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USAI's Diller Reaffirms eCommerce Vows

On the heels of earnings results that showed revenues jumping by 43 percent, USA Interactive's chief executive is reaffirming the company's decision to abandon its media roots for a future in e-commerce -- and streamlined balance sheet.

Barry Diller, the chairman and CEO of e-commerce company USA Interactive , told shareholders in a letter released Thursday that the company's true first day of last year would be May 7th (2002), the date the company's contribution of its movie and cable assets to struggling French media company Vivendi Universal Entertainment closed.

"On that date we went from a media, entertainment company with e-commerce interests to an interactive transaction company," Diller said in the letter, which will be part of the company's annual report.

"From that moment, we were a company transformed -- ending the material veto rights held by other parties, and eliminating the LLC structure under which we'd operated with such complexity and contradiction for almost all the years of our short life."

He said with USAI's moves to purchase minority interests of travel site Expedia and hotel-booking play Hotels.com, along with the acquisition of its outstanding minority interest in Ticketmaster, the company has "virtually completed" its evolutionary process of simplifying its corporate structure.

In April, USAI moved to consolidate its majority-ownership of Hotels.com in a $1.1 billion deal that bought out the remaining assets of the travel play it didn't already own. The month before, USAI acquired all the outstanding stock of travel site Expedia in a $3.3 billion deal. At the same time, Diller said he is resigning as CEO of Vivendi Universal Entertainment.

Diller's letter, reaffirming the company's commitment to e-commerce, came on the heels of a strong earnings report, in which travel and hotel-booking revenues skyrocketed. It also signaled Diller's bid to reassure investors that the company is responding to criticisms that its balance sheet needs to be simplified in order to improve its earnings transparancy.

For the first quarter of 2003, USAI narrowed its loss to $112.1 million (23 cents per share), on revenues of $1.39 billion, up by 43 percent over its revenues of $971 million during the prior year's first quarter. During the same, year-ago period, USAI's net loss was $438.6 million ($1.04 per share).

Although all its e-commerce assets such as Match.com, Expedia, and Hotels.com, had strong results, the travel services revenue was the standout, with a 93 percent jump in revenues (year-over-year) to $545.1 million from $281.7 million in the first quarter of 2002.

Cash earnings, or earnings before taxes and other standing charges, jumped by 86 percent to $103.7 million, the company said, despite the adverse impact on travel by the war in Iraq.

Expedia's revenue jumped by 71 percent on strong air and hotel bookings and merchant room night stays increased by 72 percent. In addition, Expedia's sale of travel packages was up by 137 percent.

The earnings results beat analysts' expectations.

Diller said his recent move to resign his position as CEO of Vivendi Universal Entertainment, as well as other moves to simplify its corporate structure and assets, should eliminate "any lingering question about whether we're a holding company or an operating company.

"Clearly, we're now properly viewed as an operating company and judged against our theoretical peers -- namely the Tier One companies in interactivity -- eBay, Yahoo!, and Amazon."

Diller's letter said there is one more piece in the company's plan to improve its ownership and financial reporting structure, which involves disposing of shares of Vivendi that were tied into its sale of USA media assets to Vivendi.

"Our primary motivation is to turn a relatively 'passive' asset on our books into the equivalent of cash, which we can then use either to acquire new businesses, invest in our current ones, or shrink our capitalization."