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IAC Reports Q4 Results

Tuesday, February 3, 2009 - 00:30

NEW YORK, Feb. 3 /PRNewswire-FirstCall/ -- IAC released fourth quarter 2008 results today.


                                    SUMMARY RESULTS
                     $in millions (except per share amounts)

                        Q4 2008  Q4 2007 Growth FY 2008  FY 2007 Growth
                        -------  ------- ------ -------  ------- ------
    Revenue              $351.0  $378.9    -7% $1,445.1  $1,332.6    8%

    Operating Income
     Before Amortization   28.1    13.1   115%    100.1      80.5   24%
    Adjusted Net Income   249.6     5.2  4718%    265.5      69.9  280%
    Adjusted EPS           1.69    0.03  4778%     1.80      0.46  294%

    Operating Loss        (21.8)  (34.2)   36%    (62.0)    (78.5)  21%
    Net Income (Loss)     227.4  (369.9)   NM    (156.2)   (144.1)  -8%
    GAAP Diluted EPS       1.57   (2.53)   NM     (1.08)    (1.01)  -8%

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


Information Regarding the Results:

  • Q4 Operating Income Before Amortization grew 64%, excluding $4.1 million in spin-off expenses in the prior year period.
  • The sale of our investment in Jupiter Shop Channel on December 8, 2008 benefited Net Income and Adjusted Net Income by $242.5 million and GAAP EPS and Adjusted EPS by $1.67 and $1.64, respectively.
  • Q4 Net Income includes a $26.4 million write-down of our investment portfolio, reflecting:
    • A $7.6 million write-down of our investment in Arcandor AG which impacted GAAP EPS by $0.05. The write down of Arcandor AG did not impact Adjusted Net Income or Adjusted EPS.
    • An $18.8 million write-down on other investments impacting both GAAP EPS and Adjusted EPS by $0.13.
  • Q4 Net Income also includes $10.3 million in goodwill and intangible asset impairment charges which impacted GAAP EPS by $0.07. These charges did not impact Adjusted Net Income or Adjusted EPS.
  • Free Cash Flow for the twelve months of 2008 was $44.4 million, up $143.9 million over the prior year, while cash flow from operating activities attributable to continuing operations increased by $134.2 million over the prior year to $107.7 million.

Principal Areas of Focus:

  • Search: Relaunched Ask.com in October 2008 and in January 2009 became the official search engine of NASCAR, the second most watched sport in the US with an audience of approximately 75 million. Today, Ask.com announced a partnership with Symantec, the market leader in online security, to power search for the new Norton "Safe Web" product.
  • Local: Grew the number of local merchants, users and user reviews strongly in Q4. Relaunched Citysearch in beta in November to positive early results including increased registrations and page views. Citysearch's iPhone application was downloaded over 100,000 times. ServiceMagic completed an investment in Zip Express on November 20.
  • Personals: Match.com worldwide subscribers grew 5% in Q4 and achieved its highest paid member count ever during the quarter. Subscriptions to Match Mobile, launched late in 2007, continue to grow strongly.



                    DISCUSSION OF FINANCIAL AND OPERATING RESULTS

                                      Q4 2008  Q4 2007   Growth
                                      -------  -------   ------
    Revenue                                  $ in millions
      Media & Advertising              $183.7   $226.6     -19%
      Match                              88.1     90.6      -3%
      ServiceMagic                       25.3     21.9      15%
      Emerging Businesses                54.6     46.0      19%
      Intercompany Elimination           (0.8)    (6.3)     88%
                                         ----     ----     ---
                                       $351.0   $378.9      -7%
                                       ======   ======     ===
    Operating Income Before Amortization
      Media & Advertising               $27.4    $31.4     -13%
      Match                              28.0     20.9      34%
      ServiceMagic                        2.0      2.0      -1%
      Emerging Businesses               (13.8)    (7.9)    -73%
      Corporate                         (15.5)   (33.2)     53%
                                        -----    -----     ---
                                        $28.1    $13.1     115%
                                        =====    =====     ===
    Operating (Loss) Income
      Media & Advertising                $7.6    $14.4     -47%
      Match                              24.8     16.2      53%
      ServiceMagic                        1.4      1.5      -9%
      Emerging Businesses               (30.1)   (12.4)   -144%
      Corporate                         (25.3)   (53.9)     53%
                                        -----    -----     ---
                                       $(21.8)  $(34.2)     36%
                                       ======   ======     ===


Media & Advertising

Media & Advertising consists of proprietary search properties such as Ask.com, Fun Web Products, and Dictionary.com, and our proprietary local site, Citysearch, and network properties which include distributed search, sponsored listings and toolbars. Proprietary revenue now represents 70.8% of total Media & Advertising revenue, versus 52.1% in the prior year period.

Media & Advertising revenue reflects a sharp decline in network revenue, resulting from the de-emphasis of relationships with certain partners during 2008 in conjunction with the renewed partnership with Google. Revenue declines also reflect fewer queries across proprietary properties, particularly at Ask.com and Fun Web Products, partially offset by the inclusion of Dictionary.com (acquired July 3, 2008). Revenue declines were also mitigated by overall growth in revenue per query across proprietary properties, due to improved economics associated with the renewed Google partnership, and growth from the Ask toolbar business, which continues to add partners and queries. Query declines at Ask.com reflect significantly lower marketing spend in the period, while revenue per query declines reflect fewer clicks per visit as users find what they are searching for sooner due to the relaunched site's improved user experience. Citysearch grew revenue slightly during the quarter while users, user reviews and the number of locations containing Citysearch's editorial voice continued to grow.

Media & Advertising profit declines reflect lower revenue, partially offset by a reduction in marketing spend at Ask.com and a shift in revenues from network to higher margin proprietary properties. Operating income in the current year was negatively impacted by a $9.2 million impairment charge related to intangible assets, reflecting a decline in the performance of our Excite, iWon and MyWay portals businesses, partially offset by a decrease of $5.9 million in amortization of non-cash marketing.

Match

Revenue declines reflect a 21% decrease in revenue per subscriber in international markets, due primarily to the unfavorable impact of foreign exchange rates. Excluding the impact of foreign exchange rates, revenue grew 1% as international revenue declines were offset by a 6% and 1% increase in North American subscribers and revenue per subscriber, respectively, due in part to continuing improvements in the site's features and functionality. Operating Income Before Amortization growth reflects lower customer acquisition costs as a percentage of revenue, due to a shift in the timing of marketing spend to Q4 in the prior year period and lower partner related costs in the current period. Operating income further benefited from a decrease in amortization of non-cash marketing and intangibles of $0.8 million and $0.6 million, respectively.

ServiceMagic

ServiceMagic revenue benefited from an increase in active service providers and an 18% increase in service requests driven by increased marketing efforts. Operating Income Before Amortization slight declines reflect increased marketing costs and higher operating expenses primarily associated with the expansion of the sales force. Revenue and profits were also impacted by slower growth from higher margin discretionary home repair and improvement requests, which we believe is due, in part, to the general economic slowdown. Operating income was impacted by higher non-cash compensation expense.

Emerging Businesses

Emerging Businesses include Shoebuy, Pronto.com, Gifts.com, InstantAction.com, Connected Ventures, RushmoreDrive.com, Life123.com and The Daily Beast. Revenue for the period primarily reflects strong growth at Pronto.com, driven primarily by continued improvements in customer acquisition and monetization. Operating Income Before Amortization declines are due primarily to investment in The Daily Beast, which was not in the year ago figures, as well as InstantAction.com, partially offset by profit growth at Pronto.com. Operating loss was also impacted in Q4 2008 by a $15.0 million impairment charge related to the goodwill and intangible assets of Connected Ventures, partially offset by a decrease in amortization of non-cash marketing of $1.9 million and a decrease in amortization of intangibles of $1.1 million, excluding the impairment charge.

Corporate

Corporate expense for the prior year period included $4.1 million in expenses related to the spin-offs and $2.7 million in additional payroll taxes paid related to the exercise of options during the quarter. Corporate expense in the current year period benefited from a reduction in insurance reserves due to favorable loss experience, lower professional fees, payroll expense and depreciation. Operating loss was also impacted by a decrease of $10.9 million in non-cash compensation expense, due in part, to the reversal of the cumulative expense related to performance-based RSUs which are not probable of vesting.

OTHER ITEMS

The sale of our investment in Jupiter Shop Channel on December 8, 2008 for $493 million resulted in a pre-tax gain of $352 million, which is reflected within Q4 other income (expense) as a gain on sale of long-term investments.

During Q4 2008, the Company concluded the decline in the value of its 5.5 million shares of Arcandor AG, received in connection with the sale of HSE24, was other than temporary and thus recorded a $34.1 million impairment charge to write down the value of that investment, which is reflected in other (expense) income. Q4 2007 includes a gain of $16.4 million related to the increase in the value of the derivative asset received in connection with the sale of HSE24; there was no net change in the value of this asset in Q4 2008 and its carrying value was $57.2 million at December 31, 2008. Q4 2008 other income (expense) also includes an $18.8 million impairment charge related to certain investments which the Company has determined to be other than temporarily impaired.

The effective tax rates for continuing operations and Adjusted Net Income in Q4 2008 were 23% and 32%, respectively. These effective tax rates were lower than the statutory rate of 35% due principally to foreign tax credits generated by the sale of Jupiter Shop Channel and foreign income taxed at lower rates, partially offset by an increase in valuation allowances on deferred tax assets related to other than temporary losses related to investments. The effective tax rate for continuing operations was additionally impacted by a decrease in the valuation allowance on the deferred tax asset related to the Arcandor impairment. In Q4 2007, the Company recorded a tax benefit of $1.0 million on continuing operations pre-tax income of $1.2 million. The effective tax rate for this benefit was greater than the statutory rate of 35% due principally to foreign tax credits from investments in unconsolidated subsidiaries, tax-exempt interest income and foreign income taxed at lower rates, partially offset by interest on tax reserves. The effective tax rate for Adjusted Net Income in Q4 2007 was 63% and was higher than the statutory rate of 35% due principally to interest on tax reserves.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2008, IAC had approximately $1.9 billion in cash and marketable securities, and $95.8 million in long-term debt.

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, rounding differences may occur).


                            Avg.
                          Strike /   As of
                  Shares Conversion 1/30/09           Dilution at:
                  ------ ---------- ---------------------------------------

    Share Price                      $14.70  $15.00  $20.00  $25.00  $30.00

    Absolute
     Shares as of
     1/30/09       140.9              140.9   140.9   140.9   140.9   140.9

    RSUs and
     Other           4.5                4.6     4.5     4.3     4.1     4.0
    Options         16.9     $20.87     0.0     0.0     0.0     1.8     3.2
    Warrants *      39.2     $24.59     1.3     1.5     4.3     5.9     8.5

                                        ---     ---     ---    ----    ----
    Total Treasury
     Method Dilution                    5.9     6.1     8.5    11.8    15.6
      % Dilution                        4.0%    4.1%    5.7%    7.7%   10.0%
    Total Treasury
     Method Diluted
     Shares Outstanding               146.8   147.0   149.5   152.7   156.6
                                      =====   =====   =====   =====   =====

    *On February 4th, 2009 two tranches of warrants representing 20.8 million
     shares will expire. One of the tranches, representing 12.5 million
     shares, has an exercise price of $13.09 per share. The other tranche,
     representing 8.3 million shares, has an exercise price of $34.29 per
     share.

OPERATING METRICS


                                        Q4 2008  Q4 2007  Growth
                                        -------  -------  ------

    MEDIA & ADVERTISING
    -------------------
    Revenue by traffic source

      Proprietary                          70.8%    52.1%
      Network                              29.2%    47.9%

    MATCH
    -----
      Paid Subscribers (000s)           1,347.3  1,286.5       5%

    SERVICEMAGIC
    ------------
      Service Requests (000s) (a)         852.7    720.7      18%
      Accepts (000s) (b)                1,114.4    959.6      16%

    (a) Fully completed and submitted customer requests for service on
        ServiceMagic.
    (b) The number of times "Service Requests" are accepted by Service
        Professionals. A "Service Request" can be transmitted to and accepted
        by more than one Service Professional.


CONFERENCE CALL

IAC will audiocast its conference call with investors and analysts discussing the Company's Q4 financial results on Tuesday, February 3, 2009, 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     Twelve Months Ended
                                    December 31,           December 31,
                                -------------------- -----------------------
                                  2008        2007       2008        2007
                                -------------------- -----------------------

    Service revenue             $326,495   $348,813  $1,337,043  $1,239,192
    Product revenue               24,500     30,067     108,052      93,390
                                  ------     ------     -------      ------
          Revenue                350,995    378,880   1,445,095   1,332,582
    Cost of sales-service
     revenue (exclusive of
     depreciation shown
     separately below)            97,463    144,767     439,008     489,414
    Cost of sales-product
     revenue (exclusive of
     depreciation shown
     separately below)            22,557     20,503      79,184      64,907
                                  ------     ------      ------      ------
          Gross profit           230,975    213,610     926,903     778,261

    Selling and marketing
     expense                     105,574    108,493     433,332     391,522
    General and
     administrative
     expense                      65,164     84,109     343,504     273,551
    Product development expense   23,535     13,251      65,457      46,428
    Amortization of non-
     cash marketing                7,997     16,590      20,002      49,670
    Depreciation                  18,996     15,907      71,051      59,861
    Amortization of
     intangibles                  19,890      9,429      43,918      35,733
    Goodwill impairment           11,600          -      11,600           -
                                  ------        ---      ------         ---
          Operating loss         (21,781)   (34,169)    (61,961)    (78,504)

    Other income (expense):
        Interest income            4,434     10,943      24,759      58,931
        Interest expense          (1,498)   (14,378)    (32,364)    (59,054)
        Equity in income of
         unconsolidated
         affiliates                1,267      5,809      16,640      22,352
        Gain on sale of long-
         term investments        351,968     16,669     381,099      16,669
        Other (expense) income   (47,978)    16,342    (234,690)     35,516
                                 -------     ------    --------      ------
    Total other income, net      308,193     35,385     155,444      74,414
                                 -------     ------     -------      ------

    Earnings (loss) from
     continuing operations
     before income taxes and
     minority interest           286,412      1,216      93,483      (4,090)
    Income tax (provision)
     benefit                     (65,876)     1,044      37,697      (2,321)
    Minority interest in losses
     of consolidated
     subsidiaries                  4,654        524       5,849       2,014
                                   -----        ---       -----       -----
    Earnings (loss) from
     continuing operations       225,190      2,784     137,029      (4,397)
    Gain on sale of
     discontinued operations,
     net of tax                        -          -      23,314      33,524
    Income (loss) from
     discontinued operations,
     net of tax                    2,227   (372,677)   (316,544)   (173,196)
                                   -----   --------    --------    --------
    Net earnings (loss)
     available to common
     shareholders               $227,417  $(369,893)  $(156,201)  $(144,069)
                                ========  =========   =========   =========


    Earnings (loss) per share
     from continuing
     operations:
       Basic earnings
     (loss) per share              $1.60      $0.02       $0.98      $(0.03)
       Diluted earnings
     (loss) per share              $1.56      $0.02       $0.95      $(0.03)

    Net earnings (loss) per
     share available to
     common shareholders:
       Basic earnings
     (loss) per share              $1.62     $(2.61)     $(1.12)     $(1.01)
       Diluted earnings
     (loss) per share              $1.57     $(2.53)     $(1.08)     $(1.01)



    IAC CONSOLIDATED BALANCE SHEET
    ($ in thousands)
                                                -------------------------
                                                        December 31,
                                                     2008         2007
                                                -------------------------
                       ASSETS                    (unaudited)    (audited)

    Cash and cash equivalents                    $1,744,994   $1,585,302
    Marketable securities                           125,592      326,788
    Accounts receivable, net                         98,402      116,670
    Prepaid expenses and other current assets       217,798      377,443
    Current assets of discontinued operations             -    1,020,034
                                                        ---    ---------
        Total current assets                      2,186,786    3,426,237

    Property and equipment, net                     326,961      334,341
    Goodwill                                      1,910,295    1,823,779
    Intangible assets, net                          386,756      401,915
    Long-term investments                           120,582      301,023
    Other non-current assets                        319,218      201,764
     Non-current assets of discontinued
      operations                                          -    6,101,743
                                                        ---    ---------
    TOTAL ASSETS                                 $5,250,598  $12,590,802
                                                 ==========  ===========

        LIABILITIES AND SHAREHOLDERS' EQUITY
    LIABILITIES
    Accounts payable, trade                         $52,833      $41,957
    Deferred revenue                                 50,886       48,110
    Current maturities of long-term obligations           -       12,090
     Accrued expenses and other current
      liabilities                                   182,285      366,769
     Current liabilities of discontinued
      operations                                          -    1,265,307
                                                        ---    ---------
        Total current liabilities                   286,004    1,734,233

     Long-term obligations, net of current
      maturities                                     95,844      834,542
    Income taxes payable                            403,043      264,113
    Other long-term liabilities                      15,400       13,893
     Non-current liabilities of discontinued
      operations                                          -    1,127,479
    Minority interest                                22,771       32,880

    Commitments and contingencies

    SHAREHOLDERS' EQUITY
    Preferred stock                                       -            -
    Common stock                                        210          209
    Class B convertible common stock                     16           16
    Additional paid-in capital                   11,112,014   14,744,542
    Retained earnings                               227,445      567,820
    Accumulated other comprehensive income            2,180       39,814
    Treasury stock                               (6,914,329)  (6,768,739)
                                                 ----------   ----------
        Total shareholders' equity                4,427,536    8,583,662
                                                  ---------    ---------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $5,250,598  $12,590,802
                                                 ==========  ===========



    IAC CONSOLIDATED STATEMENT OF CASH FLOW
    (unaudited; $ in thousands)
                                                -------------------------
                                                   Twelve Months Ended
                                                       December 31,
                                                   2008        2007
                                                -------------------------

    Cash flows from operating activities
     attributable to continuing operations:
    Net loss available to common
     shareholders                                 $(156,201)   $(144,069)
    Less: loss from discontinued
     operations, net of tax                         293,230      139,672
                                                    -------      -------
    Earnings (loss) from continuing
     operations                                     137,029       (4,397)
    Adjustments to reconcile earnings (loss)
     from continuing operations to net
     cash provided by (used in) operating
     activities attributable to
     continuing operations:
        Depreciation                                 71,051       59,861
        Amortization of intangibles                  43,918       35,733
        Goodwill impairment                          11,600            -
        Impairment of long-term investments         180,021            -
        Non-cash compensation expense                86,539       73,585
        Amortization of non-cash marketing           20,002       49,670
        Deferred income taxes                      (158,749)      (4,426)
        Equity in income of unconsolidated
         affiliates                                 (16,640)     (22,352)
        Loss on extinguishment
         of Senior Notes                             63,218            -
        Gain on sale of long-term investments      (381,099)     (16,669)
        Net increase in the fair value of the
         derivatives created in the sale of HSE
         and the Expedia spin-off                    (6,185)     (29,355)
        Minority interest in losses of
         consolidated subsidiaries                   (5,849)      (2,014)
    Changes in current assets
     and liabilities:
        Accounts receivable                           7,653       (8,863)
        Prepaid expenses and other current assets    (4,957)     (19,033)
        Accounts payable and other current
         liabilities                                (80,638)      51,861
        Income taxes payable                        119,495     (209,709)
        Deferred revenue                              6,422        5,148
    Other, net                                       14,845       14,485
                                                     ------       ------
    Net cash provided by (used in) operating
     activities attributable to
     continuing operations                          107,676      (26,475)
                                                    -------      -------
    Cash flows from investing activities
     attributable to continuing operations:
        Acquisitions, net of cash acquired         (148,631)     (45,894)
        Capital expenditures                        (65,554)    (112,901)
        Proceeds from sales and maturities of
         marketable securities                      356,252    1,367,178
        Purchases of marketable securities         (169,958)    (783,783)
        Proceeds from sales of long-term
         investments                                549,305      125,592
        Long-term investments                       (67,936)    (229,954)
        Proceeds from sales of discontinued
         operations                                  32,246        4,173
        Net cash distribution from
         spun-off businesses                        441,658            -
        Other, net                                       42       12,984
                                                        ---       ------
    Net cash provided by investing
     activities attributable to
     continuing operations                          927,424      337,395
                                                    -------      -------
    Cash flows from financing activities
     attributable to continuing operations:
        Repurchase of Senior Notes                 (519,944)           -
        Principal payments on long-term
         obligations                                    (11)      (7,576)
        Purchase of treasury stock                 (145,590)    (542,946)
        Issuance of common stock, net of
         withholding taxes                          (10,564)     (64,194)
        Excess tax benefits from
         stock-based awards                             763       75,422
        Collection of note receivable
         from key executive for common
         stock issuance                                   -        4,998
        Other, net                                    1,230          779
                                                      -----          ---
    Net cash used in financing
     activities attributable to
     continuing activities                         (674,116)    (533,517)
                                                   --------     --------
    Total cash provided by (used in)
     continuing operations                          360,984     (222,597)
                                                    -------     --------
    Net cash provided by operating
     activities attributable to
     discontinued operations                        266,389      897,233
    Net cash used in investing
     activities attributable to
     discontinued operations                       (495,130)    (265,546)
    Net cash provided by (used in) financing
     activities attributable to
     discontinued operations                         50,484     (275,204)
                                                     ------     --------
    Total cash (used in) provided by
     discontinued operations                       (178,257)     356,483
    Effect of exchange rate changes on
     cash and cash equivalents                      (23,035)      23,276
                                                    -------       ------
    Net increase in cash and cash equivalents       159,692      157,162
    Cash and cash equivalents at
     beginning of period                          1,585,302    1,428,140
                                                  ---------    ---------
    Cash and cash equivalents at
     end of period                               $1,744,994   $1,585,302
                                                 ==========   ==========



    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,
                                                         -------------
                                                          2008    2007
                                                          ----    ----
    Net cash provided by (used in) operating activities
     attributable to continuing operations              $107.7  $(26.5)
        Capital expenditures                             (65.6) (112.9)
        Net tax payments related to the sale of
         certain businesses and investments                2.3    39.9
                                                           ---    ----
    Free Cash Flow                                       $44.4  $(99.5)
                                                         =====  ======


For the twelve months ended December 31, 2008, consolidated Free Cash Flow increased by $143.9 million from the prior year period due principally to lower cash taxes paid and lower capital expenditures. Free Cash Flow in 2008 excludes cash tax payments related to the sale of the Company's interests in Jupiter Shop Channel and HSE24 and cash tax refunds related to the sale of the Company's interests in EPI and an internal restructuring. Free Cash Flow in 2007 excludes cash tax payments related to the sale of the Company's interests in PRC and HSE24 and cash tax refunds related to the sale of the Company's interests in VUE. Free Cash Flow excludes these cash tax payments and refunds because the proceeds from these sales were not included in cash provided by operating activities.


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

                                      ----------------------------------------
                                      Three Months Ended   Twelve Months Ended
                                          December 31,         December 31,
                                      ----------------------------------------
                                        2008       2007       2008      2007
                                      ----------------------------------------

    Diluted earnings
     (loss) per share                  $1.57     $(2.53)    $(1.08)    $(1.01)
                                       =====     ======     ======     ======
    GAAP diluted weighted average
     shares outstanding              144,793    146,393    143,976    142,843
    Net earnings (loss) available
     to common shareholders         $227,417  $(369,893) $(156,201) $(144,069)
    Non-cash compensation expense     10,365     21,225     86,539     73,585
    Amortization of non-
     cash marketing                    7,997     16,590     20,002     49,670
    Amortization of intangibles       19,890      9,429     43,918     35,733
    Goodwill impairment               11,600          -     11,600          -
    Arcandor impairment               34,112          -    166,699          -
    Net other income related to
     the fair value adjustment of
     derivatives created in the
     Expedia spin-off                      -     (1,430)      (545)    (5,813)
    Other income related to fair
     value adjustment of the
     derivative created in the
     sale of HSE24                         -    (16,350)    (5,785)   (24,121)
    Gain on sale of VUE interests
     and related effects               1,545    (14,555)     6,786     (8,400)
    Gain on sale of discontinued
     operations, net of tax                -          -    (23,314)   (33,524)
    Discontinued
     operations, net of
     tax                              (2,227)   372,677    316,544    173,196
    Impact of income taxes and
     minority interest               (61,082)   (12,513)  (200,770)   (46,336)
                                     -------    -------   --------    -------
    Adjusted Net Income             $249,617     $5,180   $265,473    $69,921
                                    ========     ======   ========    =======

    Adjusted EPS weighted average
     shares outstanding              147,871    149,685    147,230    152,872

    Adjusted EPS                       $1.69      $0.03      $1.80      $0.46
                                       =====      =====      =====      =====

    GAAP Basic weighted average
     shares outstanding              140,520    141,626    139,850    142,843
        Options, warrants and
         RSUs, treasury method         4,273      4,767      4,126          -
        Conversion of convertible
         preferred and convertible
         notes (if applicable)             -          -          -          -
                                         ---        ---        ---        ---
    GAAP Diluted weighted average
     shares outstanding              144,793    146,393    143,976    142,843
        Options, warrants and RSUs,
         treasury method not
         included in diluted shares
         above                             -          -          -      6,822
        Impact of RSUs and
         convertible preferred
         and notes (if
         applicable), net              3,078      3,292      3,254      3,207
                                       -----      -----      -----      -----
    Adjusted EPS shares outstanding  147,871    149,685    147,230    152,872
                                     =======    =======    =======    =======

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, 2008
                          -------------------------------------------------
                                      Non-   Amorti-
                          Operating   cash   zation  Amorti-
                            Income  compens- of non- zation  Good-  Operat-
                            Before    ation   cash     of     will    ing
                            Amorti-  expense market- intang- impair- income
                            zation    (A)     ing    ibles   ment    (loss)
                          -------------------------------------------------
    Media & Advertising      $27.4      $-  $(4.9) $(14.9)     $-    $7.6
    Match                     28.0       -   (3.1)   (0.1)      -    24.8
    ServiceMagic               2.0    (0.3)     -    (0.4)      -     1.4
    Emerging Businesses      (13.8)   (0.3)     -    (4.4)  (11.6)  (30.1)
    Corporate                (15.5)   (9.8)     -       -       -   (25.3)
                             -----    ----    ---     ---     ---   -----
    Total                    $28.1  $(10.4) $(8.0) $(19.9) $(11.6)  (21.8)
                             =====  ======  =====  ======  ======
    Other income, net                                               308.2
                                                                    -----
    Earnings from continuing
     operations before income
     taxes and minority
     interest                                                       286.4
    Income tax provision                                            (65.9)
    Minority interest in
     losses of consolidated
     subsidiaries                                                     4.7
                                                                      ---
    Earnings from continuing
     operations                                                     225.2
    Income from discontinued
     operations, net of tax                                           2.2
                                                                      ---
    Net earnings available to
     common shareholders                                           $227.4
                                                                   ======

    (A) Non-cash compensation expense includes $0.8 million, $0.8 million
     and $8.7 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
    Media & Advertising      $10.3
    Match                      2.3
    ServiceMagic               0.8
    Emerging Businesses        2.5
    Corporate                  3.0
                               ---
    Total Depreciation       $19.0
                             =====



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

                           For the twelve months ended December 31, 2008
                          -------------------------------------------------
                                      Non-   Amorti-
                          Operating   cash   zation  Amorti-
                            Income  compens- of non- zation  Good-  Operat-
                            Before    ation   cash     of     will    ing
                            Amorti-  expense market- intang- impair- income
                            zation    (B)     ing    ibles   ment    (loss)
                          -------------------------------------------------
    Media & Advertising     $139.6      $-   $(4.9) $(34.0)     $-   $100.7
    Match                     91.3       -   (15.1)   (0.7)      -     75.5
    ServiceMagic              26.2    (0.7)      -    (1.5)      -     24.0
    Emerging Businesses      (35.5)   (1.1)      -    (7.8)  (11.6)   (56.0)
    Corporate               (121.5)  (84.7)      -       -       -   (206.2)
                            ------   -----     ---     ---     ---   ------
    Total                   $100.1  $(86.5) $(20.0) $(43.9) $(11.6)   (62.0)
                            ======  ======  ======  ======  ======
    Other income, net                                                 155.4
                                                                      -----
    Earnings from
     continuing operations
     before income taxes
     and minority interest                                             93.5
    Income tax benefit                                                 37.7
    Minority interest in
     losses of consolidated
     subsidiaries                                                       5.8
                                                                        ---
    Earnings from continuing
     operations                                                       137.0
    Gain on sale of
     discontinued
     operations, net of tax                                            23.3
    Loss from discontinued
     operations, net of tax                                          (316.5)
                                                                     ------
    Net loss available to
     common shareholders                                            $(156.2)
                                                                    =======

    (B) Non-cash compensation expense includes $6.7 million, $7.3 million,
     $72.3 million and $0.2 million which are included in cost of sales,
     selling and marketing expense, general and administrative expense and
     product development expense, respectively, in the accompanying
     consolidated statement of operations.

    Supplemental: Depreciation
    Media & Advertising      $38.1
    Match                      8.8
    ServiceMagic               3.2
    Emerging Businesses        8.0
    Corporate                 12.8
                              ----
    Total Depreciation       $71.1
                             =====



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


                                  For the three months ended December 31, 2007
                                  --------------------------------------------
                                                        Amorti-
                                                Non-    zation
                                    Operating   cash     of    Amorti-
                                      Income   compens- non-   zation  Operat-
                                      Before    ation   cash     of      ing
                                      Amorti-  expense market- intang- income
                                       zation    (A)     ing    ibles   (loss)
                                  --------------------------------------------
    Media & Advertising                 $31.4      $-  $(10.8) $(6.2)   $14.4
    Match                                20.9       -    (3.9)  (0.8)    16.2
    ServiceMagic                          2.0    (0.2)      -   (0.4)     1.5
    Emerging Businesses                  (7.9)   (0.4)   (1.9)  (2.1)   (12.4)
    Corporate                           (33.2)  (20.7)      -      -    (53.9)
                                        -----   -----     ---    ---    -----
    Total                               $13.1  $(21.2) $(16.6) $(9.4)   (34.2)
                                        =====  ======  ======  =====
    Other income, net                                                    35.4
                                                                         ----
    Earnings from continuing operations
     before income taxes and
     minority interest                                                    1.2
    Income tax benefit                                                    1.0
    Minority interest in losses of
     consolidated subsidiaries                                            0.5
                                                                          ---
    Earnings from continuing operations                                   2.8
    Loss from discontinued
     operations, net of tax                                            (372.7)
                                                                       ------
    Net loss available to
     common shareholders                                              $(369.9)
                                                                      =======

    (A) Non-cash compensation expense includes $1.6 million, $1.8 million and
     $17.8 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
    Media & Advertising                  $7.9
    Match                                 2.1
    ServiceMagic                          0.8
    Emerging Businesses                   1.6
    Corporate                             3.6
                                          ---
    Total Depreciation                  $15.9
                                        =====



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

                                 For the twelve months ended December 31, 2007
                                 ---------------------------------------------
                                                      Amorti-
                                               Non-   zation
                                   Operating   cash     of     Amorti-
                                     Income   compens-  non-   zation  Operat-
                                     Before    ation    cash    of       ing
                                     Amorti-  expense  market- intang-  income
                                      zation    (B)     ing    ibles    (loss)
                                  --------------------------------------------
    Media & Advertising                $88.2      $-  $(33.6) $(24.7)   $29.9
    Match                               78.4       -   (11.1)   (1.4)    65.8
    ServiceMagic                        20.8    (0.6)      -    (2.6)    17.6
    Emerging Businesses                 (7.9)   (1.5)   (4.9)   (7.1)   (21.3)
    Corporate                          (98.9)  (71.5)      -       -   (170.4)
                                       -----   -----     ---     ---   ------
    Total                              $80.5  $(73.6) $(49.7) $(35.7)   (78.5)
                                       =====  ======  ======  ======
    Other income, net                                                    74.4
                                                                         ----
    Loss from continuing operations before
     income taxes and minority interest                                  (4.1)
    Income tax provision                                                 (2.3)
    Minority interest in losses of
     consolidated subsidiaries                                            2.0
                                                                          ---
    Loss from continuing operations                                      (4.4)
    Gain on sale of discontinued
     operations, net of tax                                              33.5
    Loss from discontinued operations,
     net of tax                                                        (173.2)
                                                                       ------
    Net loss available to common
     shareholders                                                     $(144.1)
                                                                      =======

    (B) Non-cash compensation expense includes $5.7 million, $6.2 million,
     $61.6 million and $0.2 million which are included in cost of sales,
     selling and marketing expense, general and administrative expense and
     product development expense, respectively, in the accompanying
     consolidated statement of operations.

    Supplemental: Depreciation
    Media & Advertising                $30.8
    Match                                7.6
    ServiceMagic                         2.6
    Emerging Businesses                  5.4
    Corporate                           13.5
                                        ----
    Total Depreciation                 $59.9
                                       =====



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, (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 minority 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, (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 sale of HSE24, (9) impairment of our investment in Arcandor, (10) one-time items, and (11) discontinued operations. We believe Adjusted Net Income is useful to investors because it represents IAC's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.

Adjusted EPS is defined as Adjusted Net Income divided by fully diluted weighted average shares outstanding for Adjusted EPS purposes. We include dilution from options and warrants per the treasury stock method and include all restricted shares and restricted stock units ("RSUs") in shares outstanding for Adjusted EPS, with performance-based RSUs included based on the number of shares that the Company believes are probable of vesting. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis and with respect to performance-based RSUs only to the extent the performance criteria are met (assuming the end of the reporting period is the end of the contingency period). In addition, convertible instruments are assumed to be converted in determining shares outstanding for Adjusted EPS, if the effect is dilutive. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, IAC's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses. Adjusted Net Income and Adjusted EPS have the same limitations as Operating Income Before Amortization, and in addition Adjusted Net Income and Adjusted EPS do not account for IAC's former passive ownership in VUE. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

Free Cash Flow is defined as net cash provided by operating activities, less capital expenditures and preferred dividends paid by IAC. In addition, Free Cash Flow excludes tax payments and refunds related to the sale of IAC's interests in VUE, PRC, HSE24, Jupiter Shop Channel, EPI and an internal restructuring due to the exclusion of the proceeds from these sales from cash provided by operating activities. We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account cash movements that are non-operational. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. For example, it does not take into account stock repurchases. Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

Pro Forma Results

We will only present Operating Income Before Amortization, Adjusted Net Income and Adjusted EPS on a pro forma basis if we view a particular transaction as significant in size or transformational in nature. For the periods presented in this release, there are no transactions that we have included on a pro forma basis.

One-Time Items

Operating Income Before Amortization and Adjusted Net Income are presented before one-time items, if applicable. These items are truly one-time in nature and non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. GAAP results include one-time items. For the periods presented in this release, there are no adjustments for any one-time items.

Non-Cash Expenses That Are Excluded From Our Non-GAAP Measures

Non-cash compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions, of restricted stock, restricted stock units and stock options. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding which, for restricted stock units and stock options, are included on a treasury method basis. We view the true cost of our restricted stock units as the dilution to our share base, and as such units are included in our shares outstanding for Adjusted EPS purposes as described above under the definition of Adjusted EPS. Upon vesting of restricted stock and restricted stock units and the exercise of certain stock options, the awards are settled, at the Company's discretion, on a net basis, with the Company remitting the required tax withholding amount from its current funds.

Amortization of non-cash marketing consists of non-cash advertising secured from Universal Television as part of the transaction pursuant to which VUE was created, and the subsequent transaction by which IAC sold its partnership interests in VUE (collectively referred to as "NBC Universal Advertising"). The NBC Universal Advertising is available for television advertising on various NBC Universal network and cable channels without any cash cost.

The NBC Universal Advertising is excluded from Operating Income Before Amortization and Adjusted Net Income because it is non-cash and generally is incremental to the advertising the Company otherwise secures as a result of its ordinary cost/benefit marketing planning process. Accordingly, the Company's aggregate level of advertising, and the increased concentration of that advertising on NBC Universal network and cable channels, does not reflect what our advertising effort would otherwise be without these credits, which will expire on September 30, 2009 if not exhausted before then. As a result, management believes that treating the NBC Universal Advertising as an expense does not appropriately reflect its true cost/benefit relationship, nor does it best reflect the Company's long-term level of advertising expenditures. Nonetheless, while the benefits directly attributable to television advertising are always difficult to determine, and especially so with respect to the NBC Universal Advertising due to its incrementality and heavy concentration, it is likely that the Company does derive benefits from it, though management believes such benefits are generally less than those received through its regular advertising for the reasons stated above. Operating Income Before Amortization and Adjusted Net Income therefore have the limitation of including those benefits while excluding the associated expense.

Amortization of intangibles is a non-cash expense relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as supplier contracts and customer relationships, are valued and amortized over their estimated lives. While it is likely that we will have significant intangible amortization expense as we continue to acquire companies, we believe that since intangibles represent costs incurred by the acquired company to build value prior to acquisition, they were part of transaction costs.

Equity income or loss from IAC's 5.44% common interest in VUE was excluded from Adjusted Net Income and Adjusted EPS because IAC had no operating control over VUE, had no way to forecast this business, and did not consider the results of VUE in evaluating the performance of IAC's businesses. The gain from the sale in June 2005 of IAC's interests in VUE and related effects are excluded from Adjusted Net Income and Adjusted EPS for similar reasons.

Non-cash income or expense reflecting changes in the fair value of the derivatives created in the Expedia spin-off is excluded from Adjusted Net Income and Adjusted EPS because the obligations underlying these derivatives, which relate to the Ask Convertible Notes and certain IAC warrants, are expected to ultimately be settled in shares of IAC common stock and Expedia common stock, and not in cash.

Income or expense reflecting changes in the fair value of the derivative asset created in the sale of HSE24 is excluded from Adjusted Net Income and Adjusted EPS because the variations in the value of the derivative are non-operational in nature.

Free Cash Flow

We look at Free Cash Flow as a measure of the strength and performance of our businesses, not for valuation purposes. In our view, applying "multiples" to Free Cash Flow is inappropriate because it is subject to timing, seasonality and one-time events. We manage our business for cash and we think it is of utmost importance to maximize cash - but our primary valuation metrics are Operating Income Before Amortization and Adjusted EPS. In addition, because Free Cash Flow is subject to timing, seasonality and one-time events, we believe it is not appropriate to annualize quarterly Free Cash Flow results.

OTHER INFORMATION

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release and our conference call to be held at 11:00 a.m. Eastern Time today may contain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipates," "estimates," "expects," "intends," "plans" and "believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC's future financial performance, IAC's business prospects and strategy, 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: continuing adverse economic conditions, or the worsening thereof, either 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, changes in the advertising market, changes in relationships with advertisers, suppliers and third party distribution channels, technological changes, regulatory changes, failure to comply with existing laws, our ability to offer new or alternative products and services in a cost effective manner and consumer acceptance of these products and services and the ability of IAC to expand successfully in international markets. Certain of these and other risks and uncertainties are discussed in IAC's filings with the Securities and Exchange Commission ("SEC"). Other unknown or unpredictable factors that could also adversely affect IAC's business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, these 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 35 leading and diversified Internet businesses across 40 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 http://iac.com/.

Contact Us

    IAC Investor Relations
    Eoin Ryan
    (212) 314-7400

    IAC Corporate Communications
    Stacy Simpson / Leslie Cafferty
    (212) 314-7280 / 7470

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

SOURCE: IAC

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

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