EX-99.1 2 a10-20013_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

IAC REPORTS Q3 RESULTS

 

NEW YORK— October 27, 2010—IAC (Nasdaq: IACI) released third quarter 2010 results today.

 

SUMMARY RESULTS

$ in millions (except per share amounts)

 

 

 

Q3 2010

 

Q3 2009

 

Growth

 

Revenue

 

$

421.7

 

$

336.6

 

25

%

 

 

 

 

 

 

 

 

Operating Income Before Amortization

 

55.6

 

38.9

 

43

%

Adjusted Net Income

 

34.8

 

46.3

 

-25

%

Adjusted EPS

 

0.32

 

0.34

 

-5

%

 

 

 

 

 

 

 

 

Operating Income

 

35.9

 

7.1

 

405

%

Net Income

 

17.5

 

21.7

 

-19

%

GAAP Diluted EPS

 

0.16

 

0.16

 

3

%

 

See reconciliation of GAAP to non-GAAP measures beginning on page 9.

 

Information Regarding the Results:

 

·            Q3 revenue increased 25% reflecting double-digit growth across all segments.  Operating Income Before Amortization grew by 43% due to strong profit growth at Match and reduced losses at Media & Other.

 

·            Free Cash Flow for the first nine months was $175.0 million, up 49% over the prior year period, while cash flow from operating activities attributable to continuing operations was $205.6 million, up 40% over the prior year period.

 

·            IAC repurchased 5.0 million shares of common stock between July 24, 2010 and October 22, 2010 at an average price of $25.10 per share or $125.2 million in aggregate.

 

·            Net income and Adjusted Net Income declined because the prior year period included gains totaling $35.0 million and $21.6 million, respectively, from the sale of certain equity interests, which positively impacted GAAP EPS and Adjusted EPS by $0.26 and $0.16, respectively.

 

Principal Areas of Focus:

 

·            Search: Mindspark launched 16 proprietary toolbars and increased active toolbars 55% year-over-year to 97 million; The DailyBurn app hit #1 in the Health and Fitness app category; Ask.com launched its Q&A community enabling searchers to obtain previously unpublished answers from other community members.

 

·            Local: CityGrid Media launched a private label reseller program with User-Friendly Media; ServiceMagic grew its service provider network 28% year-over-year to over 80,000 professionals.

 

·            Personals: Worldwide subscribers reached 1.8 million driven by a 16% increase in organic subscribers.

 

·            Media: Electus launched Ready Set Dance on Yahoo!, which generated over 12 million views to date, and announced an interactive competition on Facebook® to honor inspirational students and teachers in conjunction with SUBWAY®; CollegeHumor.com debuted its three new fall series, “Full Benefits,” “Hello My Name Is,” and “Very Mary-Kate;” The Daily Beast announced the 2nd annual Women in the World Summit, which will be held in New York City from March 10 — 12, 2011.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

1


 

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

 

 

 

Q3 2010

 

Q3 2009

 

Growth

 

 

 

$ in millions

 

Revenue

 

 

 

 

 

 

 

Search

 

$

205.1

 

$

170.2

 

20

%

Match

 

106.2

 

81.0

 

31

%

ServiceMagic

 

48.4

 

43.9

 

10

%

Media & Other

 

62.7

 

43.5

 

44

%

Intercompany Elimination

 

(0.7

)

(2.0

)

64

%

 

 

$

421.7

 

$

336.6

 

25

%

Operating Income Before Amortization

 

 

 

 

 

 

 

Search

 

$

29.3

 

$

26.6

 

10

%

Match

 

39.4

 

26.8

 

47

%

ServiceMagic

 

6.7

 

9.9

 

-33

%

Media & Other

 

(3.6

)

(7.7

)

53

%

Corporate

 

(16.1

)

(16.7

)

4

%

 

 

$

55.6

 

$

38.9

 

43

%

Operating Income (Loss)

 

 

 

 

 

 

 

Search

 

$

28.9

 

$

20.2

 

43

%

Match

 

38.1

 

23.9

 

60

%

ServiceMagic

 

6.2

 

4.3

 

44

%

Media & Other

 

(4.6

)

(8.3

)

45

%

Corporate

 

(32.7

)

(32.9

)

1

%

 

 

$

35.9

 

$

7.1

 

405

%

 

Search

 

Search includes toolbars and other destination websites, including Ask.com, Dictionary.com and DailyBurn.com, through which we primarily provide search services; and CityGrid Media, an online media company that aggregates and integrates local ads and content and distributes them to publishers across web and mobile platforms.

 

Search revenue reflects growth in queries from distributed and proprietary toolbars and destination websites.  The increase in queries from distributed toolbars is attributable to new partners and growth from existing partners. The increase from proprietary toolbars and destination websites was driven by increased traffic acquisition efforts and enhancements within our proprietary toolbar business.  Search revenue was negatively impacted by a decline in revenue per query, as distributed toolbar queries generally monetize at lower rates.  CityGrid Media revenue increased primarily due to the contribution from new resellers and growth from existing resellers.

 

Search profits were favorably impacted by higher revenue, partially offset by higher traffic acquisition costs.  Operating income in 2010 reflects a decrease of $5.9 million in amortization of intangibles.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

2


 

Match

 

The strong revenue growth was fueled primarily by organic growth at Match.com U.S. and People Media, as well as by the acquisition of Singlesnet and our venture with Meetic in Latin America, neither of which were in the prior year period.  Revenue and subscribers grew by 15% and 16%, respectively, excluding the effect of the Singlesnet and Latin America transactions and the write-off in 2009 of $3.6 million of deferred revenue associated with the People Media acquisition.  Profits grew faster than revenue due primarily to the effect of the deferred revenue write-off in 2009 and lower operating expenses as a percentage of revenue.  Operating income in 2010 reflects a decrease of $1.7 million in amortization of intangibles.

 

ServiceMagic

 

ServiceMagic revenue benefited from a 3% and 10% increase in domestic service requests and accepted service requests, respectively, and growth at ServiceMagic International, partially offset by lower average lead acceptance fees.  The increase in domestic service requests was driven primarily by increased online marketing efforts.  The increase in domestic accepted service requests was due, in part, to a 28% increase in service providers.  The decline in Operating Income Before Amortization reflects increased marketing and compensation related expenses and losses related to ServiceMagic International.  Operating income comparison is affected by the $5.0 million of amortization of non-cash marketing in the prior year period.

 

Media & Other

 

Media & Other includes Electus, The Daily Beast, InstantAction, CollegeHumor, Notional, Vimeo, Pronto, Evite, Gifts.com, Proust.com and Shoebuy.com.  Revenue growth reflects the contribution from Notional and Electus, which had no revenue in the prior year period, and increased contributions from Pronto, Gifts.com and CollegeHumor.  Losses improved due primarily to increased revenue.

 

Corporate

 

Corporate expenses in the current year period reflect lower professional fees and depreciation.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

3


 

OTHER ITEMS

 

Other income (expense) in Q3 2010 includes a $3.4 million reduction in losses from unconsolidated affiliates primarily driven by our investment in Meetic.

 

Other income (expense) in Q3 2009 includes pre-tax gains of $51.7 million related to the sale of certain equity securities and Match Europe.

 

The effective tax rates for continuing operations and Adjusted Net Income in Q3 2010 were 41% and 37%, respectively.  The effective tax rate for continuing operations was higher than the statutory rate of 35% due principally to state taxes and interest on tax reserves, partially offset by the reversal of a valuation allowance on the deferred tax asset related to an unconsolidated affiliate and foreign income taxed at lower rates.  The effective tax rate for Adjusted Net Income was higher than the statutory rate of 35% due principally to state taxes, partially offset by the reversal of a valuation allowance on the deferred tax asset related to an unconsolidated affiliate.  The effective tax rates for continuing operations and Adjusted Net Income in Q3 2009 were 59% and 39%, respectively. The effective tax rate for continuing operations was higher than the statutory rate of 35% due principally to a change in the estimated annual effective tax rate, interest on tax reserves and state taxes, partially offset by a non-taxable gain associated with the sale of Match Europe and net adjustments related to the reconciliation of tax returns to provision accruals. The effective tax rate for Adjusted Net Income was higher than the statutory rate of 35% due principally to state taxes, partially offset by net adjustments related to the reconciliation of tax returns to provision accruals.

 

LIQUIDITY AND CAPITAL RESOURCES

 

During Q3, IAC repurchased 6.0 million common shares at an average price of $24.59 per share.  As of September 30, 2010, IAC had 100.4 million common and class B common shares outstanding.  IAC may purchase shares over an indefinite period of time, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price, and future outlook.

 

As of September 30, 2010, IAC had approximately $1.4 billion in cash and marketable securities, and $95.8 million in long-term debt.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

4


 

OPERATING METRICS

 

 

 

Q3 2010

 

Q3 2009

 

Growth

 

 

 

 

 

 

 

 

 

SEARCH

 

 

 

 

 

 

 

Revenue by traffic source (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proprietary

 

70

%

74

%

 

 

Network

 

30

%

26

%

 

 

 

 

 

 

 

 

 

 

MATCH

 

 

 

 

 

 

 

Paid Subscribers (000s)

 

1,818

 

1,403

 

30

%

 

 

 

 

 

 

 

 

SERVICEMAGIC

 

 

 

 

 

 

 

Service Requests (000s) (b)

 

1,506

 

1,469

 

3

%

Accepts (000s) (c)

 

2,043

 

1,851

 

10

%

 

(a)   Proprietary includes proprietary toolbars, Ask.com and Dictionary.com. Network includes distributed toolbars, search and sponsored listings.

(b)   Fully completed and submitted domestic customer requests for service on ServiceMagic.

(c)    The number of times “Service Requests” are accepted by domestic Service Providers. A “Service Request” can be transmitted to and accepted by more than one Service Provider.

 

DILUTIVE SECURITIES

 

IAC has various tranches of dilutive securities.  The table below lists these securities as well as potential dilution at various stock prices (shares in millions, rounding differences may occur).

 

 

 

 

 

Avg.

 

 

 

 

 

 

 

 

 

Strike /

 

As of

 

 

 

 

 

Shares

 

Conversion

 

10/22/10

 

Dilution at:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Price

 

 

 

 

 

$

26.10

 

$

30.00

 

$

35.00

 

$

40.00

 

$

45.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Shares as of 10/22/10

 

100.4

 

 

 

100.4

 

100.4

 

100.4

 

100.4

 

100.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs and Other

 

4.9

 

 

 

4.9

 

4.7

 

4.5

 

4.3

 

4.2

 

Options

 

13.5

 

$

21.32

 

3.2

 

4.2

 

5.4

 

6.3

 

7.1

 

Warrants

 

18.3

 

$

28.08

 

0.0

 

1.4

 

3.6

 

5.5

 

6.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Treasury Method Dilution

 

 

 

 

 

8.1

 

10.4

 

13.5

 

16.1

 

18.1

 

% Dilution

 

 

 

 

 

7.5

%

9.4

%

11.8

%

13.8

%

15.3

%

Total Treasury Method Diluted Shares Outstanding

 

 

 

 

 

108.5

 

110.7

 

113.9

 

116.5

 

118.5

 

 

CONFERENCE CALL

 

IAC will audiocast its conference call with investors and analysts discussing the Company’s Q3 financial results on Wednesday, October 27, 2010, 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

 


 

GAAP FINANCIAL STATEMENTS

 

IAC CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited; $ in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

421,652

 

$

336,577

 

$

1,210,436

 

$

1,008,632

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation shown separately below)

 

148,558

 

106,029

 

422,704

 

323,462

 

Selling and marketing expense

 

123,347

 

107,603

 

379,153

 

360,121

 

General and administrative expense

 

78,327

 

72,314

 

236,387

 

218,802

 

Product development expense

 

17,812

 

12,972

 

47,974

 

45,092

 

Depreciation

 

15,364

 

15,289

 

50,608

 

48,380

 

Amortization of intangibles

 

2,310

 

10,250

 

10,423

 

26,311

 

Amortization of non-cash marketing

 

—

 

4,999

 

—

 

7,504

 

Goodwill impairment

 

—

 

—

 

—

 

1,056

 

Total costs and expenses

 

385,718

 

329,456

 

1,147,249

 

1,030,728

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

35,934

 

7,121

 

63,187

 

(22,096

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1,550

 

2,374

 

4,851

 

8,546

 

Interest expense

 

(1,321

)

(1,345

)

(3,967

)

(4,070

)

Equity in losses of unconsolidated affiliates

 

(547

)

(3,961

)

(27,162

)

(7,973

)

Other income, net

 

586

 

53,892

 

5,259

 

115,849

 

Total other income (expense), net

 

268

 

50,960

 

(21,019

)

112,352

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

36,202

 

58,081

 

42,168

 

90,256

 

Income tax provision

 

(14,820

)

(34,269

)

(23,785

)

(53,733

)

Earnings from continuing operations

 

21,382

 

23,812

 

18,383

 

36,523

 

Loss from discontinued operations, net of tax

 

(3,737

)

(2,514

)

(7,227

)

(3,472

)

Net earnings

 

17,645

 

21,298

 

11,156

 

33,051

 

Net (earnings) loss attributable to noncontrolling interests

 

(136

)

384

 

1,239

 

1,058

 

Net earnings attributable to IAC shareholders

 

$

17,509

 

$

21,682

 

$

12,395

 

$

34,109

 

 

 

 

 

 

 

 

 

 

 

Per share information attributable to IAC shareholders:

 

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.21

 

$

0.18

 

$

0.18

 

$

0.26

 

Diluted earnings per share from continuing operations

 

$

0.20

 

$

0.18

 

$

0.17

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.17

 

$

0.16

 

$

0.11

 

$

0.24

 

Diluted earnings per share

 

$

0.16

 

$

0.16

 

$

0.11

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

Non-cash compensation expense by function:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

1,113

 

$

819

 

$

3,065

 

$

2,148

 

Selling and marketing expense

 

889

 

733

 

2,843

 

2,270

 

General and administrative expense

 

13,903

 

13,694

 

50,782

 

40,882

 

Product development expense

 

1,427

 

1,269

 

4,295

 

3,387

 

Total non-cash compensation expense

 

$

17,332

 

$

16,515

 

$

60,985

 

$

48,687

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

6


 

IAC CONSOLIDATED BALANCE SHEET

($ in thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

902,214

 

$

1,245,997

 

Marketable securities

 

471,215

 

487,591

 

Accounts receivable, net

 

113,251

 

101,834

 

Other current assets

 

144,898

 

164,627

 

Total current assets

 

1,631,578

 

2,000,049

 

 

 

 

 

 

 

Property and equipment, net

 

282,143

 

297,412

 

Goodwill

 

1,047,139

 

999,355

 

Intangible assets, net

 

262,221

 

261,172

 

Long-term investments

 

209,890

 

272,930

 

Other non-current assets

 

179,227

 

184,971

 

TOTAL ASSETS

 

$

3,612,198

 

$

4,015,889

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 LIABILITIES

 

 

 

 

 

Accounts payable, trade

 

$

43,292

 

$

39,173

 

Deferred revenue

 

72,694

 

57,822

 

Accrued expenses and other current liabilities

 

202,051

 

193,282

 

Total current liabilities

 

318,037

 

290,277

 

 

 

 

 

 

 

Long-term debt

 

95,844

 

95,844

 

Income taxes payable

 

467,130

 

450,129

 

Other long-term liabilities

 

19,302

 

23,633

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

60,192

 

28,180

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Common stock

 

225

 

223

 

Class B convertible common stock

 

16

 

16

 

Additional paid-in capital

 

11,381,922

 

11,322,993

 

Accumulated deficit

 

(738,982

)

(751,377

)

Accumulated other comprehensive income

 

7,929

 

24,503

 

Treasury stock

 

(7,999,417

)

(7,468,532

)

Total shareholders’ equity

 

2,651,693

 

3,127,826

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,612,198

 

$

4,015,889

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

7


 

IAC CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited; $ in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Cash flows from operating activities attributable to continuing operations:

 

 

 

 

 

Net earnings

 

$

11,156

 

$

33,051

 

Less: loss from discontinued operations, net of tax

 

7,227

 

3,472

 

Earnings from continuing operations

 

18,383

 

36,523

 

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

 

 

 

 

 

Depreciation

 

50,608

 

48,380

 

Amortization of intangibles

 

10,423

 

26,311

 

Amortization of non-cash marketing

 

—

 

7,504

 

Goodwill impairment

 

—

 

1,056

 

Impairment of long-term investment

 

—

 

4,785

 

Non-cash compensation expense

 

60,985

 

48,687

 

Deferred income taxes

 

6,987

 

83,278

 

Equity in losses of unconsolidated affiliates

 

27,162

 

7,973

 

Gain on sale of Match Europe

 

—

 

(132,244

)

Gain on sales of investments

 

(3,989

)

(25,570

)

Decrease in the fair value of the derivative asset related to Arcandor AG stock

 

—

 

38,204

 

Changes in current assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(15,809

)

(2,045

)

Other current assets

 

1,451

 

(2,614

)

Accounts payable and other current liabilities

 

8,007

 

(1,077

)

Income taxes payable

 

17,678

 

(13,820

)

Deferred revenue

 

15,628

 

9,677

 

Other, net

 

8,048

 

11,300

 

Net cash provided by operating activities attributable to continuing operations

 

205,562

 

146,308

 

Cash flows from investing activities attributable to continuing operations:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(17,334

)

(85,534

)

Capital expenditures

 

(34,042

)

(28,854

)

Proceeds from sales and maturities of marketable debt securities

 

607,127

 

150,257

 

Purchases of marketable debt securities

 

(600,993

)

(367,573

)

Proceeds from sales of investments

 

5,325

 

58,123

 

Purchases of long-term investments

 

(1,630

)

(2,982

)

Dividend received from Meetic, an equity method investee

 

11,355

 

—

 

Receivable created in the sale of Match Europe

 

—

 

(6,829

)

Other, net

 

(127

)

(7,873

)

Net cash used in investing activities attributable to continuing operations

 

(30,319

)

(291,265

)

Cash flows from financing activities attributable to continuing operations:

 

 

 

 

 

Purchase of treasury stock

 

(537,824

)

(336,537

)

Issuance of common stock, net of withholding taxes

 

13,263

 

150,032

 

Excess tax benefits from stock-based awards

 

6,551

 

368

 

Settlement of vested stock-based awards denominated in a subsidiary’s equity

 

—

 

(14,000

)

Other, net

 

46

 

1,111

 

Net cash used in financing activities attributable to continuing operations

 

(517,964

)

(199,026

)

Total cash used in continuing operations

 

(342,721

)

(343,983

)

Net cash used in operating activities attributable to discontinued operations

 

(396

)

(930

)

Effect of exchange rate changes on cash and cash equivalents

 

(666

)

5,689

 

Net decrease in cash and cash equivalents

 

(343,783

)

(339,224

)

Cash and cash equivalents at beginning of period

 

1,245,997

 

1,744,994

 

Cash and cash equivalents at end of period

 

$

902,214

 

$

1,405,770

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

8


 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

Net cash provided by operating activities attributable to continuing operations

 

$

205.6

 

$

146.3

 

Capital expenditures

 

(34.0

)

(28.9

)

Tax payments related to the dividend received from Meetic, an equity method investee

 

3.5

 

—

 

Free Cash Flow

 

$

175.0

 

$

117.5

 

 

For the nine months ended September 30, 2010, consolidated Free Cash Flow increased by $57.6 million from the prior year period due principally to an increase in Operating Income Before Amortization, partially offset by the payment of discretionary cash bonuses for 2009 in Q1 2010 while cash bonuses for 2008 were paid in Q4 2008, lower net income tax refunds and higher capital expenditures.

 

IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS

(unaudited; in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.16

 

$

0.16

 

$

0.11

 

$

0.24

 

GAAP diluted weighted average shares outstanding

 

106,228

 

134,867

 

112,868

 

144,263

 

Net earnings attributable to IAC shareholders

 

$

17,509

 

$

21,682

 

$

12,395

 

$

34,109

 

Non-cash compensation expense

 

17,332

 

16,515

 

60,985

 

48,687

 

Amortization of intangibles

 

2,310

 

10,250

 

10,423

 

26,311

 

Amortization of non-cash marketing

 

—

 

4,999

 

—

 

7,504

 

Goodwill impairment

 

—

 

—

 

—

 

1,056

 

Arcandor impairment

 

—

 

558

 

—

 

4,442

 

Gain on sale of Match Europe

 

—

 

(15,437

)

—

 

(132,244

)

Decrease in the fair value of derivatives related to Arcandor AG stock and the Expedia spin-off

 

—

 

—

 

43

 

38,204

 

Gain on sale of VUE interests and related effects

 

1,760

 

1,775

 

5,243

 

4,921

 

Discontinued operations, net of tax

 

3,737

 

2,514

 

7,227

 

3,472

 

Impact of income taxes and noncontrolling interests

 

(7,853

)

3,408

 

(34,279

)

10,063

 

Adjusted Net Income

 

$

34,795

 

$

46,264

 

$

62,037

 

$

46,525

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS weighted average shares outstanding

 

108,326

 

136,539

 

114,978

 

146,421

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

 

$

0.32

 

$

0.34

 

$

0.54

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

103,152

 

132,764

 

109,580

 

142,289

 

Options, warrants and RSUs, treasury method

 

3,076

 

2,103

 

3,288

 

1,974

 

GAAP Diluted weighted average shares outstanding

 

106,228

 

134,867

 

112,868

 

144,263

 

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

 

—

 

—

 

—

 

—

 

Impact of RSUs

 

2,098

 

1,672

 

2,110

 

2,158

 

Adjusted EPS shares outstanding

 

108,326

 

136,539

 

114,978

 

146,421

 

 

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.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

9


 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the three months ended September 30, 2010

 

 

 

Operating Income
Before
Amortization

 

Non-cash
compensation
expense

 

Amortization of 
intangibles

 

Operating income
(loss)

 

Search

 

$

29.3

 

$

(0.1

)

$

(0.3

)

$

28.9

 

Match

 

39.4

 

—

 

(1.2

)

38.1

 

ServiceMagic

 

6.7

 

—

 

(0.5

)

6.2

 

Media & Other

 

(3.6

)

(0.7

)

(0.3

)

(4.6

)

Corporate

 

(16.1

)

(16.6

)

—

 

(32.7

)

Total

 

$

55.6

 

$

(17.3

)

$

(2.3

)

35.9

 

Other income, net

 

 

 

 

 

 

 

0.3

 

Earnings from continuing operations before income taxes

 

 

 

 

 

 

 

36.2

 

Income tax provision

 

 

 

 

 

 

 

(14.8

)

Earnings from continuing operations

 

 

 

 

 

 

 

21.4

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

(3.7

)

Net earnings

 

 

 

 

 

 

 

17.6

 

Net earnings attributable to noncontrolling interests

 

 

 

 

 

 

 

(0.1

)

Net earnings attributable to IAC shareholders

 

 

 

 

 

 

 

$

17.5

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental: Depreciation

 

 

 

 

 

 

 

 

 

 

Search

 

$

8.2

 

 

 

 

 

 

 

 

Match

 

2.6

 

 

 

 

 

 

 

 

ServiceMagic

 

1.0

 

 

 

 

 

 

 

 

Media & Other

 

1.3

 

 

 

 

 

 

 

 

Corporate

 

2.2

 

 

 

 

 

 

 

 

Total depreciation

 

$

15.4

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2010

 

 

 

Operating Income
Before
Amortization

 

Non-cash
compensation
expense

 

Amortization of
intangibles

 

Operating income
(loss)

 

Search

 

$

92.9

 

$

(0.3

)

$

(1.0

)

$

91.5

 

Match

 

83.3

 

0.2

 

(6.1

)

77.3

 

ServiceMagic

 

15.7

 

—

 

(1.3

)

14.3

 

Media & Other

 

(13.7

)

(2.0

)

(2.0

)

(17.7

)

Corporate

 

(43.5

)

(58.8

)

—

 

(102.3

)

Total

 

$

134.6

 

$

(61.0

)

$

(10.4

)

63.2

 

Other expense, net

 

 

 

 

 

 

 

(21.0

)

Earnings from continuing operations before income taxes

 

 

 

 

 

 

 

42.2

 

Income tax provision

 

 

 

 

 

 

 

(23.8

)

Earnings from continuing operations

 

 

 

 

 

 

 

18.4

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

(7.2

)

Net earnings

 

 

 

 

 

 

 

11.2

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

1.2

 

Net earnings attributable to IAC shareholders

 

 

 

 

 

 

 

$

12.4

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental: Depreciation

 

 

 

 

 

 

 

 

 

 

Search

 

$

27.3

 

 

 

 

 

 

 

 

Match

 

8.5

 

 

 

 

 

 

 

 

ServiceMagic

 

3.0

 

 

 

 

 

 

 

 

Media & Other

 

5.3

 

 

 

 

 

 

 

 

Corporate

 

6.6

 

 

 

 

 

 

 

 

Total depreciation

 

$

50.6

 

 

 

 

 

 

 

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

10


 

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

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

 

 

 

For the three months ended September 30, 2009

 

 

 

Operating Income
Before
Amortization

 

Non-cash
compensation
expense

 

Amortization of
intangibles

 

Amortization of
non-cash
marketing

 

Operating income
(loss)

 

Search

 

$

26.6

 

$

(0.1

)

$

(6.3

)

$

—

 

$

20.2

 

Match

 

26.8

 

—

 

(2.9

)

—

 

23.9

 

ServiceMagic

 

9.9

 

—

 

(0.6

)

(5.0

)

4.3

 

Media & Other

 

(7.7

)

(0.1

)

(0.5

)

—

 

(8.3

)

Corporate

 

(16.7

)

(16.2

)

—

 

—

 

(32.9

)

Total

 

$

38.9

 

$

(16.5

)

$

(10.2

)

$

(5.0

)

7.1

 

Other income, net

 

 

 

 

 

 

 

 

 

51.0

 

Earnings from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

58.1

 

Income tax provision

 

 

 

 

 

 

 

 

 

(34.3

)

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

23.8

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

(2.5

)

Net earnings

 

 

 

 

 

 

 

 

 

21.3

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

0.4

 

Net earnings attributable to IAC shareholders

 

 

 

 

 

 

 

 

 

$

21.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental: Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

Search

 

$

7.8

 

 

 

 

 

 

 

 

 

 

Match

 

2.5

 

 

 

 

 

 

 

 

 

 

ServiceMagic

 

0.9

 

 

 

 

 

 

 

 

 

 

Media & Other

 

1.3

 

 

 

 

 

 

 

 

 

 

Corporate

 

2.8

 

 

 

 

 

 

 

 

 

 

Total depreciation

 

$

15.3

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2009

 

 

 

Operating Income
Before
Amortization

 

Non-cash
compensation
expense

 

Amortization of
intangibles

 

Amortization of
non-cash
marketing

 

Goodwill
Impairment

 

Operating income
(loss)

 

Search

 

$

52.7

 

$

(0.4

)

$

(19.3

)

$

(2.5

)

$

—

 

$

30.5

 

Match

 

65.3

 

(0.1

)

(3.1

)

—

 

—

 

62.0

 

ServiceMagic

 

19.5

 

(0.1

)

(2.3

)

(5.0

)

—

 

12.0

 

Media & Other

 

(28.1

)

(0.5

)

(1.6

)

—

 

(1.1

)

(31.3

)

Corporate

 

(47.8

)

(47.4

)

—

 

—

 

—

 

(95.3

)

Total

 

$

61.5

 

$

(48.7

)

$

(26.3

)

$

(7.5

)

$

(1.1

)

(22.1

)

Other income, net

 

 

 

 

 

 

 

 

 

 

 

112.4

 

Earnings from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

90.3

 

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

(53.7

)

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

36.5

 

Loss from discontinued operations, net of tax

 

 

 

 

 

 

 

 

 

 

 

(3.5

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

33.1

 

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

1.1

 

Net earnings attributable to IAC shareholders

 

 

 

 

 

 

 

 

 

 

 

$

34.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental: Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Search

 

$

24.6

 

 

 

 

 

 

 

 

 

 

 

 

Match

 

7.3

 

 

 

 

 

 

 

 

 

 

 

 

ServiceMagic

 

2.5

 

 

 

 

 

 

 

 

 

 

 

 

Media & Other

 

5.6

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

8.4

 

 

 

 

 

 

 

 

 

 

 

 

Total depreciation

 

$

48.4

 

 

 

 

 

 

 

 

 

 

 

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

11


 

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.  Interim results are not necessarily indicative of the results that may be expected for a full year.

 

Definitions of Non-GAAP Measures

 

Operating Income Before Amortization is defined as operating income excluding, if applicable: (1) non-cash compensation expense, (2) amortization of non-cash marketing, (3) amortization and impairment of intangibles, (4) goodwill impairment, (5) pro forma adjustments for significant acquisitions, and (6) 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 noncontrolling interest, if applicable: (1) non-cash compensation expense, (2) amortization of non-cash marketing, (3) amortization and impairment of intangibles, (4) goodwill impairment, (5) pro forma adjustments for significant acquisitions, (6) equity income or loss from IAC’s 5.44% interest in VUE and gain on the sale of IAC’s interest in VUE and related effects, (7) 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, (8) income or expense reflecting changes in the fair value of the derivative asset associated with the HSE sale, (9) impairment of our investment in Arcandor, (10) non-cash gain on the sale of Match Europe, (11) one-time items, and (12) 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 noncontrolling 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 in accordance with 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 noncontrolling 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. In addition, Free Cash Flow excludes, if applicable, tax payments and refunds related to the sale of IAC’s interests in VUE, PRC, HSE, Jupiter Shop Channel and EPI, an internal restructuring and dividends that represent a return of capital due to the exclusion of the proceeds from these sales and dividends 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

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

12


 

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 stock options, restricted stock units and restricted stock. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding which, for stock options and restricted stock units, 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 the exercise of certain stock options and vesting of restricted stock units and restricted stock, 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 credits 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 was 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 were used prior to December 31, 2009.  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 technology and supplier agreements, 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 was excluded from Adjusted Net Income and Adjusted EPS because the obligations underlying these derivatives, which related to the Ask Convertible Notes and certain IAC warrants, were expected to ultimately be settled in shares of IAC common stock and Expedia common stock, and not in cash.

 

Non-cash income or expense reflecting changes in the fair value of the derivative asset related to the Arcandor AG stock was excluded from Adjusted Net Income and Adjusted EPS because the variations in the value of the derivative were non-operational in nature.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

13


 

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.

 

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, anticipated trends and prospects in the 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 senior management at IAC and/or its businesses, changes in our relationship with Google, adverse changes in economic conditions, either generally or in any of the markets in which IAC’s businesses operate, adverse trends in the online advertising industry or the advertising industry generally, our ability to convert visitors to our various websites into users and customers, our ability to offer new or alternative products and services in a cost-effective manner and consumer acceptance of these products and services, operational and financial risks relating to acquisitions, changes in industry standards and technology, our ability to expand successfully into international markets and regulatory changes. 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 operates more than 50 leading and diversified Internet businesses across 30 countries... 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 www.iac.com.

 

Contact Us

 

IAC Investor Relations

Nick Stoumpas / Lisa Jaffa

(212) 314-7400

 

IAC Corporate Communications

Stacy Simpson / Leslie Cafferty

(212) 314-7470 / 7326

 

IAC

555 West 18th Street, New York, NY 10011  212.314.7300 Fax 212.314.7309  http://iac.com

 

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SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

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