##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2002
|                                              |  |                                                                                         
|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: 0-29575

HOTELS.COM(Exact name of registrant as specified in its charter)

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

8140 Walnut Hill Lane
Suite 800
Dallas, Texas 75231
(Address of principal executive offices)

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

Hotel Reservations Network, Inc.
(Former name, former address and former fiscal year if changed since last report)



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 the number of shares outstanding of each of the issuers classes
of common stock as of May 8, 2002.

|                     |  |           
|-------------------- |  | ----------
|Class                |  |           
|Class A Common Stock |  | 18,548,892
|Class B Common Stock |  | 38,999,100





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                                    |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION              
|                                             | ITEM I. 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 FLOW          
|                                             |                                                                                               | 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 DISCLOSURE ABOUT MARKET RISKS                           
|PART II   OTHER INFORMATION                
|                                             | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                             | ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                  
|EXHIBIT INDEX                               
|EX-3.1 Restated Certificate of Incorporation



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##### Table of Contents



HOTELS.COM
FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2002

TABLE OF CONTENTS

|                                                                                              |                                                                                                                         |  |      |   | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                                                                         |  | Page
|                                                                                              |                                                                                                                         |  |     
|PART I  FINANCIAL INFORMATION                                                                |                                                                                                                         |  |      |  
|Item 1. Condensed Consolidated Financial Statements                                           |                                                                                                                         |  | 3    |  
|                                                                                              | Condensed Consolidated Balance Sheets as of March 31, 2002
(unaudited) and December 31, 2001                            |  |      | 3 | 
|                                                                                              | Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2002 and 2001                |  |      | 4 | 
|                                                                                              | Unaudited Condensed Consolidated Statement of Changes in Stockholders
Equity for the Three Months Ended March 31, 2002 |  |      | 5 | 
|                                                                                              | Unaudited Condensed Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 2002 and 2001             |  |      | 6 | 
|                                                                                              | Notes to Unaudited Condensed Consolidated Financial Statements                                                          |  |      | 7 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |                                                                                                                         |  | 9    |  
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                             |                                                                                                                         |  | 12   |  
|PART II.  OTHER INFORMATION                                                                  |                                                                                                                         |  |      |  
|Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                         |  | 13   |  
|Item 6. Exhibits and Report on Form 8-K                                                       |                                                                                                                         |  | 13   |  
|SIGNATURES                                                                                    |                                                                                                                         |  | 14   |  
|EXHIBIT INDEX                                                                                 |                                                                                                                         |  | 15   |  





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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,
|                              |                                                                                                                                                                                 |                            |                                      |         |         | 2002        |         | 2001        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 |                            |                                      |         |         | (Unaudited) |         |              |         | 
|                              |                                                                                                                                                                                 |                            |                                      | ASSETS  |         |             |         |              |         |  |  | 
|CURRENT ASSETS                |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              | Cash and cash equivalents                                                                                                                                                       |                            | $                                    | 66,540  |         |             | $       | 44,269       |        
|                              | Restricted cash equivalents                                                                                                                                                     |                            |                                      | 12,052  |         |             |         | 9,107        |        
|                              | Marketable securities  available for sale                                                                                                                                      |                            |                                      | 223,547 |         |             |         | 165,581      |        
|                              | Accounts and notes receivable                                                                                                                                                   |                            |                                      | 11,934  |         |             |         | 7,096        |        
|                              | Prepaid hotel rooms                                                                                                                                                             |                            |                                      | 580     |         |             |         | 1,363        |        
|                              | Current portion of non-cash deferred distribution and marketing costs                                                                                                           |                            |                                      | 9,970   |         |             |         | 10,195       |        
|                              | Deferred income taxes                                                                                                                                                           |                            |                                      | 8,132   |         |             |         | 4,740        |        
|                              | Other current assets                                                                                                                                                            |                            |                                      | 5,539   |         |             |         | 4,712        |        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 | Total current assets       |                                      |         | 338,294 |             |         |              | 247,063 | 
|PROPERTY AND EQUIPMENT        |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              | Computer equipment and software                                                                                                                                                 |                            |                                      | 10,310  |         |             |         | 7,862        |        
|                              | Buildings and leasehold improvements                                                                                                                                            |                            |                                      | 1,005   |         |             |         | 995          |        
|                              | Furniture and other equipment                                                                                                                                                   |                            |                                      | 2,734   |         |             |         | 2,597        |        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 |                            | 14,049                               |         |         |             | 11,454  |             
|                              | Less accumulated depreciation and amortization                                                                                                                                  |                            |                                      | (3,420  | )       |             |         | (2,755       | )      
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 |                            | 10,629                               |         |         |             | 8,699   |             
|OTHER ASSETS                  |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              | Goodwill, net of amortization of $97,780 at both March 31, 2002 and
December 31, 2001                                                                                           |                            |                                      | 362,479 |         |             |         | 362,464      |        
|                              | Non-cash deferred distribution and marketing costs                                                                                                                              |                            |                                      | 17,184  |         |             |         | 19,508       |        
|                              | Intellectual property, net of amortization of $660 at March 31, 2002
and $371 at December 31, 2001                                                                              |                            |                                      | 12,639  |         |             |         | 10,834       |        
|                              | Other assets, net of amortization of $57 at March 31, 2002 and
$207 at December 31, 2001                                                                                        |                            |                                      | 31      |         |             |         | 8            |        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 | $                          | 741,256                              |         |         | $           | 648,576 |             
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 |                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |             |         |              |         |  | 
|CURRENT LIABILITIES           |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              | Accounts payable, trade                                                                                                                                                         |                            | $                                    | 66,831  |         |             | $       | 53,679       |        
|                              | Deferred revenue                                                                                                                                                                |                            |                                      | 82,582  |         |             |         | 37,679       |        
|                              | Income tax payable                                                                                                                                                              |                            |                                      | 2,100   |         |             |         | 1,736        |        
|                              | Intercompany payable                                                                                                                                                            |                            |                                      | 1,984   |         |             |         | 1,394        |        
|                              | Other accrued liabilities                                                                                                                                                       |                            |                                      | 10,589  |         |             |         | 9,759        |        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 | Total current liabilities  |                                      |         | 164,086 |             |         |              | 104,247 | 
|                              | Deferred income taxes                                                                                                                                                           |                            |                                      | 9,036   |         |             |         | 2,441        |        
|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, 18,428,366 shares and 18,138,452 shares outstanding at
March 31, 2002 and December 31, 2001, respectively |                            |                                      | 185     |         |             |         | 182          |        
|                              | Class B common stock, $0.01 par value; 150,000,000 shares
authorized, 38,999,100 shares outstanding at March 31, 2002 and 2001                                                  |                            |                                      | 390     |         |             |         | 390          |        
|                              | Additional paid-in capital                                                                                                                                                      |                            |                                      | 527,028 |         |             |         | 513,456      |        
|                              | Accumulated other comprehensive loss                                                                                                                                            |                            |                                      | (264    | )       |             |         | (1           | )      
|                              | Retained earnings                                                                                                                                                               |                            |                                      | 40,795  |         |             |         | 27,861       |        
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 | Total stockholders equity |                                      |         | 568,134 |             |         |              | 541,888 | 
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             
|                              |                                                                                                                                                                                 | $                          | 741,256                              |         |         | $           | 648,576 |             
|                              |                                                                                                                                                                                 |                            |                                      |         |         |             |         |             

The accompanying notes are an integral part of these statements.

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

|                                                             |                                     |          |                                    |         |                 |         |         |        |       |         | 
|------------------------------------------------------------ | ----------------------------------- | -------- | ---------------------------------- | ------- | --------------- | ------- | ------- | ------ | ----- | ------- | 
|                                                             |                                     |          |                                    |         | Three Months   
|                                                             |                                     |          |                                    |         | Ended March 31,
|                                                             |                                     |          |                                    |         |                
|                                                             |                                     |          |                                    |         | 2002            |         | 2001   
|                                                             |                                     |          |                                    |         |                 |         |        
|Net revenues                                                 |                                     | $        | 165,712                            |         |                 | $       | 105,286 |       
|Operating costs and expenses:                                |                                     |          |                                    |         |                 |         |         |       
|                                                             | Cost of sales                       |          |                                    | 113,397 |                 |         |         | 73,714 |      
|                                                             | Selling, general and administrative |          |                                    | 26,521  |                 |         |         | 15,750 |      
|                                                             | Non-cash distribution and marketing |          |                                    | 6,072   |                 |         |         | 3,931  |      
|                                                             | Amortization of goodwill            |          |                                    |        |                 |         |         | 11,000 |      
|                                                             | Depreciation and other amortization |          |                                    | 954     |                 |         |         | 296    |      
|                                                             |                                     |          |                                    |         |                 |         |         |       
|                                                             |                                     |          | Total operating costs and expenses |         |                 | 146,944 |         |        |       | 104,691 | 
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Operating profit                                             |                                     |          | 18,768                             |         |                 |         | 595     |       
|Other income:                                                |                                     |          |                                    |         |                 |         |         |       
|                                                             |                                     | Interest |                                    |         | 1,131           |         |         |        | 2,657 |        
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Income before income tax expense                             |                                     |          | 19,899                             |         |                 |         | 3,252   |       
|Income tax expense                                           |                                     |          | 6,965                              |         |                 |         | 1,406   |       
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Net income                                                   |                                     | $        | 12,934                             |         |                 | $       | 1,846   |       
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Basic earnings per common share                              |                                     | $        | 0.22                               |         |                 | $       | 0.03    |       
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Diluted earnings per common share                            |                                     | $        | 0.22                               |         |                 | $       | 0.03    |       
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Weighted average number of basic common shares outstanding   |                                     |          | 57,531                             |         |                 |         | 55,404  |       
|                                                             |                                     |          |                                    |         |                 |         |         |       
|Weighted average number of diluted common shares
outstanding |                                     |          | 58,445                             |         |                 |         | 56,595  |       
|                                                             |                                     |          |                                    |         |                 |         |         |       

The accompanying notes are an integral part of these statements.

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

|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |        | 
|----------------------------------------------------- | ---------------------------------------------------------- | - | ------- | ------ | ------------ | - | ------------ |  | ------- | - | ------------- |  | ------------- | - | ---------- |  | ----------------- | - | ---- | ---- | - | - | ------ | ------ | 
|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   | Additional |  | Accumulated Other |   |      |      |  
|                                                      |                                                            |   |         |        |              |   | Class A      |  | Class B |   | Paid-In       |  | Comprehensive |   | Retained  
|                                                      |                                                            |   | Total   |        | Common Stock |   | Common Stock |  | Capital |   | Income (Loss) |  | Earnings     
|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |              
|Balance at January 1, 2002                            |                                                            | $ | 541,888 |        |              | $ | 182          |  |         | $ | 390           |  |               | $ | 513,456    |  |                   | $ | (1   | )    |   | $ | 27,861 |       
|Comprehensive income:                                 |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |       
|                                                      | Net income for the
three months ended
March 31, 2002       |   |         | 12,934 |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        | 12,934 | 
|                                                      | Accumulated other
comprehensive loss,
net of taxes of $142 |   |         | (263   | )            |   |              |  |         |   |               |  |               |   |            |  |                   |   |      | (263 | ) |   |        |        | 
|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |       
|                                                      | Comprehensive income                                       |   |         | 12,671 |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |        | 
|Issuance of common stock
upon exercise of warrants    |                                                            |   | 2,662   |        |              |   |              |  |         |   |               |  |               |   | 2,662      |  |                   |   |      |      |   |   |        |       
|Issuance of common stock
upon exercise of options     |                                                            |   | 6,806   |        |              |   | 3            |  |         |   |               |  |               |   | 6,803      |  |                   |   |      |      |   |   |        |       
|Income tax benefit
related to stock options
exercised |                                                            |   | 3,246   |        |              |   |              |  |         |   |               |  |               |   | 3,246      |  |                   |   |      |      |   |   |        |       
|Contribution from USA                                 |                                                            |   | 861     |        |              |   |              |  |         |   |               |  |               |   | 861        |  |                   |   |      |      |   |   |        |       
|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |       
|Balance at March 31, 2002                             |                                                            | $ | 568,134 |        |              | $ | 185          |  |         | $ | 390           |  |               | $ | 527,028    |  |                   | $ | (264 | )    |   | $ | 40,795 |       
|                                                      |                                                            |   |         |        |              |   |              |  |         |   |               |  |               |   |            |  |                   |   |      |      |   |   |        |       

The accompanying notes are an integral part of these statements.

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

|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |         |        |        |  
|--------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------------------- | ----------------------------- | ------- | --------------- | ------ | ------- | ------- | ------ | ------ | -
|                                                                                  |                                             |                                                                 |                               |         | Three Months   
|                                                                                  |                                             |                                                                 |                               |         | Ended March 31,
|                                                                                  |                                             |                                                                 |                               |         |                
|                                                                                  |                                             |                                                                 |                               |         | 2002            |        | 2001   
|                                                                                  |                                             |                                                                 |                               |         |                 |        |        
|Cash flow from operating activities:                                              |                                             |                                                                 |                               |         |                 |        |         |        
|Net income                                                                        |                                             | $                                                               | 12,934                        |         |                 | $      | 1,846   |        
|Adjustments to reconcile net income to net cash provided by operating activities: |                                             |                                                                 |                               |         |                 |        |         |        
|                                                                                  |                                             | Depreciation and amortization                                   |                               |         | 954             |        |         |         | 296    |       
|                                                                                  |                                             | Amortization of goodwill                                        |                               |         |                |        |         |         | 11,000 |       
|                                                                                  |                                             | Non-cash deferred distribution and marketing costs              |                               |         | 6,072           |        |         |         | 3,931  |       
|                                                                                  |                                             | Deferred income taxes                                           |                               |         | 3,203           |        |         |         | (1,400 | )     
|                                                                                  |                                             | Income tax benefit upon exercise of employee
stock options      |                               |         | 3,246           |        |         |         | 99     |       
|                                                                                  |                                             | Changes in current assets and liabilities, net of
acquisitions: |                               |         |                 |        |         |         |        |       
|                                                                                  |                                             |                                                                 | Restricted cash equivalents   |         |                 | (2,945 | )       |         |        | 1,435  |  
|                                                                                  |                                             |                                                                 | Accounts and notes receivable |         |                 | (4,838 | )       |         |        | (1,701 | )
|                                                                                  |                                             |                                                                 | Prepaid hotel rooms           |         |                 | 783    |         |         |        | (294   | )
|                                                                                  |                                             |                                                                 | Other current assets          |         |                 | (827   | )       |         |        | (119   | )
|                                                                                  |                                             |                                                                 | Accounts payable, trade       |         |                 | 13,152 |         |         |        | 17,902 |  
|                                                                                  |                                             |                                                                 | Deferred revenue              |         |                 | 44,903 |         |         |        | 25,950 |  
|                                                                                  |                                             |                                                                 | Income tax payable            |         |                 | 506    |         |         |        | 1,133  |  
|                                                                                  |                                             |                                                                 | Intercompany                  |         |                 | 590    |         |         |        | 227    |  
|                                                                                  |                                             |                                                                 | Other accrued liabilities     |         |                 | 830    |         |         |        | 204    |  
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Net cash provided by operating activities                                         |                                             |                                                                 | 78,563                        |         |                 |        | 60,509  |        
|Cash flow from investing activities:                                              |                                             |                                                                 |                               |         |                 |        |         |        
|                                                                                  | Acquisitions, net of cash acquired          |                                                                 |                               | (15     | )               |        |         | (47,541 | )     
|                                                                                  | Capital expenditures                        |                                                                 |                               | (2,595  | )               |        |         | (418    | )     
|                                                                                  | Purchase of intellectual property           |                                                                 |                               | (2,094  | )               |        |         |        |       
|                                                                                  | Net purchases of marketable securities      |                                                                 |                               | (58,371 | )               |        |         |        |       
|                                                                                  | Proceeds from sale of marketable securities |                                                                 |                               |        |                 |        |         | 39,673  |       
|                                                                                  | Other, net                                  |                                                                 |                               | (23     | )               |        |         | (3      | )     
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Net cash used in investing activities                                             |                                             |                                                                 | (63,098                       | )       |                 |        | (8,289  | )      
|Cash flow from financing activities:                                              |                                             |                                                                 |                               |         |                 |        |         |        
|                                                                                  | Net proceeds from exercise of stock options |                                                                 |                               | 6,806   |                 |        |         | 357     |       
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Net cash provided by financing activities                                         |                                             |                                                                 | 6,806                         |         |                 |        | 357     |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Net increase in cash and cash equivalents                                         |                                             |                                                                 | 22,271                        |         |                 |        | 52,577  |        
|Cash and cash equivalents at beginning of period                                  |                                             |                                                                 | 44,269                        |         |                 |        | 51,037  |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Cash and cash equivalents at end of period                                        |                                             | $                                                               | 66,540                        |         |                 | $      | 103,614 |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Supplemental cash flow information:                                               |                                             |                                                                 |                               |         |                 |        |         |        
|Cash paid for income taxes                                                        |                                             | $                                                               | 11                            |         |                 | $      | 1,550   |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Supplemental disclosure of non cash financing information:                        |                                             |                                                                 |                               |         |                 |        |         |        
|Contribution by USA of television advertising                                     |                                             | $                                                               | 861                           |         |                 | $      |        |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        
|Issuance of warrants                                                              |                                             | $                                                               | 2,662                         |         |                 | $      | 28,341  |        
|                                                                                  |                                             |                                                                 |                               |         |                 |        |         |        

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), formerly known as Hotel Reservations Network,
Inc., is a leading consolidator of discount hotel and other lodging
accommodations for resale in the consumer market in North America, the
Caribbean, Western Europe and Asia. Effective April 24, 2002, the Company
changed its name from Hotel Reservations Network, Inc. to Hotels.com. The
Company is a subsidiary of USA Interactive, formerly known as USA Networks,
Inc. (USA).

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 a 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 2001 consolidated financial statements
included in the Companys Annual Report on Form 10-K.

Advertising

Advertising expense for the three-month periods ending March 31, 2002 and
2001 was $4.6 and $2.5 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, 2002, capitalized
advertising is $0.9 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 initial impairment test as of January 1, 2002 and has
concluded that no goodwill impairment write-off is necessary.

Had this statement been effective January 1, 2001, the Companys pre-tax
income, net income and diluted earnings per share for the three months ending
March 31, 2001 would have been $14.3 million, $8.8 million and $0.15,
respectively.

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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 $223.9 million
and aggregate market value of $223.5 million resulting in a pre-tax unrealized
loss of $0.4 million. The cumulative unrealized loss of $0.4 million is shown
as a component of comprehensive income net of income tax benefits of $0.14
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 affiliate distribution and marketing
agreements, and at the completion of our initial public offering in February
2000, the Company issued warrants to third-party affiliated websites to
purchase 1,428,365 shares of our 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
affiliation agreements, which range from two to five years. During the three
months ended March 31, 2002 and 2001, the Company amortized $0.9 million and
$1.2 million of the warrant costs, respectively.

In addition, upon completion of the Companys initial public offering and
in connection with an affiliation and marketing agreement, the Company issued a
performance warrant to acquire up to 2,447,955 shares of the Companys class A
common stock to an affiliate, the vesting of which was to be subject to
achieving certain performance targets. In March 2001, the Company entered into
an amendment to the affiliation agreement with such affiliate to extend the
term of the agreement through July 31, 2005, and to broaden and expand the
affiliation relationship. 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 $1.49 million was
amortized during the three-month period ending March 31, 2002. The asset is
being amortized ratably over the remaining term of the affiliation agreement.
Through March 31, 2002, 326,394 of the remaining shares underlying the
performance warrant had vested and become exercisable, and the Company has
recorded an aggregate of $9.03 million of additional noncash deferred
distribution and marketing expense based upon the fair market value of such
shares, of which $2.7 million was recorded as expense in the three
month period ended March 31, 2002, and the balance of which was
recorded in prior periods. The Company will record during each quarterly period through the end
of the term of the affiliate 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
affiliate distribution and marketing agreement and, in connection with it,
issued to the affiliate 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 affiliation agreement. During the three months
ended March 31, 2002 and 2001, the Company amortized $0.2 million of the
warrant costs, respectively. In addition, the Company agreed under the terms
of the affiliation agreement to issue additional warrants to purchase up to
635,722 shares of class A common stock to the affiliate if the affiliate
achieves certain performance targets. No

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warrants were required to be issued under this agreement during the three
months ended March 31, 2002 and 2001.

In March 2001, the Company entered into another exclusive affiliate
distribution and marketing agreement and agreed to issue warrants to purchase
up to 1,698,180 shares of class A common stock to the affiliate if the
affiliate achieves certain performance targets. No warrants were required to
be issued under this agreement during the three months ended March 31, 2002.

As of March 31, 2002, 128,395 of the fully vested non-performance warrants
to purchase class A common shares issued to all of the affiliates described
above remained
unexercised.

NOTE 4  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is net income (loss) plus other comprehensive
income (loss), which consists of changes in unrealized gain (losses) on
marketable securities available for sale, net of the related tax impact.




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

GENERAL

Our company is a leading provider of discount hotel accommodations and
other lodging accommodations, allowing customers to select and book hotel rooms
in major cities through our websites and our toll-free call center. We
contract with hotels in advance for volume purchases and guaranteed
availability of hotel rooms and vacation rentals at wholesale prices and sell
these rooms to consumers, often at significant discounts to published rates.
In addition, our hotel supply relationships often allow us to offer our
customers hotel accommodation alternatives for otherwise unavailable dates. At
March 31, 2002, we had room supply agreements with over 6,000 lodging
properties in 218 major markets in North America, the Caribbean, Western Europe
and Asia. Our websites feature 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, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001.

Revenues

For the three months ended March 31, 2002, the Company generated revenues
of $165.7 million, an increase of 57.4% over the $105.3 million of revenues
generated in the same period in 2001. The increase for the quarter was
primarily attributable to the growth in online travel and lodging bookings.
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 40 new markets during
the quarter, reaching a total of 218 compared to 135 at March 31, 2001,
representing a 61% increase. Revenues also increased as a result of the
expansion of our affiliate program. Affiliates generate sales of rooms in
exchange for commissions based on the amount of revenues generated by the
Company on the sale of such rooms. Sales from affiliate websites accounted for
approximately 64.3% of the total revenues for the quarter compared to 63.5%
during the same period in 2001. Revenues derived through our
agreement with Travelocity, our largest affiliate, accounted for
16.1% of our total revenues for the three month period ended March
31, 2002.

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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 65.7% to $52.3 million in the first quarter of 2002 from $31.6
million in the first quarter of 2001. Gross profit margin for the three months
ended March 31, 2002 increased to 31.6% from 30.0% for the prior year
period. The increase in gross profit margin is partially attributed to the
inclusion of TravelNow.coms net commission revenue with no corresponding cost
of sales.

Selling, General and Administrative Costs

Selling, general and administrative costs consist primarily of (1)
compensation for personnel, (2) affiliate 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 68.4% for the quarter ended March 31, 2002 over the same period in
2001. As a percentage of net revenues, selling, general and administrative
costs for the three months ended March 31, 2002 increased to 16.0% from 15.0%
for the same period in 2001.

The increase in selling, general and administrative was due to an
increase in advertising costs, including costs associated with the launch of the new hotels.com
website, and an increase in personnel costs as a percentage of revenues due to
additional staffing levels related to current and anticipated future
growth. The increase in selling, general and administrative costs as a percentage
of net revenues for the quarter was also the result of an increase in average commission
rates.

Non-Cash Distribution and Marketing

Non-cash distribution and marketing costs increased to $6.0 million for
the three months ended March 31, 2002 compared to $3.9 million in the prior
year period. For the quarter ended March 31, 2002, non-cash distribution and
marketing costs included $0.9 million of advertising costs for which we paid no
cash consideration. This amount was contributed by USA and was recorded as
non-cash distribution and marketing expense at fair value, and a contribution
of capital. Non-cash distribution and marketing costs also consist of
amortization of the fair value of warrants issued to certain affiliates with
whom we entered into exclusive distribution and marketing agreements. The
warrants were issued in 2000 and are amortized over the term of the warrant
agreements. The increase in non-cash distribution and marketing costs in 2001
resulted from additional warrants issued in 2000 and 2001, and the vesting of
certain performance warrants that occurred in 2002 (see Note 4  Notes to
Unaudited Condensed Consolidated Financial Statements for further details).

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 initial impairment test as of January 1, 2002 and has
concluded that no goodwill impairment write-off is necessary.

For the three months ending March 31, 2001, goodwill amortization expense
amounted to $11 million.

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Adjusted EBITDA

Adjusted EBITDA is defined as operating profit plus depreciation,
amortization of intangibles, and non-cash distribution and marketing expense.
Adjusted EBITDA is presented here as a management tool and as a valuation
methodology for companies in our industry. Adjusted EBITDA does not purport to
represent cash provided by operating activities. Adjusted EBITDA should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with accounting principles generally accepted in the United
States. Adjusted EBITDA may not be a comparable calculation of similarly titled
measures by other companies.

Adjusted EBITDA increased to $25.8 million for the quarter ended March 31,
2002, a 63% increase from $15.8 million for the prior year period. Adjusted
EBITDA as a percentage of net revenues was 15.6% for the quarter ended March
31, 2002, compared to 15.0% for the prior year period. The increase in
Adjusted EBITDA as a percentage of net revenues in 2002 was primarily due to a
higher gross profit margin partially offset by higher selling, general and
administrative expenses as a percentage of net revenues.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our operations through cash generated from
operating activities. Our company has 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. As of March
31, 2002, we had $302.1 million in cash, cash equivalents and marketable
securities held for sale. Our company invests 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 $78.6 million for the
three months ending March 31, 2002, compared to $60.5 million for the same
period in 2001. Capital expenditures and the purchase of intellectual property
were $4.7 million for the three months ended March 31, 2002. As a result of
our plan for continued rapid growth, we expect to increase capital expenditures for purchased
computer software, internally developed computer software, computer
equipment, telecommunications equipment and software, furniture and
fixtures, leasehold
improvements and intellectual property.

Our company generates significant cash flow from operations, and cash flow
are expected to increase as revenues increase due in part to our billing and payment
policies. 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 (if any) or other business
combinations (if any) in 2002 or
beyond.

SEASONALITY

Our revenues are
somewhat influenced by the seasonal nature of holiday travel in
the markets we serve, and have historically peaked in the fall. As our
business expands into new markets, the impact of seasonality is expected to
lessen.

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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.

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 DISCLOSURE ABOUT MARKET RISK

We currently have no floating rate indebtedness and hold no
derivative instruments. 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, but this risk is somewhat mitigated by the short-term nature of
our investments.

All of our foreign hotel revenue is denominated in U.S. dollars. We are
subject to minimal risk from currency fluctuations because the hotel rooms in
foreign markets that we contract to purchase are paid for in the currency of
the country where they are located and are paid for by us after collecting for
the rooms we sell to our customers. As less than 10% of our revenues are
currently derived from hotel and other lodging accommodations in foreign markets, we do not
believe we have any significant foreign currency exchange risk and, as a
result, do not hedge against foreign currency exchange rate changes. To the
extent that changes in interest rates and currency exchange rates affect
general economic conditions, we would be affected by such change.

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PART II   OTHER INFORMATION




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2002, the Company sold
unregistered securities as follows:

During the first quarter of 2002, the Company issued an aggregate of
89,000 shares of our Class A common stock upon the exercise of a warrant
previously issued to a strategic partner of the Company. The exercise price of
the warrant was $16.00.

On January 4, 2002, the Company issued 35,791 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 transactions described above were 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.




ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K

(a)  Exhibits.

|        |  |                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                   
|Numbers |  | Exhibits                                                                                                          
|        |  |                                                                                                                   
|3.1*    |  | Restated Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on May 9, 2002.
|3.2**   |  | Restated Bylaws of the Company                                                                                    
|4.1**   |  | Specimen Certificate evidencing Common Stock                                                                      



---

|*  |  | Filed herewith.                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Previously filed as an exhibit to the Companys Registration Statement on
Form S-1, Registration Number 333-90601, and incorporated herein by
reference.

(b)  Reports on Form 8-K.

On January 28, 2002, the Company furnished information under Item 9 of
Form 8-K regarding its earnings for the fourth quarter of 2001 and for fiscal
year 2001.

On February 25, 2002, the Company furnished information under Item 9 of
Form 8-K regarding its presentation prepared February 25, 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, 2002 |  | By:        |  | /s/ Mel Robinson                     
|      |  |              |  |            |  |                                      
|      |  |              |  |            |  | Mel Robinson                         
|      |  |              |  |            |  | Chief Financial and Strategic Officer

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EXHIBIT INDEX

|        |  |                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                   
|Numbers |  | Exhibits                                                                                                          
|        |  |                                                                                                                   
|3.1*    |  | Restated Certificate of Incorporation of the Company filed with
the Secretary of State of Delaware on May 9, 2002.
|3.2**   |  | Restated Bylaws of the Company                                                                                    
|4.1**   |  | Specimen Certificate evidencing Common Stock                                                                      



---

|*  |  | Filed herewith.                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Previously filed as an exhibit to the Companys Registration Statement on
Form S-1, Registration Number 333-90601, and incorporated herein by
reference.

15