EX-99.1 2 a06-22996_1ex99d1.htm EX-99

Exhibit 99.1

Page 1 of 20

IAC REPORTS Q3 RESULTS

NEW YORK—October 31, 2006—IAC (Nasdaq: IACI) released third quarter 2006 results today, reporting over $1.6 billion in revenue, an 11% rate of growth over the prior year, and $172 million of Operating Income Before Amortization, reflecting a similar growth rate. Adjusted EPS was $0.35, compared to $0.32 in the year ago period.

Free cash flow generated during the first nine months of 2006 was $310 million. Net cash provided by operating activities was $516 million. Operating income grew significantly in the third quarter to $110 million reflecting, in part, a charge in the year ago period related to the treatment of vested stock options in connection with the Expedia spin-off.  GAAP Diluted EPS for the quarter was $0.24, compared to $0.20 in the prior year period.

IAC repurchased 7.3 million shares of common stock at an average price of $26.44 between July 28 and October 27, 2006. During 2006, IAC has repurchased 34 million shares at an average price of $26.75, and has 8.8 million shares remaining in its current stock repurchase authorization. IAC also announced today that its Board of Directors has authorized the Company to repurchase up to an additional 60 million shares of common stock.

Revenue for the quarter reflects a modest increase in Retailing U.S. with flat revenue from HSN. The Services sector continued to benefit from strength in Ticketing, but was negatively impacted by market conditions in Lending. Continued growth at Ask.com contributed to strong revenue performance in the Media & Advertising sector. Overall, revenue in the quarter reflects increased year-over-year contributions from every sector within IAC.

Commenting on the third quarter results, Barry Diller, Chairman and CEO of IAC said: “We are unabashedly building an interactive conglomerate. We have three interrelated strategies: one, the growth of each of our businesses; two, Ask.com as the connecting thread; and three, all our cross company efforts which allow us to leverage our audience, scale and diversified expertise.”

SUMMARY RESULTS

$ in millions (except per share amounts)

 

 

Q3 2006

 

Q3 2005

 

Growth

 

Revenue

 

$

1,603.0

 

$

1,444.4

 

11.0

%

 

 

 

 

 

 

 

 

Operating Income Before Amortization

 

$

171.8

 

$

154.2

 

11.4

%

Adjusted Net Income

 

$

111.2

 

$

113.3

 

-1.8

%

Adjusted EPS

 

$

0.35

 

$

0.32

 

10.8

%

 

 

 

 

 

 

 

 

Operating Income

 

$

109.5

 

$

19.2

 

469.1

%

Net Income

 

$

74.9

 

$

68.1

 

10.1

%

GAAP Diluted EPS

 

$

0.24

 

$

0.20

 

24.2

%

 

See reconciliation of GAAP to non-GAAP measures beginning on page 13.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 2 of 20

SECTOR RESULTS

Sector results for the quarter were as follows ($ in millions):

 

 

Q3 2006

 

Q3 2005

 

Growth

 

REVENUE

 

 

 

 

 

 

 

Retailing

 

$

768.7

 

$

749.5

 

3

%

Services

 

511.9

 

452.9

 

13

%

Media & Advertising

 

135.5

 

83.5

 

62

%

Membership & Subscriptions

 

185.1

 

162.8

 

14

%

Emerging Businesses

 

6.9

 

4.1

 

70

%

Other

 

(5.2

)

(8.3

)

37

%

Total

 

$

1,603.0

 

$

1,444.4

 

11

%

 

 

 

 

 

 

 

 

OPERATING INCOME BEFORE AMORTIZATION

 

 

 

 

 

 

 

Retailing

 

$

56.8

 

$

54.0

 

5

%

Services

 

80.9

 

86.0

 

-6

%

Media & Advertising

 

15.9

 

9.3

 

71

%

Membership & Subscriptions

 

44.5

 

36.1

 

23

%

Emerging Businesses

 

(7.1

)

(4.6

)

-54

%

Corporate and other

 

(19.1

)

(26.5

)

28

%

Total

 

$

171.8

 

$

154.2

 

11

%

 

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

Retailing

 

$

49.8

 

$

38.0

 

31

%

Services

 

68.0

 

69.6

 

-2

%

Media & Advertising

 

(2.1

)

(0.9

)

-148

%

Membership & Subscriptions

 

36.6

 

27.4

 

34

%

Emerging Businesses

 

(7.2

)

(4.6

)

-57

%

Corporate and other

 

(35.5

)

(110.3

)

68

%

Total

 

$

109.5

 

$

19.2

 

469

%

 

Please see discussion of financial and operating results beginning on page 3 (including discussion of corporate and other expense on page 7) and reconciliations to the comparable GAAP measures and further segment detail beginning on page 13.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 3 of 20

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

RETAILING

 

 

Q3 2006

 

Q3 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

U.S.

 

$

686.2

 

$

664.3

 

3

%

International

 

82.5

 

85.2

 

-3

%

 

 

$

768.7

 

$

749.5

 

3

%

Operating Income Before Amortization

 

 

 

 

 

 

 

U.S.

 

$

57.3

 

$

56.7

 

1

%

International

 

(0.6

)

(2.8

)

79

%

 

 

$

56.8

 

$

54.0

 

5

%

Operating Income (Loss)

 

 

 

 

 

 

 

U.S.

 

$

50.3

 

$

41.1

 

23

%

International

 

(0.6

)

(3.1

)

81

%

 

 

$

49.8

 

$

38.0

 

31

%

 

Retailing delivered higher total revenue in the quarter, reflecting the results of Shoebuy, which was acquired in February, growth at catalogs, and flat revenue from HSN. Shoebuy successfully integrated its products into HSN.com during the quarter.

Retailing U.S.

Results benefited from a mid-single digit growth in units shipped offset by a slightly lower average price point and a higher average return rate. The change in average price is in part the result of a product mix shift toward jewelry and accessories at HSN. Additionally, these products typically carry a higher average return rate than the products sold in the year ago period which, when coupled with higher return rates within several product categories, led to a higher overall return rate. Catalog revenue growth was driven primarily from increased circulation.

U.S. Operating Income Before Amortization grew slower than revenue due to higher on-air distribution costs at HSN and higher catalog circulation costs, offset by improved overall gross margins, primarily due to the shift in product mix described above. Operating income also benefited from a decrease in the amortization of intangibles of $9.7 million.

Retailing International

International revenue declined due to lower revenue across most product categories, higher return rates and reduced on-air distribution. Excluding the effects of foreign exchange, International revenue declined 7%. Losses declined due in part to lower on-air distribution costs. The previously reported order processing delays incurred at a new fulfillment center improved and contributed a non-recurring benefit to performance in the quarter.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 4 of 20

SERVICES

 

 

Q3 2006

 

Q3 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Ticketing

 

$

265.5

 

$

227.5

 

17

%

Lending

 

106.0

 

109.4

 

-3

%

Real Estate

 

15.9

 

16.3

 

-3

%

Teleservices

 

106.1

 

87.4

 

21

%

Home Services

 

18.5

 

12.2

 

51

%

 

 

$

511.9

 

$

452.9

 

13

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Ticketing

 

$

57.0

 

$

49.9

 

14

%

Lending

 

18.8

 

30.6

 

-38

%

Real Estate

 

(6.3

)

(2.4

)

-161

%

Teleservices

 

5.3

 

4.4

 

21

%

Home Services

 

6.0

 

3.5

 

71

%

 

 

$

80.9

 

$

86.0

 

-6

%

Operating Income (Loss)

 

 

 

 

 

 

 

Ticketing

 

$

50.5

 

$

42.8

 

18

%

Lending

 

15.2

 

25.3

 

-40

%

Real Estate

 

(8.0

)

(5.4

)

-48

%

Teleservices

 

5.3

 

4.4

 

21

%

Home Services

 

5.1

 

2.6

 

96

%

 

 

$

68.0

 

$

69.6

 

-2

%

 

Services revenue benefited from continued worldwide strength at Ticketing, while profit declines reflect a challenging market in Lending.

Ticketing

Strong domestic and international volume continued, driving a 7% increase in worldwide ticket sales and 10% higher average revenue per ticket. Contributing to the worldwide performance, domestic revenue increased 14% resulting from higher average revenue per ticket and higher ticket volumes, particularly for concert events. International revenue grew by 25%, or 19% excluding the effects of foreign exchange, due primarily to increased revenue from the United Kingdom and Canada. Profit growth was negatively impacted by an increase in ticket royalties and higher administrative and technology costs, partially offset by sales distribution efficiencies.

Lending

Lending revenue declined due to lower refinance revenue as a result of fewer loans sold into the secondary market and fewer closed units at the exchange. The difficult mortgage market environment continued, leading to a decline in close rates across all home loan products, especially in refinance. Revenue from purchase and home equity loans grew in the double digits, with purchase revenue growing faster, primarily due to strong growth in purchase loans at LendingTree Loans. The impact of lower close rates was partially offset by higher transmit revenue, due to higher average fees and growth in home loan Qualification Forms. Profits declined at a greater rate than revenue due to higher marketing expenses as a percent of revenue. However, marketing expenses declined as compared to the second quarter, improving sequential profit margins.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 5 of 20

SERVICES — continued

Real Estate

Revenue declined slightly due principally to fewer closings at the broker and builder networks. However, Real Estate revenue benefited from closings in the new brokerage business, which was not in the prior year results. Losses increased due primarily to costs associated with website development and the launch of this new brokerage business.

Home Services

Home Services reflects the results of ServiceMagic, which benefited from increased customer service requests and a greater number of service providers in the network.

MEDIA & ADVERTISING

 

 

Q3 2006

 

Q3 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

$

135.5

 

$

83.5

 

62

%

Operating Income Before Amortization

 

$

15.9

 

$

9.3

 

71

%

Operating Loss

 

$

(2.1

)

$

(0.9

)

-148

%

 

Media & Advertising results include IAC Search & Media, Citysearch and Evite. IAC Search & Media consists of proprietary properties such as Ask.com, Ask.com UK and Fun Web Products, and network properties which include syndicated advertising, search results, and toolbars. Both proprietary and network revenue grew during the quarter.

IAC Search & Media increased revenue by 34% over the comparable prior year period primarily due to an increase in queries and higher revenue per query across most properties. During the quarter, Ask.com reached the anniversary of the August 2005 demonetization of the site which reduced the number of sponsored links at the top of the page and had the initial effect of lowering revenue. Network revenue growth outpaced proprietary revenue growth primarily due to an increase in syndicated search results. Proprietary revenue grew on the strength of Ask.com in the US and Fun Web Products, offset by weakness at Ask.com in the UK. Additionally, Citysearch delivered yet another strong quarter of revenue growth.

IAC Search & Media Operating Income Before Amortization grew significantly on a comparable basis to the prior year due to revenue growth, partially offset by higher revenue share payments to third-party traffic sources and higher marketing expenses.

IAC Search & Media operating loss for the current period also reflects amortization of non-cash marketing of $14.6 million, partially offset by a decrease in the amortization of intangibles of $6.8 million.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 6 of 20

MEMBERSHIP & SUBSCRIPTIONS

 

 

Q3 2006

 

Q3 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Vacations

 

$

72.9

 

$

66.1

 

10

%

Personals

 

80.2

 

66.0

 

22

%

Discounts

 

32.0

 

30.8

 

4

%

Intra-sector Elimination

 

(0.1

)

 

NM

 

 

 

$

185.1

 

$

162.8

 

14

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Vacations

 

$

29.1

 

$

26.6

 

10

%

Personals

 

19.3

 

16.6

 

16

%

Discounts

 

(3.9

)

(7.1

)

45

%

 

 

$

44.5

 

$

36.1

 

23

%

Operating Income (Loss)

 

 

 

 

 

 

 

Vacations

 

$

22.8

 

$

20.2

 

13

%

Personals

 

19.0

 

15.8

 

20

%

Discounts

 

(5.2

)

(8.6

)

40

%

 

 

$

36.6

 

$

27.4

 

34

%

 

Membership & Subscriptions results benefited from worldwide growth in subscribers and an increase in the average revenue per paid subscriber Personals, as well as increased membership and confirmations at Vacations.

Vacations revenue and profit growth was driven by a 5% increase in members and 6% growth in confirmations. During the quarter, Vacations experienced 23% growth in confirmations on line.

Personals revenue growth was driven by a 12% increase in worldwide paid subscribers and an increase in the average revenue per paid subscriber due in part to a greater percentage of subscribers at higher package prices versus the prior year. International paid subscribers grew by 13% due to continued expansion in several markets, most notably in the United Kingdom and Scandinavia. Profit margins declined slightly reflecting increased marketing in international markets.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 7 of 20

OTHER ITEMS

Q3 Operating Income Before Amortization improved due to a decrease in corporate and other expense to $19.1 million. The prior year period included expenses and intercompany eliminations related to the Expedia spin-off totaling $5.2 million.

Q3 operating income was positively impacted by lower non-cash compensation expense primarily due to a $67 million charge related to the treatment of vested stock options in connection with the Expedia spin-off in Q3 2005.  This decrease was partially offset by an increase in non-cash compensation expense related to the acquisition of IAC Search & Media and to equity grants and modifications during and subsequent to Q3 2005.

Q3 other income comparisons were negatively impacted by a $2.7 million loss in Q3 2006 compared with a gain of $9.4 million in Q3 2005 reflecting changes in the fair value of the derivatives that were created in the Expedia spin-off. The derivatives relate to IAC’s obligation to deliver both IAC and Expedia shares upon the conversion of the Ask Convertible Notes and the exercise of certain IAC warrants.

Q3 net income growth was negatively impacted by the decreased contribution of discontinued operations. Discontinued operations in Q3 2005 include Expedia through August 8, 2005.

The effective tax rates for continuing operations and adjusted net income were 44% and 41% in Q3 2006, respectively. These effective tax rates were higher than the statutory rate of 35% due principally to state and foreign taxes. In addition, continuing operations was unfavorably impacted by interest on tax contingencies, partially offset by net adjustments related to the reconciliation of provision accruals to tax returns. The effective tax rates for continuing operations and adjusted net income were 16% and 32% in Q3 2005, respectively. These effective tax rates were lower than the statutory rate of 35% due principally to the recognition of a capital loss, 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.  In addition, continuing operations was favorably impacted by the non-taxable gain associated with changes in the fair value of the derivatives created in the Expedia spin-off, offset by the unfavorable impact of non-deductible non-cash compensation expense.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 8 of 20

LIQUIDITY AND CAPITAL RESOURCES

During Q3, IAC repurchased 12.4 million shares at an average price of $25.79. IAC today announced that its Board of Directors has authorized it to repurchase up to 60 million shares of its outstanding common stock, which is in addition to the 8.8 million remaining under the prior authorization. IAC may purchase shares over an indefinite period of time, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price, and future outlook.

As of September 30, 2006, IAC had approximately $1.9 billion in cash, restricted cash and marketable securities, $1.2 billion in debt and, excluding $323.5 million in LendingTree Loans debt that is non-recourse to IAC, $1.0 billion in pro forma net cash and marketable securities.

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). 

 

 

 

 

Avg.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strike /

 

As of

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Conversion

 

10/27/06

 

Dilution at:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Price

 

 

 

 

 

$

30.10

 

$

35.00

 

$

40.00

 

$

45.00

 

$

50.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Shares as of 10/27/06 (a)

 

293.4

 

 

 

293.4

 

293.4

 

293.4

 

293.4

 

293.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs and Other

 

8.7

 

 

 

8.7

 

8.6

 

8.5

 

8.4

 

8.4

 

Options

 

25.9

 

$

20.80

 

6.5

 

7.2

 

7.7

 

8.1

 

8.4

 

Warrants

 

34.6

 

$

27.88

 

5.5

 

7.9

 

10.4

 

13.1

 

15.2

 

Convertible Notes

 

0.8

 

$

14.82

 

0.8

 

0.8

 

0.8

 

0.8

 

0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Treasury Method Dilution

 

 

 

 

 

21.5

 

24.3

 

27.3

 

30.4

 

32.8

 

% Dilution

 

 

 

 

 

6.8

%

7.7

%

8.5

%

9.4

%

10.1

%

Total Treasury Method Diluted Shares Outstanding

 

 

 

 

 

314.9

 

317.8

 

320.7

 

323.8

 

326.2

 


(a) Includes 0.5 million shares issued in connection with the conversion of $14.5 million convertible notes in October 2006.

CONFERENCE CALL

IAC will audiocast its conference call with investors and analysts discussing the company’s Q3 financial results on Tuesday, October 31, 2006, at 11:00 a.m. Eastern Time (ET). This call will include the disclosure of certain information, including forward-looking information, which may be material to an investor’s understanding of IAC’s business.  The live audiocast is open to the public at www.iac.com/investors.htm.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 9 of 20

OPERATING METRICS

 

 

 

 

Q3 2006

 

Q3 2005

 

Growth

 

RETAILING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retailing—U.S.

 

(a)

 

 

 

 

 

 

 

Units shipped (mm)

 

 

 

12.9

 

12.4

 

4

%

Gross profit %

 

 

 

38.5

%

37.6

%

 

 

Return rate

 

 

 

17.9

%

16.7

%

 

 

Average price point

 

 

 

$

58.06

 

$

58.89

 

-1

%

Internet %

 

(b)

 

26

%

23

%

 

 

HSN total homes—end of period (mm)

 

 

 

88.6

 

88.9

 

0

%

Catalogs mailed (mm)

 

 

 

98.1

 

92.3

 

6

%

 

 

 

 

 

 

 

 

 

 

SERVICES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

 

 

 

 

 

 

 

 

Number of tickets sold (mm)

 

 

 

30.9

 

28.9

 

7

%

Gross value of tickets sold (mm)

 

 

 

$

1,609

 

$

1,432

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lending

 

 

 

 

 

 

 

 

 

Transmitted QFs (000s)

 

(c)

 

1,020.6

 

879.4

 

16

%

Closings—units (000s)

 

(d)

 

68.7

 

75.8

 

-9

%

Closings—dollars ($mm)

 

(d)

 

$

8,031

 

$

9,934

 

-19

%

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

Closings—units (000s)

 

 

 

3.4

 

4.0

 

-16

%

Closings—dollars ($mm)

 

 

 

$

868

 

$

1,068

 

-19

%

 

 

 

 

 

 

 

 

 

 

MEDIA & ADVERTISING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAC Search & Media Revenue by traffic source (pro forma)

 

 

 

 

 

 

 

 

 

Proprietary

 

 

 

59.3

%

65.7

%

 

 

Network

 

 

 

40.7

%

34.3

%

 

 

 

 

 

 

 

 

 

 

 

 

MEMBERSHIP & SUBSCRIPTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

 

 

 

 

 

 

 

 

Members (000s)

 

 

 

1,843

 

1,764

 

5

%

Confirmations (000s)

 

 

 

213

 

202

 

6

%

Share of confirmations online

 

 

 

25

%

22

%

 

 

 

 

 

 

 

 

 

 

 

 

Personals

 

 

 

 

 

 

 

 

 

Paid Subscribers (000s)

 

 

 

1,319.7

 

1,178.9

 

12

%


(a)             Retailing—U.S. metrics include HSN and the catalogs business.

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

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

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

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 10 of 20

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,

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

806,611

 

$

783,961

 

$

2,402,527

 

$

2,203,023

 

Service revenue

 

796,360

 

660,473

 

2,360,117

 

1,745,620

 

Net revenue

 

1,602,971

 

1,444,434

 

4,762,644

 

3,948,643

 

Cost of sales-product sales

 

489,726

 

482,518

 

1,462,430

 

1,352,377

 

Cost of sales-service revenue

 

363,851

 

303,583

 

1,069,208

 

836,965

 

Gross profit

 

749,394

 

658,333

 

2,231,006

 

1,759,301

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

304,668

 

270,823

 

960,716

 

703,152

 

General and administrative expense

 

209,851

 

247,052

 

608,263

 

591,193

 

Other operating expense

 

37,840

 

33,336

 

108,186

 

83,138

 

Amortization of non-cash marketing

 

14,629

 

 

32,625

 

 

Amortization of intangibles

 

29,554

 

50,177

 

127,255

 

133,933

 

Depreciation

 

43,306

 

37,696

 

129,692

 

108,034

 

Operating income

 

109,546

 

19,249

 

264,269

 

139,851

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

16,578

 

29,365

 

55,032

 

121,377

 

Interest expense

 

(14,731

)

(20,439

)

(45,738

)

(58,106

)

Gain on sale of VUE interests

 

 

 

 

523,487

 

Equity in income of unconsolidated affiliates

 

8,322

 

6,225

 

25,594

 

39,580

 

Other income

 

3,541

 

8,034

 

7,479

 

16,126

 

Total other income, net

 

13,710

 

23,185

 

42,367

 

642,464

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes and minority interest

 

123,256

 

42,434

 

306,636

 

782,315

 

Income tax provision

 

(54,180

)

(6,802

)

(131,356

)

(309,882

)

Minority interest in income of consolidated subsidiaries

 

30

 

(526

)

701

 

(1,951

)

Earnings from continuing operations

 

69,106

 

35,106

 

175,981

 

470,482

 

Gain on sale of EUVIA, net of tax

 

 

 

 

79,648

 

Income (loss) from discontinued operations, net of tax

 

5,839

 

34,383

 

(45

)

212,953

 

Earnings before preferred dividends

 

74,945

 

69,489

 

175,936

 

763,083

 

Preferred dividends

 

 

(1,412

)

 

(7,938

)

Net earnings available to common shareholders

 

$

74,945

 

$

68,077

 

$

175,936

 

$

755,145

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.23

 

$

0.10

 

$

0.57

 

$

1.39

 

Diluted earnings per share

 

$

0.22

 

$

0.10

 

$

0.54

 

$

1.30

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.25

 

$

0.21

 

$

0.57

 

$

2.27

 

Diluted earnings per share

 

$

0.24

 

$

0.20

 

$

0.54

 

$

2.12

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 11 of 20

IAC CONSOLIDATED BALANCE SHEET

($ in thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

1,068,857

 

$

987,080

 

Restricted cash and cash equivalents

 

27,938

 

93,561

 

Marketable securities

 

805,335

 

1,488,058

 

Accounts and notes receivable, net

 

546,252

 

485,268

 

Loans held for sale, net

 

332,235

 

372,512

 

Inventories, net

 

425,943

 

337,186

 

Deferred income taxes

 

76,119

 

66,691

 

Other current assets

 

181,056

 

163,172

 

Total current assets

 

3,463,735

 

3,993,528

 

 

 

 

 

 

 

Property, plant and equipment, net

 

610,399

 

566,990

 

Goodwill

 

7,259,002

 

7,351,700

 

Intangible assets, net

 

1,515,022

 

1,558,188

 

Long-term investments

 

146,314

 

122,313

 

Other non-current assets

 

176,124

 

325,046

 

TOTAL ASSETS

 

$

13,170,596

 

$

13,917,765

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

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

 

$

344,332

 

$

375,276

 

Accounts payable, trade

 

280,976

 

326,766

 

Accounts payable, client accounts

 

384,544

 

269,344

 

Deferred revenue

 

148,769

 

123,267

 

Income taxes payable

 

433,583

 

516,940

 

Other accrued liabilities

 

549,849

 

621,404

 

Total current liabilities

 

2,142,053

 

2,232,997

 

 

 

 

 

 

 

Long-term obligations, net of current maturities

 

871,574

 

959,410

 

Other long-term liabilities

 

160,999

 

223,486

 

Deferred income taxes

 

1,231,964

 

1,265,530

 

Minority interest

 

28,715

 

5,514

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock

 

 

 

Common stock

 

408

 

399

 

Class B convertible common stock

 

32

 

32

 

Additional paid-in capital

 

14,554,011

 

14,341,668

 

Retained earnings

 

304,012

 

128,076

 

Accumulated other comprehensive income

 

51,470

 

26,073

 

Treasury stock

 

(6,169,644

)

(5,260,422

)

Note receivable from key executive for common stock issuance

 

(4,998

)

(4,998

)

Total shareholders’ equity

 

8,735,291

 

9,230,828

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

13,170,596

 

$

13,917,765

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 12 of 20

IAC CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; $ in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2006

 

2005

 

Cash flows from operating activities attributable to continuing operations:

 

 

 

 

 

Earnings before preferred dividends

 

$

175,936

 

$

763,083

 

Less: loss (income) from discontinued operations, net of tax

 

45

 

(292,601

)

Earnings from continuing operations

 

175,981

 

470,482

 

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:

 

 

 

 

 

Depreciation and amortization of intangibles

 

256,947

 

241,967

 

Non-cash compensation expense

 

70,772

 

113,778

 

Amortization of cable distribution fees

 

23,191

 

51,183

 

Amortization of non-cash marketing

 

32,625

 

 

Deferred income taxes

 

64,229

 

(1,054,605

)

Excess tax benefits from stock-based awards

 

 

27,422

 

Gain on sales of loans held for sale

 

(170,174

)

(128,288

)

Gain on sale of VUE interests

 

 

(523,487

)

Equity in income of unconsolidated affiliates, net of dividends

 

(25,594

)

(39,580

)

Non-cash interest income

 

 

(29,511

)

Minority interest in income of consolidated subsidiaries

 

(701

)

1,951

 

Increase in cable distribution fees

 

(16,875

)

(20,067

)

Changes in current assets and liabilities:

 

 

 

 

 

Accounts and notes receivable

 

(11,514

)

(4,727

)

Origination of loans held for sale

 

(5,956,766

)

(5,282,836

)

Proceeds from sales of loans held for sale

 

6,166,840

 

5,200,748

 

Inventories

 

(89,206

)

(92,944

)

Prepaids and other assets

 

(14,792

)

(11,039

)

Accounts payable, income taxes payable and accrued liabilities

 

(116,365

)

519,540

 

Deferred revenue

 

25,410

 

32,308

 

Funds collected by Ticketing on behalf of clients, net

 

64,947

 

78,666

 

Other, net

 

37,016

 

(6,368

)

Net cash provided by (used in) operating activities attributable to continuing operations

 

515,971

 

(455,407

)

Cash flows from investing activities attributable to continuing operations:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(80,148

)

(682,809

)

Capital expenditures

 

(178,635

)

(175,262

)

Purchases of marketable securities

 

(529,643

)

(1,943,180

)

Proceeds from sales and maturities of marketable securities

 

1,220,121

 

2,324,303

 

Decrease (increase) in long-term investments

 

4,117

 

(28,707

)

Proceeds from sale of VUE interests

 

 

1,882,291

 

Proceeds from sale of Euvia

 

 

183,016

 

Other, net

 

2,257

 

31,334

 

Net cash provided by investing activities attributable to continuing operations

 

438,069

 

1,590,986

 

Cash flows from financing activities attributable to continuing operations:

 

 

 

 

 

Borrowings

 

814

 

80,000

 

Borrowings under warehouse lines of credit

 

5,853,469

 

5,190,541

 

Repayments of warehouse lines of credit

 

(5,892,278

)

(4,984,897

)

Principal payments on long-term obligations

 

(12,859

)

(38,344

)

Purchase of treasury stock

 

(927,059

)

(1,488,427

)

Issuance of common stock, net of withholding taxes

 

49,785

 

47,362

 

Redemption of preferred stock

 

 

(655,727

)

Preferred dividends

 

 

(7,938

)

Excess tax benefits from stock-based awards

 

14,144

 

 

Other, net

 

22,035

 

(42,062

)

Net cash used in financing activities attributable to continuing activities

 

(891,949

)

(1,899,492

)

Total cash provided by (used in) continuing operations

 

62,091

 

(763,913

)

Net cash (used in) provided by operating activities attributable to discontinued operations

 

(3,537

)

753,445

 

Net cash used in investing activities attributable to discontinued operations

 

(104

)

(19,062

)

Net cash used in financing activities attributable to discontinued operations

 

 

(38,717

)

Total cash (used in) provided by discontinued operations

 

(3,641

)

695,666

 

Effect of exchange rate changes on cash and cash equivalents

 

23,327

 

(22,053

)

Net increase (decrease) in cash and cash equivalents

 

81,777

 

(90,300

)

Cash and cash equivalents at beginning of period

 

987,080

 

999,698

 

Cash and cash equivalents at end of period

 

$

1,068,857

 

$

909,398

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 13 of 20

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES 

IAC RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS TO FREE CASH FLOW

(unaudited; $ in millions)

 

 

 

Nine Months Ended September 30,

 

 

 

2006

 

2005

 

Net cash provided by operating activities attributable to continuing operations

 

$

516.0

 

$

(455.4

)

(Decrease) increase in warehouse loans payable

 

(38.8

)

205.6

 

Capital expenditures

 

(178.6

)

(175.3

)

Tax payments related to the sale of VUE interests

 

11.1

 

652.8

 

Preferred dividends paid

 

 

(7.9

)

Free Cash Flow (a)

 

$

309.6

 

$

219.8

 


(a) In accordance with the Company’s adoption of SFAS 123R, excess tax benefits from stock-based awards, $14.1 million in the first nine months of 2006, are included in net cash used in financing activities and therefore not included in Free Cash Flow. Accordingly, amounts presented for operating cash flows and free cash flows for 2006 will be adversely affected in comparison to prior results; however, there is no change in economic substance resulting from this change in reporting classification. Excess tax benefits from stock-based awards in the first nine months of 2005 of $27.4 million were included in net cash provided by operating activities and Free Cash Flow.

For the nine months ended September 30, 2006, consolidated Free Cash Flow increased by $90 million from the prior year period due primarily to higher operating income and non-cash expenses. Offsetting the increase is lower interest income and a smaller contribution from Ticketing client cash. Ticketing client cash contributed $64.9 million in the current period, versus $78.7 million in the prior year period. Free Cash Flow includes the change in warehouse loans payable because the change in loans held for sale is already included in cash provided by operating activities. Free Cash Flow excludes tax payments related to the sale of the Company’s interests in VUE because the proceeds on the sale were not included in cash provided by operating activities.

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,

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.24

 

$

0.20

 

$

0.54

 

$

2.12

 

GAAP diluted weighted average shares outstanding

 

309,214

 

347,788

 

324,747

 

360,906

 

Net earnings available to common shareholders

 

$

74,945

 

$

68,077

 

$

175,936

 

$

755,145

 

Non-cash compensation expense

 

18,092

 

84,775

 

70,772

 

113,778

 

Amortization of non-cash marketing

 

14,629

 

 

32,625

 

 

Amortization of intangibles

 

29,554

 

50,177

 

127,255

 

133,933

 

Equity in income of VUE

 

 

 

 

(21,960

)

Net other (income) expense related to fair value adjustment on derivatives

 

2,741

 

(9,400

)

2,977

 

(9,400

)

Gain on sale of VUE interests and related effects

 

3,886

 

 

8,591

 

(523,487

)

Gain on sale of EUVIA, net of tax

 

 

 

 

(79,648

)

Discontinued operations, net of tax

 

(5,839

)

(34,383

)

45

 

(212,953

)

Impact of income taxes and minority interest

 

(27,032

)

(46,356

)

(93,467

)

133,769

 

Interest on convertible notes, net of tax

 

241

 

412

 

851

 

412

 

Adjusted Net Income

 

$

111,217

 

$

113,302

 

$

325,585

 

$

289,589

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS weighted average shares outstanding

 

316,067

 

356,618

 

331,304

 

358,138

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

 

$

0.35

 

$

0.32

 

$

0.98

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

296,091

 

326,421

 

309,070

 

332,426

 

Options, warrants and restricted stock, treasury method

 

11,823

 

21,367

 

14,019

 

19,464

 

Conversion of convertible preferred and convertible notes (if applicable)

 

1,300

 

 

1,658

 

9,016

 

GAAP Diluted weighted average shares outstanding

 

309,214

 

347,788

 

324,747

 

360,906

 

Impact of restricted shares and convertible preferred and notes (if applicable), net

 

6,853

 

8,830

 

6,557

 

(2,768

)

Adjusted EPS shares outstanding

 

316,067

 

356,618

 

331,304

 

358,138

 

 

For Adjusted EPS purposes, the impact of RSUs on shares outstanding is based on the weighted average number of RSUs outstanding as compared with shares outstanding for GAAP purposes, which includes RSUs on a treasury method basis.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 14 of 20

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the three months ended September 30, 2006

 

 

 

Operating
Income
Before
Amortization

 

Non-cash
compensation
expense (A)

 

Amortization of
non-cash
marketing

 

Amortization of
intangibles

 

Operating
income (loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

57.3

 

$

(1.3

)

$

 

$

(5.7

)

$

50.3

 

International

 

(0.6

)

 

 

 

(0.6

)

Total Retailing

 

56.8

 

(1.3

)

 

(5.7

)

49.8

 

Services:

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

57.0

 

 

 

(6.6

)

50.5

 

Lending

 

18.8

 

(0.1

)

 

(3.5

)

15.2

 

Real Estate

 

(6.3

)

(0.1

)

 

(1.7

)

(8.0

)

Teleservices

 

5.3

 

 

 

 

5.3

 

Home Services

 

6.0

 

(0.2

)

 

(0.8

)

5.1

 

Total Services

 

80.9

 

(0.4

)

 

(12.5

)

68.0

 

Media & Advertising

 

15.9

 

 

(14.6

)

(3.4

)

(2.1

)

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

29.1

 

 

 

(6.3

)

22.8

 

Personals

 

19.3

 

 

 

(0.3

)

19.0

 

Discounts

 

(3.9

)

 

 

(1.3

)

(5.2

)

Total Membership & Subscriptions

 

44.5

 

 

 

(7.8

)

36.6

 

Emerging Businesses

 

(7.1

)

 

 

(0.1

)

(7.2

)

Corporate and other

 

(19.1

)

(16.4

)

 

 

(35.5

)

Total

 

$

171.8

 

$

(18.1

)

$

(14.6

)

$

(29.6

)

$

109.5

 

Other income, net

 

 

 

 

 

 

 

 

 

13.7

 

Earnings from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

123.3

 

Income tax provision

 

 

 

 

 

 

 

 

 

(54.2

)

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

69.1

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

5.8

 

Earnings before preferred dividends

 

 

 

 

 

 

 

 

 

74.9

 

Preferred dividends

 

 

 

 

 

 

 

 

 

 

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

$

74.9

 

 

 

 

 

 

 

 

 

 

 

 

 


(A) Non-cash compensation expense includes $1.3 million, $1.4 million and $15.4 million which are included in cost of sales, selling and marketing expense and general and administrative expense, respectively, in the accompanying consolidated statement of operations.

 

Supplemental: Depreciation

 

Retailing:

 

 

 

US

 

$

8.9

 

International

 

1.4

 

Total Retailing

 

10.2

 

Services:

 

 

 

Ticketing

 

9.5

 

Lending

 

2.3

 

Real Estate

 

0.7

 

Teleservices

 

3.8

 

Home Services

 

0.5

 

Total Services

 

16.8

 

Media & Advertising

 

6.9

 

Membership & Subscriptions:

 

 

 

Vacations

 

1.9

 

Personals

 

2.3

 

Discounts

 

1.5

 

Total Membership & Subscriptions

 

5.8

 

Emerging Businesses

 

0.6

 

Corporate and other

 

3.0

 

Total Depreciation

 

$

43.3

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT




Page 15 of 20

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the nine months ended September 30, 2006

 

 

 

Operating
Income
Before
Amortization

 

Non-cash
compensation
expense (A)

 

Amortization
of non-cash
marketing

 

Amortization of
intangibles

 

Operating
income (loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

176.8

 

$

(3.5

)

$

 

$

(30.5

)

$

142.9

 

International

 

(0.5

)

 

 

(0.7

)

(1.2

)

Total Retailing

 

176.3

 

(3.5

)

 

(31.2

)

141.6

 

Services:

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

198.8

 

 

 

(20.5

)

178.3

 

Lending

 

46.5

 

1.0

 

 

(13.5

)

34.0

 

Real Estate

 

(15.9

)

0.5

 

 

(6.2

)

(21.6

)

Teleservices

 

15.8

 

 

 

 

15.8

 

Home Services

 

13.6

 

(0.5

)

 

(2.4

)

10.8

 

Total Services

 

258.8

 

1.1

 

 

(42.6

)

217.3

 

Media & Advertising

 

38.2

 

 

(29.6

)

(28.5

)

(19.9

)

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

94.4

 

 

 

(18.9

)

75.5

 

Personals

 

42.5

 

 

(3.0

)

(1.9

)

37.6

 

Discounts

 

(34.3

)

 

 

(3.9

)

(38.1

)

Total Membership & Subscriptions

 

102.7

 

 

(3.0

)

(24.6

)

75.0

 

Emerging Businesses

 

(19.6

)

(0.1

)

 

(0.4

)

(20.1

)

Corporate and other

 

(61.4

)

(68.3

)

 

 

(129.7

)

Total

 

$

494.9

 

$

(70.8

)

$

(32.6

)

$

(127.3

)

$

264.3

 

Other income, net

 

 

 

 

 

 

 

 

 

42.4

 

Earnings from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

306.6

 

Income tax provision

 

 

 

 

 

 

 

 

 

(131.4

)

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

0.7

 

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

176.0

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

Earnings before preferred dividends

 

 

 

 

 

 

 

 

 

176.0

 

Preferred dividends

 

 

 

 

 

 

 

 

 

 

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

$

175.9

 


(A) Non-cash compensation expense includes $5.4 million, $5.9 million, $59.4 million and $0.1 million which are included in cost of sales, selling and marketing expense, general and administrative expense and other operating expense, respectively, in the accompanying consolidated statement of operations.

 

Supplemental: Depreciation

 

 

 

Retailing:

 

 

 

US

 

$

29.0

 

International

 

3.8

 

Total Retailing

 

32.8

 

Services:

 

 

 

Ticketing

 

28.6

 

Lending

 

7.3

 

Real Estate

 

1.9

 

Teleservices

 

11.3

 

Home Services

 

1.2

 

Total Services

 

50.4

 

Media & Advertising

 

20.3

 

Membership & Subscriptions:

 

 

 

Vacations