EX-99.1 2 a07-3605_1ex99d1.htm EX-99.1

Exhibit 99.1

IAC REPORTS Q4 RESULTS

NEW YORK— February 6, 2007—IAC (Nasdaq: IACI) released fourth quarter 2006 results today, reporting $1.8 billion in revenue, an 8% rate of growth over the prior year, and $268 million in Operating Income Before Amortization, reflecting slight growth. Adjusted EPS was $0.67, compared to $0.50 in the year ago period.

For the full year, IAC reported $6.3 billion in revenue and double digit Operating Income Before Amortization growth. Free cash flow generated during the twelve months of 2006 was $542 million, with $814 million in net cash provided by operating activities. Operating (loss) income for the fourth quarter and the full year 2006 was $(4) million and $253 million, respectively, reflecting an intangible asset and goodwill impairment charge of $214 million in the fourth quarter related to the Discounts segment. GAAP Diluted EPS for the quarter and full year was $0.05 and $0.60, respectively, compared to $0.33 and $2.46 in the prior year periods. Both Adjusted EPS and GAAP Diluted EPS reflect the benefit of lower tax rates as more fully described on page 7.

IAC repurchased 10 million shares of common stock at an average price of $37.87 between October 28, 2006 and February 2, 2007. During 2006, IAC repurchased 36.4 million shares of common stock for approximately $1.0 billion in aggregate, reducing absolute shares outstanding at January 1, 2006 by 11%. Currently IAC has 58.8 million shares remaining in its stock repurchase authorization.

Commenting on the results, IAC Chairman and CEO Barry Diller said,  “As we mature, as a conglomerate of interrelated businesses, some start up, some making their way and some already established with leading positions, we will more and more accentuate the two key areas we believe most keenly demonstrate our value - free cash flow generation and earnings per share (adjusted).  Our 2006 figures demonstrate our ability to drive those metrics that matter most to value creation.  While everything metric counts, you will find these leading indicators will become first among equals in our future reporting and commentary.”

 

 

SUMMARY RESULTS
$ in millions (except per share amounts)

 

 

 

Q4 2006

 

Q4 2005

 

Growth

 

FY 2006

 

FY 2005

 

Growth

 

Revenue

 

$

1,823.9

 

$

1,691.3

 

7.8

%

$

6,277.6

 

$

5,416.5

 

15.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income Before Amortization

 

$

267.6

 

$

266.8

 

0.3

%

$

755.3

 

$

665.0

 

13.6

%

Adjusted Net Income

 

$

211.6

 

$

174.3

 

21.4

%

$

533.0

 

$

470.3

 

13.3

%

Adjusted EPS

 

$

0.67

 

$

0.50

 

34.5

%

$

1.63

 

$

1.32

 

23.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (Loss) Income

 

$

(3.8

)

$

190.5

 

NM

 

$

253.4

 

$

341.0

 

-25.7

%

Net Income

 

$

16.7

 

$

113.1

 

-85.2

%

$

192.6

 

$

868.2

 

-77.8

%

GAAP Diluted EPS

 

$

0.05

 

$

0.33

 

-83.7

%

$

0.60

 

$

2.46

 

-75.5

%

 

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

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT



 

 

 

Revenue in the quarter reflects increased year-over-year contributions from every sector within IAC. Retailing U.S. revenue increased modestly during the quarter, including slight revenue growth at HSN. The Services sector continued to benefit from strength in Ticketing, while revenue at Lending was flat during a declining mortgage market. In addition, continued growth in queries and revenue per query at Ask.com and across most other search related properties contributed to strong revenue performance in the Media & Advertising sector. Operating Income Before Amortization grew slightly on higher profits at Ticketing, Personals and Vacations, largely offset by lower profits at Retailing.

SECTOR RESULTS

Sector results for the quarter were as follows ($ in millions; rounding differences may occur):

 

 

Q4 2006

 

Q4 2005

 

Growth

 

REVENUE

 

 

 

 

 

 

 

Retailing

 

$

978.9

 

$

940.9

 

4

%

Services

 

409.8

 

379.6

 

8

%

Media & Advertising

 

159.8

 

109.5

 

46

%

Membership & Subscriptions

 

270.8

 

261.8

 

3

%

Emerging Businesses

 

6.0

 

0.7

 

737

%

Other

 

(1.5

)

(1.2

)

-26

%

Total

 

$

1,823.9

 

$

1,691.3

 

8

%

 

 

 

 

 

 

 

 

OPERATING INCOME BEFORE AMORTIZATION

 

 

 

 

 

 

 

Retailing

 

$

97.0

 

$

110.3

 

-12

%

Services

 

80.0

 

72.2

 

11

%

Media & Advertising

 

20.1

 

20.3

 

-1

%

Membership & Subscriptions

 

99.4

 

89.9

 

10

%

Emerging Businesses

 

(3.3

)

(3.2

)

-1

%

Corporate and other

 

(25.6

)

(22.7

)

-13

%

Total

 

$

267.6

 

$

266.8

 

0

%

 

 

 

 

 

 

 

 

OPERATING (LOSS) INCOME

 

 

 

 

 

 

 

Retailing

 

$

90.0

 

$

94.5

 

-5

%

Services

 

67.9

 

56.0

 

21

%

Media & Advertising

 

13.9

 

7.7

 

81

%

Membership & Subscriptions

 

(122.3

)

81.1

 

NM

 

Emerging Businesses

 

(8.0

)

(3.4

)

-132

%

Corporate and other

 

(45.4

)

(45.4

)

0

%

Total

 

$

(3.8

)

$

190.5

 

NM

 

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

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

2



 

 

 

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

RETAILING

 

 

Q4 2006

 

Q4 2005

 

Growth

 

Revenue

 

$ in millions

 

U.S.

 

$

877.7

 

$

841.6

 

4

%

International

 

101.2

 

99.3

 

2

%

 

 

$

978.9

 

$

940.9

 

4

%

Operating Income Before Amortization

 

 

 

 

 

 

 

U.S.

 

$

92.1

 

$

104.3

 

-12

%

International

 

5.0

 

6.0

 

-17

%

 

 

$

97.0

 

$

110.3

 

-12

%

Operating Income

 

 

 

 

 

 

 

U.S.

 

$

85.1

 

$

88.9

 

-4

%

International

 

5.0

 

5.6

 

-12

%

 

 

$

90.0

 

$

94.5

 

-5

%

 

Retailing revenue growth reflects the results of Shoebuy, acquired in February 2006, and slight growth at HSN and catalogs. Retailing revenue continued to benefit from strong online growth in the fourth quarter, particularly from catalogs.

Retailing U.S.

Revenue benefited from a mid-single digit increase in units shipped, slightly offset by a lower average price point and a higher average return rate. The average price point decline was primarily due to a product mix shift at HSN from electronics coupled with lower price points in the health and apparel product categories. The higher return rate was due primarily to increased sales of jewelry and accessories at HSN, categories which typically carry a higher return rate. Catalog revenue grew primarily due to a higher average price point and lower return rates.

U.S. Operating Income Before Amortization declined due to higher inventory reserves versus the prior-year period, increased costs associated with management transition and higher on-air distribution costs. Operating income benefited from a decrease in the amortization of intangibles of $9.7 million.

Retailing International

International revenue increased by 2%, but declined 6% excluding the impact of foreign exchange. Results were driven primarily by decreased revenue across most product categories and higher return rates. Profits continued to be adversely impacted by higher operating expenses, partially offset by lower on-air distribution costs.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

3



 

 

 

SERVICES

 

 

Q4 2006

 

Q4 2005

 

Growth

 

Revenue

 

$ in millions

 

Ticketing

 

$

279.1

 

$

253.5

 

10

%

Lending

 

100.9

 

101.0

 

0

%

Real Estate

 

14.5

 

14.6

 

-1

%

Home Services

 

15.3

 

10.5

 

46

%

 

 

$

409.8

 

$

379.6

 

8

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Ticketing

 

$

65.7

 

$

59.1

 

11

%

Lending

 

17.2

 

13.9

 

23

%

Real Estate

 

(5.4

)

(2.9

)

-88

%

Home Services

 

2.5

 

2.1

 

21

%

 

 

$

80.0

 

$

72.2

 

11

%

Operating Income (Loss)

 

 

 

 

 

 

 

Ticketing

 

$

59.1

 

$

51.8

 

14

%

Lending

 

14.1

 

8.7

 

63

%

Real Estate

 

(6.9

)

(5.6

)

-22

%

Home Services

 

1.6

 

1.2

 

39

%

 

 

$

67.9

 

$

56.0

 

21

%

 

Services revenue benefited from continued worldwide strength at Ticketing, while revenue at Lending was flat. Teleservices results are now included in discontinued operations for all periods presented following the sale of PRC during the fourth quarter of 2006.

Ticketing

Record worldwide ticket volumes drove a 4% increase in tickets sold, with a 7% higher average overall revenue per ticket. Domestic revenue increased 8% resulting primarily from higher average revenue per ticket on stronger concert sales. International revenue grew 15%, or 8% excluding the effects of foreign exchange, due primarily to increased revenue in the United Kingdom and Canada. International acquisitions in Germany (November 2005) and Spain (July 2006) contributed approximately $2 million to Ticketing’s overall revenue in the quarter. Profits grew in-line with revenues as higher royalty rates were offset by non-recurring items and increased operating efficiencies.

Lending

Lending revenue was flat with higher revenue per loan sold and higher transmit revenue resulting from higher transmit fees and growth in transmitted QFs, offset by fewer loans closed at the exchange and fewer loans sold into the secondary market. Close rates were lower during the quarter across all product categories. Revenue from purchase loans grew in the double digits, primarily due to strong growth at LendingTree Loans, while revenue from refinance mortgages grew in the low single digits and revenue from home equity loans decreased at a double digit rate. Profits grew, reflecting flat marketing expenses and lower overall operating expenses.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

4



Real Estate

Revenue declined slightly as fewer leads led to fewer closings at the broker and builder networks, partially offset by revenue from closings in the company owned brokerage business, which was not in the prior year results. Losses increased due primarily to increased costs associated with the geographical expansion of the brokerage business, now operating in eight markets, and higher costs related to the development and re-launch of the RealEstate.com website.

Home Services

Home Services reflects the results of ServiceMagic, which benefited from a 44% increase in customer service requests and a 22% increase in the number of service providers in the network.  Average revenue per service request increased slightly versus the year ago period on lower cost per service request, but revenue grew faster than profits due to a planned sales force expansion.

MEDIA & ADVERTISING

 

 

Q4 2006

 

Q4 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

$

159.8

 

$

109.5

 

46

%

Operating Income Before Amortization

 

$

20.1

 

$

20.3

 

-1

%

Operating Income

 

$

13.9

 

$

7.7

 

81

%

 

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.

Media & Advertising revenue growth was driven by an increase in queries and higher revenue per query across most properties. Within IAC Search & Media, network revenue growth outpaced that of proprietary revenue, primarily due to an increase in syndicated sponsored listings. Proprietary revenue grew on the strength of Ask.com in the U.S. and Fun Web Products, offset by weakness at portal properties and Ask.com UK. Additionally, Citysearch delivered yet another strong quarter of revenue growth.

Media & Advertising Operating Income Before Amortization declined slightly due to a large proportion of the strong revenue growth coming from high revenue-sharing relationships, and increased marketing, primarily at Ask.com and Fun Web Products.

Media & Advertising operating income for the current period also reflects a decrease in the amortization of intangibles of $6.4 million.

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

5



MEMBERSHIP & SUBSCRIPTIONS

 

 

Q4 2006

 

Q4 2005

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Vacations

 

$

70.8

 

$

63.9

 

11

%

Personals

 

79.4

 

68.2

 

17

%

Discounts

 

121.3

 

130.5

 

-7

%

Intra-sector Elimination

 

(0.7

)

(0.7

)

-5

%

 

 

$

270.8

 

$

261.8

 

3

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Vacations

 

$

30.3

 

$

25.3

 

20

%

Personals

 

20.9

 

15.4

 

36

%

Discounts

 

48.1

 

49.3

 

-2

%

 

 

$

99.4

 

$

89.9

 

10

%

Operating (Loss) Income

 

 

 

 

 

 

 

Vacations

 

$

24.0

 

$

19.0

 

27

%

Personals

 

20.7

 

14.4

 

44

%

Discounts

 

(167.0

)

47.7

 

NM

 

 

 

$

(122.3

)

$

81.1

 

NM

 

 

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

Vacations

Vacations revenue and profit growth was driven by strong renewals, a 4% increase in members and 6% growth in confirmations. Confirmations were driven by additional week long resort accommodations sold to members in connection with online promotions. Margin growth was driven primarily by lower marketing expenses and, to a lesser extent, increased operating efficiencies due to 15% growth in confirmations online.

Personals

Personals revenue growth was driven by a 7% 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. Operating Income Before Amortization grew faster than revenue due to a lower cost of acquisition as a percentage of revenue in North America, partially offset by increased international marketing spend.

Discounts

Discounts revenue was impacted by disappointing sales through schools and community groups, including declines in the sale of coupon books, gift wrap and related products, partially offset by sales growth from other products in the fundraising channel. Operating Income Before Amortization benefited from lower personnel expenses and operational cost savings. Operating loss includes a $214 million impairment charge related to intangible assets and goodwill reflecting significant continued deterioration in the core fundraising channels in which the company operates.

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

6



OTHER ITEMS

 

Q4 operating income and net income were positively impacted by lower non-cash compensation expense primarily due to higher forfeitures related to the awards assumed in the IAC Search & Media acquisition and a decrease in expense related to equity award modifications. This decrease was partially offset by an increase in non-cash compensation expense related to equity grants issued during and subsequent to Q4 2005. Q4 operating income and net income were adversely impacted by intangible asset and goodwill impairment charges of $25 million and $189 million, respectively, related to the Discounts segment described above. The intangible asset impairment charge is included in amortization of intangibles in the accompanying consolidated statement of operations.

Q4 other (expense) income comparisons were negatively impacted by foreign exchange losses of $2.2 million in Q4 2006 compared with foreign exchange gains of $2.0 million in Q4 2005 as well as a $6.4 million loss in Q4 2006 and a $4.8 million loss in Q4 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.

Q4 net income was also impacted by the sale of PRC which resulted in a pre-tax gain of $66.3 million, and an after-tax gain of $9.6 million.

In Q4 2006, IAC recorded a tax benefit on continuing operations of $2.9 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 24%, which is lower than the federal statutory rate of 35% due to the items referred to in the second 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. The effective tax rates for continuing operations and adjusted net income were 39% and 37% in Q4 2005, respectively. These effective tax rates were higher than the federal statutory rate due principally to state taxes.In addition, the tax rate for continuing operations was unfavorably impacted by non-deductible non-cash compensation expense.

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

7



LIQUIDITY AND CAPITAL RESOURCES

During Q4, IAC repurchased 2.4 million shares at an average price of $37.11. 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 December 31, 2006, IAC had approximately $2.4 billion in cash, restricted cash and marketable securities, $1.2 billion in debt and, excluding $338.5 million in LendingTree Loans debt that is non-recourse to IAC, $1.5 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

 

2/2/07

 

Dilution at:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Price

 

 

 

 

 

$

38.63

 

$

40.00

 

$

45.00

 

$

50.00

 

$

55.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Shares as of 02/02/07 (a)

 

285.5

 

 

 

285.5

 

285.5

 

285.5

 

285.5

 

285.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs and Other

 

8.0

 

 

 

8.0

 

8.0

 

8.0

 

8.0

 

7.9

 

Options

 

23.7

 

$

20.83

 

7.5

 

7.6

 

8.1

 

8.5

 

8.9

 

Warrants

 

34.6

 

$

27.88

 

9.5

 

10.3

 

13.0

 

15.2

 

16.9

 

Convertible Notes

 

0.7

 

$

14.82

 

0.7

 

0.7

 

0.7

 

0.7

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Treasury Method Dilution

 

 

 

 

 

25.7

 

26.6

 

29.8

 

32.3

 

34.4

 

% Dilution

 

 

 

 

 

8.2

%

8.5

%

9.4

%

10.2

%

10.8

%

Total Treasury Method Diluted Shares Outstanding

 

 

 

 

 

311.2

 

312.1

 

315.3

 

317.8

 

319.9

 

(a)             Includes 0.1 million shares issued in connection with the conversion of $2.0 million convertible notes in January 2007.

CONFERENCE CALL

 

IAC will audiocast its conference call with investors and analysts discussing the company’s Q4 financial results on Tuesday, February 6, 2007, 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

8



 

OPERATING METRICS

 

 

 

 

Q4 2006

 

Q4 2005

 

Growth

 

RETAILING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retailing - U.S.

 

(a)

 

 

 

 

 

 

 

Units shipped (mm)

 

 

 

16.1

 

15.5

 

4

%

Gross profit %

 

 

 

38.3

%

38.8

%

 

 

Return rate

 

 

 

17.1

%

16.8

%

 

 

Average price point

 

 

 

$

58.21

 

$

59.79

 

-3

%

Internet %

 

(b)

 

29

%

26

%

 

 

HSN total homes - end of period (mm)

 

 

 

89.1

 

89.3

 

0

%

Catalogs mailed (mm)

 

 

 

105.8

 

110.3

 

-4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERVICES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

 

 

 

 

 

 

 

 

Number of tickets sold (mm)

 

 

 

33.2

 

31.9

 

4

%

Gross value of tickets sold (mm)

 

 

 

$

1,874

 

$

1,715

 

9

%

 

 

 

 

 

 

 

 

 

 

Lending

 

 

 

 

 

 

 

 

 

Transmitted QFs (000s)

 

(c)

 

901.4

 

775.6

 

16

%

Closings - units (000s)

 

(d)

 

60.1

 

71.9

 

-16

%

Closings - dollars ($mm)

 

(d)

 

$

7,600

 

$

9,213

 

-18

%

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

Closings - units (000s)

 

 

 

2.9

 

3.2

 

-11

%

Closings - dollars ($mm)

 

 

 

$

729

 

$

798

 

-9

%

 

 

 

 

 

 

 

 

 

 

MEDIA & ADVERTISING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IAC Search & Media Revenue by traffic source

 

 

 

 

 

 

 

 

 

Proprietary

 

 

 

55.5

%

64.8

%

 

 

Network

 

 

 

44.5

%

35.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MEMBERSHIP & SUBSCRIPTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

 

 

 

 

 

 

 

 

Members (000s)

 

 

 

1,850

 

1,782

 

4

%

Confirmations (000s)

 

 

 

204

 

193

 

6

%

Share of confirmations online

 

 

 

24

%

22

%

 

 

 

 

 

 

 

 

 

 

 

 

Personals

 

 

 

 

 

 

 

 

 

Paid Subscribers (000s)

 

 

 

1,275.9

 

1,189.4

 

7

%

 

(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

9



GAAP FINANCIAL STATEMENTS

 

IAC CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; $ in thousands except per share amounts)

 

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

1,100,153

 

$

1,070,603

 

$

3,486,191

 

$

3,266,976

 

Service revenue

 

723,746

 

620,711

 

2,791,447

 

2,149,530

 

Net revenue

 

1,823,899

 

1,691,314

 

6,277,638

 

5,416,506

 

Cost of sales-product sales

 

650,943

 

622,032

 

2,099,394

 

1,968,590

 

Cost of sales-service revenue

 

295,903

 

249,043

 

1,121,836

 

893,981

 

Gross profit

 

877,053

 

820,239

 

3,056,408

 

2,553,935

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

352,997

 

318,497

 

1,311,910

 

1,020,614

 

General and administrative expense

 

204,409

 

189,436

 

786,864

 

759,341

 

Other operating expense

 

36,018

 

32,146

 

138,843

 

112,777

 

Amortization of non-cash marketing

 

4,500

 

—

 

37,125

 

—

 

Amortization of intangibles

 

56,214

 

52,562

 

183,415

 

186,463

 

Depreciation

 

37,595

 

37,123

 

155,795

 

133,762

 

Goodwill impairment

 

189,085

 

—

 

189,085

 

—

 

Operating (loss) income

 

(3,765

)

190,475

 

253,371

 

340,978

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

17,617

 

19,622

 

72,587

 

140,999

 

Interest expense

 

(14,550

)

(19,529

)

(60,288

)

(77,635

)

Gain on sale of VUE interests

 

—

 

—

 

—

 

523,487

 

Equity in income of unconsolidated affiliates

 

8,730

 

8,264

 

34,324

 

47,844

 

Other (expense) income

 

(8,069

)

(3,433

)

(616

)

12,638

 

Total other income, net

 

3,728

 

4,924

 

46,007

 

647,333

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from continuing operations before income taxes and minority interest

 

(37

)

195,399

 

299,378

 

988,311

 

Income tax benefit (provision)

 

2,882

 

(75,579

)

(125,137

)

(389,726

)

Minority interest in income of consolidated subsidiaries

 

(153

)

(278

)

548

 

(2,229

)

Earnings from continuing operations

 

2,692

 

119,542

 

174,789

 

596,356

 

Gain (loss) on sale of discontinued operations, net of tax

 

9,579

 

(9,496

)

9,579

 

70,152

 

Income from discontinued operations, net of tax

 

4,428

 

3,021

 

8,267

 

209,642

 

Earnings before preferred dividends

 

16,699

 

113,067

 

192,635

 

876,150

 

Preferred dividends

 

—

 

—

 

—

 

(7,938

)

Net earnings available to common shareholders

 

$

16,699

 

$

113,067

 

$

192,635

 

$

868,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.01

 

$

0.37

 

$

0.57

 

$

1.79

 

Diluted earnings per share

 

$

0.01

 

$

0.35

 

$

0.55

 

$

1.68

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share available to common shareholders:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.06

 

$

0.35

 

$

0.63

 

$

2.64

 

Diluted earnings per share

 

$

0.05

 

$

0.33

 

$

0.60

 

$

2.46

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

10



IAC CONSOLIDATED BALANCE SHEETS
(unaudited; $ in thousands)

 

 

December 31,

 

December 31,

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

1,428,140

 

$

987,080

 

Restricted cash and cash equivalents

 

27,855

 

93,561

 

Marketable securities

 

897,742

 

1,488,058

 

Accounts and notes receivable, net

 

528,505

 

426,697

 

Loans held for sale, net

 

345,896

 

372,512

 

Inventories, net

 

362,196

 

335,884

 

Deferred income taxes

 

33,426

 

66,691

 

Other current assets

 

188,577

 

398,821

 

Total current assets

 

3,812,337

 

4,169,304

 

 

 

 

 

 

 

Property, plant and equipment, net

 

612,161

 

521,131

 

Goodwill

 

6,972,697

 

7,222,354

 

Intangible assets, net

 

1,463,997

 

1,558,108

 

Long-term investments

 

168,791

 

122,313

 

Other non-current assets

 

164,440

 

324,555

 

TOTAL ASSETS

 

$

13,194,423

 

$

13,917,765

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

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

 

$

358,831

 

$

375,276

 

Accounts payable, trade

 

287,628

 

304,277

 

Accounts payable, client accounts

 

304,800

 

269,344

 

Deferred revenue

 

147,120

 

122,842

 

Income taxes payable

 

518,994

 

516,940

 

Other accrued liabilities

 

635,816

 

644,437

 

Total current liabilities

 

2,253,189

 

2,233,116

 

 

 

 

 

 

 

Long-term obligations, net of current maturities

 

857,103

 

959,410

 

Other long-term liabilities

 

160,263

 

223,367

 

Deferred income taxes

 

1,129,994

 

1,265,530

 

Minority interest

 

24,881

 

5,514

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Preferred stock

 

—

 

—

 

Common stock

 

410

 

399

 

Class B convertible common stock

 

32

 

32

 

Additional paid-in capital

 

14,636,478

 

14,341,668

 

Retained earnings

 

320,711

 

128,076

 

Accumulated other comprehensive income

 

76,505

 

26,073

 

Treasury stock

 

(6,260,145

)

(5,260,422

)

Note receivable from key executive for common stock issuance

 

(4,998

)

(4,998

)

Total shareholders’ equity

 

8,768,993

 

9,230,828

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

13,194,423

 

$

13,917,765

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

11



IAC CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; $ in thousands)

 

 

Twelve Months Ended December 31,

 

 

 

2006

 

2005

 

Cash flows from operating activities attributable to continuing operations:

 

 

 

 

 

Earnings before preferred dividends

 

$

192,635

 

$

876,150

 

Less: income from discontinued operations, net of tax

 

(17,846

)

(279,794

)

Earnings from continuing operations

 

174,789

 

596,356

 

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

 

 

 

 

 

Depreciation and amortization of intangibles

 

339,210

 

320,225

 

Goodwill impairment

 

189,085

 

—

 

Non-cash compensation expense

 

92,344

 

137,537

 

Amortization of cable distribution fees

 

29,565

 

70,401

 

Amortization of non-cash marketing

 

37,125

 

—

 

Deferred income taxes

 

12,048

 

(1,070,271

)

Excess tax benefits from stock-based awards

 

—

 

152,710

 

Gain on sales of loans held for sale

 

(221,400

)

(179,026

)

Gain on sale of VUE interests

 

—

 

(523,487

)

Equity in income of unconsolidated affiliates, net of dividends

 

(33,324

)

(44,346

)

Non-cash interest income

 

—

 

(17,573

)

Minority interest in income of consolidated subsidiaries

 

(548

)

2,229

 

Increase in cable distribution fees

 

(16,876

)

(24,011

)

Changes in current assets and liabilities:

 

 

 

 

 

Accounts and notes receivable

 

(69,323

)

(45,711

)

Origination of loans held for sale

 

(7,841,607

)

(7,381,439

)

Proceeds from sales of loans held for sale

 

8,089,128

 

7,394,209

 

Inventories

 

(26,067

)

3,319

 

Prepaids and other assets

 

(14,387

)

(31,906

)

Accounts payable, income taxes payable and accrued liabilities

 

(1,504

)

446,596

 

Deferred revenue

 

22,151

 

33,557

 

Funds collected by Ticketing on behalf of clients, net

 

2,593

 

70,889

 

Other, net

 

51,340

 

7,244

 

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

 

814,342

 

(82,498

)

Cash flows from investing activities attributable to continuing operations:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(117,580

)

(693,388

)

Capital expenditures

 

(251,427

)

(222,912

)

Purchases of marketable securities

 

(934,769

)

(2,158,694

)

Proceeds from sales and maturities of marketable securities

 

1,543,818

 

3,124,145

 

Increase in long-term investments

 

(13,454

)

(32,363

)

Proceeds from sale of VUE interests

 

—

 

1,882,291

 

Proceeds from sale of discontinued operations

 

267,637

 

183,016

 

Other, net

 

(6,822

)

21,934

 

Net cash provided by investing activities attributable to continuing operations

 

487,403

 

2,104,029

 

Cash flows from financing activities attributable to continuing operations:

 

 

 

 

 

Borrowings

 

—

 

80,000

 

Borrowings under warehouse lines of credit

 

7,700,842

 

7,217,327

 

Repayments of warehouse lines of credit

 

(7,724,663

)

(7,054,488

)

Principal payments on long-term obligations

 

(13,827

)

(400,200

)

Purchase of treasury stock

 

(983,208

)

(1,848,258

)

Issuance of common stock, net of withholding taxes

 

93,780

 

(19,887

)

Redemption of preferred stock

 

—

 

(655,727

)

Preferred dividends

 

—

 

(9,569

)

Excess tax benefits from stock-based awards

 

17,997

 

—

 

Other, net

 

15,868

 

(12,384

)

Net cash used in financing activities attributable to continuing activities

 

(893,211

)

(2,703,186

)

Total cash provided by (used in) continuing operations

 

408,534

 

(681,655

)

Net cash provided by operating activities attributable to discontinued operations

 

6,252

 

763,861

 

Net cash used in investing activities attributable to discontinued operations

 

(6,317

)

(19,794

)

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

 

765

 

(47,882

)

Total cash provided by discontinued operations

 

700

 

696,185

 

Effect of exchange rate changes on cash and cash equivalents

 

31,826

 

(27,148

)

Net increase (decrease) in cash and cash equivalents

 

441,060

 

(12,618

)

Cash and cash equivalents at beginning of period

 

987,080

 

999,698

 

Cash and cash equivalents at end of period

 

$

1,428,140

 

$

987,080

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

12



 

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

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

 

 

Twelve Months Ended December 31,

 

 

 

2006

 

2005

 

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

 

$

814.3

 

$

(82.5

)

(Decrease) increase in warehouse loans payable

 

(23.8

)

162.8

 

Capital expenditures

 

(251.4

)

(222.9

)

Tax payments related to the sale of VUE interests

 

3.1

 

862.6

 

Preferred dividends paid

 

—

 

(9.6

)

Free Cash Flow (a)

 

$

542.2

 

$

710.4

 

(a) In accordance with the Company’s adoption of SFAS 123R, excess tax benefits from stock-based awards, $18 million in 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 2005 of $152.7 million were included in net cash provided by operating activities and Free Cash Flow.

For the twelve months ended December 31, 2006, consolidated Free Cash Flow decreased by $168 million from the prior year period due to a smaller increase in working capital, including a smaller contribution from Ticketing client cash, as well as higher cash taxes paid. Ticketing client cash contributed $2.6 million in the current period, versus $70.9 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 December 31,

 

Twelve Months Ended December 31,

 

 

 

2006

 

2005

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.05

 

$

0.33

 

$

0.60

 

$

2.46

 

GAAP diluted weighted average shares outstanding

 

308,997

 

344,004

 

319,535

 

356,618

 

Net earnings available to common shareholders

 

$

16,699

 

$

113,067

 

$

192,635

 

$

868,212

 

Non-cash compensation expense

 

21,572

 

23,759

 

92,344

 

137,537

 

Amortization of non-cash marketing

 

4,500

 

—

 

37,125

 

—

 

Amortization of intangibles

 

56,214

 

52,562

 

183,415

 

186,463

 

Goodwill impairment

 

189,085

 

—

 

189,085

 

—

 

Equity in income of VUE

 

—

 

—

 

—

 

(21,960

)

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

 

6,367

 

4,826

 

9,344

 

(4,574

)

Gain on sale of VUE interests and related effects

 

6,270

 

—

 

14,861

 

(523,487

)

(Gain) loss on sale of discontinued operations, net of tax

 

(9,579

)

9,496

 

(9,579

)

(70,152

)

Discontinued operations, net of tax

 

(4,428

)

(3,021

)

(8,267

)

(209,642

)

Impact of income taxes and minority interest

 

(75,289

)

(27,128

)

(169,006

)

106,759

 

Interest on convertible notes, net of tax

 

176

 

767

 

1,027

 

1,179

 

Adjusted Net Income

 

$

211,587

 

$

174,328

 

$

532,984

 

$

470,335

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS weighted average shares outstanding

 

315,331

 

349,530

 

327,280

 

355,961

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

 

$

0.67

 

$

0.50

 

$

1.63

 

$

1.32

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

293,732

 

320,654

 

305,204

 

329,459

 

Options, warrants and restricted stock, treasury method

 

15,265

 

19,077

 

14,331

 

19,367

 

Conversion of convertible preferred and convertible notes (if applicable)

 

—

 

4,273

 

—

 

7,792

 

GAAP Diluted weighted average shares outstanding

 

308,997

 

344,004

 

319,535

 

356,618

 

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

 

6,334

 

5,526

 

7,745

 

(657

)

Adjusted EPS shares outstanding

 

315,331

 

349,530

 

327,280

 

355,961

 

 

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

13



 

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

 

 

For the three months ended December 31, 2006

 

 

 

Operating
Income Before
Amortization

 

Non-cash
compensation
expense (A)

 

Amortization
of non-cash
marketing

 

Amortization
of
intangibles

 

Goodwill
impairment

 

Operating
income
(loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

92.1

 

$

(1.3

)

$

—

 

$

(5.7

)

$

—

 

$

85.1

 

International

 

5.0

 

—

 

—

 

—

 

—

 

5.0

 

Total Retailing

 

97.0

 

(1.3

)

—

 

(5.7

)

—

 

90.0

 

Services:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

65.7

 

—

 

—

 

(6.6

)

—

 

59.1

 

Lending

 

17.2

 

(0.1

)

—

 

(2.9

)

—

 

14.1

 

Real Estate

 

(5.4

)

(0.1

)

—

 

(1.4

)

—

 

(6.9

)

Home Services

 

2.5

 

(0.2

)

—

 

(0.8

)

—

 

1.6

 

Total Services

 

80.0

 

(0.4

)

—

 

(11.7

)

—

 

67.9

 

Media & Advertising

 

20.1

 

—

 

—

 

(6.2

)

—

 

13.9

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

30.3

 

—

 

—

 

(6.3

)

-

 

24.0

 

Personals

 

20.9

 

—

 

—

 

(0.2

)

-

 

20.7

 

Discounts

 

48.1

 

—

 

—

 

(26.1

)

(189.1

)

(167.0

)

Total Membership & Subscriptions

 

99.4

 

—

 

—

 

(32.5

)

(189.1

)

(122.3

)

Emerging Businesses

 

(3.3

)

(0.1

)

(4.5

)

(0.1

)

—

 

(8.0

)

Corporate and other

 

(25.6

)

(19.8

)

—

 

—

 

—

 

(45.4

)

Total

 

$

267.6

 

$

(21.6

)

$

(4.5

)

$

(56.2

)

$

(189.1

)

$

(3.8

)

Other income, net

 

 

 

 

 

 

 

 

 

 

 

3.7

 

Loss from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

 

 

—

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

2.9

 

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

(0.2

)

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

2.7

 

Gain on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

9.6

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

4.4

 

Income before preferred dividends

 

 

 

 

 

 

 

 

 

 

 

16.7

 

Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

—

 

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

 

 

$

16.7

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

 

 

US

 

 

 

$

8.3

 

 

 

 

 

 

 

 

 

International

 

 

 

1.5

 

 

 

 

 

 

 

 

 

Total Retailing

 

 

 

9.8

 

 

 

 

 

 

 

 

 

Services:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

 

 

9.6

 

 

 

 

 

 

 

 

 

Lending

 

 

 

2.0

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

0.5

 

 

 

 

 

 

 

 

 

Home Services

 

 

 

0.5

 

 

 

 

 

 

 

 

 

Total Services

 

 

 

12.5

 

 

 

 

 

 

 

 

 

Media & Advertising

 

 

 

7.4

 

 

 

 

 

 

 

 

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

 

 

1.9

 

 

 

 

 

 

 

 

 

Personals

 

 

 

1.7

 

 

 

 

 

 

 

 

 

Discounts

 

 

 

1.4

 

 

 

 

 

 

 

 

 

Total Membership & Subscriptions

 

 

 

5.1

 

 

 

 

 

 

 

 

 

Emerging Businesses

 

 

 

0.6

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

2.2

 

 

 

 

 

 

 

 

 

Total Depreciation

 

 

 

37.6

 

 

 

 

 

 

 

 

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

14



 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the year ended December 31, 2006

 

 

 

Operating Income
Before Amortization

 

Non-cash
compensation
expense (A)

 

Amortization of non-
cash marketing

 

Amortization of
intangibles

 

Goodwill
impairment

 

Operating income
(loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

268.9

 

$

(4.8

)

$

—

 

$

(36.2

)

$

—

 

$

228.0

 

International

 

4.4

 

—

 

—

 

(0.7

)

—

 

3.7

 

Total Retailing

 

273.3

 

(4.8

)

—

 

(36.9

)

—

 

231.7

 

Services:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

264.4

 

—

 

—

 

(27.1

)

—

 

237.3

 

Lending

 

63.6

 

0.9

 

—

 

(16.4

)

—

 

48.1

 

Real Estate

 

(21.3

)

0.4

 

—

 

(7.6

)

—

 

(28.5

)

Home Services

 

16.2

 

(0.6

)

—

 

(3.1

)

—

 

12.4

 

Total Services

 

322.9

 

0.7

 

—

 

(54.2

)

—

 

269.4

 

Media & Advertising

 

58.3

 

—

 

(29.6

)

(34.6

)

—

 

(6.0

)

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

124.8

 

—

 

—

 

(25.2

)

—

 

99.6

 

Personals

 

63.4

 

—

 

(3.0

)

(2.0

)

—

 

58.4

 

Discounts

 

13.9

 

—

 

—

 

(29.9

)

(189.1

)

(205.2

)

Total Membership & Subscriptions

 

202.0

 

—

 

(3.0

)

(57.2

)

(189.1

)

(47.2

)

Emerging Businesses

 

(15.9

)

(0.2

)

(4.5

)

(0.5

)

—

 

(21.0

)

Corporate and other

 

(85.4

)

(88.1

)

—

 

—

 

—

 

(173.4

)

Total

 

$

755.3

 

$

(92.3

)

$

(37.1

)

$

(183.4

)

$

(189.1

)

$

253.4

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

46.0

 

Earnings from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

 

 

299.4

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

(125.1

)

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

0.5

 

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

174.8

 

Gain on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

9.6

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

8.3

 

Earnings before preferred dividends

 

 

 

 

 

 

 

 

 

 

 

192.6

 

Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

—

 

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

 

 

$

192.6

 

 

(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

 

 

 

Retailing:

 

 

 

US

 

$

37.4

 

International

 

5.3

 

Total Retailing

 

42.7

 

Services:

 

 

 

Ticketing

 

38.2

 

Lending

 

9.3

 

Real Estate

 

2.4

 

Home Services

 

1.7

 

Total Services

 

51.6

 

Media & Advertising

 

27.7

 

Membership & Subscriptions:

 

 

 

Vacations

 

7.8

 

Personals

 

7.5

 

Discounts

 

5.7

 

Total Membership & Subscriptions

 

21.1

 

Emerging Businesses

 

2.0

 

Corporate and other

 

10.7

 

Total Depreciation

 

$

155.8

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

15



 

 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the three months ended December 31, 2005

 

 

 

Operating Income
Before Amortization

 

Non-cash
compensation
expense (A)

 

Amortization of non-
cash marketing

 

Amortization of
intangibles

 

Operating income
(loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

104.3

 

$

(0.1

)

$

—

 

$

(15.4

)

$

88.9

 

International

 

6.0

 

—

 

—

 

(0.3

)

5.6

 

Total Retailing

 

110.3

 

(0.1

)

—

 

(15.7

)

94.5

 

Services:

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

59.1

 

—

 

—

 

(7.3

)

51.8

 

Lending

 

13.9

 

(0.5

)

—

 

(4.8

)

8.7

 

Real Estate

 

(2.9

)

(0.2

)

—

 

(2.5

)

(5.6

)

Home Services

 

2.1

 

(0.1

)

—

 

(0.8

)

1.2

 

Total Services

 

72.2

 

(0.9

)

—

 

(15.4

)

56.0

 

Media & Advertising

 

20.3

 

—

 

—

 

(12.6

)

7.7

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

25.3

 

—

 

—

 

(6.3

)

19.0

 

Personals

 

15.4

 

—

 

—

 

(1.0

)

14.4

 

Discounts

 

49.3

 

—

 

—

 

(1.6

)

47.7

 

Total Membership & Subscriptions

 

89.9

 

—

 

—

 

(8.8

)

81.1

 

Emerging Businesses

 

(3.2

)

(0.1

)

—

 

(0.1

)

(3.4

)

Corporate and other

 

(22.7

)

(22.7

)

—

 

—

 

(45.4

)

Total

 

$

266.8

 

$

(23.8

)

$

—

 

$

(52.6

)

$

190.5

 

Other income, net

 

 

 

 

 

 

 

 

 

4.9

 

Earnings from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

195.4

 

Income tax provision

 

 

 

 

 

 

 

 

 

(75.6

)

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

(0.3

)

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

119.5

 

Loss on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

(9.5

)

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

3.0

 

Earnings before preferred dividends

 

 

 

 

 

 

 

 

 

113.1

 

Preferred dividends

 

 

 

 

 

 

 

 

 

—

 

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

$

113.1

 

 

(A) Non-cash compensation expense includes $2.1 million, $2.6 million and $19.0 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

 

$

10.5

 

International

 

1.2

 

Total Retailing

 

11.7

 

Services:

 

 

 

Ticketing

 

9.2

 

Lending

 

1.6

 

Real Estate

 

0.4

 

Home Services

 

0.3

 

Total Services

 

11.5

 

Media & Advertising

 

6.3

 

Membership & Subscriptions:

 

 

 

Vacations

 

2.1

 

Personals

 

1.8

 

Discounts

 

1.3

 

Total Membership & Subscriptions

 

5.1

 

Emerging Businesses

 

0.1

 

Corporate and other

 

2.4

 

Total Depreciation

 

$

37.1

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

16



 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the year ended December 31, 2005

 

 

 

Operating Income
Before Amortization

 

Non-cash
compensation
expense (A)

 

Amortization of non-
cash marketing

 

Amortization of
intangibles

 

Operating income
(loss)

 

Retailing:

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

276.6

 

$

(0.4

)

$

—

 

$

(59.4

)

$

216.7

 

International

 

5.8

 

—

 

—

 

(1.3

)

4.5

 

Total Retailing

 

282.3

 

(0.4

)

—

 

(60.8

)

221.1

 

Services:

 

 

 

 

 

 

 

 

 

 

 

Ticketing

 

218.7

 

—

 

—

 

(28.7

)

189.9

 

Lending

 

80.6

 

(1.9

)

—

 

(23.4

)

55.3

 

Real Estate

 

(16.7

)

(1.0

)

—

 

(11.9

)

(29.5

)

Home Services

 

11.2

 

0.7

 

—

 

(3.0

)

8.9

 

Total Services

 

293.9

 

(2.2

)

—

 

(67.1

)

224.6

 

Media & Advertising

 

30.5

 

—

 

—

 

(22.8

)

7.7

 

Membership & Subscriptions:

 

 

 

 

 

 

 

 

 

 

 

Vacations

 

110.7

 

—

 

—

 

(25.2

)

85.5

 

Personals

 

47.9

 

—

 

—

 

(3.8

)

44.1

 

Discounts

 

17.5

 

—

 

—

 

(6.4

)

11.2

 

Total Membership & Subscriptions

 

176.2

 

—

 

—

 

(35.4

)

140.8

 

Emerging Businesses

 

(12.1

)

(0.1

)

—

 

(0.4

)

(12.7

)

Corporate and other

 

(105.7

)

(134.8

)

—

 

—

 

(240.6

)

Total

 

$

665.0

 

$

(137.5

)

$

—

 

$

(186.5

)

$

341.0

 

Other income, net

 

 

 

 

 

 

 

 

 

647.3

 

Earnings from continuing operations before income taxes and minority interest

 

 

 

 

 

 

 

 

 

988.3

 

Income tax provision

 

 

 

 

 

 

 

 

 

(389.7

)

Minority interest in income of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

(2.2

)

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

596.4

 

Gain on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

70.2

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

209.6

 

Earnings before preferred dividends

 

 

 

 

 

 

 

 

 

876.2

 

Preferred dividends

 

 

 

 

 

 

 

 

 

(7.9

)

Net earnings available to common shareholders

 

 

 

 

 

 

 

 

 

$

868.2

 

 

(A) Non-cash compensation expense includes $7.4 million, $5.8 million, $124.2 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

 

$

40.9

 

International

 

6.7

 

Total Retailing

 

47.6

 

Services:

 

 

 

Ticketing

 

36.7

 

Lending

 

5.5

 

Real Estate

 

1.2

 

Home Services

 

1.0

 

Total Services

 

44.4

 

Media & Advertising

 

13.2

 

Membership & Subscriptions:

 

 

 

Vacations

 

7.4

 

Personals

 

8.2

 

Discounts

 

4.8

 

Total Membership & Subscriptions

 

20.3

 

Emerging Businesses

 

0.3

 

Corporate and other

 

8.0

 

Total Depreciation

 

$

133.8

 

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

17



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, (1) non-cash compensation expense and amortization of non-cash marketing, (2) amortization of intangibles and goodwill impairment, if applicable, (3) pro forma adjustments for significant acquisitions, if applicable, (4) equity income or loss from IAC’s 5.44% interest in VUE and gain on the sale of IAC’s interest in VUE, (5) non-cash income or expense reflecting changes in 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) one-time items, if applicable and (7) discontinued operations.  We believe Adjusted Net Income is useful to investors because it represents IAC’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.

 

Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes.  We include dilution from options and warrants per the treasury stock method and include all restricted shares and restricted stock units (“RSUs”) in shares outstanding for Adjusted EPS.  This differs from the GAAP method for including RSUs, which treats them on a treasury method basis.  In addition, convertible instruments are assumed to be converted in determining shares outstanding for Adjusted EPS, if the effect is dilutive.  Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes.  We believe Adjusted EPS is useful to investors because it represents, on a per share basis, IAC’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.  Adjusted Net Income and Adjusted EPS have the same limitations as Operating Income Before Amortization, and in addition Adjusted Net Income and Adjusted EPS do not account for IAC’s 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, including preferred dividends received from VUE, less capital expenditures and preferred dividends paid by IAC. For purposes of Free Cash Flow, we also include changes in warehouse loans payable in Lending due to the close connection that exists with changes in loans held by sale which are included in cash provided by operations. In addition, Free Cash Flow excludes the tax payments related to the sale of IAC’s interests in VUE due to the exclusion of the proceeds on the sale from cash provided by operating activities. We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account cash movements that are non-operational. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures.  For example, it does not take into account stock repurchases.  Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

18



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 all units are included in our shares outstanding for Adjusted EPS purposes. 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 is 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.

 

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.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

19



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. These forward-looking statements include statements relating to IAC’s anticipated financial performance, business prospects, new developments and similar matters, and/or statements that use words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” “believes” and similar expressions.  These forward-looking statements are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in 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, 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 a slowdown in the domestic housing market, effectiveness of hedging activities, changes affecting distribution channels, consumer acceptance of new products and services, 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 also could have a material adverse effect on IAC’s business, financial condition and results of operations. In light of these risks and uncertainties, these forward-looking statements may not occur. Accordingly, readers should not place undue reliance on these forward-looking statements, which only reflect the views of IAC management as of the date of this press release. IAC does not undertake to update these forward-looking statements.

 

About IAC

 

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

 

Contact Us

 

IAC Investor Relations

James Hart / Eoin Ryan

(212) 314-7400

 

IAC Corporate Communications

Andrea Riggs / Stacy Simpson

(212) 314-7280 / 7470

 

IAC

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

 

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