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IAC Reports Q3 Results

Tuesday, October 31, 2006 - 00:30

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

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

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

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

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

                             SUMMARY RESULTS
                 $ in millions (except per share amounts)

                                       Q3 2006      Q3 2005     Growth
  Revenue                             $1,603.0     $1,444.4      11.0%

  Operating Income Before Amortization  $171.8       $154.2      11.4%
  Adjusted Net Income                   $111.2       $113.3      -1.8%
  Adjusted EPS                           $0.35        $0.32      10.8%

  Operating Income                      $109.5        $19.2     469.1%
  Net Income                             $74.9        $68.1      10.1%
  GAAP Diluted EPS                       $0.24        $0.20      24.2%

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


                              SECTOR RESULTS

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


                                            Q3 2006      Q3 2005     Growth
  REVENUE
    Retailing                                $768.7       $749.5        3%
    Services                                  511.9        452.9       13%
    Media & Advertising                       135.5         83.5       62%
    Membership & Subscriptions                185.1        162.8       14%
    Emerging Businesses                         6.9          4.1       70%
    Other                                      (5.2)        (8.3)      37%
    Total                                  $1,603.0     $1,444.4       11%


  OPERATING INCOME BEFORE AMORTIZATION
    Retailing                                 $56.8        $54.0        5%
    Services                                   80.9         86.0       -6%
    Media & Advertising                        15.9          9.3       71%
    Membership & Subscriptions                 44.5         36.1       23%
    Emerging Businesses                        (7.1)        (4.6)     -54%
    Corporate and other                       (19.1)       (26.5)      28%
    Total                                    $171.8       $154.2       11%


  OPERATING INCOME (LOSS)
    Retailing                                 $49.8        $38.0       31%
    Services                                   68.0         69.6       -2%
    Media & Advertising                        (2.1)        (0.9)    -148%
    Membership & Subscriptions                 36.6         27.4       34%
    Emerging Businesses                        (7.2)        (4.6)     -57%
    Corporate and other                       (35.5)      (110.3)      68%
    Total                                    $109.5        $19.2      469%

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

              DISCUSSION OF FINANCIAL AND OPERATING RESULTS

  RETAILING

                                            Q3 2006      Q3 2005     Growth
  Revenue                                              $ in millions
      U.S.                                   $686.2       $664.3         3%
      International                            82.5         85.2        -3%
                                             $768.7       $749.5         3%
  Operating Income Before Amortization
      U.S.                                    $57.3        $56.7         1%
      International                            (0.6)        (2.8)       79%
                                              $56.8        $54.0         5%
  Operating Income (Loss)
      U.S.                                    $50.3        $41.1        23%
      International                            (0.6)        (3.1)       81%
                                              $49.8        $38.0        31%

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

Retailing U.S.

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

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

Retailing International

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

  SERVICES
                                           Q3 2006     Q3 2005     Growth
  Revenue                                           $ in millions
      Ticketing                             $265.5      $227.5        17%
      Lending                                106.0       109.4        -3%
      Real Estate                             15.9        16.3        -3%
      Teleservices                           106.1        87.4        21%
      Home Services                           18.5        12.2        51%
                                            $511.9      $452.9        13%
  Operating Income Before Amortization
      Ticketing                              $57.0       $49.9        14%
      Lending                                 18.8        30.6       -38%
      Real Estate                             (6.3)       (2.4)     -161%
      Teleservices                             5.3         4.4        21%
      Home Services                            6.0         3.5        71%
                                             $80.9       $86.0        -6%
  Operating Income (Loss)
      Ticketing                              $50.5       $42.8        18%
      Lending                                 15.2        25.3       -40%
      Real Estate                             (8.0)       (5.4)      -48%
      Teleservices                             5.3         4.4        21%
      Home Services                            5.1         2.6        96%
                                             $68.0       $69.6        -2%

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

Ticketing

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

Lending

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

Real Estate

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

Home Services

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

  MEDIA & ADVERTISING

                                            Q3 2006     Q3 2005      Growth
                                                     $ in millions
  Revenue                                    $135.5       $83.5         62%
  Operating Income Before Amortization        $15.9        $9.3         71%
  Operating Loss                              $(2.1)      $(0.9)      -148%

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

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

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

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

  MEMBERSHIP & SUBSCRIPTIONS

                                            Q3 2006      Q3 2005     Growth
  Revenue                                              $ in millions
      Vacations                               $72.9        $66.1        10%
      Personals                                80.2         66.0        22%
      Discounts                                32.0         30.8         4%
      Intra-sector Elimination                 (0.1)           -        NM
                                             $185.1       $162.8        14%
  Operating Income Before Amortization
      Vacations                               $29.1        $26.6        10%
      Personals                                19.3         16.6        16%
      Discounts                                (3.9)        (7.1)       45%
                                              $44.5        $36.1        23%
  Operating Income (Loss)
      Vacations                               $22.8        $20.2        13%
      Personals                                19.0         15.8        20%
      Discounts                                (5.2)        (8.6)       40%
                                              $36.6        $27.4        34%

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

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

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

OTHER ITEMS

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

DILUTIVE SECURITIES

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

                             Avg.
                            Strike/     As of
                    Shares Conversion  10/27/06        Dilution at:

  Share Price                           $30.10  $35.00 $40.00 $45.00 $50.00

  Absolute
  Shares as
  of 10/27/06 (a)   293.4                293.4   293.4  293.4  293.4  293.4

  RSUs and Other      8.7                  8.7     8.6    8.5    8.4    8.4
  Options            25.9  $20.80          6.5     7.2    7.7    8.1    8.4
  Warrants           34.6  $27.88          5.5     7.9   10.4   13.1   15.2
  Convertible Notes   0.8  $14.82          0.8     0.8    0.8    0.8    0.8


  Total Treasury
   Method Dilution                        21.5    24.3   27.3   30.4   32.8
    % Dilution                             6.8%    7.7%   8.5%   9.4%  10.1%
  Total Treasury
   Method Diluted
   Shares
   Outstanding                           314.9   317.8  320.7  323.8  326.2

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

CONFERENCE CALL

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

                            OPERATING METRICS

                                            Q3 2006      Q3 2005     Growth
  RETAILING

  Retailing - U.S.                 (a)
    Units shipped (mm)                       12.9         12.4         4%
    Gross profit %                           38.5%        37.6%
    Return rate                              17.9%        16.7%
    Average price point                    $58.06       $58.89        -1%
    Internet %                     (b)         26%          23%
    HSN total homes - end of period  (mm)    88.6         88.9         0%
    Catalogs mailed (mm)                     98.1         92.3         6%

  SERVICES

  Ticketing
    Number of tickets sold (mm)              30.9          28.9         7%
    Gross value of tickets sold (mm)       $1,609        $1,432        12%

  Lending
    Transmitted QFs (000s)         (c)    1,020.6         879.4        16%
    Closings - units (000s)        (d)       68.7          75.8        -9%
    Closings - dollars ($mm)       (d)     $8,031        $9,934       -19%

  Real Estate
    Closings - units (000s)                   3.4           4.0       -16%
    Closings - dollars ($mm)                 $868        $1,068       -19%

  MEDIA & ADVERTISING

  IAC Search & Media Revenue by traffic
   source (pro forma)
     Proprietary                             59.3%         65.7%
     Network                                 40.7%         34.3%


  MEMBERSHIP & SUBSCRIPTIONS

  Vacations
    Members (000s)                          1,843         1,764         5%
    Confirmations (000s)                      213           202         6%
    Share of confirmations online              25%           22%

  Personals
    Paid Subscribers (000s)               1,319.7       1,178.9        12%


  (a) Retailing - U.S. metrics include HSN and the catalogs business.
  (b) Internet demand as a percent of total Retailing - U.S. demand
      excluding Liquidations and Services.
  (c) Customer "Qualification Forms" (QFs) transmitted to at least one
      exchange lender (including LendingTree Loans) plus QFs transmitted to
      at least one GetSmart lender.
  (d) Loan closings consist of loans closed by exchange lenders and directly
      by LendingTree Loans.



                        GAAP FINANCIAL STATEMENTS

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

                                 Three Months Ended     Nine Months Ended
                                    September 30,          September 30,
                                  2006       2005        2006        2005

  Product sales                 $806,611   $783,961  $2,402,527  $2,203,023
  Service revenue                796,360    660,473   2,360,117   1,745,620
      Net revenue              1,602,971  1,444,434   4,762,644   3,948,643
  Cost of sales-product sales    489,726    482,518   1,462,430   1,352,377
  Cost of sales-service revenue  363,851    303,583   1,069,208     836,965
  Gross profit                   749,394    658,333   2,231,006   1,759,301

  Selling and marketing expense  304,668    270,823     960,716     703,152
  General and administrative
   expense                       209,851    247,052     608,263     591,193
  Other operating expense         37,840     33,336     108,186      83,138
  Amortization of non-cash
   marketing                      14,629        -        32,625         -
  Amortization of intangibles     29,554     50,177     127,255     133,933
  Depreciation                    43,306     37,696     129,692     108,034
      Operating income           109,546     19,249     264,269     139,851

  Other income (expense):
    Interest income               16,578     29,365      55,032     121,377
    Interest expense             (14,731)   (20,439)    (45,738)    (58,106)
    Gain on sale of VUE interests      -          -           -     523,487
    Equity in income of
     unconsolidated affiliates     8,322      6,225      25,594      39,580
    Other income                   3,541      8,034       7,479      16,126
  Total other income, net         13,710     23,185      42,367     642,464

  Earnings from continuing
   operations before income
   taxes and minority interest   123,256     42,434     306,636     782,315
  Income tax provision           (54,180)    (6,802)   (131,356)   (309,882)
  Minority interest in income
   of consolidated subsidiaries       30       (526)        701      (1,951)
  Earnings from continuing
   operations                     69,106     35,106     175,981     470,482
  Gain on sale of EUVIA, net
   of tax                              -          -           -      79,648
  Income (loss) from
   discontinued operations,
   net of tax                      5,839     34,383         (45)    212,953
  Earnings before preferred
   dividends                      74,945     69,489     175,936     763,083
  Preferred dividends                  -     (1,412)          -      (7,938)
  Net earnings available to
   common shareholders           $74,945    $68,077    $175,936    $755,145


  Earnings per share from
   continuing operations:
     Basic earnings per share      $0.23      $0.10       $0.57       $1.39
     Diluted earnings per share    $0.22      $0.10       $0.54       $1.30

  Net earnings per share
   available to common
   shareholders:
     Basic earnings per share      $0.25      $0.21       $0.57       $2.27
     Diluted earnings per share    $0.24      $0.20       $0.54       $2.12


  IAC CONSOLIDATED BALANCE SHEET
  ($ in thousands)

                                              September 30,     December 31,
                                                 2006               2005
                 ASSETS                       (unaudited)        (audited)
   CURRENT ASSETS
   Cash and cash equivalents                  $1,068,857          $987,080
   Restricted cash and cash equivalents           27,938            93,561
   Marketable securities                         805,335         1,488,058
   Accounts and notes receivable, net            546,252           485,268
   Loans held for sale, net                      332,235           372,512
   Inventories, net                              425,943           337,186
   Deferred income taxes                          76,119            66,691
   Other current assets                          181,056           163,172
       Total current assets                    3,463,735         3,993,528

   Property, plant and equipment, net            610,399           566,990
   Goodwill                                    7,259,002         7,351,700
   Intangible assets, net                      1,515,022         1,558,188
   Long-term investments                         146,314           122,313
   Other non-current assets                      176,124           325,046
   TOTAL ASSETS                              $13,170,596       $13,917,765

            LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
   Current maturities of long-term
    obligations and short-term borrowings       $344,332          $375,276
   Accounts payable, trade                       280,976           326,766
   Accounts payable, client accounts             384,544           269,344
   Deferred revenue                              148,769           123,267
   Income taxes payable                          433,583           516,940
   Other accrued liabilities                     549,849           621,404
       Total current liabilities               2,142,053         2,232,997

   Long-term obligations, net of current
    maturities                                   871,574           959,410
   Other long-term liabilities                   160,999           223,486
   Deferred income taxes                       1,231,964         1,265,530
   Minority interest                              28,715             5,514


   SHAREHOLDERS' EQUITY
   Preferred stock                                     -                 -
   Common stock                                      408               399
   Class B convertible common stock                   32                32
   Additional paid-in capital                 14,554,011        14,341,668
   Retained earnings                             304,012           128,076
   Accumulated other comprehensive income         51,470            26,073
   Treasury stock                             (6,169,644)       (5,260,422)
   Note receivable from key executive for
    common stock issuance                         (4,998)           (4,998)
       Total shareholders' equity              8,735,291         9,230,828
   TOTAL LIABILITIES AND SHAREHOLDERS'
    EQUITY                                   $13,170,596       $13,917,765



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

                                             Nine Months Ended September 30,
                                                  2006              2005
  Cash flows from operating activities
   attributable to continuing operations:
  Earnings before preferred dividends           $175,936          $763,083
  Less: loss (income) from discontinued
   operations, net of tax                             45          (292,601)
  Earnings from continuing operations            175,981           470,482
  Adjustments to reconcile earnings from
   continuing operations to net cash
   provided by operating activities
   attributable to continuing operations:
      Depreciation and amortization of
       intangibles                               256,947           241,967
      Non-cash compensation expense               70,772           113,778
      Amortization of cable distribution fees     23,191            51,183
      Amortization of non-cash marketing          32,625                 -
      Deferred income taxes                       64,229        (1,054,605)
      Excess tax benefits from stock-based awards      -            27,422
      Gain on sales of loans held for sale      (170,174)         (128,288)
      Gain on sale of VUE interests                    -          (523,487)
      Equity in income of unconsolidated
       affiliates, net of dividends              (25,594)          (39,580)
      Non-cash interest income                         -           (29,511)
      Minority interest in income of consolidated
       subsidiaries                                 (701)            1,951
      Increase in cable distribution fees        (16,875)          (20,067)
  Changes in current assets and liabilities:
      Accounts and notes receivable              (11,514)           (4,727)
      Origination of loans held for sale      (5,956,766)       (5,282,836)
      Proceeds from sales of loans held for
       sale                                    6,166,840         5,200,748
      Inventories                                (89,206)          (92,944)
      Prepaids and other assets                  (14,792)          (11,039)
      Accounts payable, income taxes payable
       and accrued liabilities                  (116,365)          519,540
      Deferred revenue                            25,410            32,308
      Funds collected by Ticketing on behalf
       of clients, net                            64,947            78,666
      Other, net                                  37,016            (6,368)
  Net cash provided by (used in) operating
   activities attributable to continuing
   operations                                    515,971          (455,407)
  Cash flows from investing activities
   attributable to continuing operations:
      Acquisitions, net of cash acquired         (80,148)         (682,809)
      Capital expenditures                      (178,635)         (175,262)
      Purchases of marketable securities        (529,643)       (1,943,180)
      Proceeds from sales and maturities of
       marketable securities                   1,220,121         2,324,303
      Decrease (increase) in long-term
       investments                                 4,117           (28,707)
      Proceeds from sale of VUE interests              -         1,882,291
      Proceeds from sale of Euvia                      -           183,016
      Other, net                                   2,257            31,334
  Net cash provided by investing activities
   attributable to continuing operations         438,069         1,590,986
  Cash flows from financing activities
   attributable to continuing operations:
      Borrowings                                     814            80,000
      Borrowings under warehouse lines
       of credit                               5,853,469         5,190,541
      Repayments of warehouse lines of
       credit                                 (5,892,278)       (4,984,897)
      Principal payments on long-term
       obligations                               (12,859)          (38,344)
      Purchase of treasury stock                (927,059)       (1,488,427)
      Issuance of common stock, net of
       withholding taxes                          49,785            47,362
      Redemption of preferred stock                    -          (655,727)
      Preferred dividends                              -            (7,938)
      Excess tax benefits from stock-based awards 14,144                 -
      Other, net                                  22,035           (42,062)
  Net cash used in financing activities
   attributable to continuing activities        (891,949)       (1,899,492)
  Total cash provided by (used in) continuing
   operations                                     62,091          (763,913)
  Net cash (used in) provided by operating
   activities attributable to discontinued
   operations                                     (3,537)          753,445
  Net cash used in investing activities
   attributable to discontinued operations          (104)          (19,062)
  Net cash used in financing activities
   attributable to discontinued operations             -           (38,717)
  Total cash (used in) provided by discontinued
   operations                                     (3,641)          695,666
  Effect of exchange rate changes on cash and
   cash equivalents                               23,327           (22,053)
  Net increase (decrease) in cash and cash
   equivalents                                    81,777           (90,300)
  Cash and cash equivalents at beginning
   of period                                     987,080           999,698
  Cash and cash equivalents at end of period  $1,068,857          $909,398



  RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

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

                                             Nine Months Ended September 30,
                                                   2006              2005
  Net cash provided by operating activities
   attributable to continuing operations          $516.0            $(455.4)
    (Decrease) increase in warehouse loans payable (38.8)             205.6
    Capital expenditures                          (178.6)            (175.3)
    Tax payments related to the sale of VUE
     interests                                      11.1              652.8
    Preferred dividends paid                           -               (7.9)
  Free Cash Flow (a)                              $309.6             $219.8


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

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

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

                                       Three Months Ended  Nine Months Ended
                                         September 30,       September 30,
                                         2006      2005      2006      2005

  Diluted earnings per share            $0.24     $0.20     $0.54     $2.12
  GAAP diluted weighted average
   shares outstanding                 309,214   347,788   324,747   360,906
  Net earnings available to common
   shareholders                       $74,945   $68,077  $175,936  $755,145
  Non-cash compensation expense        18,092    84,775    70,772   113,778
  Amortization of non-cash marketing   14,629       -      32,625       -
  Amortization of intangibles          29,554    50,177   127,255   133,933
  Equity in income of VUE                 -         -         -     (21,960)
  Net other (income) expense related
   to fair value adjustment on
   derivatives                          2,741    (9,400)    2,977    (9,400)
  Gain on sale of VUE interests and
   related effects                      3,886       -       8,591  (523,487)
  Gain on sale of EUVIA, net of tax       -         -         -     (79,648)
  Discontinued operations, net of tax  (5,839)  (34,383)       45  (212,953)
  Impact of income taxes and minority
   interest                           (27,032)  (46,356)  (93,467)  133,769
  Interest on convertible notes, net
   of tax                                 241       412       851       412
  Adjusted Net Income                $111,217  $113,302  $325,585  $289,589

  Adjusted EPS weighted average
   shares outstanding                 316,067   356,618   331,304   358,138

  Adjusted EPS                          $0.35     $0.32     $0.98     $0.81

  GAAP Basic weighted average shares
   outstanding                        296,091   326,421   309,070   332,426
  Options, warrants and restricted
   stock, treasury method              11,823    21,367    14,019    19,464
  Conversion of convertible
   preferred and convertible notes
   (if applicable)                      1,300       -       1,658     9,016
  GAAP Diluted weighted average
   shares outstanding                 309,214   347,788   324,747   360,906
  Impact of restricted shares and
   convertible preferred and notes
   (if applicable), net                 6,853     8,830     6,557    (2,768)
  Adjusted EPS shares outstanding     316,067   356,618   331,304   358,138

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

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

                               For the three months ended September 30, 2006
                       Operating                            Amorti-
                        Income      Non-cash   Amortization zation Operating
                         Before    compensation of non-cash   of     income
                     Amortization   expense(A) marketing  intangibles (loss)

  Retailing:
    U.S.                  $57.3        $(1.3)        $-      $(5.7)   $50.3
    International          (0.6)           -          -        -       (0.6)
  Total Retailing          56.8         (1.3)         -       (5.7)    49.8
  Services:
    Ticketing              57.0            -          -       (6.6)    50.5
    Lending                18.8         (0.1)         -       (3.5)    15.2
    Real Estate            (6.3)        (0.1)         -       (1.7)    (8.0)
    Teleservices            5.3            -          -         -       5.3
    Home Services           6.0         (0.2)         -       (0.8)     5.1
  Total Services           80.9         (0.4)         -      (12.5)    68.0
  Media & Advertising      15.9            -      (14.6)      (3.4)    (2.1)
  Membership &
   Subscriptions:
    Vacations              29.1            -          -       (6.3)    22.8
    Personals              19.3            -          -       (0.3)    19.0
    Discounts              (3.9)           -          -       (1.3)    (5.2)
  Total Membership &
   Subscriptions           44.5            -          -       (7.8)    36.6
  Emerging Businesses      (7.1)           -          -       (0.1)    (7.2)
  Corporate and other     (19.1)       (16.4)         -         -     (35.5)
  Total                  $171.8       $(18.1)    $(14.6)    $(29.6)  $109.5
  Other income, net                                                    13.7
  Earnings from continuing operations
   before income taxes and
   minority interest                                                  123.3
  Income tax provision                                                (54.2)
  Minority interest in income of
   consolidated subsidiaries                                             -
  Earnings from continuing operations                                  69.1
  Income from discontinued operations,
   net of tax                                                           5.8
  Earnings before preferred dividends                                  74.9
  Preferred dividends                                                    -
  Net earnings available to common shareholders                       $74.9

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

     Supplemental: Depreciation
     Retailing:
       US                               $8.9
       International                     1.4
     Total Retailing                    10.2
     Services:
       Ticketing                         9.5
       Lending                           2.3
       Real Estate                       0.7
       Teleservices                      3.8
       Home Services                     0.5
     Total Services                     16.8
     Media & Advertising                 6.9
     Membership & Subscriptions:
       Vacations                         1.9
       Personals                         2.3
       Discounts                         1.5
     Total Membership & Subscriptions    5.8
     Emerging Businesses                 0.6
     Corporate and other                 3.0
     Total Depreciation                $43.3



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

                              For the nine months ended September 30, 2006
                       Operating                            Amorti-
                        Income      Non-cash   Amortization zation Operating
                         Before    compensation of non-cash   of     income
                     Amortization   expense(A) marketing  intangibles (loss)
    Retailing:
      U.S.               $176.8        $(3.5)        $-     $(30.5)  $142.9
     International         (0.5)           -          -       (0.7)    (1.2)
    Total Retailing       176.3         (3.5)         -      (31.2)   141.6
    Services:
      Ticketing           198.8            -          -      (20.5)   178.3
      Lending              46.5          1.0          -      (13.5)    34.0
      Real Estate         (15.9)         0.5          -       (6.2)   (21.6)
      Teleservices         15.8            -          -          -     15.8
      Home Services        13.6         (0.5)         -       (2.4)    10.8
    Total Services        258.8          1.1          -      (42.6)   217.3
    Media & Advertising    38.2            -      (29.6)     (28.5)   (19.9)
    Membership &
     Subscriptions:
      Vacations            94.4            -          -      (18.9)    75.5
      Personals            42.5            -       (3.0)      (1.9)    37.6
      Discounts           (34.3)           -          -       (3.9)   (38.1)
    Total Membership &
     Subscriptions        102.7            -       (3.0)     (24.6)    75.0
    Emerging Businesses   (19.6)        (0.1)         -       (0.4)   (20.1)
    Corporate and other   (61.4)       (68.3)         -          -   (129.7)
    Total                $494.9       $(70.8)    $(32.6)   $(127.3)  $264.3
    Other income, net                                                  42.4
    Earnings from continuing
     operations before income taxes
     and minority interest                                            306.6
    Income tax provision                                             (131.4)
    Minority interest in income of
     consolidated subsidiaries                                          0.7
    Earnings from continuing
     operations                                                       176.0
    Loss from discontinued
     operations, net of tax                                              -
    Earnings before preferred dividends                               176.0
    Preferred dividends                                                  -
    Net earnings available to
     common shareholders                                             $175.9

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

    Supplemental: Depreciation
    Retailing:
      US                               $29.0
      International                      3.8
    Total Retailing                     32.8
    Services:
      Ticketing                         28.6
      Lending                            7.3
      Real Estate                        1.9
      Teleservices                      11.3
      Home Services                      1.2
    Total Services                      50.4
    Media & Advertising                 20.3
    Membership & Subscriptions:
      Vacations                          5.9
      Personals                          5.8
      Discounts                          4.3
    Total Membership & Subscriptions    16.0
    Emerging Businesses                  1.6
    Corporate and other                  8.6
    Total Depreciation                $129.7



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

                               For the three months ended September 30, 2005
                       Operating                            Amorti-
                        Income      Non-cash   Amortization zation Operating
                         Before    compensation of non-cash   of     income
                     Amortization   expense(A) marketing  intangibles (loss)
     Retailing:
       U.S.               $56.7        $(0.3)        $-     $(15.4)   $41.1
      International        (2.8)           -          -       (0.3)    (3.1)
     Total Retailing       54.0         (0.3)         -      (15.7)    38.0
     Services:
       Ticketing           49.9            -          -       (7.1)    42.8
       Lending             30.6         (0.5)         -       (4.8)    25.3
       Real Estate         (2.4)        (0.2)         -       (2.8)    (5.4)
       Teleservices         4.4            -          -          -      4.4
       Home Services        3.5         (0.1)         -       (0.8)     2.6
     Total Services        86.0         (0.9)         -      (15.5)    69.6
     Media & Advertising    9.3            -          -      (10.1)    (0.9)
     Membership &
      Subscriptions:
       Vacations           26.6            -          -       (6.3)    20.2
       Personals           16.6            -          -       (0.9)    15.8
       Discounts           (7.1)           -          -       (1.6)    (8.6)
     Total Membership &
      Subscriptions        36.1            -          -       (8.7)    27.4
     Emerging Businesses   (4.6)         0.1          -       (0.1)    (4.6)
     Corporate and other  (26.5)       (83.8)         -          -   (110.3)
     Total               $154.2       $(84.8)        $-     $(50.2)   $19.2
     Other income, net                                                 23.2
     Earnings from continuing
      operations before income taxes
      and minority interest                                            42.4
     Income tax provision                                              (6.8)
     Minority interest in income of
      consolidated subsidiaries                                        (0.5)
     Earnings from continuing
      operations                                                       35.1
     Gain on sale of EUVIA, net of tax                                   -
     Income from discontinued
      operations, net of tax                                           34.4
     Earnings before preferred
      dividends                                                        69.5
     Preferred dividends                                               (1.4)
     Net earnings available to common
      shareholders                                                    $68.1

  (A) Non-cash compensation expense includes $3.2 million, $1.5 million
      and $80.1 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                              $10.0
       International                     1.2
     Total Retailing                    11.2
     Services:
       Ticketing                         9.2
       Lending                           1.5
       Real Estate                       0.3
       Teleservices                      3.9
       Home Services                     0.3
     Total Services                     15.1
     Media & Advertising                 4.8
     Membership & Subscriptions:
       Vacations                         1.8
       Personals                         1.6
       Discounts                         1.2
     Total Membership &
      Subscriptions                      4.6
     Emerging Businesses                 0.1
     Corporate and other                 1.9
     Total Depreciation                $37.7



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

                              For the nine months ended September 30, 2005
                       Operating                            Amorti-
                        Income      Non-cash   Amortization zation Operating
                         Before    compensation of non-cash   of     income
                     Amortization   expense(A) marketing  intangibles (loss)
    Retailing:
      U.S.               $172.2        $(0.3)        $-     $(44.1)  $127.8
      International        (0.2)           -          -       (1.0)    (1.2)
    Total Retailing       172.0         (0.3)         -      (45.1)   126.6
    Services:
      Ticketing           159.6            -          -      (21.4)   138.1
      Lending              66.7         (1.4)         -      (18.7)    46.6
      Real Estate         (13.8)        (0.7)         -       (9.3)   (23.9)
      Teleservices         11.0            -          -          -     11.0
      Home Services         9.1          0.9          -       (2.2)     7.8
    Total Services        232.6         (1.3)         -      (51.7)   179.6
    Media & Advertising    10.2            -          -      (10.2)       -
    Membership & Subscriptions:
      Vacations            85.5            -          -      (18.9)    66.6
      Personals            32.5            -          -       (2.8)    29.7
      Discounts           (31.7)           -          -       (4.8)   (36.6)
    Total Membership &
     Subscriptions         86.2            -          -      (26.5)    59.7
    Emerging Businesses   (13.0)           -          -       (0.4)   (13.4)
    Corporate and other  (100.6)      (112.2)         -          -   (212.7)
    Total                $387.6      $(113.8)        $-    $(133.9)  $139.9
    Other income, net                                                 642.5
    Earnings from continuing
     operations before income taxes
     and minority interest                                            782.3
    Income tax provision                                             (309.9)
    Minority interest in income of
     consolidated subsidiaries                                         (2.0)
    Earnings from continuing
     operations                                                       470.5
    Gain on sale of EUVIA, net of
     tax                                                               79.6
    Income from discontinued
     operations, net of tax                                           213.0
    Earnings before preferred
     dividends                                                        763.1
    Preferred dividends                                                (7.9)
    Net earnings available to common
     shareholders                                                    $755.1

  (A) Non-cash compensation expense includes $5.3 million, $3.2 million,
      $105.2 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                               $30.5
     International                       5.5
    Total Retailing                     35.9
    Services:
      Ticketing                         27.5
      Lending                            3.9
      Real Estate                        0.7
      Teleservices                      11.4
      Home Services                      0.7
    Total Services                      44.3
    Media & Advertising                  6.9
    Membership & Subscriptions:
      Vacations                          5.3
      Personals                          6.4
      Discounts                          3.4
    Total Membership & Subscriptions    15.2
    Emerging Businesses                  0.1
    Corporate and other                  5.6
    Total Depreciation                $108.0



                 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.

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.

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.

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/InterActiveCorp

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

  Contact:
  IAC Investor Relations
  James Hart / Eoin Ryan
  (212) 314-7400

  IAC Corporate Communications
  Andrea Riggs / Stacy Simpson
  (212) 314-7280 / 7470

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

First Call Analyst:
FCMN Contact:

SOURCE: IAC

CONTACT: IAC Investor Relations, James Hart or Eoin Ryan,
+1-212-314-7400, or IAC Corporate Communications, Andrea Riggs,
+1-212-314-7280, or Stacy Simpson, +1-212-314-7470

Web site: http://www.iac.com/

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