upon exercise of options        |  |               | 1,801   |        |  |                | 61,781     |                |  |         | 1   |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   | 1,800   |  |  |   |         |  |  |   |     |  
|Stock-based compensation                                 |  |               | 89      |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   | 89      |  |  |   |         |  |  |   |     |  
|Income tax benefit
related to stock options
exercised    |  |               | 480     |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   | 480     |  |  |   |         |  |  |   |     |  
|Purchase of Treasury stock                               |  |               | (73,480 | )      |  |                | (1,550,000 | )              |  |         |     |            |  |               |            |          |  |               |     |  |  |             | (73,480 | ) |  |   |         |  |  |   |         |  |  |   |     |  
|                                                         |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  
|Balance at March 31, 2003                                |  | $             | 607,576 |        |  |                | 17,893,325 |                |  | $       | 195 |            |  |               | 38,999,100 |          |  | $             | 390 |  |  | $           | (73,480 | ) |  | $ | 561,582 |  |  | $ | 118,580 |  |  | $ | 309 |  
|                                                         |  |               |         |        |  |                |            |                |  |         |     |            |  |               |            |          |  |               |     |  |  |             |         |   |  |   |         |  |  |   |         |  |  |   |     |  

The accompanying notes are an integral part of these statements.

5



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HOTELS.COM
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |         |       |        |  
|--------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------------------- | ----------------------------- | ------- | --------------- | ------ | ------- | ------- | ----- | ------ | -
|                                                                                  |                                                 |                                                                 |                               |         | Three Months   
|                                                                                  |                                                 |                                                                 |                               |         | Ended March 31,
|                                                                                  |                                                 |                                                                 |                               |         |                
|                                                                                  |                                                 |                                                                 |                               |         | 2003            |        | 2002   
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |        
|Cash flows from operating activities:                                             |                                                 |                                                                 |                               |         |                 |        |         |        
|Net income                                                                        |                                                 | $                                                               | 18,630                        |         |                 | $      | 12,934  |        
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                 |                                                                 |                               |         |                 |        |         |        
|                                                                                  |                                                 | Depreciation                                                    |                               |         | 1,377           |        |         |         | 665   |       
|                                                                                  |                                                 | Amortization  intangible assets                                |                               |         | 626             |        |         |         | 289   |       
|                                                                                  |                                                 | Non-cash deferred distribution and marketing costs              |                               |         | 4,661           |        |         |         | 6,072 |       
|                                                                                  |                                                 | Non-cash compensation                                           |                               |         | 89              |        |         |         |      |       
|                                                                                  |                                                 | Deferred income taxes                                           |                               |         | 1,496           |        |         |         | 3,203 |       
|                                                                                  |                                                 | Income tax benefit upon exercise of employee
stock options      |                               |         | 480             |        |         |         | 3,246 |       
|                                                                                  |                                                 | Changes in current assets and liabilities, net of
acquisitions: |                               |         |                 |        |         |         |       |       
|                                                                                  |                                                 |                                                                 | Restricted cash equivalents   |         |                 | (2,526 | )       |         |       | (2,945 | )
|                                                                                  |                                                 |                                                                 | Accounts and notes receivable |         |                 | (3,324 | )       |         |       | (4,838 | )
|                                                                                  |                                                 |                                                                 | Prepaid hotel rooms           |         |                 | (494   | )       |         |       | 783    |  
|                                                                                  |                                                 |                                                                 | Other current assets          |         |                 | (741   | )       |         |       | (827   | )
|                                                                                  |                                                 |                                                                 | Accounts payable, trade       |         |                 | 17,104 |         |         |       | 13,152 |  
|                                                                                  |                                                 |                                                                 | Deferred revenue              |         |                 | 35,771 |         |         |       | 44,903 |  
|                                                                                  |                                                 |                                                                 | Income tax payable            |         |                 | 7,898  |         |         |       | 506    |  
|                                                                                  |                                                 |                                                                 | Intercompany payables         |         |                 | 988    |         |         |       | 590    |  
|                                                                                  |                                                 |                                                                 | Other accrued liabilities     |         |                 | (3,619 | )       |         |       | 830    |  
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Net cash provided by operating activities                                         |                                                 |                                                                 | 78,416                        |         |                 |        | 78,563  |        
|Cash flows from investing activities:                                             |                                                 |                                                                 |                               |         |                 |        |         |        
|                                                                                  | Acquisitions, net of cash acquired              |                                                                 |                               | (221    | )               |        |         | (15     | )    
|                                                                                  | Capital expenditures                            |                                                                 |                               | (5,484  | )               |        |         | (2,595  | )    
|                                                                                  | Purchase of intangible assets                   |                                                                 |                               | (116    | )               |        |         | (2,094  | )    
|                                                                                  | Net purchases of marketable securities          |                                                                 |                               |        |                 |        |         | (58,371 | )    
|                                                                                  | Net proceeds from sale of marketable securities |                                                                 |                               | 50,383  |                 |        |         |        |      
|                                                                                  | Other, net                                      |                                                                 |                               |        |                 |        |         | (23     | )    
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Net cash provided by (used in) investing activities                               |                                                 |                                                                 | 44,562                        |         |                 |        | (63,098 | )      
|Cash flows from financing activities:                                             |                                                 |                                                                 |                               |         |                 |        |         |        
|                                                                                  | Purchase of treasury stock                      |                                                                 |                               | (73,480 | )               |        |         |        |      
|                                                                                  | Net proceeds from exercise of stock options     |                                                                 |                               | 1,801   |                 |        |         | 6,806   |      
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Net cash provided by (used in) financing activities                               |                                                 |                                                                 | (71,679                       | )       |                 |        | 6,806   |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Net increase in cash and cash equivalents                                         |                                                 |                                                                 | 51,299                        |         |                 |        | 22,271  |        
|Cash and cash equivalents at beginning of period                                  |                                                 |                                                                 | 6,058                         |         |                 |        | 44,269  |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Cash and cash equivalents at end of period                                        |                                                 | $                                                               | 57,357                        |         |                 | $      | 66,540  |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Supplemental Cash Flow Information:                                               |                                                 |                                                                 |                               |         |                 |        |         |        
|Cash paid for income taxes                                                        |                                                 | $                                                               | 155                           |         |                 | $      | 11      |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Supplemental Disclosure of Non Cash Financing Information:                        |                                                 |                                                                 |                               |         |                 |        |         |        
|Contribution by USA of television advertising                                     |                                                 | $                                                               |                              |         |                 | $      | 861     |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        
|Issuance of common stock upon exercise of warrants                                |                                                 | $                                                               | 2,337                         |         |                 | $      | 2,662   |        
|                                                                                  |                                                 |                                                                 |                               |         |                 |        |         |        

The accompanying notes are an integral part of these statements.

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HOTELS.COM
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION, RECAPITALIZATION, BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES

Organization

Hotels.com (the Company), a subsidiary of USA Interactive (USA), is a
leading consolidator of discount hotel and other lodging accommodations for
resale in the consumer market in North America, Europe, the Caribbean and Asia.

Basis of Presentation

In the opinion of the Company, all adjustments including normal recurring
adjustments necessary for a fair presentation of such unaudited condensed
consolidated financial statements have been made. Interim results are not
necessarily indicative of results to be expected for the full year. The interim
unaudited condensed consolidated financial statements and notes thereto are
presented as permitted by the Securities and Exchange Commission and do not
contain certain information included in the Companys audited consolidated
financial statements and notes thereto. Accordingly, the accompanying
unaudited condensed consolidated financial statements and notes should be read
in conjunction with the Companys 2002 consolidated financial statements
included in the Companys Annual Report on Form 10-K.

Revenue Recognition

The Company classifies revenue into three categories: merchant, agency
and other. Merchant revenue is derived from bookings made at lodging
properties with which the Company has contracted in advance for volume
commitments and guaranteed availability. For merchant revenue, charges for
lodging accommodations are billed to customers in advance. Customer charges are
included in deferred revenue and recognized as revenue at the conclusion of the
customers stay at the lodging property. Unsold contracted lodging
accommodations generally may be returned by the Company based on a cutoff
period, which generally expires simultaneously with the date the customer may
cancel the hotel reservation. Customers are subject to a penalty for all
cancellations or changes to the reservation. The Company bears the risk of loss
for all prepaid rooms and lodging accommodations cancelled by a customer
subsequent to the cutoff period in which the Company can return the unused
lodging accommodations. To date, the Company has not incurred significant
losses under the room contracts with lodging properties.

The Company presents merchant hotel revenue at the gross amount charged to
its customers. The determination of gross versus net presentation is based
principally on Companys consideration of Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements as later clarified by Emerging
Issues Task Force No. 99-10, Reporting Revenue Gross as a Principal versus Net
as an Agent (EITF 99-19), including the relevant qualitative factors regarding
the Companys status as primary obligor and the extent of their pricing
latitude and inventory risk. The method of revenue presentation by the Company
does not impact operating profit, net income, earnings per share, or cash
flows, but rather revenues, cost of sales, gross profit and gross profit
margin.

The principal factor in determining gross versus net presentation by the
Company is its relationship with the customer as the primary obligor. The
Company acts as the principal in the transaction and is the party that the
customer has transacted with. The Company also has broad latitude to establish
and change prices charged to customers. The Company believes that it is
principally liable to its

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merchant hotel customers in all situations where the customer does not
receive hotel services promised by the Company, namely in the event that
merchant hotel inventory sold by the Company is unavailable, or that the room,
or the hotel itself, does not have the amenities or is not of the general
caliber described in the Companys promotional materials.

Agency revenue is derived from travel-related sales transactions in which
the Company receives commissions and fees from travel suppliers. For agency
revenue, Hotels.com recognizes commission revenue at the conclusion of the
customers stay at the lodging property.

Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (FASB Statement No. 148), which
amends Statement of Financial Accounting Standard No. 123 (FASB Statement No.
123). This Statement provides alternative methods of transition for a
voluntary change to the fair-value-based method of accounting for stock-based
employee compensation and amends the disclosure requirements of FASB Statement
No. 123. The transition guidance and annual disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The Company has begun to expense
stock-based compensation on a prospective basis beginning with the three months
ending March 31, 2003, and will continue to provide pro forma information in
the notes to financial statements to provide the results as if the accounting
provisions of FASB Statement No. 123 had been adopted in previous years. The
Company intends to issue restricted stock units that will vest in future
periods instead of stock options, although stock options may be issued in 2003
during the transition to 100% restricted stock. For stock options and
restricted stock units issued, the accounting charge will be measured at the
grant date and amortized ratably as non-cash compensation over the vesting
term.

The following table illustrates the effect on net income and earnings per
share if the fair value based method had been applied to all outstanding and
unvested awards in each period:

|                                                                                                                                            |                     |   |                    |      |      |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------------------ | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                            |                     |   | Three Months Ended
|                                                                                                                                            |                     |   | March 31,         
|                                                                                                                                            |                     |   |                   
|                                                                                                                                            |                     |   | 2003               |      | 2002
|                                                                                                                                            |                     |   |                    |      |     
|Net income, as reported                                                                                                                     |                     | $ | 18,630             |      |      | $ | 12,934 |     
|Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects                                  |                     |   | 58                 |      |      |   |       |     
|Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects |                     | $ | (1,607             | )    |      | $ | (1,082 | )   
|                                                                                                                                            |                     |   |                    |      |      |   |        |     
|Pro forma net income                                                                                                                        |                     | $ | 17,081             |      |      | $ | 11,852 |     
|                                                                                                                                            |                     |   |                    |      |      |   |        |     
|Earnings per share:                                                                                                                         |                     |   |                    |      |      |   |        |     
|                                                                                                                                            | Basicas reported   |   | $                  | 0.33 |      |   | $      | 0.22 | 
|                                                                                                                                            | Basicpro forma     |   | $                  | 0.30 |      |   | $      | 0.21 | 
|                                                                                                                                            | Dilutedas reported |   | $                  | 0.32 |      |   | $      | 0.22 | 
|                                                                                                                                            | Dilutedpro forma   |   | $                  | 0.30 |      |   | $      | 0.20 | 

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Advertising

Advertising expense
for the three-month periods ended March 31, 2003 and
2002 was $12.2 million and $4.6 million, respectively. The Company capitalizes
costs paid for advertising to specific target audiences on third-party Internet
websites that have resulted in hotel room bookings for which the revenue has
not been recognized as of the balance sheet date. The capitalized costs are
amortized over a period of no longer than three months, which approximates the
period over which the revenue is earned. As of March 31, 2003, capitalized
advertising was $1.3 million. Other advertising costs are expensed in the period
incurred.

Goodwill

Effective January 1, 2002, the Company adopted the Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets, whereby
the Company does not amortize goodwill, but is required to perform an
impairment test at least annually in accordance with the statement. The
Company has completed its impairment test as of January 1, 2003 and has
concluded that no goodwill impairment write-off is necessary.

Intangible Assets

Intangible assets primarily consist of purchased websites and web domain
names, which include hotels.com and others. Management has developed and
implemented a branding strategy for these domain names that is expected to
benefit the Company over a long period of time. Accordingly, the Company
amortizes the costs of the intangible assets over a period of up to
10 years. The Company reviews the carrying value of intangible assets at least annually.
If this review indicates that the carrying value will not be recoverable, as
determined based on the projected undiscounted future cash flow of the assets,
the carrying value is reduced to its estimated fair value. No indicators of
impairment were noted during the three months ended March 31, 2003.

NOTE 2  MARKETABLE SECURITIES AVAILABLE FOR SALE

Investments in marketable securities available for sale consist of
government bonds and medium term notes with an aggregate cost of $326.8 million
and aggregate market value of $327.3 million resulting in a pre-tax unrealized
gain of $0.5 million. The cumulative unrealized gain of $0.5 million is shown
as a component of comprehensive income net of income tax provisions of $0.2
million. These investments have maturity dates generally less than one year.

NOTE 3  NON-CASH DEFERRED DISTRIBUTION AND MARKETING COSTS

In connection with several exclusive marketing and distribution
agreements, and at the completion of its initial public offering, the Company
issued warrants to marketing and distribution partners to purchase 1,428,365
shares of its class A common stock. These warrants are non-forfeitable, fully
vested and exercisable and are not subject to any performance targets. At that
time, the Company recorded an asset of approximately $14.8 million based on the
fair market value of the warrants to purchase class A common stock at the
initial public offering price of $16.00 per share. The asset is being amortized
ratably over the terms of the exclusive marketing and distribution agreements,
which range from two to five years. During the three months ended March 31,
2003 and 2002 the Company amortized $0.7 million and $0.9 million of the
warrant costs, respectively.

In addition, upon completion of the Companys initial public offering and
in connection with a marketing and distribution agreement, the Company issued a
performance warrant to acquire up to 2,447,955 shares of the Companys class A
common stock to Travelocity, the vesting of which was to be subject to
achieving certain performance targets. In March 2001, the Company entered into
an amendment to the marketing and distribution agreement with Travelocity to
extend the term of the agreement through July 31, 2005 and to broaden and
expand the marketing and distribution relationship.

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In connection with this amendment, the Company also revised the terms of
the performance warrant and waived the vesting requirements as to a portion of
the warrant, which resulted in 1,468,773 shares underlying the performance
warrant becoming immediately exercisable and the remaining 979,182 shares
continuing to be subject to achieving certain performance targets. At the time
of this amendment, the Company recorded an asset of approximately $26.3 million
based on the fair market value of the warrants that became exercisable at such
time, of which $1.5 million and $1.5 million was amortized during the
three-month period ending March 31, 2003 and 2002, respectively. The asset is
being amortized ratably over the remaining term of the marketing and
distribution agreement. As of March 31, 2003, 419,105 of the remaining shares
underlying the performance warrant remained unvested. During the three months
ended March 31, 2003, the Company recorded an aggregate of $2.3 million of
additional noncash deferred distribution and marketing expense based upon the
fair market value of the shares that vested during such period. The Company
will record during each quarterly period through the end of the term of the
marketing and distribution agreement in July 2005 an additional non-cash
deferred distribution and marketing expense related to the portion of the
performance warrant that vests during each such quarter.

In November 2000, the Company entered into an additional exclusive
marketing and distribution agreement and, in connection with it, issued to the
marketing and distribution partner warrants to purchase 95,358 shares of our
class A common stock at $31.46 per share,the market price of the class A
common stock on the date such warrant was issued. These warrants are
non-forfeitable, fully vested and exercisable and are not subject to any
performance targets. At that time, the Company recorded an asset of
approximately $2.9 million based on the fair market value of the warrants,
which is being amortized ratably over the four-year term of the exclusive
marketing and distribution agreement. During the three months ended March 31,
2003 and 2002, the Company amortized $0.2 million and $0.2 million of the
warrant costs, respectively. In addition, the Company agreed under the terms
of the marketing and distribution agreement to issue additional warrants to
purchase shares of class A common stock to the marketing and distribution
partner if the marketing and distribution partner achieves certain performance
targets. No warrants have been required to be issued under this agreement
through March 31, 2003. The Company may be required to issue warrants to
purchase up to 328,456 shares of class A common stock if the marketing and
distribution partner achieves all of the performance goals remaining under the
agreement.

In March 2001, the Company entered into another exclusive marketing and
distribution agreement and agreed to issue warrants to purchase shares of class
A common stock to the marketing and distribution partner if the marketing and
distribution partner achieves certain performance targets. No warrants have
been required to be issued under this agreement through March 31, 2003. The
Company may be required to issue warrants to purchase up to 1,273,635 shares of
class A common stock if the marketing and distribution partner achieves all of
the performance goals remaining under the agreement.

NOTE 4  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is net income (loss) plus other comprehensive
income (loss), which consists of changes in unrealized gains (losses) on
marketable securities available for sale, net of the related tax impact.
Comprehensive income for the quarter ended March 31, 2003 was $18.6 million
compared to $12.7 million for the same period in 2002.

NOTE 5  SUBSEQUENT EVENT

On April 9, 2003, the Company entered into an Agreement and Plan of Merger
with USA and Hermitage Merger Corp., a wholly-owned subsidiary of USA, pursuant
to which USA would acquire all of the issued and outstanding shares of the
Companys common stock that it does not already own. The merger agreement
provides that the Company will be merged with Hermitage Merger Corp. such that
the

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Company will become a wholly-owned subsidiary of USA. At the effective
time of the merger, each outstanding share of the Companys common stock (other
than shares of common stock owned by the Company or USA) will be converted into
the right to receive 2.4 shares of common stock of USA. The merger agreement
also provides that at the effective time of the merger each outstanding and
unexercised warrant and option to purchase shares of the Companys common
stock, whether vested or unvested, will be converted into warrants and options
to purchase USA common stock.




|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

We are a leading provider of discount hotel rooms and other lodging
accommodations, allowing customers to select and book hotel rooms in major
cities through our websites, our toll-free call centers and through third-party
marketing and distribution agreements. We contract with hotels in advance for
volume commitments and guaranteed availability of hotel rooms and vacation
rentals at wholesale rates and make these lodging accommodations available to
our customers, often at significant discounts to published rates. In addition,
our hotel supply relationships often allow us to offer our customers hotel
accommodations for otherwise unavailable dates. At March 31, 2003, we had room
supply agreements with over 8,000 lodging properties in 362 major markets in
North America, Europe, the Caribbean and Asia. Our websites feature easy to
use, traveler-oriented interfaces that enable travelers to make informed
decisions about their hotel accommodations by providing easy access to the
description, rates and availability 24 hours a day, 7 days a week.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2003 COMPARED TO THE
QUARTER ENDED MARCH 31, 2002

Revenues

For the three months ended March 31, 2003, the Company generated revenues
of $277.4 million, an increase of 67.4% over the $165.7 million of revenues
generated in the same period in 2002. The increase for the quarter was
primarily attributable to the growth of our new website and brand, hotels.com,
and the growth in travel and lodging bookings through the Internet. Revenues
also increased due to the addition of new cities in which we offer hotel rooms,
an increase in hotels offered in existing cities, and an increase in room
allotments available for sale. We expanded into 37 new markets during the
quarter, reaching a total of 362 compared to 218 at March 31, 2002,
representing a 66.1% increase.

The increase in revenue was also attributable to the growth of our revenue
from international and vacation rental properties. Revenue related to
properties located in Europe, Canada, Mexico, the Caribbean and Asia increased
158.5% to $39.4 million in the first quarter of 2003 from $15.3 million in the
first quarter of 2002. Revenue from our vacation rentals, which include
condominiums, timeshares and vacation homes, increased 109.0% to $10.4 million
in the first quarter of 2003 from $5.0 million in the first quarter of 2002.

In addition, revenue increased as a result of the expansion of our
marketing and distribution partner program. Our marketing and distribution
partners generate sales of rooms in exchange for commissions based on the
amount of revenue generated by us on the sale of such rooms. Revenue derived
through our agreement with Travelocity, our largest marketing and distribution
partner, accounted for approximately 15.6% of our total revenue for the
quarter.

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Cost of Sales and Gross Profit

Cost of sales includes the cost of rooms sold. The increase in cost of
revenues and gross profit corresponds to the growth in net revenues. Gross
profit increased 59.5% to $83.4 million in the first quarter of 2003 from $52.3
million in the first quarter of 2002. Although consistent with the gross profit margins we experienced in the past
three quarters, gross profit margin for the three months ended March 31, 2003
decreased to 30.1% from 31.6% for the prior year period. The decline in gross
profit margin compared to the quarter ended March 31, 2002, is attributable to a variety of factors including (a)
certain transaction costs and the impact of the decline in the value
of the US dollar associated with revenues generated from
international properties, which constituted a higher percentage of
total revenues for the quarter
ended March 31, 2003 versus the same period last year, (b) a provision for potential occupancy tax liability this year,
compared to no such provision last year, and (c) reversal of certain reserves in the quarter ended March 31, 2002
originally created in the wake of the terrorist attack on September 11, 2001.

Selling, General and Administrative Costs

Selling, general and administrative costs consist primarily of (1)
compensation for personnel, (2)  marketing and distribution
partner commissions, (3) credit card fees,
(4) advertising and promotion, (5) telecommunications, and (6) other overhead
costs including occupancy costs. Overall selling, general and administrative
costs increased 86.3% for the quarter ended March 31, 2003 over the same period
in 2002. As a percentage of net revenues, selling, general and administrative
costs for the three months ended March 31, 2003 increased to 17.8% from 16.0%
for the same period in 2002.

The increase in selling, general and administrative expense for the
three-month period ended March 31, 2003 over the same period for 2002 was due
to an increase in advertising costs and an increase in personnel costs, credit
card fees and marketing and distribution
partner commissions resulting from the growth in net revenues.
The increase in selling, general and administrative expense as a percentage of
revenues for the three months ended March 31, 2003 over the same period in 2002
was due to higher advertising and promotion expense as a percentage of net
revenues. The increase in selling, general and administrative expense as a
percentage of revenues was partially offset by a decrease in affiliate
commissions expense as a percentage of revenues due to a reduction in the
proportion of affiliate-generated sales as a percentage of total sales.

Non-Cash Distribution and Marketing

Non-cash distribution and marketing expense decreased to $4.7 million for
the three months ended March 31, 2003 compared to $6.1 million during the same
period in 2002. The decrease in non-cash distribution and marketing expense
was due primarily to $0.9 million of advertising costs contributed by USA
during the first quarter of 2002 for which we paid no cash consideration.

Non-cash distribution and marketing expense consists primarily of
amortization of the fair value of non-performance warrants and performance
warrants issued to certain partners with whom we entered into exclusive
distribution and marketing agreements. The non-performance warrants were
issued in 2000 and the related expense is amortized over the term of the
warrant agreements. The expense related to the performance warrants is fully
expensed upon vesting. (See Note 3  Notes to Unaudited Condensed
Consolidated Financial Statements for further details.) The Company will
amortize $2.0 million of expense related to non-performance warrants during the
second quarter of 2003 and also will recognize additional expense based upon
any additional performance warrants that vest in the second quarter of 2003,
the amount of which is not known as it is based upon stock price.

Amortization of Goodwill

Effective January 1, 2002, the Company adopted the Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets, whereby
the Company does not amortize goodwill, but is required to perform an
impairment test at least annually in accordance with the statement. The
Company has completed its impairment test as of January 1, 2003 and has
concluded that no goodwill impairment write-off is necessary.

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EBITA

EBITA is defined as income from operations plus non-cash distribution
and marketing expense, non-cash compensation, and other amortization expense.
EBITA is presented for informational purposes only, and is not a substitute for
the historical financial information presented in accounting principles
generally accepted in the United States. EBITA does not purport to represent
cash provided by operating activities. EBITA may not be a comparable
calculation of similarly titled measures by other companies. See further
discussion on non-GAAP financial measures on page 16.

Reconciliation of income from operations and EBITA:

|                       |                                     |   |                    |       |      |   |        |       | 
|---------------------- | ----------------------------------- | - | ------------------ | ----- | ---- | - | ------ | ----- | 
|                       |                                     |   | Three Months Ended
|                       |                                     |   | March 31,         
|                       |                                     |   |                   
|                       |                                     |   | 2003               |       | 2002
|                       |                                     |   |                    |       |     
|Income from operations |                                     | $ | 27,246             |       |      | $ | 18,768 |      
|Add:                   |                                     |   |                    |       |      |   |        |      
|                       | Non-cash distribution and marketing |   |                    | 4,661 |      |   |        | 6,072 | 
|                       | Non-cash compensation               |   |                    | 89    |      |   |        |      | 
|                       | Other amortization                  |   |                    | 626   |      |   |        | 289   | 
|                       |                                     |   |                    |       |      |   |        |      
|EBITA                  |                                     | $ | 32,622             |       |      | $ | 25,129 |      
|                       |                                     |   |                    |       |      |   |        |      

EBITA increased to $32.6 million for the quarter ended March 31, 2003, a
29.8% increase from $25.1 million for the prior year period. EBITA as a
percentage of revenues was 11.8% for the quarter ended March 31, 2003, compared
to 15.2% for the prior year period. The decrease in EBITA as a percentage of
revenues in 2003 was primarily due to a higher selling, general and
administrative expense as a percentage of revenues due to an increase in
advertising costs associated with the branding of hotels.com. The decrease in
EBITA as a percentage of revenues in 2003 was also due to a lower gross profit
margin.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our operations through cash generated from
operating activities. We have historically been debt free. In addition, on
February 25, 2000, we completed an initial public offering in which we sold
6,210,000 shares of class A common stock at a price of $16.00 per share,
raising $90.0 million in proceeds net of offering expenses.

We generated $72.9 million in free cash flow ($78.4 million in cash from
operations, less $5.5 million in capital expenditures) during the first quarter
of 2003. As of March 31, 2003, following implementation of a class A common
stock repurchase program, we had $399.3 million in cash, cash equivalents,
restricted cash and marketable securities held for sale. We invest excess cash
predominantly in debt instruments that are highly liquid, of high-quality
investment grade, and that predominantly have maturities of less than one year
with the intent to make such funds readily available for operating purposes and
to support our continued growth, both internally and through strategic
acquisitions.

Net cash provided from operating activities was $78.4 million for the
three months ending March 31, 2003, compared to $78.6 million for the same
period in 2002. Capital expenditures and the

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purchase of intellectual property were $5.6 million for the three months
ended March 31, 2003. As a result of our rapid growth, we expect to increase
capital expenditures for purchased software, internally developed software,
computer equipment, telecommunications equipment and software, furniture and
fixtures, leasehold improvements and intangible assets.

Management anticipates that cash on hand and cash provided by operating
activities will be sufficient to fund our working capital requirements for the
next twelve months and for a foreseeable period after twelve months.
Additional funds could be necessary, however, to complete sizable strategic
acquisitions or other business combinations (if any) in 2003 or beyond.

TREASURY STOCK

On January 3, 2003, our board of directors authorized the repurchase of up
to $100 million of our class A common stock. Between January 7, 2003 and
January 15, 2003, we repurchased approximately 1.55 million shares for an
aggregate cost of approximately $73.5 million.

SEASONALITY

We expect to experience seasonality in our business, reflecting seasonal
fluctuations in the travel industry and advertising expenditures. Historically,
we have often experienced higher revenue and gross profits in the fourth
quarter during the heavy domestic holiday travel season to New York and Las
Vegas because of the travel patterns of our customers; however, as we expand
our markets served, particularly to international markets, we expect that our
that our business will experience seasonality more typical of the travel
industry generally. In the travel industry generally, travel bookings
typically increase during the first and second quarter in anticipation of
summer travel and typically slow in the third and fourth quarter. As the
Company recognizes revenues upon the checkout of the lodging property by the
customer, such a booking pattern would likely result in sequential increases in
revenue from the first to the second, and second to the third quarters of each
fiscal year, and flat revenue to sequential declines from the third to the
fourth, and fourth to the first quarters of each fiscal year. Due to the
significant quarterly growth of our business, this effect has not been
historically evident in our operations, but may become so in the future.
Seasonality in the travel industry and advertising expenditures are likely to
cause fluctuations in our operating results and could have a material adverse
effect on our business.

ACCOUNTING POLICIES

In connection with the issuance of Securities and Exchange Commission
FR-60, the following disclosure is provided to supplement the Companys
accounting policies in regard to significant areas of judgment. Management of
the Company is required to make certain estimates and assumptions during the
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States. These estimates and
assumptions impact the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements. These estimates also impact the reported
amount of net earnings during any period. Actual results could differ from
those estimates. Because of the size of the financial statement elements to
which they relate, some of our accounting policies and estimates have a more
significant impact on our financial statements than others.

Long-Lived Assets

We assess the recoverability of the carrying value of long-lived assets
periodically. If circumstances suggest that long-lived assets may be impaired,
and a review indicates that the carrying value will not be recoverable, as
determined based on the projected undiscounted future cash flow, the

14



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carrying value is reduced to its estimated fair value. The determination
of cash flow is based upon assumptions and forecasts that may not occur. As of
March 31, 2003 the Companys balance sheet includes $391.3 million of
intangible assets, net, and $22.7 million of fixed assets, net. The Company
has completed its impairment test as of January 1, 2003 and has concluded that
no goodwill impairment write-off is necessary.

Deferred Taxes

Estimates of deferred income taxes and the significant items giving rise
to the deferred assets and liabilities and reflect managements assessment of
actual future taxes to be paid on items reflected in the financial statements,
giving consideration to both timing and the probability of realization. Actual
income taxes could vary from these estimates due to future changes in income
tax law or based upon review of our tax returns by the IRS or foreign taxing
authorities, as well as operating results of the company that vary
significantly from budgets.

Revenue Reporting

We contract with hotels and other lodging properties in advance for volume
commitments and guaranteed availability of rooms at wholesale rates and make
these lodging accommodations available to our customers through our websites
and toll-free call centers and through third-party marketing and distribution
agreements. Our revenue is generated principally through the bookings of these
lodging accommodations, and we recognize as revenue the gross revenue generated
from the bookings of these lodging accommodations. As previously announced,
USA, our parent company, had voluntarily requested the Securities and Exchange
Commission (SEC) to review the presentation of revenue by Hotels.com and
Expedia for merchant hotel revenue, as Hotels.com presents such revenue on a
gross basis and Expedia on a net basis. The SEC has concluded its review, and
will not object to the revenue presentation that each company has historically
used.

Non-Cash Distribution and Marketing Expense

During 2001 and 2000, we entered into several affiliate distribution and
marketing agreements pursuant to which we issued warrants, some of which were
performance based. We calculate the fair value of warrants using certain
estimates, including the expected volatility of the stock and the expected life
of the warrants. If our stock price rises, or the expected life of warrants
increases, the fair value of the warrants also will increase. The amount of
non-cash distribution and marketing expense that we will recognize in future
periods may increase since the fair value of the performance-based warrants
will be determined at the time the performance criteria are met.

Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (FASB Statement No. 148), which
amends Statement of Financial Accounting Standard No. 123 (FASB Statement No.
123). This Statement provides alternative methods of transition for a
voluntary change to the fair value-based method of accounting for stock-based
employee compensation and amends the disclosure requirements of FASB Statement
No. 123. The transition guidance and annual disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. We have adopted the accounting
provisions of FASB Statement No. 123 as of January 1, 2003 and have included
the required interim disclosure provisions in our financial statements for the
quarter ending March 31, 2003. We have expensed stock-based compensation on a
prospective basis and will continue to provide pro forma information in the
Notes to Financial Statements to

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provide the results as if the accounting provisions of FASB Statement No.
123 had been adopted in previous years. Going forward, in addition to stock
options, we intend to issue restricted stock units that will vest in future
periods. For stock options and restricted stock units issued, the accounting
charge will be measured at the grant date and amortized ratably as non-cash
compensation over the vesting term.

NON-GAAP FINANCIAL MEASURES

The SEC recently issued guidance regarding the use of non-GAAP financial
measures, which are defined as a numerical measures of a registrants
historical or future financial performance, financial position or cash flows
that:



| |  |  | exclude amounts, or are subject to adjustments that have the effect
of excluding amounts, that are included in the most directly comparable
measure calculated and presented in accordance with GAAP; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | include amounts, or are subject to adjustments that have the effect
of including amounts, that are excluded in the most directly comparable
measure calculated and presented in accordance with GAAP.   

Our executive management believes that certain non-GAAP measures,
including EBITA, Adjusted Net Income, Adjusted EPS and Free Cash Flow, are
helpful, when presented in conjunction with the comparable GAAP measures. We
believe that EBITA and EBITA as a percentage of revenue (EBITA Margin)
provide investors and analysts with useful information concerning our cash
operating profits and our cash operating margins, and assists in comparing us
with other industry peers. Furthermore, we have historically used EBITA and
EBITA Margin as internal measures of our performance. The non-GAAP measures
are not meant to replace or supersede the GAAP measures, but rather to
supplement the information to present the readers of the financial statements
with the same information as management considers in assessing the results of
operations and performance of business units.

When presenting non-GAAP financial measures we will present a
reconciliation of the most directly comparable GAAP measures. These non-GAAP
measures are consistent with how management views the results of operations in
assessing performance. The final rules on these measures were just released in
January, so we, like the rest of the world, are in the process of interpreting
the rules. While we believe that the measures we present comply with the
rules, we will continue to monitor any developments in their interpretation.
Accordingly, we can give no assurance that we will be able to provide these or
comparable measures in future filings.

Non-GAAP financial measures fall into two categories(a) measures of
performance that are different from that presented in the GAAP financial
statement (for example, net income versus Adjusted Net Income), or (b) measures
of liquidity different from cash flow or cash flow from operations computed in
accordance with GAAP.

Performance-Based Measurements

Definitions of Measurements that We Will Use



| |  |  | EBITA (earnings before interest, taxes, amortization of
intangibles, non-cash compensation expense and non-cash distribution
and marketing expense, other income and expenses, and non-recurring
items).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Adjusted Net Income (amounts that have been, or ultimately will be,
settled in cash and the measure will be computed as net income plus (1)
amortization of intangibles, (2) non-cash distribution and marketing
expense, (3) non-cash compensation expense and (4) non-recurring or
unusual items, including the cumulative effect of accounting changes,
that have not or are not reasonably likely to recur within two years,
all on an after-tax basis).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Adjusted EPS (Adjusted Net Income divided by fully diluted shares
outstanding, including restricted stock issued without using the
treasury method convention, as the denominator).                                                                                                                                                                                                                                                                         

Going forward, EBITA, Adjusted Net Income and Adjusted EPS will be the
primary measures that we will use to review the operating performance of our
business. As support, these measures are prominently displayed in our investor
presentations by our executive management, and we expect that these measures
will be prominently displayed in future budget presentations and investor
presentations. Furthermore, incentive compensation is directly linked to
achieving EBITA and Adjusted Net Income targets. It is important to note that
we do not adjust for non-cash items because they are non-recurring, but rather
because our management excludes these items in reviewing the operating
performance of our business and our overall results.

Discussion of Non-Cash Items

To date, non-cash compensation has been a relatively small amount, but we
intend to account for stock-based compensation in accordance with FASB
Statement No. 123, and expense the fair value of the equity instruments over
their vesting terms. Going forward, we intend to issue restricted stock units
and the accounting charge will be measured at the grant date and amortized
ratably as non-cash compensation over the vesting term. We anticipate that the
expense related to restricted stock units will increase over time. We view the
true cost of restricted stock as the resulting dilution to common shareholders
rather than the estimated fair value of the instrument that is used to record
the expense. We may issue some options in the near term as we complete our
shift to restricted stock. Stock option compensation will be included in the
amortization of non-cash compensation. Consistent with our view that the true
cost is the dilution, for purposes of calculating Adjusted Net Income Per
Share, all restricted shares are treated as outstanding for calculating the
weighted average shares outstanding, and the treasury method convention is not
used to reduce the shares outstanding.

Non-Recurring Items

The new rules offer guidelines for the treatment of non-recurring items,
prohibiting adjustments identified as non-recurring, infrequent or unusual when
(1) the nature of the charge or gain is such that it is reasonably likely to
recur within two years, or (2) there was a similar charge or gain within the
prior two years. We will review items identified as non-recurring in future
periods to ensure they comply with this guidance.

Reconciliation of Non-GAAP Measures to GAAP Measures and Presentation

When presenting non-GAAP financial measures, the most directly comparable
GAAP measure will be presented in equal or greater prominence. In addition, we
will provide a reconciliation of each of the non-GAAP measures to the GAAP
measures.

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We believe that the most comparable GAAP measures are as follows:

|                       |  |                                            
|---------------------- |  | -------------------------------------------
|Non-Recurring Measures |  | GAAP Measures                              
|                       |  |                                            
|EBITA                  |  | Operating Income                           
|Adjusted Net Income    |  | Net Income available to common shareholders
|Adjusted EPS           |  | Diluted EPS                                

Liquidity Measurements

Definition of Measurement that We Will Use



| |  |  | Free Cash Flow (GAAP cash flow from operations less capital expenditures)
| | - |  | -------------------------------------------------------------------------

Free Cash Flow (FCF) is the primary measure our executive management
uses to review our ability to convert operating performance into cash, which
can then be used to support reinvestments in current operations, acquisitions,
or other strategic purposes. We expect that this measure will be prominently
displayed in our future budget presentations and investor presentations by our
executive management.

Discussion of Elements of Computation

Capital expenditures, taken directly from the cash flow statement, are
utilized in the computation since they represent a significant portion of our
cash expenditures, and are a direct reinvestment in our business to increase
future performance.

Reconciliation of Non-GAAP Measures to GAAP Measures

We believe that the most comparable GAAP measure is cash flow from
operations, which is the starting point of FCF.

Caution Regarding Forward-Looking Statements

The foregoing discussion contains forward-looking statements within the
meaning of the securities laws concerning our plans, goals, product and service
offerings, and anticipated financial performance. These forward-looking
statements may generally be identified by introductions such as outlook for
an upcoming period of time, or words and phrases such as should, expect,
hope, plans, projected, believes, forward-looking (or variants of
those words and phrases) or similar language indicating the expression of our
opinion or view concerning the future.

These forward-looking statements are subject to risks and uncertainties
based on a number of factors and our actual results or events may differ
materially from those anticipated by such forward-looking statements. These
factors include, but are not limited to: the growth rate of our revenue and
market share; our ability to add desirable cities and hotels to our hotel
product offerings; our ability to grow and service our affiliate network; our
ability to effectively manage our business functions while growing at a rapid
rate; the quality of our plans and strategies, and our ability to execute such
plans and strategies. In addition, forward-looking statements concerning our
expected revenue or earnings levels are subject to many additional
uncertainties applicable to competitors generally and to general economic
conditions over which we have no control.

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The time at which a forward-looking statement is made should also be
included in an appropriate understanding of such statement. In that regard, we
do not plan to generally publicly update all prior forward-looking statements
and, accordingly, prior forward-looking statements should not be considered to
be still applicable simply because we have not made additional comments on
those forward-looking statements.

Other risks, which should be considered in connection with forward-looking
statements, are described under the heading Risk Factors in our Annual Report
on Form 10-K.




|        |  |                                                           
|------- |  | ----------------------------------------------------------
|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have no floating rate indebtedness. All of our revenue is
recognized in U.S. dollars. Accordingly, changes in interest rates do not
generally have a material direct or indirect effect on our financial position.
Since cash and marketable securities represent a significant portion of our
total current assets, we are at risk of reduced income from our investments in
the event of a decrease in interest rates.

Currently, all of our foreign hotel revenue is denominated in U.S. dollars
and is received at the time that a reservation is made. We are subject to risk
from foreign exchange rate fluctuations because the hotel rooms in foreign
markets that we contract to purchase are paid for in the local currency of the
hotel after the customer has completed his stay. During the third quarter of
2002, the Company implemented a hedging program to lessen the Companys
exposure to fluctuations in foreign exchange rates.




|        |  |                        
|------- |  | -----------------------
|ITEM 4. |  | CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Within the 90-day period
prior to the filing of this report, an evaluation was carried out under the
supervision and with the participation of the Companys management, including
the Chief Executive Officer (CEO) and Chief Financial and Strategic Officer
(CFO), of the effectiveness of our disclosure controls and procedures. Based on
that evaluation, the CEO and CFO have concluded that the Companys disclosure
controls and procedures are effective.

Subsequent to the date of their evaluation, there have been no significant
changes in the Companys internal controls or in other factors that could
significantly affect these controls.

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PART II   OTHER INFORMATION




|        |  |                  
|------- |  | -----------------
|ITEM 1. |  | LEGAL PROCEEDINGS

In re Hotels.com Inc. Shareholders Litigation(Delaware Court of Chancery,
Consolidated C.A. No. 19662-NC). In the litigation previously reported in our
Form 10-Q for the quarter ended June 30, 2002, the plaintiffs in the
consolidated actions agreed on December 16, 2002 that all of the defendants
have an indefinite extension of time in which to respond to the complaints in
those lawsuits, pending a determination by the plaintiffs whether they will
proceed with the lawsuits.

On April 9, 2003, we entered into a merger agreement with USA, which
contemplates that the shares of the Company class A common stock will be
converted into shares of common stock of USA and we will become a wholly-owned
subsidiary of USA. On April 10, 2003, the plaintiffs filed an amended
complaint alleging that the consideration to be received by our public
shareholders is inadequate. The amended complaint seeks, among other things,
injunctive relief against consummation of the transaction and damages in an
unspecified amount.

Garvey, et al. v. Miller, et at., No. 20248-NC (Delaware Court of
Chancery). On April 10, 2003, the plaintiffs filed a class action lawsuit
against Hotels.com, our Board of Directors and USA alleging that the
consideration to be received by our public shareholders in the contemplated
merger of Hotels.com with USA is inadequate. The complaint seeks, among other
things, injunctive relief against consummation of the transaction and damages
in an unspecified amount. We believe that this lawsuit is without merit, and
intends to defend vigorously against it.

In re Hotels.com Securities Litigation,No. 3-03CV00069 (U.S. District
Court, N.D. Tex). Between January 10, 2003 and February 13, 2003, several
purported shareholder class action complaints were filed in the United States
District Court for the Northern District of Texas against us and three of our
executives. These actions purport to be brought on behalf of purchasers of our
common stock during the period from October 23, 2002 to January 6, 2003 (the
Class Period), and make certain claims under the federal securities laws.
Specifically, the complaints allege that during the Class Period, the
defendants knowingly (i) made certain materially false and misleading public
statements, in a press release and two press interviews, with respect to the
anticipated performance of our company during the fourth quarter of 2002 and
(ii) concealed from the investing public certain material events and
developments that were likely to render that anticipated performance
unattainable. The complaints assert that the individual defendants profited
from the rise in our share price caused by their public statements through
sales of our stock during the Class Period. The complaints further allege that
as a result of our announcement on January 6, 2003 of a downward revision of
our guidance for the fourth quarter of 2002, our share price declined
precipitously. The plaintiffs seek certification of a class of all
non-defendant purchasers of our stock during the Class Period and seek damages
in an unspecified amount suffered by the putative class. These actions were
consolidated into a single action bearing the title In re Hotels.com Securities
Litigation,No. 3-03CV00069 on April 18, 2003. We believe that these lawsuits
are without merit, and the defendants intend to defend vigorously against them.

Pomilio-Wilson v. Blutinger, et al.,No. 03-00349J (191st Dist. Ct.,
Dallas County, Tex.). In a related development, on January 14, 2003, a
shareholder derivative action was filed against Hotels.com (as a nominal
defendant only), and a number of current and former officers and directors of
Hotels.com. The Pomilio-Wilson lawsuit, Anita Pomilio-Wilson, Derivatively on
Behalf of Nominal Defendant Hotels.com v. Elan J. Blutinger, et al., No.
03-00349, arises out of substantially the same events and circumstances as the
putative class action described above. The gravamen of the complaint is that
the nine individual defendants who sold shares in Hotels.com during the period
from October 25 to December 3, 2002, breached their fiduciary duty to
Hotels.com by misappropriating, and trading and profiting on the

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basis of, proprietary, material non-public information concerning the
financial condition and growth prospects of Hotels.com. The complaint also
alleges that all of the individual defendants aided and abetted the selling
defendants breaches of fiduciary duty by concealing from the market the
information on the basis of which the selling defendants allegedly traded and
profited. The complaint seeks imposition of a constructive trust in favor of
Hotels.com on the profits obtained by the selling defendants on their sales of
Hotels.com stock during the period referred to above, as well as unspecified
damages resulting from the individual defendants alleged breaches of fiduciary
duty. We believe that this lawsuit is without merit, and the defendants intend
to defend vigorously against it.

Solodovnikov, et al. v. Diener, et al.No. 03-02663 (District Court,
Dallas, Texas). In March 2003, a shareholder derivative action was filed
against Hotels.com (as a nominal defendant only), and a number of our current
and former officers and directors. The lawsuit arises out of substantially the
same events and circumstances as the putative securities class action described
above, and the claims in the lawsuit were identical to the shareholder
derivative action described above.

On April 10, 2003, the plaintiffs filed an amended petition to add
additional purported class action allegations regarding the adequacy of the
consideration to be received by our public shareholders in the contemplated
merger of Hotels.com with USA. The amended complaint seeks, among other
things, injunctive relief against consummation of the transaction and damages
in an unspecified amount. Hotels.com believes that this lawsuit is without
merit, and intends to defend vigorously against it.

MetroGuide.com, Inc. v. Hotel Reservations Network, Inc. et al.,No.
03-20170 (U.S. District Court, S.D. Fl). On January 27, 2003, MetroGuide.com,
one of our marketing and distribution partners, sued us in federal court in
Miami, Florida. The lawsuit alleges that we encouraged our other marketing and
distribution partners to infringe on MetroGuide.coms copyrighted content from
its websites and competed unfairly with MetroGuide.com through the use of
predatory advertising and link farms. MetroGuide.com seeks injunctive relief
and damages in an unspecified amount. MetroGuide has agreed to an extension of
time until June 15, 2003 to file an answer to the complaint. We believe that
the allegations are without merit and intend to defend vigorously against it.




|        |  |                                          
|------- |  | -----------------------------------------
|ITEM 2. |  | CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2003, the Company sold
unregistered securities as follows:

On January 6, 2003, the Company issued 41,198 shares of our Class A common
stock upon the exercise of warrants previously issued to a strategic partner of
the Company. The exercise price of the warrant was $16.00. The transaction
was deemed to be exempt from registration under the Securities Act of 1933 in
reliance on Section 3(a)(9) and Section 4(2) of the Securities Act as
transactions by an issuer not involved in any public offering.

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|        |  |                                 
|------- |  | --------------------------------
|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits.
|--- |  | ---------

|        |  |                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                               
|Numbers |  | Exhibits                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                               
|3.1     |  | Restated Certificate of Incorporation (previously filed on May 15,
2002 as an exhibit to the Companys Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated herein by
reference, SEC File No. 000-29575).      
|3.2     |  | Restated Bylaws (previously filed on February 7, 2000 as an
exhibit to the Companys Registration Statement on Form S-1,
Amendment No. 3, and incorporated herein by reference,
Registration No. 333-90601).                                  
|4.1     |  | Specimen class A common stock certificate (previously filed on
August 14, 2002 as an exhibit to the Companys Quarterly Report on
Form 10-Q for the quarter ended July 31, 2002 and incorporated
herein by reference, SEC File No. 000-29575).
|99.1    |  | Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed
herewith).                                                                                                      
|99.2    |  | Certification of Chief Financial and Strategic Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(filed herewith).                                                                                        



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

On January 6, 2003, the Company furnished information under Item 5 and
Item 9 of Form 8-K regarding (i) its earnings for the fourth quarter and full
year 2002; (ii) announcing the Board of Directors had authorized the Company to
repurchase up to $100 million of the Class A common stock, par value $0.01 per
share, from time to time on the open market or through private transactions,
depending upon market conditions, share price and other factors; and (iii) its
presentation at the Morgan Stanley Software, Services, Internet and Networking
Conference on January 6, 2003.

On February 5, 2003, the Company furnished information under Item 9 of
Form 8-K regarding its earnings for the fourth quarter and year ended December
31, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |            |  |                                                   
|------------------ |  | ---------- |  | --------------------------------------------------
|                   |  | HOTELS.COM
|                   |  |            |  |                                                   
|Date: May 15, 2003 |  | By:        |  | /s/ Mel Robinson                                  
|                   |  |            |  |                                                   
|                   |  |            |  | Mel Robinson
Chief Financial and Strategic Officer

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CERTIFICATIONS

I, David S. Litman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hotels.com;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flow of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                        
|------------------ |  | ---------------------------------------
|Date: May 15, 2003 |  | /s/ David Litman                       
|                   |  |                                        
|                   |  | David S. Litman
Chief Executive Officer

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I, Mel Robinson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hotels.com;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flow of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                   
|------------------ |  | --------------------------------------------------
|Date: May 15, 2003 |  | /s/ Mel Robinson                                  
|                   |  |                                                   
|                   |  | Mel Robinson
Chief Financial and Strategic Officer

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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                               
|Numbers |  | Exhibits                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                               
|3.1     |  | Restated Certificate of Incorporation (previously filed on May 15,
2002 as an exhibit to the Companys Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 and incorporated herein by
reference, SEC File No. 000-29575).      
|3.2     |  | Restated Bylaws (previously filed on February 7, 2000 as an
exhibit to the Companys Registration Statement on Form S-1,
Amendment No. 3, and incorporated herein by reference,
Registration No. 333-90601).                                  
|4.1     |  | Specimen class A common stock certificate (previously filed on
August 14, 2002 as an exhibit to the Companys Quarterly Report on
Form 10-Q for the quarter ended July 31, 2002 and incorporated
herein by reference, SEC File No. 000-29575).
|99.1    |  | Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed
herewith).                                                                                                      
|99.2    |  | Certification of Chief Financial and Strategic Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(filed herewith).                                                                                        

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