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IAC Reports Q4 Results

Wednesday, February 2, 2011 - 00:00

NEW YORK, Feb. 2, 2011 /PRNewswire/ -- IAC (Nasdaq: IACI) released fourth quarter 2010 results today.

SUMMARY RESULTS

 

$ in millions (except per share amounts)

 
                       
     

Q4 2010

Q4 2009

Growth

   

FY 2010

FY 2009

Growth

 
 

Revenue

 

$            451.4

$        355.7

27%

   

$     1,636.8

$     1,346.7

22%

 
                       
 

Operating Income Before Amortization

 

48.5

42.0

15%

   

189.6

121.9

56%

 
 

Adjusted Net Income

 

27.0

26.9

0%

   

93.0

84.3

10%

 
 

Adjusted EPS

 

0.26

0.20

27%

   

0.83

0.59

40%

 
                       
 

Operating (Loss) Income

 

(21.4)

(1,035.6)

98%

   

49.8

(1,038.0)

NM

 
 

Net Income (Loss)

 

87.0

(1,012.9)

NM

   

99.4

(978.8)

NM

 
 

GAAP Diluted EPS

 

0.90

(7.94)

NM

   

0.93

(7.06)

NM

 
                       
 

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

         
                     

Information Regarding the Results:

  • Q4 revenue increased 27% led by double digit growth at Search, Match and Media & Other.  Operating Income Before Amortization increased 15% despite $14.8 million in restructuring and transaction expenses.
  • Free Cash Flow for the twelve months ended December 31, 2010 was $252.5 million, up 16% over the prior year period, while cash flow from operating activities attributable to continuing operations was $340.7 million.
  • On December 1, 2010 IAC completed the tax-free exchange of the capital stock of its wholly-owned subsidiary that held Evite, Gifts.com and IAC Advertising Solutions and approximately $218 million in cash for Liberty Media Corporation's remaining 12.8 million shares in IAC (the "Liberty Exchange").
  • Q4 net income (loss) reflects:
    • A $140.8 million gain related to the Liberty Exchange and a $21.5 million after-tax loss related to the shutdown of an early stage business, which impacted GAAP EPS by $1.24.
    • After-tax impairment charges related to goodwill and intangible assets of $41.8 million and $991.9 million in 2010 and 2009, respectively, which impacted GAAP EPS by $0.43 and $7.77, respectively.

 

Principal Areas of Focus:

  • Search: Mindspark launched 24 new proprietary products and added 49 new distribution partners in 2010; The Daily Burn's "Calorie, Workout, and Fitness Companion," "FoodScanner" and "Push-Up Wars" apps were top 10 in their respective categories in the iPhone app store; Ask.com launched its Q&A service for the iPhone.
  • Local: ServiceMagic grew its service provider network 22% year-over-year to over 82,000 professionals.  Market Hardware increased web solution site sales from less than 300 in 2009 to more than 11,000 in 2010.  
  • Personals: Grew subscribers and organic subscribers by 30% and 17%, respectively.
  • Media: Vimeo launched Vimeo Video School, a free online educational initiative offering more than 800 lessons, tips and tutorials; The Daily Beast completed the formation of its joint venture with Newsweek; Electus  acquired Engine Entertainment and formed a partnership with DiGa, an independent production studio headed by Tony DiSanto and Liz Gateley, former MTV programming executives.

 

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

 
   
   

Q4 2010

Q4 2009

Growth

 

Revenue

$ in millions

 

   Search

$           235.9

$           182.8

29%

 

   Match

108.3

83.3

30%

 

   ServiceMagic

41.3

38.2

8%

 

   Media & Other

66.7

52.0

28%

 

   Intercompany Elimination

(0.8)

(0.5)

-55%

 
   

$           451.4

$           355.7

27%

 

Operating Income Before Amortization

       

    Search

$             32.7

$             30.8

6%

 

    Match

38.8

28.8

34%

 

    ServiceMagic

2.5

1.8

36%

 

    Media & Other

(4.8)

(1.6)

-196%

 

    Corporate

(20.7)

(17.8)

-16%

 
   

$             48.5

$             42.0

15%

 

Operating Income (Loss)

       

    Search

$             21.3

$      (1,018.9)

NM

 

    Match

38.0

22.6

68%

 

    ServiceMagic

2.1

1.4

52%

 

    Media & Other

(37.9)

(2.1)

-1692%

 

    Corporate

(45.0)

(38.6)

-17%

 
   

$           (21.4)

$      (1,035.6)

98%

 
   

Note: On December 1, 2010, IAC completed the tax-free exchange of Evite, Gifts.com and IAC Advertising Solutions with Liberty Media Corporation.  In addition, during the fourth quarter of 2010, InstantAction ceased operations.  Accordingly, the results of the aforementioned businesses are excluded from the tables above and are presented as discontinued operations.

 
         

Search

Search includes toolbars and destination websites, including Ask.com and Dictionary.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 revenue per query and queries from distributed and proprietary toolbars, and growth in queries from destination websites.  The increase in revenue per query from distributed and proprietary toolbars is primarily attributable to higher click-through-rates.  The increase in queries from distributed toolbars was driven by growth from existing partners and the contribution from new partners while the increase in queries from proprietary toolbars and destination websites was primarily driven by increased traffic acquisition efforts.  CityGrid Media revenue increased primarily due to the contribution from new resellers and growth from existing resellers.

Profits were favorably impacted by higher revenue, partially offset by $9.6 million in restructuring costs related to Ask.com's operations and higher traffic acquisition costs.  Operating income in the current year and operating loss in the prior year reflect impairment charges of $11.0 million and $1.045 billion related to the intangible assets and the goodwill and intangible assets, respectively, of IAC Search & Media.

Match

Match revenue benefited from strong growth at Match.com U.S. and People Media, as well as the acquisition of Singlesnet and our venture with Meetic in Latin America, neither of which were in the prior year period.  Excluding the effect of the Singlesnet and Latin America transactions, revenue and subscribers grew 19% and 17%, respectively.  Operating Income Before Amortization was favorably impacted by higher revenue and lower operating expenses as a percentage of revenue.  Operating income in the current year period reflects a decrease of $1.1 million in amortization of intangibles.  Operating income in the prior year period included $4.4 million of amortization of non-cash marketing.

ServiceMagic

ServiceMagic revenue benefited from growth at ServiceMagic International, an 8% increase in domestic accepted service requests and growth at Market Hardware, partially offset by lower average lead acceptance fees.  Despite a 2% decrease in service requests, domestic accepted service requests increased due, in part, to a 22% increase in service providers.  A service request can be transmitted to more than one service provider and is deemed accepted upon transmission.  Domestic service requests in the prior year benefited from higher marketing expenditures.  Lead acceptance fees were impacted by a shift in the mix of requests to lower value service requests.  Profits increased due to lower domestic marketing expenditures, reduced losses at ServiceMagic International and growth at Market Hardware.

Media & Other

Media & Other includes Electus, The Daily Beast, CollegeHumor, Notional, Vimeo, Pronto, Shoebuy.com and Proust.  Revenue growth primarily reflects increased contributions from Shoebuy.com, Notional, Electus, The Daily Beast and Vimeo.  Losses were negatively impacted by increased operating expenses at The Daily Beast and transaction expenses associated with the formation of its joint venture with Newsweek.  Operating loss in the current year period includes a $32.6 million impairment charge related to the goodwill and intangible assets of Shoebuy.com.

Corporate

Corporate expenses increased due to $5.3 million in transaction expenses related to the Liberty Exchange, partially offset by lower depreciation and compensation expense. Operating loss in 2010 was impacted by an increase in non-cash compensation expense of $3.5 million, which is primarily due to an increase in expense attributable to awards granted subsequent to the fourth quarter of 2009, partially offset by awards having become fully vested prior to the fourth quarter of 2010.    

OTHER ITEMS

Other income (expense) in Q4 2010 reflects a $7.8 million pre-tax write-down of our cost method investment in Zip Express Installation and income of $1.5 million in Q4 2010 versus a loss of $6.0 million in Q4 2009 from unconsolidated affiliates with the year-over-year improvement driven primarily by our investment in Meetic.  The Q4 2009 period was impacted by a $19.9 million pre-tax write-down of the derivative asset related to the Arcandor AG stock and a $3.4 million pre-tax gain related to the sale of our remaining interest in an investment.

Discontinued operations in Q4 2010 includes a $140.8 million gain related to the Liberty Exchange, which was tax free for income tax purposes, and a $21.5 million after-tax loss related to the shutdown of InstantAction.

The tax provision for continuing operations was $5.1 million in Q4 2010 on a pre-tax loss of $27.6 million. The continuing operations tax provision, despite a pre-tax loss, was due principally to non-deductible impairment charges related to goodwill and intangible assets, non-deductible transaction costs related to the Liberty Exchange, interest on tax contingencies and state taxes, partially offset by a net decrease in tax reserves primarily due to expiring statutes and foreign income taxed at lower rates.  The Q4 2010 effective tax rate for Adjusted Net Income was 34% and was lower than the statutory rate of 35% due principally to a net decrease in tax reserves primarily due to expiring statues and foreign income taxed at lower rates, partially offset by state taxes and non-deductible transaction costs related to the Liberty Exchange.  The effective tax rate for continuing operations was 5% in Q4 2009. This effective tax rate was lower than the statutory rate of 35% due principally to non-deductible impairment charges related to goodwill and intangible assets.  The Q4 2009 effective tax rate for Adjusted Net Income was 34% and was lower than the statutory rate of 35% due principally to foreign income taxed at lower rates partially offset by state taxes.

LIQUIDITY AND CAPITAL RESOURCES

 
 

On December 1, 2010 IAC completed the tax-free exchange of the capital stock of its wholly-owned subsidiary that held Evite, Gifts.com and IAC Advertising Solutions and approximately $218 million in cash for Liberty Media Corporation's equity stake in IAC, representing approximately 8.5 million shares of Class B common stock and 4.3 million shares of common stock. As of December 31, 2010, IAC had a total of 88.4 million common and Class B 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 December 31, 2010, IAC had 7.2 million shares remaining under its current authorization.

As of December 31, 2010, IAC had approximately $1.3 billion in cash and marketable securities, and $95.8 million in long-term debt.  

OPERATING METRICS

 
 
   
       

Q4 2010

Q4 2009

Growth

 
               

SEARCH

         

Revenue by traffic source (a)

         
               

    Proprietary

 

72%

73%

   

    Network

 

28%

27%

   
               

MATCH

         

    Paid Subscribers (000s)

 

1,789

1,377

30%

 
               

SERVICEMAGIC

         

    Service Requests (000s) (b)

 

1,226

1,251

-2%

 

    Accepts (000s) (c)

 

1,757

1,620

8%

 
   

(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 transmitted to  domestic Service Providers. A "Service Request" can be transmitted to  more than one Service Provider and is deemed accepted upon transmission.

 
             

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

 

1/28/11

Dilution at:

 
                       

Share Price

       

$28.17

$      30.00

$      35.00

$      40.00

$      45.00

 
                       

Absolute Shares as of 1/28/11

88.5

     

88.5

88.5

88.5

88.5

88.5

 
                       

RSUs and Other

7.5

     

7.5

7.3

6.9

6.6

6.4

 

Options

13.4

 

$22.08

 

3.5

3.9

5.1

6.0

6.8

 

Warrants

18.3

 

$28.07

 

0.6

1.4

3.6

5.5

6.9

 
                       

Total Treasury Method Dilution

       

11.6

12.7

15.6

18.1

20.1

 
 

% Dilution

       

11.6%

12.5%

15.0%

17.0%

18.5%

 

Total Treasury Method Diluted Shares Outstanding

       

100.1

101.2

104.1

106.6

108.6

 
                     

CONFERENCE CALL

 
 

IAC will audiocast its conference call with investors and analysts discussing the Company's Q4 financial results on Wednesday, February 2, 2011, 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.

GAAP FINANCIAL STATEMENTS

 
 

IAC CONSOLIDATED STATEMENT OF OPERATIONS

 

(unaudited; $ in thousands except per share amounts)

 
   
   

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 
   

2010

2009

 

2010

2009

 
               
               

Revenue

 

$          451,427

$          355,692

 

$          1,636,815

$         1,346,695

 

Costs and expenses:

             

Cost of revenue (exclusive of depreciation

shown separately below)

 

174,096

118,938

 

593,816

429,849

 

Selling and marketing expense

 

124,719

111,227

 

492,206

463,439

 

General and administrative expense

 

92,862

74,702

 

316,500

282,393

 

Product development expense

 

19,044

14,665

 

65,097

57,843

 

Depreciation

 

16,881

15,310

 

63,897

61,391

 

Amortization of intangibles

 

17,240

131,200

 

27,472

157,031

 

Amortization of non-cash marketing

 

-

8,364

 

-

15,868

 

Goodwill impairment

 

28,032

916,868

 

28,032

916,868

 

Total costs and expenses

 

472,874

1,391,274

 

1,587,020

2,384,682

 
               

Operating (loss) income

 

(21,447)

(1,035,582)

 

49,795

(1,037,987)

 
               

Other income (expense):

             

Interest income

 

1,666

1,672

 

6,517

10,218

 

Interest expense

 

(1,437)

(1,753)

 

(5,404)

(5,823)

 

Equity in income (losses) of unconsolidated

affiliates

 

1,486

(6,041)

 

(25,676)

(14,014)

 

Other (expense) income, net

 

(7,820)

(15,242)

 

(2,546)

100,607

 

Total other (expense) income, net

 

(6,105)

(21,364)

 

(27,109)

90,988

 
               

(Loss) earnings from continuing operations before income taxes

 

(27,552)

(1,056,946)

 

22,686

(946,999)

 

Income tax (provision) benefit

 

(5,105)

51,867

 

(32,079)

(9,474)

 

Loss from continuing operations

 

(32,657)

(1,005,079)

 

(9,393)

(956,473)

 

Gain on Liberty Exchange

 

140,768

-

 

140,768

-

 

Loss from discontinued operations, net of tax

 

(24,915)

(7,884)

 

(37,023)

(23,439)

 

Net earnings (loss)

 

83,196

(1,012,963)

 

94,352

(979,912)

 

Net loss attributable to noncontrolling interests

 

3,768

32

 

5,007

1,090

 

Net earnings (loss) attributable to IAC shareholders

 

$           86,964

$     (1,012,931)

 

$               99,359

$          (978,822)

 
               
               

Per share information attributable to IAC shareholders:

             

   Basic loss per share from continuing operations

 

$              (0.30)

$              (7.87)

 

$                 (0.04)

$                (6.89)

 

   Diluted loss per share from continuing operations

 

$              (0.30)

$              (7.87)

 

$                 (0.04)

$                (6.89)

 
               

   Basic earnings (loss) per share

 

$                0.90

$              (7.94)

 

$                   0.93

$                (7.06)

 

   Diluted earnings (loss) per share

 

$                0.90

$              (7.94)

 

$                   0.93

$                (7.06)

 
               
               
               

Non-cash compensation expense by function:

             

Cost of revenue

 

$               1,445

$                 988

 

$                 4,510

$                3,137

 

Selling and marketing expense

 

1,385

921

 

4,228

3,191

 

General and administrative expense

 

19,634

17,810

 

69,082

58,905

 

Product development expense

 

2,165

1,461

 

6,460

4,848

 

Total non-cash compensation expense

 

$             24,629

$            21,180

 

$               84,280

$              70,081

 
             

IAC CONSOLIDATED BALANCE SHEET

       

($ in thousands)

       
         
   

December 31,

December 31,

 
   

2010

2009

 

ASSETS

 

(unaudited)

(audited)

 
         

Cash and cash equivalents

 

$                    742,099

$                 1,245,997

 

Marketable securities

 

563,997

487,591

 

Accounts receivable, net

 

119,581

93,474

 

Other current assets

 

118,308

172,987

 

Total current assets

 

1,543,985

2,000,049

 
         

Property and equipment, net

 

267,928

290,333

 

Goodwill

 

989,493

967,735

 

Intangible assets, net

 

245,044

260,932

 

Long-term investments

 

200,721

272,930

 

Other non-current assets

 

192,383

223,910

 

TOTAL ASSETS

 

$                 3,439,554

$                 4,015,889

 
         

LIABILITIES AND SHAREHOLDERS' EQUITY

   

LIABILITIES

       

Accounts payable, trade

 

$                      56,375

$                      38,212

 

Deferred revenue

 

78,175

57,412

 

Accrued expenses and other current liabilities

 

222,323

194,653

 

Total current liabilities

 

356,873

290,277

 
         

Long-term debt

 

95,844

95,844

 

Income taxes payable

 

475,685

450,129

 

Other long-term liabilities

 

20,350

23,633

 
         

Redeemable noncontrolling interests

 

59,869

28,180

 
         

Commitments and contingencies

       
         

SHAREHOLDERS' EQUITY

       

Common stock

 

226

223

 

Class B convertible common stock

 

16

16

 

Additional paid-in capital

 

11,428,749

11,322,993

 

Accumulated deficit

 

(652,018)

(751,377)

 

Accumulated other comprehensive income

 

17,546

24,503

 

Treasury stock

 

(8,363,586)

(7,468,532)

 

Total shareholders' equity

 

2,430,933

3,127,826

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$                 3,439,554

$                 4,015,889

 
       

IAC CONSOLIDATED STATEMENT OF CASH FLOWS

       

(unaudited; $ in thousands)

       
         
   

Twelve Months Ended December 31,

 
   

2010

2009

 
         

Cash flows from operating activities attributable to continuing operations:

       

Net earnings (loss)

 

$                      94,352

$                  (979,912)

 

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

 

(103,745)

23,439

 

Loss from continuing operations

 

(9,393)

(956,473)

 

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

       

Depreciation

 

63,897

61,391

 

Amortization of intangibles

 

27,472

157,031

 

Amortization of non-cash marketing

 

-

15,868

 

Goodwill impairment

 

28,032

916,868

 

Impairment of long-term investments

 

7,844

4,936

 

Non-cash compensation expense

 

84,280

70,081

 

Deferred income taxes

 

(6,074)

27,707

 

Equity in losses of unconsolidated affiliates

 

25,676

14,014

 

Gain on sale of Match Europe

 

-

(132,244)

 

Gain on sales of investments

 

(3,989)

(28,835)

 

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

 

-

58,097

 

Changes in current assets and liabilities:

       

Accounts receivable

 

(32,901)

(18,121)

 

Other current assets

 

(8,636)

6,458

 

Accounts payable and other current liabilities

 

54,188

18,825

 

Income taxes payable

 

76,749

109,009

 

Deferred revenue

 

19,653

14,238

 

Other, net

 

13,909

9,697

 

Net cash provided by operating activities attributable to continuing operations

 

340,707

348,547

 

Cash flows from investing activities attributable to continuing operations:

       

Acquisitions, net of cash acquired

 

(17,333)

(85,534)

 

Capital expenditures

 

(39,829)

(33,938)

 

Proceeds from sales and maturities of marketable debt securities

 

763,326

229,583

 

Purchases of marketable debt securities

 

(838,155)

(586,274)

 

Proceeds from sales of investments

 

5,324

64,046

 

Purchases of long-term investments

 

(2,283)

(6,482)

 

Dividend received from Meetic, an equity method investee

 

11,355

-

 

Other, net

 

(501)

(4,041)

 

Net cash used in investing activities attributable to continuing operations

 

(118,096)

(422,640)

 

Cash flows from financing activities attributable to continuing operations:

       

Purchase of treasury stock

 

(539,598)

(545,489)

 

Issuance of common stock, net of withholding taxes

 

25,939

151,933

 

Excess tax benefits from stock-based awards

 

14,291

796

 

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

 

-

(14,000)

 

Liberty Exchange

 

(217,921)

-

 

Other, net

 

79

1,294

 

Net cash used in financing activities attributable to continuing operations

 

(717,210)

(405,466)

 

Total cash used in continuing operations

 

(494,599)

(479,559)

 

Net cash used in operating activities attributable to discontinued operations

 

(4,601)

(20,527)

 

Net cash used in investing activities attributable to discontinued operations

 

(2,944)

(3,965)

 

Net cash used in financing activities attributable to discontinued operations

 

-

(547)

 

Total cash used in discontinued operations

 

(7,545)

(25,039)

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,754)

5,601

 

Net decrease in cash and cash equivalents

 

(503,898)

(498,997)

 

Cash and cash equivalents at beginning of period

 

1,245,997

1,744,994

 

Cash and cash equivalents at end of period

 

$                    742,099

$                 1,245,997

 
       

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

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

 

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

 
         
   

Twelve Months Ended December 31,

 
   

2010

2009

 

Net cash provided by operating activities attributable to continuing operations

 

$                        340.7

$                        348.5

 

Capital expenditures

 

(39.8)

(33.9)

 

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

 

3.5

-

 

Tax refunds related to the sale of certain businesses and investments

 

(51.9)

(96.7)

 

Free Cash Flow

 

$                        252.5

$                        217.9

 
       

For the twelve months ended December 31, 2010, consolidated Free Cash Flow increased by $34.6 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 December 31,

 

Twelve Months Ended December 31,

 
   

2010

2009

 

2010

2009

 
               

Diluted earnings (loss) per share

 

$                   0.90

$                 (7.94)

 

$                   0.93

$                 (7.06)

 

GAAP Diluted weighted average shares outstanding

 

96,464

127,650

 

106,274

138,599

 

Net earnings (loss) attributable to IAC shareholders

 

$               86,964

$        (1,012,931)

 

$               99,359

$           (978,822)

 

Non-cash compensation expense

 

24,629

21,180

 

84,280

70,081

 

Amortization of intangibles

 

17,240

131,200

 

27,472

157,031

 

Amortization of non-cash marketing

 

-

8,364

 

-

15,868

 

Goodwill impairment

 

28,032

916,868

 

28,032

916,868

 

Arcandor impairment

 

-

151

 

-

4,593

 

Gain on sale of Match Europe

 

-

-

 

-

(132,244)

 

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

 

-

20,561

 

43

58,765

 

Gain on sale of VUE interests and related effects

 

1,767

2,082

 

7,010

7,003

 

Gain on Liberty Exchange

 

(140,768)

-

 

(140,768)

-

 

Discontinued operations, net of tax

 

24,915

7,884

 

37,023

23,439

 

Impact of income taxes and noncontrolling interests

 

(15,797)

(68,430)

 

(49,442)

(58,278)

 

Adjusted Net Income

 

$               26,982

$               26,929

 

$               93,009

$               84,304

 
               

Adjusted EPS weighted average shares outstanding

 

104,699

132,690

 

112,381

142,958

 
               

Adjusted EPS

 

$                   0.26

$                   0.20

 

$                   0.83

$                   0.59

 
               

GAAP Basic weighted average shares outstanding

 

96,464

127,650

 

106,274

138,599

 

Options, warrants and RSUs, treasury method

 

-

-

 

-

-

 

GAAP Diluted weighted average shares outstanding

 

96,464

127,650

 

106,274

138,599

 

Options, warrants and RSUs, treasury method not included in

diluted shares above

 

4,982

3,506

 

3,711

2,357

 

Impact of RSUs

 

3,253

1,534

 

2,396

2,002

 

Adjusted EPS shares outstanding

 

104,699

132,690

 

112,381

142,958

 
             

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.      

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

 

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

 
   
   
 

For the three months ended December 31, 2010

 
 

Operating Income
Before
Amortization

Non-cash
compensation
expense

Amortization of
intangibles

Goodwill
impairment

Operating income
(loss)

 

Search

$                   32.7

$                       -

$                 (11.3)

$                       -

$                   21.3

 

Match

38.8

-

(0.7)

-

38.0

 

ServiceMagic

2.5

-

(0.4)

-

2.1

 

Media & Other

(4.8)

(0.2)

(4.8)

(28.0)

(37.9)

 

Corporate

(20.7)

(24.3)

-

-

(45.0)

 

Total

$                   48.5

$                 (24.6)

$                 (17.2)

$                 (28.0)

(21.4)

 

Other expense, net

       

(6.1)

 

Loss from continuing operations before income taxes

   

(27.6)

 

Income tax provision

     

(5.1)

 

Loss from continuing operations

       

(32.7)

 

Gain on Liberty Exchange

     

140.8

 

Loss from discontinued operations, net of tax

     

(24.9)

 

Net earnings

     

83.2

 

Net loss attributable to noncontrolling interests

     

3.8

 

Net earnings attributable to IAC shareholders

     

$                   87.0

 
             
             

Supplemental: Depreciation

           

Search

$                   11.1

         

Match

2.5

         

ServiceMagic

1.0

         

Media & Other

0.6

         

Corporate

1.7

         

Total depreciation

$                   16.9

         
           

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

 

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

 
               
               
               
 

For the three months ended December 31, 2009

 
 

Operating Income
Before
Amortization

Non-cash
compensation
expense

Amortization of
intangibles

Amortization of
non-cash
marketing

Goodwill
Impairment

Operating (loss)
income

 

Search

$                   30.8

$                   (0.1)

$               (128.6)

$                   (4.0)

$          (916.9)

$          (1,018.9)

 

Match

28.8

-

(1.8)

(4.4)

-

22.6

 

ServiceMagic

1.8

-

(0.5)

-

-

1.4

 

Media & Other

(1.6)

(0.2)

(0.3)

-

-

(2.1)

 

Corporate

(17.8)

(20.8)

-

-

-

(38.6)

 

Total

$                   42.0

$                 (21.2)

$               (131.2)

$                   (8.4)

$          (916.9)

(1,035.6)

 

Other expense, net

         

(21.4)

 

Loss from continuing operations before income taxes

     

(1,056.9)

 

Income tax benefit

       

51.9

 

Loss from continuing operations

         

(1,005.1)

 

Loss from discontinued operations, net of tax

       

(7.9)

 

Net loss

       

(1,013.0)

 

Net loss attributable to noncontrolling interests

       

-

 

Net loss attributable to IAC shareholders

       

$          (1,012.9)

 
               
               

Supplemental: Depreciation

             

Search

$                     8.6

           

Match

2.5

           

ServiceMagic

0.9

           

Media & Other

0.5

           

Corporate

2.8

           

Total depreciation

$                   15.3

           
             

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

 

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

 
   
   
   
 

For the twelve months ended December 31, 2010

 
 

Operating Income
Before
Amortization

Non-cash
compensation
expense

Amortization of
intangibles

Goodwill
impairment

Operating income
(loss)

 

Search

$                 125.5

$                   (0.3)

$                 (12.3)

$                       -

$                 112.9

 

Match

122.1

0.2

(6.8)

-

115.4

 

ServiceMagic

18.2

-

(1.7)

-

16.4

 

Media & Other

(12.0)

(0.9)

(6.6)

(28.0)

(47.5)

 

Corporate

(64.2)

(83.2)

-

-

(147.3)

 

Total

$                 189.6

$                 (84.3)

$                 (27.5)

$                 (28.0)

49.8

 

Other expense, net

       

(27.1)

 

Earnings from continuing operations before income taxes

   

22.7

 

Income tax provision

     

(32.1)

 

Loss from continuing operations

       

(9.4)

 

Gain on Liberty Exchange

     

140.8

 

Loss from discontinued operations, net of tax

     

(37.0)

 

Net earnings

     

94.4

 

Net loss attributable to noncontrolling interests

     

5.0

 

Net earnings attributable to IAC shareholders

     

$                   99.4

 
             
             

Supplemental: Depreciation

           

Search

$                   38.3

         

Match

11.0

         

ServiceMagic

4.0

         

Media & Other

2.3

         

Corporate

8.2

         

Total depreciation

$                   63.9

         
           

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP

 

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

 
               
               
               
 

For the twelve months ended December 31, 2009

 
 

Operating Income
Before
Amortization

Non-cash
compensation
expense

Amortization of
intangibles

Amortization of
non-cash
marketing

Goodwill
Impairment

Operating (loss)
income

 

Search

$                   91.6

$                   (0.6)

$               (147.9)

$                   (6.5)

$          (916.9)

$               (980.2)

 

Match

94.1

(0.2)

(4.9)

(4.4)

-

84.7

 

ServiceMagic

21.3

(0.1)

(2.8)

(5.0)

-

13.4

 

Media & Other

(19.7)

(0.9)

(1.4)

-

-

(22.1)

 

Corporate

(65.5)

(68.3)

-

-

-

(133.7)

 

Total

$                 121.9

$                 (70.1)

$               (157.0)

$                 (15.9)

$          (916.9)

(1,038.0)

 

Other income, net

         

91.0

 

Loss from continuing operations before income taxes

         

(947.0)

 

Income tax provision

       

(9.5)

 

Loss from continuing operations

         

(956.5)

 

Loss from discontinued operations, net of tax

       

(23.4)

 

Net loss

       

(979.9)

 

Net loss attributable to noncontrolling interests

       

1.1

 

Net loss attributable to IAC shareholders

       

$               (978.8)

 
               
               

Supplemental: Depreciation

             

Search

$                   33.1

           

Match

9.8

           

ServiceMagic

3.3

           

Media & Other

3.9

           

Corporate

11.2

           

Total depreciation

$                   61.4

           
             

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 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.

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 forwardlooking 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 forwardlooking statements for a variety of reasons, including, among others: changes in senior management at IAC and/or its businesses, changes in our relationship with, or policies implemented by, 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 forwardlooking statements may not prove to be accurate. Accordingly, you should not place undue reliance on these forwardlooking 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

 
 

 

CONTACT: IAC Investor Relations, Nick Stoumpas, or Lisa Jaffa, +1-212-314-7400; IAC Corporate Communications, Stacy Simpson, +1-212-314-7470, or Leslie Cafferty, +1-212-314-7326

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