EX-99.1 2 a05-19372_1ex99d1.htm EXHIBIT 99

Exhibit 99.1

FOR IMMEDIATE RELEASE

 

 

 

IAC REPORTS Q3 RESULTS

 

NEW YORK—November 1, 2005—IAC/InterActiveCorp (Nasdaq: IACI) reported Q3 results today.

 

Q3 SUMMARY RESULTS

$ in millions (except per share amounts)

 

 

 

Q3 2005

 

Q3 2004

 

Growth

 

Revenue

 

$

1,483.3

 

$

957.3

 

55

%

Operating Income Before Amortization

 

$

156.3

 

$

76.9

 

103

%

Adjusted Net Income

 

$

114.6

 

$

70.4

 

63

%

Adjusted EPS

 

$

0.32

 

$

0.19

 

69

%

Operating Income

 

$

21.3

 

$

16.8

 

27

%

Net Income

 

$

68.1

 

$

89.5

 

-24

%

GAAP Diluted EPS

 

$

0.19

 

$

0.24

 

-20

%

 

Overall Highlights

•                  IAC performed strongly with growth from each of its principal sectors.

•                  Operating Income Before Amortization margins increased by 250 basis points versus the prior year period.

•                  IAC repurchased 18.1 million shares of its common stock between July 1 and October 28, 2005, at an average price of $25.36.

•                  Operating income was impacted by a non-cash compensation charge of $67 million related to the Expedia spin-off (please see page 7 for more information).

Sector Highlights

•                  Retailing benefited from the inclusion of Cornerstone Brands and improved top-line results at HSN, though gross margins declined slightly.  Online demand was strong and now represents 23% of IAC’s U.S. Retailing business.

•                  Services was driven by significant growth at LendingTree, particularly from closing loans in its own name along with double-digit growth from the Lending exchange, strong domestic concert and sporting event ticket sales, and international expansion in Ticketing.

•                  Media & Advertising now includes Ask Jeeves which increased its share of U.S. search queries to 6.4% in September (source: comScore) and the decision to reduce the number of sponsored search results on Ask’s U.S. site is tracking favorably.  Citysearch strengthened its position in local online pay-for-performance advertising and delivered its second consecutive quarter of profitable growth.  Unique users at Citysearch increased 168% to record levels.

•                  Membership & Subscriptions was led by record results at Personals, which increased worldwide subscribers by 19% and recently launched Chemistry.com, a new premium relationship service.  Vacations had soft top-line growth but strong bottom-line performance and launched an online travel and lifestyle membership club.

IAC acquired Ask Jeeves on July 19, and spun-off Expedia to shareholders and effected a 1-for-2 reverse stock split on August 9.  Accordingly, results for Ask Jeeves are included from the date of acquisition, and results for Expedia prior to the spin-off are treated as discontinued operations.  Please see page 10 for GAAP financial statements, and page 16 for definitions of non-GAAP measures.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

1


 

SECTOR RESULTS

Sector results for the third quarter ended September 30 were as follows ($ in millions):

 

 

Q3 2005

 

Q3 2004

 

Growth

 

REVENUE

 

 

 

 

 

 

 

Retailing

 

$

749.5

 

509.1

 

47

%

Services

 

486.2

 

306.3

 

59

%

Media & Advertising

 

83.5

 

7.9

 

958

%

Membership & Subscriptions

 

162.8

 

138.9

 

17

%

Emerging Businesses

 

9.6

 

1.7

 

466

%

Other

 

(8.3

)

(6.6

)

-26

%

Total

 

$

1,483.3

 

$

957.3

 

55

%

OPERATING INCOME BEFORE AMORTIZATION

 

 

 

 

 

 

 

Retailing

 

$

54.0

 

$

40.2

 

34

%

Services

 

86.0

 

45.1

 

91

%

Media & Advertising

 

9.3

 

(2.4

)

NM

 

Membership & Subscriptions

 

36.1

 

16.7

 

116

%

Emerging Businesses

 

(2.4

)

0.0

 

NM

 

Corporate

 

(26.6

)

(22.8

)

-17

%

Total

 

$

156.3

 

$

76.9

 

103

%

OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

Retailing

 

$

38.0

 

$

26.6

 

43

%

Services

 

69.6

 

31.1

 

124

%

Media & Advertising

 

(0.9

)

(12.1

)

93

%

Membership & Subscriptions

 

27.4

 

6.8

 

302

%

Emerging Businesses

 

(2.4

)

(0.2

)

-1244

%

Corporate

 

(110.4

)

(35.5

)

-211

%

Total

 

$

21.3

 

$

16.8

 

27

%

 

Please see discussion of financial and operating results beginning on page 3, and reconciliations to the comparable GAAP measures and further segment detail beginning on page 13.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

2


DISCUSSION OF FINANCIAL AND OPERATING RESULTS

RETAILING

 

 

Q3 2005

 

Q3 2004

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

U.S.

 

$

664.3

 

$

437.1

 

52

%

International

 

85.2

 

72.0

 

18

%

 

 

$

749.5

 

$

509.1

 

47

%

Operating Income Before Amortization

 

 

 

 

 

 

 

U.S.

 

$

56.7

 

$

43.1

 

31

%

International

 

(2.8

)

(2.9

)

6

%

 

 

$

54.0

 

$

40.2

 

34

%

Operating Income (Loss)

 

 

 

 

 

 

 

U.S.

 

$

41.1

 

$

29.9

 

37

%

International

 

(3.1

)

(3.3

)

6

%

 

 

$

38.0

 

$

26.6

 

43

%

 

Retailing results were driven primarily by the inclusion of Cornerstone Brands, which was acquired in April 2005 and accordingly is not reflected in the prior year results. U.S. Retailing also includes HSN, which modestly improved its revenue growth as compared to the second quarter.  While still in the early stages, the integration of Cornerstone Brands is underway with a number of products now being tested on HSN and HSN.com in anticipation of increased cross-selling in 2006.

 

U.S. Retailing revenue benefited from a 35% increase in units shipped, principally reflecting Cornerstone Brands as well as strong growth at HSN.com.  Profits grew at a slower pace than revenue due to the inclusion of Cornerstone Brands (catalogs have relatively higher operating expenses) and lower gross profit margins at HSN resulting primarily from increased clearance sales and markdowns.  Prior year results were adversely impacted by the Florida hurricanes, which resulted in programming disruptions and increased costs, due to mandatory evacuations.  As compared to its prior year period, Cornerstone Brands grew revenue at a double-digit rate.

 

International Retailing grew revenue by 18%, while profits grew more slowly due principally to gross margin declines.  Foreign exchange had little impact on the results during the quarter.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

3


SERVICES

 

 

Q3 2005

 

Q3 2004

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Ticketing

 

$

227.5

 

$

182.0

 

25

%

Lending

 

142.8

 

39.9

 

258

%

Real Estate

 

16.3

 

8.1

 

102

%

Teleservices

 

87.4

 

74.5

 

17

%

Home Services

 

12.2

 

1.9

 

550

%

 

 

$

486.2

 

$

306.3

 

59

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Ticketing

 

$

49.9

 

$

32.4

 

54

%

Lending

 

30.6

 

7.7

 

298

%

Real Estate

 

(2.4

)

(1.2

)

-102

%

Teleservices

 

4.4

 

5.9

 

-26

%

Home Services

 

3.5

 

0.2

 

1508

%

 

 

$

86.0

 

$

45.1

 

91

%

Operating Income (Loss)

 

 

 

 

 

 

 

Ticketing

 

$

42.8

 

$

25.2

 

70

%

Lending

 

25.3

 

2.6

 

878

%

Real Estate

 

(5.4

)

(2.8

)

-95

%

Teleservices

 

4.4

 

5.9

 

-26

%

Home Services

 

2.6

 

0.2

 

1091

%

 

 

$

69.6

 

$

31.1

 

124

%

 

Services results were driven by significant growth at LendingTree, particularly from closing loans in its own name along with double-digit growth from the Lending exchange, strong domestic concert and sporting event ticket sales, and international expansion in Ticketing.  The segment formerly known as Financial Services & Real Estate is now being reported as separate segments, Lending and Real Estate.

 

Worldwide ticket sales increased by 28% and the gross value of tickets increased by 30%. Domestic Ticketing revenue increased 29%.  International Ticketing revenue grew by 16%, or 14% excluding the benefit of foreign exchange. Ticketmaster’s purchase of the remaining interest in its Australian joint venture (in April 2005) and an acquisition in Finland (in August 2004) contributed 20% of Ticketing’s overall revenue growth.  Ticketing profit growth was attributable to higher tickets sales and increased cross-selling on behalf of IAC businesses and other affiliates.

 

The significantly higher revenue and profit generated from the loans LendingTree is closing in its own name and improved conversion of customer traffic into revenue-generating transactions benefited Lending’s results.  Refinance mortgages performed strongly and increased as a percent of revenue from the prior year period, while revenue from purchase and home equity loans also increased. Lending profits grew faster than revenue due primarily to lower marketing expenses as a percentage of revenue, offset partially by lower gross margins as a percentage of revenue due to the higher costs related to originating, funding and closing loans.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

4


 

Real Estate revenue was driven by a 34% increase in closings, primarily due to the acquisition of iNest in October 2004, and double-digit growth in the company’s other real estate businesses.  Real Estate losses increased principally due to higher marketing expenses relating to a test advertising campaign for RealEstate.com.  RealEstate.com now makes available 1.5 million home listings.

 

Home Services includes ServiceMagic which was acquired in September 2004. ServiceMagic acquired ImproveNet in August 2005 and these two businesses have integrated their operations.  The business continues to scale its network of service providers.

 

MEDIA & ADVERTISING

 

 

Q3 2005

 

Q3 2004

 

Growth

 

 

 

$ in millions

 

Revenue

 

$

83.5

 

$

7.9

 

958

%

Operating Income Before Amortization

 

$

9.3

 

$

(2.4

)

NM

 

Operating Loss

 

$

(0.9

)

$

(12.1

)

93

%

 

Media & Advertising’s results largely reflect Ask Jeeves, which was acquired in July 2005 and therefore is not included for the entire period.  Ask Jeeves’ properties increased their share of U.S. search queries to 6.4% in September (source: comScore). Ask Jeeves’ decision to significantly reduce the number of sponsored search results on its site is believed to have enhanced the search experience for users.  Sector results were also favorably impacted by increased pay-for-performance revenue and lower operating expenses at Citysearch, which contributed positive earnings in the quarter.

 

For the full quarter, as compared to its prior year period, Ask Jeeves increased revenue by 15%.  This was attributable primarily to an increase in queries in North America.  Growth rates were adversely impacted by the reduced monetization efforts, as anticipated.  Profit margins at Ask Jeeves also declined due to increased sales and marketing expense and higher revenue share payments to third party traffic sources.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

5


MEMBERSHIP & SUBSCRIPTIONS

 

 

Q3 2005

 

Q3 2004

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Vacations

 

$

66.1

 

$

63.6

 

4

%

Personals

 

66.0

 

49.7

 

33

%

Discounts

 

30.8

 

25.6

 

20

%

 

 

$

162.8

 

$

138.9

 

17

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Vacations

 

$

26.6

 

$

22.5

 

18

%

Personals

 

16.6

 

4.5

 

271

%

Discounts

 

(7.1

)

(10.3

)

31

%

 

 

$

36.1

 

$

16.7

 

116

%

Operating Income (Loss)

 

 

 

 

 

 

 

Vacations

 

$

20.2

 

$

16.2

 

25

%

Personals

 

15.8

 

2.8

 

472

%

Discounts

 

(8.6

)

(12.1

)

29

%

 

 

$

27.4

 

$

6.8

 

302

%

 

Membership & Subscriptions results were led by record revenue and profits at Personals, which increased paid subscribers by 19%, attributable largely to Match.com’s successful marketing efforts in the U.S., continued international expansion, and higher revenue per subscriber.  Revenue growth at Vacations was slower than in prior quarters due to inventory constraints reflective of high-occupancy levels in the travel industry, as well as slightly fewer vacation confirmations as compared to the prior year period.

 

Vacations revenue growth was driven by a 5% increase in members and higher average fees.  Vacations profit growth was attributable to increased revenue and higher gross margins, partially offset by costs associated with its newly launched online travel and lifestyle membership club.  22% of vacations were confirmed online during the quarter, versus 20% in the prior year period.

 

Personals revenue growth benefited from higher average prices for packages.  International subscribers grew by 13% driven by expansion in several markets, most notably in Scandinavia and Latin America.  Personals profit growth was attributable to higher revenue partially offset by higher marketing expenses, start-up costs in connection with Chemistry.com, a newly launched premium relationship service, and charges in the prior year period related to the elimination of non-core businesses.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

6


OTHER ITEMS

 

Operating Income Before Amortization was impacted by a 17% increase in corporate and other expense to $26.6 million, including transaction expenses related to the spin-off of $2.1 million in Q3 (and $16.1 million year-to-date). Operating income was impacted by the increase noted above, plus significantly higher non-cash compensation expense. The increase in non-cash compensation was principally due to a $67 million charge (or $49 million, net of tax) related to the treatment of vested stock options in connection with the Expedia spin-off.  To a lesser degree, non-cash compensation increased due to the acquisitions of Cornerstone and Ask Jeeves. These increases were partially offset by a reduction in non-cash compensation expense of $5.5 million due to the cumulative effect of a change in the Company’s estimate related to the number of stock-based awards that are expected to vest.

 

Other income was impacted by a $9.4 million gain reflecting changes to the fair value during the period ended September 30, 2005 of the derivatives that were created in the Expedia spin-off. The derivatives arise due to IAC’s obligation to deliver both IAC and Expedia shares upon the conversion of the Ask Jeeves notes and the exercise of certain IAC warrants.  Net income was also adversely impacted by the decreased contribution of our discontinued operations due primarily to including Expedia’s results through August 9, as compared to the entire third quarter in the prior year.

 

The consolidated effective tax rates for continuing operations and adjusted net income were 17% and 32% in Q3 2005 compared to 15% and 26%, respectively, in Q3 2004.  The Q3 2005 effective tax rates were lower than the statutory rate of 35% due principally to the recognition of a capital loss, a non-taxable gain associated with derivatives, interest received on IRS refunds, and net adjustments related to the reconciliation of provision accruals to tax returns.  These favorable items were partially offset by state taxes.  With respect to continuing operations, these items were further offset by non-deductible non-cash compensation.  In 2004, the effective tax rate for continuing operations and adjusted net income was lower than the statutory rate due to tax-exempt interest and foreign tax credits, partially offset by state taxes and foreign losses for which no benefit was recognized.

 

LIQUIDITY AND CAPITAL RESOURCES

 

 During 2005, $1.6 billion in cash has been used to fund common share repurchases through October 28. IAC repurchased 18.1 million shares of common stock from the spin-off through October 28, at an average price of $25.36. Prior to the spin-off, IAC repurchased 26.4 million common shares at an average price of $24.67. Additionally, in connection with the sale of its interest in VUE in June, IAC received 28.3 million IAC common shares as part of the consideration. The common share numbers for periods prior to the spin-off are stated after giving effect to the reverse stock split and the average price for repurchases prior to the spin-off has been adjusted for both the reverse stock split and the value of the spin-off. Also, 13.1 million shares of preferred stock for $656 million in cash were put to IAC in connection with the spin-off.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

7


 

LIQUIDITY AND CAPITAL RESOURCES – continued

 

Subsequent to September 30, 2005, there are some significant items which will impact our net cash position of $1.4 billion.  After giving effect to these items, and adjusting for debt that is non-recourse to IAC, the Company would have had approximately $1.3 billion in net cash and securities as of September 30 as follows (rounding differences may exist):

  

 

 

Cash & Securities

 

Debt

 

Net Cash (Debt)

 

 

 

($ in billions)

 

 

 

 

 

 

 

 

 

As reported as of September 30, 2005 (a)

 

$

3.1

 

$

1.8

 

$

1.4

 

LendingTree Loan’s debt non-recourse to IAC

 

—

 

(0.4

)

0.4

 

Sub-total

 

3.1

 

1.4

 

1.8

 

Pro forma adjustments:

 

 

 

 

 

 

 

Income tax on sale of VUE interests (12/05)

 

(0.2

)

—

 

(0.2

)

Common share repurchases (10/1 - 10/28/05)

 

(0.2

)

—

 

(0.2

)

Maturity of 6.75% senior notes (11/15/05)

 

(0.4

)

(0.4

)

—

 

Pro forma as of September 30, 2005

 

$

2.3

 

$

1.0

 

$

1.3

 

(a)

 

Includes restricted cash and cash and marketable securities in net funds collected on behalf of Ticketing clients.

 

 

DILUTIVE SECURITIES

 

IAC has various tranches of dilutive securities.  The table below details these securities as well as potential dilution at various stock prices (shares in millions).

 

 

 

Shares

 

Avg. Strike/ Conversion

 

As of 10/28/05

 

Dilution at:

 

Share Price

 

 

 

 

 

$

25.65

 

$

30.00

 

$

35.00

 

$

40.00

 

$

45.00

 

Absolute Shares as of 10/28/05

 

319.2

 

 

 

319.2

 

319.2

 

319.2

 

319.2

 

319.2

 

RSUs

 

5.8

 

 

 

5.8

 

5.8

 

5.8

 

5.8

 

5.8

 

Options

 

41.8

 

$

17.14

 

12.2

 

13.3

 

14.3

 

15.0

 

15.5

 

Warrants

 

35.3

 

$

27.81

 

4.5

 

5.5

 

7.9

 

10.4

 

13.1

 

Convertible Notes

 

4.3

 

$

14.82

 

4.3

 

4.3

 

4.3

 

4.3

 

4.3

 

Other

 

0.2

 

 

 

0.2

 

0.2

 

0.1

 

0.1

 

0.1

 

Total Treasury Method Dilution

 

 

 

 

 

27.0

 

29.1

 

32.4

 

35.7

 

38.9

 

% Dilution

 

 

 

 

 

7.8

%

8.4

%

9.2

%

10.0

%

10.9

%

Total Treasury Method Diluted Shares Outstanding

 

346.3

 

348.4

 

351.7

 

354.9

 

358.1

 

IAC has outstanding approximately 6.1 million shares of restricted stock and restricted stock units (“RSUs”), which generally vest over five years from date of grant, including 3.1 million issued in 2005, and 0.3 million which will be settled in cash and therefore have no dilutive effect.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

8


OPERATING METRICS

 

 

 

 

Q3 2005

 

Q3 2004

 

Growth

 

RETAILING

 

 

 

 

 

 

 

 

 

Retailing - U.S.

 

 

 

 

 

 

 

 

 

Units shipped (mm)

 

 

 

12.4

 

9.2

 

35

%

Gross profit%

 

 

 

37.6

%

38.2

%

 

 

Return rate

 

 

 

16.4

%

15.4

%

 

 

Average price point

 

 

 

$58.89

 

$51.60

 

14

%

Internet%

 

(a

)

23

%

15

%

 

 

HSN total homes - end of period (mm)

 

 

 

88.9

 

85.0

 

5

%

Catalogs mailed (mm)

 

 

 

92.3

 

18.8

 

391

%

SERVICES

 

 

 

 

 

 

 

 

 

Ticketing

 

 

 

 

 

 

 

 

 

Number of tickets sold (mm)

 

 

 

28.9

 

22.6

 

28

%

Gross value of tickets sold (mm)

 

 

 

$1,432

 

$1,103

 

30

%

Lending

 

 

 

 

 

 

 

 

 

Transmitted QF’s (000s)

 

(b

)

879.4

 

579.6

 

52

%

Closings - units (000s)

 

(c

)

75.8

 

65.9

 

15

%

Closings - dollars ($mm)

 

 

 

$9,934

 

$6,871

 

45

%

Real Estate

 

 

 

 

 

 

 

 

 

Closings - units (000s)

 

 

 

4.0

 

3.0

 

34

%

Closings - dollars ($mm)

 

 

 

$1,068

 

$762

 

40

%

MEDIA & ADVERTISING

 

 

 

 

 

 

 

 

 

Ask Jeeves Revenue by traffic source (pro forma)

 

 

 

 

 

 

 

 

 

Proprietary

 

 

 

65.9

%

65.7

%

 

 

Network

 

 

 

34.1

%

34.3

%

 

 

MEMBERSHIP & SUBSCRIPTIONS

 

 

 

 

 

 

 

 

 

Vacations

 

 

 

 

 

 

 

 

 

Members (000s)

 

 

 

1,764

 

1,681

 

5

%

Confirmations (000s)

 

 

 

202

 

204

 

-1

%

Share of confirmations online

 

 

 

22

%

20

%

 

 

Personals

 

 

 

 

 

 

 

 

 

Paid Subscribers (000s)

 

 

 

1,178.9

 

989.8

 

19

%

(a)         Internet demand as a percent of total Retailing - U.S. demand excluding Liquidations and Services.

(b)         Customer “Qualification Forms” (QFs) transmitted to at least one exchange lender (including LendingTree Loans) plus QFs transmitted to at least one GetSmart lender.

(c)          Loan closings consist of loans closed by exchange lenders and directly by LendingTree Loans.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

9


 

GAAP FINANCIAL STATEMENTS

IAC CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; $ in thousands except per share amounts)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Service revenue

 

$

693,833

 

$

415,317

 

$

1,831,097

 

$

1,279,796

 

Product sales

 

789,464

 

541,976

 

2,215,732

 

1,673,296

 

Net revenue

 

1,483,297

 

957,293

 

4,046,829

 

2,953,092

 

Cost of sales-service revenue

 

321,657

 

222,562

 

887,571

 

681,386

 

Cost of sales-product sales

 

482,493

 

322,649

 

1,352,310

 

1,024,155

 

Gross profit

 

679,147

 

412,082

 

1,806,948

 

1,247,551

 

Selling and marketing expense

 

264,378

 

138,891

 

679,681

 

414,755

 

General and administrative expense

 

168,234

 

119,912

 

488,493

 

356,018

 

Other operating expense

 

35,134

 

22,839

 

87,585

 

63,260

 

Amortization of cable distribution fees

 

17,403

 

18,046

 

51,183

 

53,079

 

Amortization of non-cash distribution and marketing expense

 

—

 

—

 

—

 

1,301

 

Amortization of non-cash compensation expense

 

84,775

 

13,495

 

113,778

 

47,761

 

Amortization of intangibles

 

50,176

 

46,605

 

133,933

 

142,636

 

Depreciation expense

 

37,730

 

35,514

 

108,141

 

104,651

 

Operating income

 

21,317

 

16,780

 

144,154

 

64,090

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

20,062

 

45,847

 

115,075

 

134,437

 

Interest expense

 

(11,108

)

(20,456

)

(51,718

)

(59,083

)

Gain on sale of VUE

 

(0

)

—

 

523,487

 

—

 

Equity in the income of VUE

 

(0

)

607

 

21,960

 

11,293

 

Equity in the income of unconsolidated affiliates and other

 

14,263

 

(1,354

)

33,753

 

13,475

 

Total other income, net

 

23,217

 

24,644

 

642,557

 

100,122

 

Earnings from continuing operations before income taxes and minority interest

 

44,534

 

41,424

 

786,711

 

164,212

 

Income tax benefit (expense)

 

(7,635

)

(6,215

)

(311,652

)

(53,609

)

Minority interest in income of consolidated subsidiaries

 

(527

)

(672

)

(1,951

)

(1,685

)

Earnings from continuing operations

 

36,372

 

34,537

 

473,108

 

108,918

 

Gain on sale of Euvia, net of tax

 

(0

)

—

 

79,648

 

—

 

Income from discontinued operations, net of tax

 

33,117

 

58,204

 

210,327

 

98,546

 

Earnings before preferred dividends

 

69,489

 

92,741

 

763,083

 

207,464

 

Preferred dividends

 

(1,412

)

(3,263

)

(7,938

)

(9,789

)

Net earnings available to common shareholders

 

$

68,077

 

$

89,478

 

$

755,145

 

$

197,675

 

Earnings per share

 

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.11

 

$

0.09

 

$

1.40

 

$

0.28

 

Diluted earnings per share from continuing operations

 

$

0.10

 

$

0.09

 

$

1.33

 

$

0.27

 

Basic earnings per share

 

$

0.21

 

$

0.26

 

$

2.27

 

$

0.57

 

Diluted earnings per share

 

$

0.19

 

$

0.24

 

$

2.14

 

$

0.53

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

10


 

IAC CONSOLIDATED BALANCE SHEET
(unaudited; $ in thousands)

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

909,398

 

$

999,698

 

Restricted cash and cash equivalents

 

117,425

 

41,377

 

Marketable securities

 

2,103,160

 

2,409,745

 

Accounts and notes receivable, net

 

497,822

 

353,579

 

Loans available for sale, net

 

416,683

 

206,256

 

Inventories, net

 

428,599

 

240,917

 

Deferred income taxes

 

123,261

 

107,220

 

Other current assets

 

182,713

 

100,148

 

Assets held for sale

 

1,401

 

339,880

 

Current assets of discontinued operations

 

4,602

 

316,947

 

Total current assets

 

4,785,064

 

5,115,767

 

Total property, plant and equipment, net

 

536,876

 

427,257

 

Goodwill

 

7,356,999

 

5,361,825

 

Intangible assets, net

 

1,610,938

 

1,054,302

 

Long-term investments

 

86,522

 

1,469,020

 

Preferred interest exchangeable for common stock

 

—

 

1,428,530

 

Cable distribution fees, net

 

42,767

 

77,484

 

Notes receivable and advances, net of current portion

 

639

 

615

 

Deferred charges and other

 

283,067

 

94,597

 

Non-current assets of discontinued operations

 

7,473

 

7,369,468

 

TOTAL ASSETS

 

$

14,710,345

 

$

22,398,865

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

CURRENT LIABILITIES

 

 

 

 

 

Current maturities of long-term obligations and short-term borrowings

 

$

817,325

 

$

562,953

 

Accounts payable, trade

 

288,619

 

259,510

 

Accounts payable, client accounts

 

290,645

 

176,921

 

Accrued distribution fees

 

28,939

 

36,903

 

Deferred revenue

 

123,146

 

99,258

 

Deferred income taxes

 

287

 

—

 

Income tax payable

 

628,035

 

56,672

 

Other accrued liabilities

 

514,503

 

389,365

 

Liabilities held for sale

 

—

 

295,773

 

Current liabilities of discontinued operations

 

18,072

 

1,015,083

 

Total current liabilities

 

2,709,571

 

2,892,438

 

Long-term obligations, net of current maturities

 

962,975

 

796,715

 

Other long-term liabilities

 

204,539

 

101,332

 

Non-current liabilities of discontinued operations

 

8,319

 

423,521

 

Deferred income taxes

 

1,346,371

 

2,130,386

 

Common stock exchangeable for preferred interest

 

—

 

1,428,530

 

Minority interest

 

5,237

 

20,639

 

Total shareholders’ equity

 

9,473,333

 

14,605,304

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

14,710,345

 

$

22,398,865

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

11


 

IAC CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; $ in thousands)

 

 

 

Nine Months Ended,

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Earnings from continuing operations

 

$

473,108

 

$

108,918

 

Adjustments to reconcile earnings from continuing operations to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

242,074

 

247,287

 

Amortization of non-cash distribution and marketing expense

 

—

 

1,301

 

Amortization of non-cash compensation expense

 

113,778

 

47,761

 

Amortization of cable distribution fees

 

51,183

 

53,079

 

Deferred income taxes

 

(1,054,605

)

64,975

 

Gain on sale of VUE

 

(523,487

)

—

 

Equity in income of unconsolidated affiliates, including VUE

 

(39,580

)

(24,024

)

Non-cash interest income

 

(29,511

)

(30,854

)

Minority interest in income of consolidated subsidiaries

 

1,951

 

1,685

 

Increase in cable distribution fees

 

(20,067

)

(17,770

)

Changes in current assets and liabilities:

 

 

 

 

 

Accounts and notes receivable

 

(6,450

)

11,372

 

Loans available for sale

 

(210,376

)

—

 

Inventories

 

(92,944

)

(63,228

)

Prepaids and other assets

 

(12,031

)

(2,516

)

Accounts payable and accrued liabilities

 

548,778

 

(112,843

)

Deferred revenue

 

32,308

 

24,310

 

Funds collected by Ticketmaster on behalf of clients, net

 

78,666

 

38,639

 

Other, net

 

(4,963

)

(2,661

)

Net cash (used in) provided by operating activities

 

(452,168

)

345,431

 

Cash flows provided by (used in) investing activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(682,809

)

(172,371

)

Capital expenditures

 

(175,660

)

(120,448

)

(Increase) decrease in long-term investments and notes receivable

 

(28,707

)

26,570

 

Purchase of marketable securities

 

(1,943,180

)

(2,726,133

)

Proceeds from sale of marketable securities

 

2,324,303

 

2,185,047

 

Proceeds from sale of VUE

 

1,882,291

 

—

 

Proceeds from sale of Euvia

 

183,016

 

—

 

Other, net

 

31,334

 

1,175

 

Net cash provided by (used in) investing activities

 

1,590,588

 

(806,160

)

Cash flows used in financing activities:

 

 

 

 

 

Borrowings

 

80,000

 

(0

)

Increase in warehouse loans payable

 

205,644

 

—

 

Principal payments on long-term obligations

 

(38,344

)

(1,060

)

Purchase of treasury stock

 

(1,420,402

)

(429,507

)

Proceeds from issuance of common stock, including stock options

 

80,734

 

94,057

 

Redemption of preferred stock

 

(655,727

)

—

 

Preferred dividends

 

(7,938

)

(9,789

)

Other, net

 

(45,902

)

658

 

Net cash used in financing activities

 

(1,801,935

)

(345,641

)

Net cash provided by discontinued operations

 

599,771

 

1,021,718

 

Effect of exchange rates changes on cash and cash equivalents

 

(26,556

)

9,980

 

Net (decrease) increase in cash and cash equivalents

 

(90,300

)

225,328

 

Cash and cash equivalents at beginning of period

 

999,698

 

759,617

 

Cash and cash equivalents at end of period

 

$

909,398

 

$

984,945

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

12


RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

IAC RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
(unaudited; in millions)

 

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

Net Cash Provided by Operating Activities

 

$

(452.2

)

$

345.4

 

Warehouse loans payable

 

205.6

 

—

 

Capital expenditures

 

(175.7

)

(120.4

)

Tax Payments related to the VUE Gain

 

652.8

 

—

 

Preferred dividend paid

 

(7.9

)

(9.8

)

Free Cash Flow

 

$

222.7

 

$

215.2

 

For the nine months ended September 30, 2005, consolidated Free Cash Flow increased by $7.5 million due primarily to higher earnings, and Ticketing client cash, offset by higher capital expenditures, higher cash taxes paid other than the taxes paid on the VUE gain, and higher uses of working capital.  Free Cash Flow includes an increase in warehouse loans payable in Lending, which is offset by a use of working capital related to an increase in loans held for sale.  We exclude cash taxes paid on the gain on the sale of IAC’s interest in VUE in the determination of Free Cash Flow because the proceeds on the sale are excluded from cash provided by operating activities.   Ticketing client cash contributed $78.7 million to the change in operating cash flows, versus $38.6 million in the prior year.

IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS
(unaudited; in thousands except per share amounts)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Diluted earnings per share

 

$

0.19

 

$

0.24

 

$

2.14

 

$

0.53

 

GAAP diluted weighted average shares outstanding

 

351,255

 

366,893

 

356,285

 

372,757

 

Net income

 

$

68,077

 

$

89,478

 

$

755,145

 

$

197,675

 

Amortization of non-cash distribution and marketing expense

 

—

 

—

 

—

 

1,301

 

Amortization of non-cash compensation

 

84,775

 

13,495

 

113,778

 

47,761

 

Amortization of intangibles

 

50,176

 

46,605

 

133,933

 

142,636

 

Gain on sale of Euvia, net of tax

 

0

 

—

 

(79,648

)

—

 

Discontinued operations, net of tax

 

(33,117

)

(58,204

)

(210,327

)

(98,546

)

Gain on sale of VUE

 

0

 

—

 

(523,487

)

—

 

Equity in the income of VUE

 

(0

)

(607

)

(21,960

)

(11,293

)

Net other income/expense related to fair value adjustment on derivatives

 

(9,400

)

—

 

(9,400

)

—

 

Impact of income taxes and minority interest

 

(46,358

)

(20,411

)

133,814

 

(63,438

)

Interest on convertible notes

 

412

 

—

 

412

 

—

 

Adjusted Net Income

 

$

114,565

 

$

70,356

 

$

292,260

 

$

216,096

 

Adjusted EPS weighted average shares outstanding

 

356,618

 

370,661

 

358,137

 

376,080

 

Adjusted EPS

 

$

0.32

 

$

0.19

 

$

0.82

 

$

0.57

 

GAAP Basic weighted average shares outstanding

 

326,421

 

346,702

 

332,426

 

348,239

 

Options, warrants and restricted stock, treasury method

 

21,367

 

20,191

 

19,464

 

24,518

 

Conversion of convertible preferred and convertible notes (if applicable)

 

3,467

 

—

 

4,395

 

—

 

GAAP Diluted weighted average shares outstanding

 

351,255

 

366,893

 

356,285

 

372,757

 

Pro forma adjustments

 

—

 

—

 

—

 

—

 

Options, warrants and RS, treasury method not included in diluted shares above

 

—

 

—

 

—

 

—

 

Add’l restricted shares and convertible preferred and convertible notes (if applicable)

 

5,363

 

3,768

 

1,852

 

3,323

 

Adjusted EPS shares outstanding

 

356,618

 

370,661

 

358,137

 

376,080

 

For adjusted EPS purposes, the impact of RSU’s is based on the weighted average amount of RSU’s outstanding as compared with shares outstanding for GAAP purposes, which includes RSU’s on a treasury method basis.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

13


 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP Q3 AND YTD

(unaudited; $ in millions; rounding differences may occur)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Revenue

 

 

 

 

 

 

 

 

 

Retailing:

 

 

 

 

 

 

 

 

 

U.S.

 

$

664.3

 

$

437.1

 

$

1,829.4

 

$

1,343.0

 

International

 

85.2

 

72.0

 

280.7

 

244.6

 

Total Retailing

 

749.5

 

509.1

 

2,110.0

 

1,587.6

 

Services:

 

 

 

 

 

 

 

 

 

Ticketing

 

227.5

 

182.0

 

696.7

 

579.3

 

Lending

 

142.8

 

39.9

 

352.2

 

114.1

 

Real Estate

 

16.3

 

8.1

 

43.0

 

18.2

 

Teleservices

 

87.4

 

74.5

 

241.5

 

218.9

 

Home Services

 

12.2

 

1.9

 

30.5

 

1.9

 

Intra-sector Elimination

 

—

 

—

 

—

 

—

 

Total Services

 

486.2

 

306.3

 

1,363.9

 

932.4

 

Media & Advertising

 

83.5

 

7.9

 

104.0

 

20.6

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

Vacations

 

66.1

 

63.6

 

208.9

 

196.7

 

Personals

 

66.0

 

49.7

 

181.3

 

147.0

 

Discounts

 

30.8

 

25.6

 

88.5

 

85.9

 

Intra-sector elimination

 

(0.0

)

—

 

(0.8

)

(0.6

)

Total Membership & Subscriptions

 

162.8

 

138.9

 

477.9

 

429.1

 

Emerging Businesses

 

9.6

 

1.7

 

19.6

 

1.9

 

Other

 

(8.3

)

(6.6

)

(28.6

)

(18.5

)

Total Revenue

 

$

1,483.3

 

$

957.3

 

$

4,046.8

 

$

2,953.1

 

Operating Income Before Amortization

 

 

 

 

 

 

 

 

 

Retailing:

 

 

 

 

 

 

 

 

 

U.S.

 

$

56.7

 

$

43.1

 

$

172.2

 

$

126.3

 

International

 

(2.8

)

(2.9

)

(0.2

)

(1.3

)

Total Retailing

 

54.0

 

40.2

 

172.0

 

125.0

 

Services:

 

 

 

 

 

 

 

 

 

Ticketing

 

49.9

 

32.4

 

159.6

 

126.0

 

Lending

 

30.6

 

7.7

 

66.7

 

18.6

 

Real Estate

 

(2.4

)

(1.2

)

(13.8

)

(3.4

)

Teleservices

 

4.4

 

5.9

 

11.0

 

13.3

 

Home Services

 

3.5

 

0.2

 

9.1

 

0.2

 

Total Services

 

86.0

 

45.1

 

232.6

 

154.7

 

Media & Advertising:

 

9.3

 

(2.4

)

10.2

 

(11.4

)

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

Vacations

 

26.6

 

22.5

 

85.5

 

70.1

 

Personals

 

16.6

 

4.5

 

32.5

 

20.4

 

Discounts

 

(7.1

)

(10.3

)

(31.7

)

(30.5

)

Total Membership & Subscriptions

 

36.1

 

16.7

 

86.2

 

60.0

 

Emerging Businesses

 

(2.4

)

0.0

 

(8.3

)

(1.8

)

Corporate Expense and other

 

(26.6

)

(22.8

)

(100.9

)

(70.8

)

Total Operating Income Before Amortization

 

$

156.3

 

$

76.9

 

$

391.9

 

$

255.8

 

Amortization of Non-Cash Items

 

 

 

 

 

 

 

 

 

Retailing:

 

 

 

 

 

 

 

 

 

U.S.

 

$

15.6

 

$

13.2

 

$

44.4

 

$

39.7

 

International

 

0.3

 

0.3

 

1.0

 

1.0

 

Total Retailing

 

16.0

 

13.6

 

45.3

 

40.7

 

Services:

 

 

 

 

 

 

 

 

 

Ticketing

 

7.1

 

7.2

 

21.4

 

19.6

 

Lending

 

5.3

 

5.1

 

20.1

 

15.3

 

Real Estate

 

3.0

 

1.6

 

10.1

 

4.8

 

Teleservices

 

—

 

—

 

—

 

—

 

Home Services

 

0.9

 

—

 

1.4

 

—

 

Total Services

 

16.3

 

14.0

 

53.0

 

39.8

 

Media & Advertising

 

10.1

 

9.8

 

10.2

 

33.6

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

Vacations

 

6.3

 

6.3

 

18.9

 

18.9

 

Personals

 

0.9

 

1.7

 

2.8

 

7.0

 

Discounts

 

1.6

 

1.9

 

4.8

 

6.1

 

Total Membership & Subscriptions

 

8.7

 

9.9

 

26.5

 

32.0

 

Emerging Businesses

 

0.0

 

0.2

 

0.2

 

0.5

 

Corporate Expense and other

 

83.8

 

12.7

 

112.3

 

45.2

 

Total amortization of non-cash items

 

$

135.0

 

$

60.1

 

$

247.7

 

$

191.7

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

14


IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP — continued
(unaudited; $ in millions; rounding differences may occur)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

Retailing

 

 

 

 

 

 

 

 

 

U.S.

 

$

41.1

 

$

29.9

 

$

127.8

 

$

86.6

 

International

 

(3.1

)

(3.3

)

(1.2

)

(2.3

)

Total Retailing

 

38.0

 

26.6

 

126.6

 

84.3

 

Services:

 

 

 

 

 

 

 

 

 

Ticketing

 

42.8

 

25.2

 

138.1

 

106.4

 

Lending

 

25.3

 

2.6

 

46.6

 

3.3

 

Real Estate

 

(5.4

)

(2.8

)

(23.9

)

(8.2

)

Teleservices

 

4.4

 

5.9

 

11.0

 

13.3

 

Home Services

 

2.6

 

0.2

 

7.8

 

0.2

 

Total Services

 

69.6

 

31.1

 

179.6

 

114.9

 

Media and Advertising

 

(0.9

)

(12.1

)

0.0

 

(45.0

)

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

Vacations

 

20.2

 

16.2

 

66.6

 

51.2

 

Personals

 

15.8

 

2.8

 

29.7

 

13.4

 

Discounts

 

(8.6

)

(12.1

)

(36.6

)

(36.6

)

Total Membership & Subscriptions:

 

27.4

 

6.8

 

59.7

 

28.0

 

Emerging Businesses

 

(2.4

)

(0.2

)

(8.5

)

(2.2

)

Corporate Expense and other

 

(110.4

)

(35.5

)

(213.3

)

(115.9

)

Total operating income

 

21.3

 

16.8

 

144.2

 

64.1

 

Total other income (expense), net

 

23.2

 

24.6

 

642.6

 

100.1

 

Earnings from cont. operations before income taxes and min. int.

 

44.5

 

41.4

 

786.7

 

164.2

 

Income tax expense

 

(7.6

)

(6.2

)

(311.7

)

(53.6

)

Minority interest

 

(0.5

)

(0.7

)

(2.0

)

(1.7

)

Earnings from continuing operations

 

36.4

 

34.5

 

473.1

 

108.9

 

Gain on sale of Euvia, net of tax

 

(0.0

)

—

 

79.6

 

—

 

Discontinued operations, net of tax

 

33.1

 

58.2

 

210.3

 

98.5

 

Earnings before preferred dividends

 

69.5

 

92.7

 

763.1

 

207.5

 

Preferred dividends

 

(1.4

)

(3.3

)

(7.9

)

(9.8

)

Net earnings available to common shareholders

 

$

68.1

 

$

89.5

 

$

755.1

 

$

197.7

 

Supplemental: Depreciation expense

 

 

 

 

 

 

 

 

 

Retailing

 

 

 

 

 

 

 

 

 

U.S.

 

$

10.0

 

$

10.4

 

$

30.5

 

$

30.8

 

International

 

1.2

 

2.6

 

5.5

 

7.7

 

Total Retailing

 

11.2

 

13.0

 

35.9

 

38.5

 

Services:

 

 

 

 

 

 

 

 

 

Ticketing

 

9.2

 

8.6

 

27.5

 

23.7

 

Lending

 

1.5

 

0.7

 

3.9

 

2.1

 

Real Estate

 

0.3

 

0.2

 

0.7

 

0.5

 

Teleservices

 

3.9

 

4.3

 

11.4

 

13.7

 

Home Services

 

0.3

 

0.0

 

0.7

 

0.0

 

Total Services

 

15.1

 

13.8

 

44.3

 

40.0

 

Media and Advertising

 

4.8

 

0.8

 

6.9

 

2.9

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

Vacations

 

1.8

 

2.1

 

5.3

 

6.5

 

Personals

 

1.6

 

3.4

 

6.4

 

10.0

 

Discounts

 

1.2

 

0.8

 

3.4

 

2.6

 

Total Membership & Subscriptions:

 

4.6

 

6.3

 

15.2

 

19.1

 

Emerging Businesses

 

0.1

 

0.0

 

0.3

 

0.0

 

Corporate Expense and other

 

1.9

 

1.5

 

5.6

 

4.2

 

Total depreciation expense

 

$

37.7

 

$

35.5

 

$

108.1

 

$

104.7

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

15


DEFINITIONS OF NON-GAAP MEASURES

Operating Income Before Amortization is defined as operating income excluding: (1) amortization of non-cash distribution, marketing and compensation expense, (2) amortization of intangibles and goodwill impairment, if applicable, (3) pro forma adjustments for significant acquisitions, if applicable, and (4) one-time items, if applicable.  We believe this measure is useful to investors because it represents the consolidated operating results from IAC’s segments, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the effects of any other non-cash expenses.  Operating Income Before Amortization has certain limitations in that it does not take into account the impact to IAC’s statement of operations of certain expenses, including non-cash compensation, non-cash payments to partners, and acquisition-related accounting.

Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net income available to common shareholders excluding, net of tax and minority interest, (1) amortization of non-cash distribution, marketing and compensation expense, (2) amortization of intangibles and goodwill impairment, if applicable, (3) pro forma adjustments for significant acquisitions, if applicable, (4) equity income or loss from IAC’s 5.44% interest in VUE and gain on the sale of IAC’s interest in VUE, (5) non-cash income or expense reflecting changes in fair value of the derivatives created in the Expedia spin-off as a result of both IAC and Expedia shares being issuable upon the conversion of the Ask Jeeves notes and the exercise of certain IAC warrants, (6) one-time items, if applicable and (7) discontinued operations.  We believe Adjusted Net Income is useful to investors because it represents IAC’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.

Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes.  We include dilution from options and warrants per the treasury stock method and include all shares relating to restricted stock/share units (“RSU”) in shares outstanding for Adjusted EPS.  This differs from the GAAP method for including RSUs, which treats them on a treasury method basis.  In addition, convertible instruments are assumed to be converted in determining shares outstanding for Adjusted EPS, if the effect is dilutive.  Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes.  We believe Adjusted EPS is useful to investors because it represents, on a per share basis, IAC’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.  Adjusted Net Income and Adjusted EPS have the same limitations as Operating Income Before Amortization, and in addition Adjusted Net Income and Adjusted EPS do not account for IAC’s passive former ownership in VUE.  Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

Free Cash Flow is defined as net cash provided by operating activities, including preferred dividends received from VUE, less capital expenditures and preferred dividends paid by IAC. In addition, Free Cash Flow includes tax distributions on the VUE common and preferred interests upon receipt of the distributions by IAC. For purposes of Free Cash Flow, we also include changes in warehouse loans payable in Lending due to the close connection that exists with changes in loans held by sale which are included in cash provided by operations. In addition, Free Cash Flow excludes the taxes paid on the gain on the sale of IAC’s interest in VUE due to the exclusion of the proceeds on the sale from cash provided by operating activities. We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account cash movements that are non-operational. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures.  For example, it does not take into account stock repurchases.  Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

We endeavor to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures, GAAP financial statements, and descriptions of the reconciling items and adjustments, to derive the non-GAAP measures.  For IAC’s Principles of Financial Reporting, a detailed explanation of why we believe these non-GAAP measures are useful to investors and management, please refer to IAC’s website at www.iac.com/investors.htm.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

16


OTHER INFORMATION

CONFERENCE CALL

IAC will audiocast its conference call with investors and analysts discussing the company’s Q3 financial results and certain forward-looking information on Tuesday, November 1, 2005, at 11:00 a.m. Eastern Time (ET).  The live audiocast is open to the public at www.iac.com/investors.htm.

 

ADDITIONAL INFORMATION AND WHERE TO FIND IT

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to IAC’s anticipated financial performance, business prospects, new developments, pending transactions and similar matters, and/or statements that use words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” “believes” and similar expressions.  These forward-looking statements are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in the forward-looking statements included in this press release for a variety of reasons, including, among others: changes in economic conditions generally or in any of the markets or industries in which IAC’s businesses operate, changes in senior management at IAC and/or its businesses, the rate of growth of the Internet, the e-commerce industry and broadband access, the rate of online migration in the various markets and industries in which IAC’s businesses operate, technological changes, regulatory changes, consumer acceptance of new products and services, the ability of IAC to expand successfully in international markets, and the successful integration of acquired businesses. Certain of these and other risks and uncertainties are discussed in IAC’s filings with the Securities and Exchange Commission (“SEC”).  Other unknown or unpredictable factors also could have a material adverse effect on IAC’s business, financial condition and results of operations. In light of these risks and uncertainties, the forward-looking statements discussed in this press release may not occur. Accordingly, readers should not place undue reliance on these forward-looking statements, which only reflect the views of IAC management as of the date of this press release. IAC does not undertake to update these forward-looking statements.

 

About IAC/InterActiveCorp

IAC operates leading and diversified businesses in sectors being transformed by the internet, online and offline... our mission is to harness the power of interactivity to make daily life easier and more productive for people all over the world. To view a full list of the companies of IAC please visit our website at http://iac.com

 

Contact Us

 

IAC Investor Relations
Roger Clark / Eoin Ryan
(212) 314-7400

 

IAC Corporate Communications

Deborah Roth / Andrea Riggs

(212) 314-7254 / 7280

 

IAC/InterActiveCorp
152 West 57th Street, 42nd Floor New York, NY 10019  212.314.7300 Fax 212.314.7309  http://iac.com

 

*    *    *

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

17