NEW YORK, Feb. 6 /PRNewswire-FirstCall/ -- IAC (Nasdaq: IACI) released
fourth quarter 2007 results today.
SUMMARY RESULTS
$ in millions (except per share amounts)
Q4 2007 Q4 2006 Growth FY 2007 FY 2006 Growth
Revenue $1,860.1 $1,720.1 8% $6,373.4 $5,908.9 8%
Operating Income
Before
Amortization 210.1 260.5 -19% 655.3 742.1 -12%
Adjusted Net
Income 139.4 206.3 -32% 442.5 522.1 -15%
Adjusted EPS 0.46 0.65 -29% 1.44 1.60 -9%
Operating (Loss)
Income (399.3) (10.9) NM (159.6) 240.8 NM
Net (Loss) Income (369.9) 15.3 NM (144.1) 187.1 NM
GAAP Diluted EPS (1.31) 0.05 NM (0.50) 0.59 NM
See reconciliation of GAAP to non-GAAP measures beginning on page 13.
Overall Highlights
-- "There is good news and bad news this quarter -- the mix of which is
another reason why our previously announced plans to reorganize IAC
into five independent public companies makes more and more sense," said
Barry Diller, IAC Chairman and CEO. "Bad news first: Lending continues
to be negatively affected by the mortgage crisis, our catalog business
had a difficult quarter, and our EPI discount products business
continues to underperform. On the good side, our revenue gains this
quarter include the very promising news of the continued turnaround at
HSN; record worldwide ticket volume at Ticketmaster; increased queries
from distributed toolbars, Fun Web Products and Ask; increased
transactions and membership at Interval, and higher revenue per
subscriber at Match. We have begun the year on a satisfactory basis and
believe the work we are doing now to prepare each of the entities for
separate public life will greatly benefit shareholders in 2008 and
beyond."
-- Q4 and full year 2007 operating loss and net loss reflect a goodwill
and intangible asset impairment charge of $475.7 million, $452.1
million after-tax, related to the Lending segment and $57.2 million,
$44.7 million after-tax, related to the Entertainment segment. Q4 2006
and full year 2006 included a goodwill and intangible asset impairment
charge of $214 million, $167.9 million after-tax, related to the
Entertainment segment.
-- Free Cash Flow in 2007 was $428 million, with $879 million in net cash
provided by operating activities.
-- IAC repurchased 6 million shares of common stock at $24.25 per share on
January 10, 2008.
Given the pending spin-off transactions, we thought it appropriate to
present Q4 results for the businesses which will comprise IAC, HSN,
Ticketmaster, LendingTree and Interval after the spin-offs:
Results As They Would Appear Post Spins*
Revenue
Q4 2007 Q4 2006 Growth
$ in millions
New IAC $459.8 $381.4 21%
Retailing (To be named HSN) 905.3 877.7 3%
Ticketmaster 354.7 279.1 27%
LendingTree 52.1 115.4 -55%
Interval 92.1 68.2 35%
Operating Income Before
Amortization Operating (Loss) Income
Q4 2007 Q4 2006 Growth Q4 2007 Q4 2006 Growth
$ in millions $ in millions
New IAC $50.6 $62.8 -19% $(59.2) $(184.1) 68%
Retailing
(To be named HSN) 85.3 92.1 -7% 79.1 85.1 -7%
Ticketmaster 71.0 65.7 8% 63.8 59.1 8%
LendingTree (28.3) 11.8 NM (508.1) 7.2 NM
Interval 31.5 28.2 12% 25.1 21.9 15%
* Following the spin-offs, the business comprising IAC will include
those reported under New IAC on page 2. Retailing (to be named HSN) will
consist of HSN and catalogs, but will exclude Shoebuy. Ticketmaster will
consist of Ticketmaster, but will exclude Reserve America. LendingTree will
include both the Lending and Real Estate businesses, while Interval will be
comprised solely of the businesses previously reported under that name. For
the purposes of this release, Shoebuy and Reserve America remain within
Retailing and Ticketmaster, respectively, and had an immaterial impact on
profits. Additionally, New IAC numbers above include all corporate and
spin-off transaction expenses.
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
NEW IAC
Q4 2007 Q4 2006 Growth
Revenue $ in millions
Media & Advertising $226.6 $159.8 42%
Match 90.6 79.4 14%
ServiceMagic 21.9 15.3 43%
Entertainment 109.8 121.3 -9%
Emerging Businesses 16.3 6.0 172%
Intercompany Elimination (5.5) (0.5) -971%
$459.8 $381.4 21%
Operating Income Before Amortization
Media & Advertising $31.2 $20.1 55%
Match 20.9 20.9 0%
ServiceMagic 2.0 2.5 -21%
Entertainment 36.8 48.1 -24%
Emerging Businesses (7.4) (3.3) -126%
Corporate (32.9) (25.6) -28%
$50.6 $62.8 -19%
Operating (Loss) Income
Media & Advertising $14.2 $13.9 2%
Match 16.2 20.7 -22%
ServiceMagic 1.5 1.6 -8%
Entertainment (20.9) (167.0) 87%
Emerging Businesses (9.3) (8.0) -17%
Corporate (60.8) (45.4) -34%
$(59.2) $(184.1) 68%
Media & Advertising
Media & Advertising results include IAC Search & Media, Citysearch and
Evite. IAC Search & Media consists of proprietary properties such as
Ask.com and Fun Web Products, and network properties which include
distributed search, sponsored listings, and toolbars. Both proprietary and
network revenue grew during the quarter.
Media & Advertising revenue growth was driven by an increase in queries
and revenue per query from distributed search and sponsored listings, Fun
Web Products and Ask. Within IAC Search & Media, network revenue growth
outpaced that of proprietary revenue, primarily due to a wider adoption of
sponsored listings products and toolbar distribution. Proprietary revenue
grew on the strength of both Fun Web Products and Ask.com, which continues
to see improved user retention and frequency.
Media & Advertising profit benefited from a reduction in the current
year expense of $4.6 million resulting from the capitalization and
amortization of costs related to the distribution of toolbars which began
on April 1, 2007. These costs had previously been expensed as incurred.
Media & Advertising operating income for the current period also
reflects an increase in amortization of non-cash marketing of $10.8
million.
Match
Revenue growth was driven by a 14% increase in revenue per subscriber.
International subscribers grew 11%, while worldwide subscribers grew 1%.
Flat Operating Income Before Amortization is primarily due to higher
marketing costs compared to the year ago period. Operating income for the
current period reflects amortization of non-cash marketing of $3.9 million
and an increase of $0.6 million in the amortization of intangibles.
ServiceMagic
ServiceMagic revenue benefited from a 20% increase in customer service
requests, improved monetization of service requests and a 9% increase in
the number of service providers in the network. Profit declines reflect
increased operating expenses primarily associated with the expansion of the
sales force and higher customer acquisition costs, including higher offline
marketing expenses versus the prior year period.
Entertainment
Revenue and Operating Income Before Amortization declines reflect lower
sales in the fundraising channel, particularly in Sally Foster products and
coupon books. Operating loss includes a $57.2 million impairment charge
related to goodwill and intangible assets, reflecting significant continued
deterioration in the core fundraising channels in which the company
operates. Q4 2006 operating loss includes a $214 million impairment charge
related to goodwill and intangible assets.
Corporate
Corporate expense for the period included $4.1 million in transaction
expenses related to the spin-offs and a $2.7 million increase in payroll
taxes paid related to the exercise of options during the quarter.
RETAILING (To be named HSN)
Q4 2007 Q4 2006 Growth
$ in millions
Revenue $905.3 $877.7 3%
Operating Income Before
Amortization 85.3 92.1 -7%
Operating Income 79.1 85.1 -7%
Revenue reflects increased contributions from HSN, catalogs and
Shoebuy. HSN grew revenue 8% excluding America's Store, which ceased
operations on April 3, 2007. Online sales continued to grow at a double
digit rate in the fourth quarter.
Retailing results reflect a slightly higher overall average price point
as a result of a product mix shift and higher units shipped. During the
quarter, HSN continued to improve sales efficiency across the majority of
its product categories. The number and average spend of frequent customers
grew, while the number of total active customers remained relatively flat.
Excluding America's Store, revenue at HSN reflects higher units shipped and
price point partially offset by an increase in return rate primarily due to
a shift in sales mix. Catalogs revenue growth reflects higher units shipped
on a flat average price point and decreased circulation at certain
catalogs.
Operating Income Before Amortization declines reflect lower gross
margins and higher operating expenses at catalogs, partially offset by
strong profit growth at HSN. Operating income for the current period
reflects amortization of non-cash marketing of $1.9 million and decreases
in amortization of intangibles and non-cash compensation of $1.5 million
and $1.2 million, respectively.
TICKETMASTER
Q4 2007 Q4 2006 Growth
$ in millions
Revenue $354.7 $279.1 27%
Operating Income Before
Amortization 71.0 65.7 8%
Operating Income 63.8 59.1 8%
Record worldwide ticket volumes drove a 17% increase in tickets sold,
with 8% higher average overall revenue per ticket. Domestic revenue
increased 14% primarily due to higher volume of concert ticket sales
including Bon Jovi, Celine Dion and Bruce Springsteen. International
revenue grew 54%, or 42% excluding the effects of foreign exchange, due
primarily to increased revenue in the United Kingdom and Canada. Profit
growth was adversely impacted by non-recurring items which benefited the
prior year period. In addition we experienced higher expenses associated
with product and technology initiatives, international development,
marketing efforts, including secondary market initiatives, and higher
overall royalty rates.
LENDINGTREE
Q4 2007 Q4 2006 Growth
Revenue $ in millions
Lending $42.8 $100.9 -58%
Real Estate 9.4 14.5 -35%
$52.1 $115.4 -55%
Operating Income Before
Amortization
Lending $(24.1) $17.2 NM
Real Estate (4.2) (5.4) 22%
$(28.3) $11.8 NM
Operating (Loss) Income
Lending $(502.7) $14.1 NM
Real Estate (5.4) (6.9) 22%
$(508.1) $7.2 NM
Lending
Revenue declined primarily due to fewer loans sold into the secondary
market, lower revenue per loan sold, and fewer loans closed at the
exchange. Revenue from all home loan products declined with home equity
declining the fastest. Profits were impacted by $11.2 million in
restructuring costs and an $8.3 million provision for loan losses in the
quarter, compared to $1.2 million in Q4 2006. The Q4 2007 loan loss
provision reflects the increased losses the company is experiencing with
respect to previously sold loans. Profits were also impacted by higher
costs per loan sold resulting from lower close rates and stricter
underwriting criteria, partially offset by lower marketing expenses.
Operating loss includes a $475.7 million impairment charge related to
goodwill and intangible assets. This charge reflects the Company's
reassessment of the likely future profitability of Lending in the face of
current mortgage market conditions and the operational strategies
undertaken in connection with such market realities.
Real Estate
Results reflect fewer closings at the builder and broker networks,
partially offset by increased closings at the company owned brokerage.
Losses decreased due to lower administrative costs resulting in part from
the restructuring of the business during the year and lower marketing
expenses.
INTERVAL
Q4 2007 Q4 2006 Growth
$ in millions
Revenue $92.1 $68.2 35%
Operating Income Before
Amortization 31.5 28.2 12%
Operating Income 25.1 21.9 15%
Revenue reflects a $17.5 million contribution from ResortQuest Hawaii,
acquired on May 31, 2007. Revenue and profit growth were driven by strong
transaction revenue, due to 4% growth in member transaction volume and
higher average fees, and a 6% increase in members reflecting strong new
member growth combined with a sustained retention rate. Profits grew at a
slower rate than revenue primarily due to the inclusion of ResortQuest
Hawaii.
Prior to Q4 2007, the Company's Interval segment improperly recorded
deferred revenue and certain related direct costs. Revenue, direct costs
and profits were overstated from Q3 2002 through Q3 2007. The error was due
primarily to the recognition of renewal revenue beginning in the month a
member renewed its membership rather than beginning with the actual start
date of the renewal period. The corrections summarized below had no impact
on cash flows for any period. In addition, this error had no effect on the
actual effective dates of any member's membership.
2007
Interval (in millions) Q1 Q2 Q3 Q4 Year
Revenue, as originally reported $89.0 $88.5 $98.5 $92.1 $368.1
Correction of error (2.6) (2.6) (2.5) - (7.6)
Revenue, as restated $86.4 $85.9 $96.0 $92.1 $360.4
Operating expenses, as originally
reported $54.3 $58.5 $70.2 $67.0 $250.0
Correction of error (0.4) (0.4) (0.4) - (1.3)
Operating expenses, as restated $53.9 $58.1 $69.7 $67.0 $248.7
Operating Income Before
Amortization, as originally
reported $41.0 $36.3 $36.2 $31.5 $145.0
Correction of error (2.1) (2.2) (2.1) - (6.4)
Operating Income Before
Amortization, as restated $38.9 $34.1 $34.2 $31.5 $138.7
Operating Income, as originally
reported $34.7 $30.0 $28.4 $25.1 $118.1
Correction of error (2.1) (2.2) (2.1) - (6.4)
Operating Income, as restated $32.6 $27.8 $26.3 $25.1 $111.7
2006
Interval (in millions) Q1 Q2 Q3 Q4 Year
Revenue, as originally reported $81.4 $74.1 $72.9 $70.8 $299.1
Correction of error (2.7) (2.7) (2.6) (2.6) (10.5)
Revenue, as restated $78.7 $71.4 $70.4 $68.2 $288.6
Operating expenses, as originally
reported $51.2 $51.5 $50.1 $46.8 $199.6
Correction of error (0.4) (0.4) (0.4) (0.4) (1.7)
Operating expenses, as restated $50.8 $51.1 $49.7 $46.4 $197.9
Operating Income Before
Amortization, as originally
reported $36.4 $28.9 $29.1 $30.3 $124.8
Correction of error (2.3) (2.3) (2.1) (2.2) (8.8)
Operating Income Before
Amortization, as restated $34.2 $26.6 $27.0 $28.2 $115.9
Operating Income, as originally
reported $30.1 $22.5 $22.8 $24.0 $99.6
Correction of error (2.3) (2.3) (2.1) (2.2) (8.8)
Operating Income, as restated $27.8 $20.3 $20.7 $21.9 $90.7
All prior year annual and quarterly results have been restated to
reflect the correction of this error. The cumulative effect of this error
was to overstate revenue, certain related direct costs, Operating Income
Before Amortization, operating income and net earnings available to common
shareholders by $62.6 million, $9.3 million, $53.3 million, $53.3 million
and $33.5 million, respectively, from Q3 2002 through Q3 2007.
OTHER ITEMS
Q4 other income (expense) benefited from a $16.4 million gain in Q4
2007 reflecting an increase in the fair value of the derivative asset
received by the Company in connection with the sale of HSE24. Additionally,
Q4 other income (expense) benefited from a $1.4 million gain in Q4 2007 as
compared to a $6.4 million loss in Q4 2006, 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.
Pre-tax loss includes a $16.7 million gain related to the Company's
2005 sale of its interests in VUE. This gain resulted from the resolution
of certain contingencies related to the sale.
In Q4 2007, IAC recorded a $30.1 million tax provision on a continuing
operations pre-tax loss of $357.2 million. This tax provision is due
principally to the impairment of goodwill that is substantially
non-deductible for income tax purposes and interest on tax reserves. In Q4
2007, the effective tax rate for adjusted net income was 36%, which is
higher than the federal statutory rate of 35% due to interest on tax
reserves, partially offset by foreign income taxed at lower rates. In Q4
2006, IAC recorded a tax benefit on continuing operations of $6.3 million.
This tax benefit is due principally to the net effect of an adjustment of
$19.6 million related to the release of deferred tax liabilities associated
with a foreign equity investment and the increase in the valuation
allowance for a deferred tax asset associated with state net operating
losses. In addition, there was a benefit associated with the Company's
decision to permanently reinvest the earnings of certain foreign
subsidiaries. These favorable items were partially offset by the impairment
of goodwill (which is only partially deductible for income tax purposes)
and interest on tax reserves. In Q4 2006, the effective tax rate for
adjusted net income was 23%, which is lower than the federal statutory rate
of 35% due to the items referred to in the fifth sentence of this paragraph
and the benefit associated with the Company's decision to permanently
reinvest the earnings of certain foreign subsidiaries, partially offset by
interest on tax reserves.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2007, IAC had approximately $1.9 billion in cash,
restricted cash and marketable securities, $946.4 million in debt and,
excluding $79.4 million in LendingTree Loans debt that is non-recourse to
IAC, $1.1 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 2/1/08 Dilution at:
Share Price $26.26 $30.00 $35.00 $40.00 $45.00
Absolute Shares as
of 2/1/08 277.8 277.8 277.8 277.8 277.8 277.8
RSUs and Other 10.3 10.3 10.2 10.1 10.0 9.9
Options 12.0 $29.08 1.3 1.6 1.9 2.1 2.3
Warrants 34.6 $27.88 4.7 5.5 7.9 10.4 13.1
Convertible Notes 0.5 $14.82 0.5 0.5 0.5 0.5 0.5
Total Treasury Method
Dilution 16.7 17.7 20.3 23.0 25.8
% Dilution 5.7% 6.0% 6.8% 7.6% 8.5%
Total Treasury Method
Diluted Shares
Outstanding 294.5 295.5 298.1 300.8 303.6
CONFERENCE CALL
IAC will audiocast its conference call with investors and analysts
discussing the Company's Q4 financial results on Wednesday, February 6,
2008, 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 http://www.iac.com/investors.htm.
OPERATING METRICS
Q4 2007 Q4 2006 Growth
MEDIA & ADVERTISING
IAC Search & Media Revenue by traffic
source
Proprietary 48.3% 55.5%
Network 51.7% 44.5%
MATCH
Paid Subscribers (000s) 1,286.5 1,275.9 1%
RETAILING (a)
Units shipped (mm) 17.1 16.5 3%
Gross profit % 36.6% 38.0%
Return rate 17.9% 17.2%
Average price point $59.16 $58.28 2%
Internet % (b) 35% 30%
HSN total homes - end of period (mm) 90.8 89.1 2%
Catalogs mailed (mm) 103.7 105.8 -2%
TICKETMASTER
Number of tickets sold (mm) 38.8 33.2 17%
Gross value of tickets sold (mm) $2,433 $1,874 30%
LENDINGTREE
Lending
Transmitted QFs (000s) (c) 535.3 901.4 -41%
Closings - units (000s) (d) 32.3 60.1 -46%
Closings - dollars ($mm) (d) $4,134 $7,600 -46%
Real Estate
Closings - units (000s) 1.9 2.9 -33%
Closings - dollars ($mm) $483 $729 -34%
INTERVAL
Members (000s) 1,961 1,850 6%
Confirmations (000s) (e) 212 204 4%
Share of confirmations online (e) 27% 24%
(a) Retailing includes HSN, catalogs and Shoebuy for all periods
presented.
(b) Internet demand as a percent of total Retailing 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.
(e) Excludes bookings for ResortQuest Hawaii from non-Interval members.
GAAP FINANCIAL STATEMENTS
IAC CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; $ in thousands except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
(Restated) (Restated)
Product sales $1,017,428 $998,960 $3,180,771 $3,127,958
Service revenue 842,719 721,176 3,192,639 2,780,944
Net revenue 1,860,147 1,720,136 6,373,410 5,908,902
Cost of sales-product
sales (exclusive of
depreciation shown
separately below) 612,483 583,752 1,934,976 1,860,245
Cost of sales-service
revenue (exclusive of
depreciation shown
separately below) 405,104 295,487 1,439,480 1,120,174
Gross profit 842,560 840,897 2,998,954 2,928,483
Selling and marketing
expense 362,737 341,248 1,343,542 1,265,840
General and
administrative expense 225,327 194,848 842,938 748,220
Other operating expense 33,126 29,767 106,329 114,188
Amortization of non-cash
marketing 16,590 4,500 54,112 37,125
Amortization of intangibles 55,732 56,214 147,417 182,732
Depreciation 40,565 36,106 156,416 150,503
Goodwill impairment 507,764 189,085 507,764 189,085
Operating (loss) income (399,281) (10,871) (159,564) 240,790
Other income (expense):
Interest income 13,977 16,945 67,516 70,381
Interest expense (15,008) (14,485) (61,069) (60,075)
Gain on sale of VUE
interests 16,669 - 16,669 -
Equity in income of
unconsolidated affiliates 9,089 8,730 28,653 34,324
Other income (expense) 17,366 (8,437) 35,717 (2,458)
Total other income, net 42,093 2,753 87,486 42,172
(Loss) earnings from
continuing operations
before income taxes and
minority interest (357,188) (8,118) (72,078) 282,962
Income tax (provision)
benefit (30,123) 6,324 (138,052) (119,245)
Minority interest in
losses (income) of
consolidated subsidiaries 1,415 (153) 4,561 548
(Loss) earnings from
continuing operations (385,896) (1,947) (205,569) 164,265
Gain on sale of
discontinued operations,
net of tax - 9,579 33,524 9,579
Income from discontinued
operations, net of tax 16,003 7,711 27,976 13,221
Net (loss) earnings
available to common
shareholders $(369,893) $15,343 $(144,069) $187,065
(Loss) earnings per share
from continuing operations:
Basic (loss) earnings
per share $(1.36) $(0.01) $(0.72) $0.54
Diluted (loss)
earnings per share $(1.36) $(0.01) $(0.72) $0.51
Net (loss) earnings per
share available to
common shareholders:
Basic (loss) earnings
per share $(1.31) $0.05 $(0.50) $0.61
Diluted (loss)
earnings per share $(1.31) $0.05 $(0.50) $0.59
IAC CONSOLIDATED BALANCE SHEETS
(unaudited; $ in thousands)
December 31, December 31,
2007 2006
ASSETS (Restated)
CURRENT ASSETS
Cash and cash equivalents $1,585,302 $1,428,140
Restricted cash and cash equivalents 23,701 27,855
Marketable securities 326,788 897,742
Accounts receivable, net 483,336 411,656
Loans held for sale, net 86,754 345,896
Inventories 331,970 325,976
Deferred income taxes 97,401 32,435
Prepaid and other current assets 352,177 488,557
Total current assets 3,287,429 3,958,257
Property, plant and equipment, net 651,474 594,536
Goodwill 6,473,014 6,849,976
Intangible assets, net 1,404,897 1,463,972
Long-term investments 450,318 168,791
Other non-current assets 257,388 161,256
TOTAL ASSETS $12,524,520 $13,196,788
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations and short-term
borrowings $111,857 $357,679
Accounts payable, trade 279,749 254,508
Accounts payable, client accounts 413,070 304,800
Deferred revenue 171,650 152,927
Income taxes payable 20,521 518,806
Accrued expenses and other current
liabilities 691,965 678,268
Total current liabilities 1,688,812 2,266,988
Long-term obligations, net of
current maturities 834,566 856,408
Income taxes payable 266,488 -
Other long-term liabilities 171,725 196,460
Deferred income taxes 938,786 1,112,577
Minority interest 40,481 24,881
SHAREHOLDERS' EQUITY
Preferred stock - -
Common stock 417 410
Class B convertible common stock 32 32
Additional paid-in capital 14,744,318 14,636,478
Retained earnings 567,820 291,192
Accumulated other comprehensive
income 39,814 76,505
Treasury stock (6,768,739) (6,260,145)
Note receivable from key executive
for common stock issuance - (4,998)
Total shareholders' equity 8,583,662 8,739,474
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $12,524,520 $13,196,788
IAC CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; $ in thousands)
Twelve Months Ended December 31,
2007 2006
(Restated)
Cash flows from operating
activities attributable to
continuing operations:
Net (loss) earnings available to
common shareholders $(144,069) $187,065
Less: income from discontinued
operations, net of tax (61,500) (22,800)
(Loss) earnings from continuing
operations (205,569) 164,265
Adjustments to reconcile (loss)
earnings from continuing
operations to net cash provided by
operating activities attributable
to continuing operations:
Depreciation and amortization of
intangibles 303,833 333,235
Goodwill impairment 507,764 189,085
Non-cash compensation expense 105,612 92,344
Amortization of cable distribution fees 4,866 29,565
Amortization of non-cash marketing 54,112 37,125
Deferred income taxes (65,059) 6,975
Gain on sales of loans held for sale (147,546) (221,400)
Gain on sale of VUE interests (16,669) -
Equity in income of unconsolidated
affiliates, net of dividends (21,317) (33,324)
Minority interest in losses of
consolidated subsidiaries (4,561) (548)
Increase in cable distribution fees - (16,876)
Changes in current assets and liabilities:
Accounts receivable (68,485) (61,058)
Origination of loans held for sale (5,822,599) (7,841,607)
Proceeds from sales of loans held
for sale 6,223,363 8,089,128
Inventories (14,754) (25,504)
Prepaid and other current assets (95,371) (14,952)
Accounts payable, income taxes
payable and other current
liabilities 3,481 23,239
Deferred revenue 28,357 30,992
Funds collected by Ticketmaster on
behalf of clients, net 72,114 2,593
Other, net 37,532 45,107
Net cash provided by operating
activities attributable to
continuing operations 879,104 828,384
Cash flows from investing
activities attributable to
continuing operations:
Acquisitions, net of cash acquired (191,882) (117,580)
Capital expenditures (231,944) (243,558)
Purchases of marketable securities (783,783) (934,769)
Proceeds from sales and maturities
of marketable securities 1,367,178 1,543,818
Proceeds from sales of long-term
investments 109,923 7,212
Increase in long-term investments (230,584) (20,666)
Proceeds from sale of VUE interests 15,669 -
Proceeds from sale of discontinued
operations 4,173 267,637
Other, net 14,065 (6,848)
Net cash provided by investing
activities attributable to
continuing operations 72,815 495,246
Cash flows from financing
activities attributable to
continuing operations:
Borrowings under warehouse lines of
credit 5,651,803 7,700,842
Repayments of warehouse lines of
credit (5,910,849) (7,724,663)
Principal payments on long-term
obligations (21,620) (12,266)
Purchase of treasury stock (542,946) (983,208)
Issuance of common stock, net of
withholding taxes (64,194) 93,780
Excess tax benefits from stock-based
awards 82,885 17,997
Collection of note receivable from
key executive for common stock
issuance 4,998 -
Other, net (641) 15,868
Net cash used in financing
activities attributable to
continuing activities (800,564) (891,650)
Total cash provided by continuing
operations 151,355 431,980
Net cash used in operating
activities attributable to
discontinued operations (15,809) (7,790)
Net cash used in investing
activities attributable to
discontinued operations (965) (14,160)
Net cash used in financing
activities attributable to
discontinued operations (695) (796)
Total cash used in discontinued
operations (17,469) (22,746)
Effect of exchange rate changes on
cash and cash equivalents 23,276 31,826
Net increase in cash and cash
equivalents 157,162 441,060
Cash and cash equivalents at
beginning of period 1,428,140 987,080
Cash and cash equivalents at end of
period $1,585,302 $1,428,140
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
IAC RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS
TO FREE CASH FLOW
(unaudited; $ in millions; rounding differences may occur)
Twelve Months Ended December 31,
2007 2006
Net cash provided by operating
activities attributable to
continuing operations $879.1 $828.4
Decrease in warehouse lines of credit (259.0) (23.8)
Capital expenditures (231.9) (243.6)
Tax (refunds) payments related to
the sale of VUE interests (22.4) 3.1
Tax payments related to the sale
of PRC 43.6 -
Tax payments related to the sale
of HSE24 18.7 -
Free Cash Flow $428.0 $564.2
For the twelve months ended December 31, 2007, consolidated Free Cash
Flow decreased by $136.2 million from the prior year period due principally
to higher cash taxes paid and lower net cash from changes in loans held for
sale and warehouse lines of credit, partially offset by an increased
contribution from Ticketmaster client cash and a reduction in capital
expenditures. The contribution from Ticketmaster client cash increased
$69.5 million over the prior year period. Free Cash Flow includes the
change in warehouse lines of credit because the change in loans held for
sale is already included in cash provided by operating activities. Free
Cash Flow excludes tax payments and refunds related to the sale of the
Company's interests in VUE, PRC and HSE24 because the proceeds from these
sales 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 Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
(Restated) (Restated)
Diluted (loss) earnings per
share $(1.31) $0.05 $(0.50) $0.59
GAAP diluted weighted average
shares outstanding 283,252 293,732 285,686 319,535
Net (loss) earnings available to
common shareholders $(369,893) $15,343 $(144,069) $187,065
Non-cash compensation expense 29,313 21,572 105,612 92,344
Amortization of non-cash
marketing 16,590 4,500 54,112 37,125
Amortization of intangibles 55,732 56,214 147,417 182,732
Goodwill impairment 507,764 189,085 507,764 189,085
Net other (income) expense
related to the fair value
adjustment of derivatives (1,430) 6,367 (5,813) 9,344
Other income related to fair
value adjustment of the
derivative created in the sale
of HSE24 (16,350) - (24,121) -
Gain on sale of VUE interests
and related effects (14,555) 6,270 (8,400) 14,861
Gain on sale of discontinued
operations, net of tax - (9,579) (33,524) (9,579)
Discontinued operations, net of
tax (16,003) (7,711) (27,976) (13,221)
Impact of income taxes and
minority interest (51,858) (75,898) (128,941) (168,656)
Interest on convertible notes,
net of tax 92 176 403 1,027
Adjusted Net Income $139,402 $206,339 $442,464 $522,127
Adjusted EPS weighted average
shares outstanding 299,833 315,331 306,252 327,280
Adjusted EPS $0.46 $0.65 $1.44 $1.60
GAAP Basic weighted average
shares outstanding 283,252 293,732 285,686 305,204
Options, warrants and restricted
stock, treasury method - - - 14,331
Conversion of convertible
preferred and convertible notes
(if applicable) - - - -
GAAP Diluted weighted average
shares outstanding 283,252 293,732 285,686 319,535
Options, warrants and RS,
treasury method not included in
diluted shares above 7,957 15,265 11,960 -
Impact of restricted shares and
convertible preferred and notes
(if applicable), net 8,624 6,334 8,606 7,745
Adjusted EPS shares outstanding 299,833 315,331 306,252 327,280
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. The weighted average number of RSUs outstanding for Adjusted
EPS purposes includes the weighted average number of performance-based RSUs
that the Company believes are probable of vesting. There are no
performance-based RSUs included for GAAP purposes.
New IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP
(unaudited; $ in millions; rounding differences may occur)
For the three months ended December 31, 2007
Amort- Amort-
Operating ization ization Good-
Income Non-cash of of will Operating
Before compensation non-cash in- im- income
Amortization expense(A) marketing tangibles pairment (loss)
New IAC
Media &
Advertising $31.2 $- $(10.8) $(6.2) $- $14.2
Match 20.9 - (3.9) (0.8) - 16.2
ServiceMagic 2.0 (0.2) - (0.4) - 1.5
Entertainment 36.8 - - (9.4) (48.3) (20.9)
Emerging
Businesses (7.4) (0.4) - (1.6) - (9.3)
Corporate and
other (32.9) (28.0) - - - (60.8)
Total New IAC 50.6 (28.5) (14.7) (18.3) (48.3) (59.2)
Retailing (To be
named HSN) 85.3 (0.1) (1.9) (4.2) - 79.1
Ticketmaster 71.0 (0.6) - (6.6) - 63.8
LendingTree
Lending (24.1) (0.1) - (19.1) (459.5) (502.7)
Real Estate (4.2) - - (1.1) - (5.4)
Total LendingTree (28.3) (0.1) - (20.2) (459.5) (508.1)
Interval 31.5 - - (6.4) - 25.1
Total $210.1 $(29.3) $(16.6) $(55.7) $(507.8) (399.3)
Other income, net 42.1
Loss from
continuing
operations before
income taxes
and minority
interest (357.2)
Income tax provision (30.1)
Minority interest
in losses of
consolidated
subsidiaries 1.4
Loss from continuing
operations (385.9)
Gain on sale of
discontinued
operations, net of tax -
Income from
discontinued
operations,
net of tax 16.0
Net loss available
to common
shareholders $(369.9)
(A) Non-cash compensation expense includes $2.2 million, $2.4 million,
$24.6 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
New IAC
Media & Advertising $7.9
Match 2.1
ServiceMagic 0.8
Entertainment 1.2
Emerging Businesses 0.5
Corporate and other 3.6
Total New IAC 16.1
Retailing (To be named HSN) 8.6
Ticketmaster 11.3
LendingTree
Lending 1.9
Real Estate 0.3
Total Lending Tree 2.2
Interval 2.3
Total Depreciation $40.6
New IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP
(unaudited; $ in millions; rounding differences may occur)
For the twelve months ended December 31, 2007
Amort- Amort-
Operating ization ization Good-
Income Non-cash of of will Operating
Before compensation non-cash in- im- income
Amortization expense(A) marketing tangibles pairment (loss)
New IAC
Media &
Advertising $87.7 $- $(33.6) $(24.7) $- $29.4
Match 78.4 - (11.1) (1.4) - 65.8
ServiceMagic 20.8 (0.6) - (2.6) - 17.6
Entertainment 8.9 - - (11.5) (48.3) (50.9)
Emerging
Businesses (12.2) (0.9) - (4.9) - (18.0)
Corporate and
other (98.5) (100.9) - - - (199.4)
Total New IAC 85.0 (102.4) (44.8) (45.0) (48.3) (155.5)
Retailing (To be
named HSN) 210.8 (0.9) (9.3) (14.8) - 185.7
Ticketmaster 263.6 (2.4) - (26.2) - 235.0
LendingTree
Lending (22.5) 0.1 - (27.7) (459.5) (509.5)
Real Estate (20.2) 0.1 - (6.8) - (26.9)
Total LendingTree (42.7) 0.2 - (34.5) (459.5) (536.4)
Interval 138.7 (0.1) - (26.9) - 111.7
Total $655.3 $(105.6) $(54.1) $(147.4) $(507.8) (159.6)
Other income, net 87.5
Loss from
continuing
operations before
income taxes
and minority
interest (72.1)
Income tax
provision (138.1)
Minority interest
in losses of
consolidated
subsidiaries 4.6
Loss from
continuing
operations (205.6)
Gain on sale of
discontinued
operations,
net of tax 33.5
Income from
discontinued
operations,
net of tax 28.0
Net loss
available to
common
shareholders $(144.1)
(A) Non-cash compensation expense includes $8.0 million, $8.7 million,
$88.7 million and $0.2 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
New IAC
Media & Advertising $30.8
Match 7.6
ServiceMagic 2.6
Entertainment 5.3
Emerging Businesses 1.9
Corporate and other 13.5
Total New IAC 61.5
Retailing (To be named HSN) 34.6
Ticketmaster 41.8
LendingTree
Lending 8.9
Real Estate 1.2
Total Lending Tree 10.1
Interval 8.4
Total Depreciation $156.4
New IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP
(unaudited; $ in millions; rounding differences may occur)
For the three months ended December 31, 2006
Amort- Amort-
Operating ization ization Good-
Income Non-cash of of will Operating
Before compensation non-cash in- im- income
Amortization expense(A) marketing tangibles pairment (loss)
New IAC
Media &
Advertising $20.1 $- $- $(6.2) $- $13.9
Match 20.9 - - (0.2) - 20.7
ServiceMagic 2.5 (0.2) - (0.8) - 1.6
Entertainment 48.1 - - (26.1) (189.1) (167.0)
Emerging
Businesses (3.3) (0.1) (4.5) (0.1) - (8.0)
Corporate and
other (25.6) (19.8) - - - (45.4)
Total New IAC 62.8 (20.0) (4.5) (33.3) (189.1) (184.1)
Retailing (To be
named HSN) 92.1 (1.3) - (5.7) - 85.1
Ticketmaster 65.7 - - (6.6) - 59.1
LendingTree
Lending 17.2 (0.1) - (2.9) - 14.1
Real Estate (5.4) (0.1) - (1.4) - (6.9)
Total LendingTree 11.8 (0.2) - (4.3) - 7.2
Interval 28.2 - - (6.3) - 21.9
Total $260.5 $(21.6) $(4.5) $(56.2) $(189.1) (10.9)
Other income, net 2.8
Loss from
continuing
operations
before income
taxes and
minority
interest (8.1)
Income tax
benefit 6.3
Minority interest
in income of
consolidated
subsidiaries (0.2)
Loss from
continuing
operations (1.9)
Gain on sale of
discontinued
operations,
net of tax 9.6
Income from
discontinued
operations,
net of tax 7.7
Net earnings
available to
common
shareholders $15.3
(A) Non-cash compensation expense includes $1.6 million, $1.7 million
and $18.3 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
New IAC
Media & Advertising $7.4
Match 1.7
ServiceMagic 0.5
Entertainment 1.4
Emerging Businesses 0.6
Corporate and other 2.2
Total New IAC 13.8
Retailing (To be
named HSN) 8.3
Ticketmaster 9.6
LendingTree
Lending 2.0
Real Estate 0.5
Total Lending Tree 2.5
Interval 1.9
Total Depreciation $36.1
New IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP
(unaudited; $ in millions; rounding differences may occur)
For the twelve months ended December 31, 2006
Amort- Amort-
Operating ization ization Good-
Income Non-cash of of will Operating
Before compensation non-cash in- im- income
Amortization expense(A) marketing tangibles pairment (loss)
New IAC
Media &
Advertising $58.3 $- $(29.6) $(34.6) $- $(6.0)
Match 63.4 - (3.0) (2.0) - 58.4
ServiceMagic 16.2 (0.6) - (3.1) - 12.4
Entertainment 13.9 - - (29.9) (189.1) (205.2)
Emerging
Businesses (15.9) (0.2) (4.5) (0.5) - (21.0)
Corporate and
other (85.4) (88.1) - - - (173.4)
Total New IAC 50.5 (88.9) (37.1) (70.2) (189.1) (334.8)
Retailing (To be
named HSN) 268.9 (4.8) - (36.2) - 228.0
Ticketmaster 264.4 - - (27.1) - 237.3
LendingTree
Lending 63.6 0.9 - (16.4) - 48.1
Real Estate (21.3) 0.4 - (7.6) - (28.5)
Total LendingTree 42.3 1.3 - (24.0) - 19.6
Interval 115.9 - - (25.2) - 90.7
Total $742.1 $(92.3) $(37.1) $(182.7) $(189.1) 240.8
Other income, net 42.2
Income from
continuing
operations
before income
taxes and
minority
interest 283.0
Income tax
provision (119.2)
Minority interest
in losses of
consolidated
subsidiaries 0.5
Income from
continuing
operations 164.3
Gain on sale of
discontinued
operations,
net of tax 9.6
Income from
discontinued
operations,
net of tax 13.2
Net earnings
available to
common
shareholders $187.1
(A) Non-cash compensation expense includes $7.0 million, $7.6 million,
$77.6 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
New IAC
Media & Advertising $27.7
Match 7.5
ServiceMagic 1.7
Entertainment 5.7
Emerging Businesses 2.0
Corporate and other 10.7
Total New IAC 55.4
Retailing (To be
named HSN) 37.4
Ticketmaster 38.2
LendingTree
Lending 9.3
Real Estate 2.4
Total Lending Tree 11.7
Interval 7.8
Total Depreciation $150.5
IAC'S PRINCIPLES OF FINANCIAL REPORTING
IAC reports Operating Income Before Amortization, Adjusted Net Income,
Adjusted EPS and Free Cash Flow, all of which are supplemental measures to
GAAP. These measures are among the primary metrics by which we evaluate the
performance of our businesses, on which our internal budgets are based and
by which management is compensated. We believe that investors should have
access to, and we are obligated to provide, the same set of tools that we
use in analyzing our results. These non-GAAP measures should be considered
in addition to results prepared in accordance with GAAP, but should not be
considered a substitute for or superior to GAAP results. IAC endeavors to
compensate for the limitations of the non-GAAP measures presented by
providing the comparable GAAP measures with equal or greater prominence and
descriptions of the reconciling items, including quantifying such items, to
derive the non- GAAP measures. We encourage investors to examine the
reconciling adjustments between the GAAP and non-GAAP measures contained in
this release and which we discuss below.
Definitions of Non-GAAP Measures
Operating Income Before Amortization is defined as operating income
excluding, if applicable: (1) non-cash compensation expense and
amortization of non-cash marketing, (2) amortization of intangibles and
goodwill impairment, (3) pro forma adjustments for significant
acquisitions, and (4) one-time items. 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 marketing, 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 effects and minority interest, if applicable: (1) non-cash compensation
expense and amortization of non-cash marketing, (2) amortization of
intangibles and goodwill impairment, (3) pro forma adjustments for
significant acquisitions, (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 the 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 Convertible Notes and the
exercise of certain IAC warrants, (6) income or expense reflecting changes
in the fair value of the derivative asset associated with the sale of
HSE24, (7) one-time items, and (8) 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 fully diluted
weighted average shares outstanding for Adjusted EPS purposes. We include
dilution from options and warrants per the treasury stock method and
include all restricted shares and restricted stock units ("RSUs") in shares
outstanding for Adjusted EPS, with performance-based RSUs included based on
the number of shares that the Company believes are probable of vesting.
This differs from the GAAP method for including RSUs, which treats them on
a treasury method basis and with respect to performance-based RSUs only to
the extent the performance criteria are met (assuming the end of the
reporting period is the end of the contingency period). 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 former passive 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,
less capital expenditures and preferred dividends paid by IAC. For purposes
of Free Cash Flow, we also include changes in warehouse lines of credit due
to the close connection that exists with changes in loans held for sale
which are included in cash provided by operating activities. In addition,
Free Cash Flow excludes tax payments and refunds related to the sale of
IAC's interests in VUE, PRC and HSE24 due to the exclusion of the proceeds
from these sales 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.
Pro Forma Results
We will only present Operating Income Before Amortization, Adjusted Net
Income and Adjusted EPS on a pro forma basis if we view a particular
transaction as significant in size or transformational in nature. For the
periods presented in this release, there are no transactions that we have
included on a pro forma basis.
One-Time Items
Operating Income Before Amortization and Adjusted Net Income are
presented before one-time items, if applicable. These items are truly
one-time in nature and non-recurring, infrequent or unusual, and have not
occurred in the past two years or are not expected to recur in the next two
years, in accordance with SEC rules. GAAP results include one-time items.
For the periods presented in this release, there are no adjustments for any
one-time items.
Non-Cash Expenses That Are Excluded From Our Non-GAAP Measures
Non-cash compensation expense consists principally of expense
associated with the grants, including unvested grants assumed in
acquisitions, of restricted stock, restricted stock units and stock
options. These expenses are not paid in cash, and we include the related
shares in our fully diluted shares outstanding which, for restricted stock
units and stock options, are included on a treasury method basis. We view
the true cost of our restricted stock units as the dilution to our share
base, and as such units are included in our shares outstanding for Adjusted
EPS purposes as described above under the definition of Adjusted EPS. Upon
vesting of restricted stock and restricted stock units and the exercise of
certain stock options, the awards are settled, at the Company's discretion,
on a net basis, with the Company remitting the required tax withholding
amount from its current funds.
Amortization of non-cash marketing consists of non-cash advertising
secured from Universal Television as part of the transaction pursuant to
which VUE was created, and the subsequent transaction by which IAC sold its
partnership interests in VUE (collectively referred to as "NBC Universal
Advertising"). The NBC Universal Advertising is available for television
advertising on various NBC Universal network and cable channels without any
cash cost.
The NBC Universal Advertising is excluded from Operating Income Before
Amortization and Adjusted Net Income because it is non-cash and generally
is incremental to the advertising the Company otherwise secures as a result
of its ordinary cost/benefit marketing planning process. Accordingly, the
Company's aggregate level of advertising, and the increased concentration
of that advertising on NBC Universal network and cable channels, does not
reflect what our advertising effort would otherwise be without these
credits, which will expire on September 30, 2008 if not exhausted before
then. As a result, management believes that treating the NBC Universal
Advertising as an expense does not appropriately reflect its true
cost/benefit relationship, nor does it best reflect the Company's long-term
level of advertising expenditures. Nonetheless, while the benefits directly
attributable to television advertising are always difficult to determine,
and especially so with respect to the NBC Universal Advertising due to its
incrementality and heavy concentration, it is likely that the Company does
derive benefits from it, though management believes such benefits are
generally less than those received through its regular advertising for the
reasons stated above. Operating Income Before Amortization and Adjusted Net
Income therefore have the limitation of including those benefits while
excluding the associated expense.
Amortization of intangibles is a non-cash expense relating primarily to
acquisitions. At the time of an acquisition, the intangible assets of the
acquired company, such as supplier contracts and customer relationships,
are valued and amortized over their estimated lives. While it is likely
that we will have significant intangible amortization expense as we
continue to acquire companies, we believe that since intangibles represent
costs incurred by the acquired company to build value prior to acquisition,
they were part of transaction costs.
Equity income or loss from IAC's 5.44% common interest in VUE was
excluded from Adjusted Net Income and Adjusted EPS because IAC had no
operating control over VUE, had no way to forecast this business, and did
not consider the results of VUE in evaluating the performance of IAC's
businesses. The gain from the sale in June 2005 of IAC's interests in VUE
and related effects are excluded from Adjusted Net Income and Adjusted EPS
for similar reasons.
Non-cash income or expense reflecting changes in the fair value of the
derivatives created in the Expedia spin-off is excluded from Adjusted Net
Income and Adjusted EPS because the obligations underlying these
derivatives, which relate to the Ask Convertible Notes and certain IAC
warrants, are expected to ultimately be settled in shares of IAC common
stock and Expedia common stock, and not in cash.
Income or expense reflecting changes in the fair value of the
derivative asset created in the sale of HSE24 is excluded from Adjusted Net
Income and Adjusted EPS because the variations in the value of the
derivative are non- operational in nature.
Free Cash Flow
We look at Free Cash Flow as a measure of the strength and performance
of our businesses, not for valuation purposes. In our view, applying
"multiples" to Free Cash Flow is inappropriate because it is subject to
timing, seasonality and one-time events. We manage our business for cash
and we think it is of utmost importance to maximize cash - but our primary
valuation metrics are Operating Income Before Amortization and Adjusted
EPS. In addition, because Free Cash Flow is subject to timing, seasonality
and one- time events, we believe it is not appropriate to annualize
quarterly Free Cash Flow results.
OTHER INFORMATION
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995
This press release and our conference call to be held at 11:00 a.m.
Eastern Time today may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The use of
words such as "anticipates," "estimates," "expects," "intends," "plans" and
"believes," among others, generally identify forward-looking statements.
These forward- looking statements include, among others, statements
relating to: IAC's future financial performance, IAC's business prospects
and strategy, including the pending spin-off transactions, anticipated
trends and prospects in the various industries in which IAC's businesses
operate and other similar matters. These forward-looking statements are
based on management's current expectations and assumptions about future
events, 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 these forward-looking statements 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, risks
relating to the contemplated spin-off transactions and related matters,
including, among others, increased demands on senior management at IAC and
it businesses, the rate of online migration in the various markets and
industries in which IAC's businesses operate, technological changes,
regulatory changes, changes in the interest rate environment or overall
credit markets, a continuing or accelerating slowdown in the domestic
housing market, increased credit losses relating to certain underperforming
loans sold into the secondary market, effectiveness of hedging activities,
changes affecting distribution channels, failure to comply with existing
laws, our ability to offer new or alternative products and services in a
cost effective manner and consumer acceptance of these products and
services, changes in product delivery costs, changes in the advertising
market and the ability of IAC to expand successfully in international
markets. 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 that could also adversely affect IAC's
business, financial condition and results of operations may arise from time
to time. In light of these risks and uncertainties, these forward-looking
statements may not prove to be accurate. Accordingly, you 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
IAC is an interactive conglomerate operating more than 60 diversified
brands 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 learn more
about IAC please visit http://iac.com
Contact Us
IAC Investor Relations
Eoin Ryan
(212) 314-7400
IAC Corporate Communications
Stacy Simpson / Leslie Cafferty
(212) 314-7280 / 7470
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SOURCE IAC
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Related links:
http://www.iac.com/
CONTACT:
IAC Investor Relations, Eoin Ryan,
+1-212-314-7400, or IAC Corporate Communications, Stacy Simpson,
+1-212-314-7280, or Leslie Cafferty, +1-212-314-7470
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