NEW YORK, Nov. 1 /PRNewswire-FirstCall/ -- IAC/InterActiveCorp
(Nasdaq: IACI) reported Q3 results today.
Q3 SUMMARY RESULTS
$ in millions (except per share amounts)
Q3 2005 Q3 2004 Growth
Revenue $1,483.3 $957.3 55%
Operating Income Before Amortization $156.3 $76.9 103%
Adjusted Net Income $114.6 $70.4 63%
Adjusted EPS $0.32 $0.19 69%
Operating Income $21.3 $16.8 27%
Net Income $68.1 $89.5 -24%
GAAP Diluted EPS $0.19 $0.24 -20%
Overall Highlights
-- IAC performed strongly with growth from each of its principal sectors.
-- Operating Income Before Amortization margins increased by 250 basis
points versus the prior year period.
-- IAC repurchased 18.1 million shares of its common stock between July 1
and October 28, 2005, at an average price of $25.36.
-- Operating income was impacted by a non-cash compensation charge of $67
million related to the Expedia spin-off (please see page 7 for more
information).
Sector Highlights
-- Retailing benefited from the inclusion of Cornerstone Brands and
improved top-line results at HSN, though gross margins declined
slightly. Online demand was strong and now represents 23% of IAC's
U.S. Retailing business.
-- Services was driven by significant growth at LendingTree, particularly
from closing loans in its own name along with double-digit growth from
the Lending exchange, strong domestic concert and sporting event ticket
sales, and international expansion in Ticketing.
-- Media & Advertising now includes Ask Jeeves which increased its share
of U.S. search queries to 6.4% in September (source: comScore) and the
decision to reduce the number of sponsored search results on Ask's U.S.
site is tracking favorably. Citysearch strengthened its position in
local online pay-for-performance advertising and delivered its second
consecutive quarter of profitable growth. Unique users at Citysearch
increased 168% to record levels.
-- Membership & Subscriptions was led by record results at Personals,
which increased worldwide subscribers by 19% and recently launched
Chemistry.com, a new premium relationship service. Vacations had soft
top-line growth but strong bottom-line performance and launched an
online travel and lifestyle membership club.
IAC acquired Ask Jeeves on July 19, and spun-off Expedia to shareholders
and effected a 1-for-2 reverse stock split on August 9. Accordingly, results
for Ask Jeeves are included from the date of acquisition, and results for
Expedia prior to the spin-off are treated as discontinued operations. Please
see page 10 for GAAP financial statements, and page 16 for definitions of non-
GAAP measures.
SECTOR RESULTS
Sector results for the third quarter ended September 30 were as follows ($ in
millions):
Q3 2005 Q3 2004 Growth
REVENUE
Retailing $749.5 509.1 47%
Services 486.2 306.3 59%
Media & Advertising 83.5 7.9 958%
Membership & Subscriptions 162.8 138.9 17%
Emerging Businesses 9.6 1.7 466%
Other (8.3) (6.6) -26%
Total $1,483.3 $957.3 55%
OPERATING INCOME BEFORE AMORTIZATION
Retailing $54.0 $40.2 34%
Services 86.0 45.1 91%
Media & Advertising 9.3 (2.4) NM
Membership & Subscriptions 36.1 16.7 116%
Emerging Businesses (2.4) 0.0 NM
Corporate (26.6) (22.8) -17%
Total $156.3 $76.9 103%
OPERATING INCOME (LOSS)
Retailing $38.0 $26.6 43%
Services 69.6 31.1 124%
Media & Advertising (0.9) (12.1) 93%
Membership & Subscriptions 27.4 6.8 302%
Emerging Businesses (2.4) (0.2) -1244%
Corporate (110.4) (35.5) -211%
Total $21.3 $16.8 27%
Please see discussion of financial and operating results beginning on page
3, and reconciliations to the comparable GAAP measures and further segment
detail beginning on page 13.
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
RETAILING:
Q3 2005 Q3 2004 Growth
Revenue $ in millions
U.S. $664.3 $437.1 52%
International 85.2 72.0 18%
$749.5 $509.1 47%
Operating Income Before Amortization
U.S. $56.7 $43.1 31%
International (2.8) (2.9) 6%
$54.0 $40.2 34%
Operating Income (Loss)
U.S. $41.1 $29.9 37%
International (3.1) (3.3) 6%
$38.0 $26.6 43%
Retailing results were driven primarily by the inclusion of Cornerstone
Brands, which was acquired in April 2005 and accordingly is not reflected in
the prior year results. U.S. Retailing also includes HSN, which modestly
improved its revenue growth as compared to the second quarter. While still in
the early stages, the integration of Cornerstone Brands is underway with a
number of products now being tested on HSN and HSN.com in anticipation of
increased cross-selling in 2006.
U.S. Retailing revenue benefited from a 35% increase in units shipped,
principally reflecting Cornerstone Brands as well as strong growth at HSN.com.
Profits grew at a slower pace than revenue due to the inclusion of Cornerstone
Brands (catalogs have relatively higher operating expenses) and lower gross
profit margins at HSN resulting primarily from increased clearance sales and
markdowns. Prior year results were adversely impacted by the Florida
hurricanes, which resulted in programming disruptions and increased costs, due
to mandatory evacuations. As compared to its prior year period, Cornerstone
Brands grew revenue at a double-digit rate.
International Retailing grew revenue by 18%, while profits grew more
slowly due principally to gross margin declines. Foreign exchange had little
impact on the results during the quarter.
SERVICES
Q3 2005 Q3 2004 Growth
Revenue $ in millions
Ticketing $227.5 $182.0 25%
Lending 142.8 39.9 258%
Real Estate 16.3 8.1 102%
Teleservices 87.4 74.5 17%
Home Services 12.2 1.9 550%
$486.2 $306.3 59%
Operating Income Before Amortization
Ticketing $49.9 $32.4 54%
Lending 30.6 7.7 298%
Real Estate (2.4) (1.2) -102%
Teleservices 4.4 5.9 -26%
Home Services 3.5 0.2 1508%
$86.0 $45.1 91%
Operating Income (Loss)
Ticketing $42.8 $25.2 70%
Lending 25.3 2.6 878%
Real Estate (5.4) (2.8) -95%
Teleservices 4.4 5.9 -26%
Home Services 2.6 0.2 1091%
$69.6 $31.1 124%
Services results were driven by significant growth at LendingTree,
particularly from closing loans in its own name along with double-digit growth
from the Lending exchange, strong domestic concert and sporting event ticket
sales, and international expansion in Ticketing. The segment formerly known
as Financial Services & Real Estate is now being reported as separate
segments, Lending and Real Estate.
Worldwide ticket sales increased by 28% and the gross value of tickets
increased by 30%. Domestic Ticketing revenue increased 29%. International
Ticketing revenue grew by 16%, or 14% excluding the benefit of foreign
exchange. Ticketmaster's purchase of the remaining interest in its Australian
joint venture (in April 2005) and an acquisition in Finland (in August 2004)
contributed 20% of Ticketing's overall revenue growth. Ticketing profit
growth was attributable to higher tickets sales and increased cross-selling on
behalf of IAC businesses and other affiliates.
The significantly higher revenue and profit generated from the loans
LendingTree is closing in its own name and improved conversion of customer
traffic into revenue-generating transactions benefited Lending's results.
Refinance mortgages performed strongly and increased as a percent of revenue
from the prior year period, while revenue from purchase and home equity loans
also increased. Lending profits grew faster than revenue due primarily to
lower marketing expenses as a percentage of revenue, offset partially by lower
gross margins as a percentage of revenue due to the higher costs related to
originating, funding and closing loans.
Real Estate revenue was driven by a 34% increase in closings, primarily
due to the acquisition of iNest in October 2004, and double-digit growth in
the company's other real estate businesses. Real Estate losses increased
principally due to higher marketing expenses relating to a test advertising
campaign for RealEstate.com. RealEstate.com now makes available 1.5 million
home listings.
Home Services includes ServiceMagic which was acquired in September 2004.
ServiceMagic acquired ImproveNet in August 2005 and these two businesses have
integrated their operations. The business continues to scale its network of
service providers.
MEDIA & ADVERTISING
Q3 2005 Q3 2004 Growth
$ in millions
Revenue $83.5 $7.9 958%
Operating Income Before Amortization $9.3 $(2.4) NM
Operating Loss $(0.9) $(12.1) 93%
Media & Advertising's results largely reflect Ask Jeeves, which was
acquired in July 2005 and therefore is not included for the entire period.
Ask Jeeves' properties increased their share of U.S. search queries to 6.4% in
September (source: comScore). Ask Jeeves' decision to significantly reduce the
number of sponsored search results on its site is believed to have enhanced
the search experience for users. Sector results were also favorably impacted
by increased pay-for-performance revenue and lower operating expenses at
Citysearch, which contributed positive earnings in the quarter.
For the full quarter, as compared to its prior year period, Ask Jeeves
increased revenue by 15%. This was attributable primarily to an increase in
queries in North America. Growth rates were adversely impacted by the reduced
monetization efforts, as anticipated. Profit margins at Ask Jeeves also
declined due to increased sales and marketing expense and higher revenue share
payments to third party traffic sources.
MEMBERSHIP & SUBSCRIPTIONS
Q3 2005 Q3 2004 Growth
Revenue $ in millions
Vacations $66.1 $63.6 4%
Personals 66.0 49.7 33%
Discounts 30.8 25.6 20%
$162.8 $138.9 17%
Operating Income Before Amortization
Vacations $26.6 $22.5 18%
Personals 16.6 4.5 271%
Discounts (7.1) (10.3) 31%
$36.1 $16.7 116%
Operating Income (Loss)
Vacations $20.2 $16.2 25%
Personals 15.8 2.8 472%
Discounts (8.6) (12.1) 29%
$27.4 $6.8 302%
Membership & Subscriptions results were led by record revenue and profits
at Personals, which increased paid subscribers by 19%, attributable largely to
Match.com's successful marketing efforts in the U.S., continued international
expansion, and higher revenue per subscriber. Revenue growth at Vacations was
slower than in prior quarters due to inventory constraints reflective of high-
occupancy levels in the travel industry, as well as slightly fewer vacation
confirmations as compared to the prior year period.
Vacations revenue growth was driven by a 5% increase in members and higher
average fees. Vacations profit growth was attributable to increased revenue
and higher gross margins, partially offset by costs associated with its newly
launched online travel and lifestyle membership club. 22% of vacations were
confirmed online during the quarter, versus 20% in the prior year period.
Personals revenue growth benefited from higher average prices for
packages. International subscribers grew by 13% driven by expansion in
several markets, most notably in Scandinavia and Latin America. Personals
profit growth was attributable to higher revenue partially offset by higher
marketing expenses, start-up costs in connection with Chemistry.com, a newly
launched premium relationship service, and charges in the prior year period
related to the elimination of non-core businesses.
OTHER ITEMS
Operating Income Before Amortization was impacted by a 17% increase in
corporate and other expense to $26.6 million, including transaction expenses
related to the spin-off of $2.1 million in Q3 (and $16.1 million year-to-
date). Operating income was impacted by the increase noted above, plus
significantly higher non-cash compensation expense. The increase in non-cash
compensation was principally due to a $67 million charge (or $49 million, net
of tax) related to the treatment of vested stock options in connection with
the Expedia spin-off. To a lesser degree, non-cash compensation increased due
to the acquisitions of Cornerstone and Ask Jeeves. These increases were
partially offset by a reduction in non-cash compensation expense of $5.5
million due to the cumulative effect of a change in the Company's estimate
related to the number of stock-based awards that are expected to vest.
Other income was impacted by a $9.4 million gain reflecting changes to the
fair value during the period ended September 30, 2005 of the derivatives that
were created in the Expedia spin-off. The derivatives arise due to IAC's
obligation to deliver both IAC and Expedia shares upon the conversion of the
Ask Jeeves notes and the exercise of certain IAC warrants. Net income was
also adversely impacted by the decreased contribution of our discontinued
operations due primarily to including Expedia's results through August 9, as
compared to the entire third quarter in the prior year.
The consolidated effective tax rates for continuing operations and
adjusted net income were 17% and 32% in Q3 2005 compared to 15% and 26%,
respectively, in Q3 2004. The Q3 2005 effective tax rates were lower than the
statutory rate of 35% due principally to the recognition of a capital loss, a
non-taxable gain associated with derivatives, interest received on IRS
refunds, and net adjustments related to the reconciliation of provision
accruals to tax returns. These favorable items were partially offset by state
taxes. With respect to continuing operations, these items were further offset
by non-deductible non-cash compensation. In 2004, the effective tax rate for
continuing operations and adjusted net income was lower than the statutory
rate due to tax-exempt interest and foreign tax credits, partially offset by
state taxes and foreign losses for which no benefit was recognized.
LIQUIDITY AND CAPITAL RESOURCES
During 2005, $1.6 billion in cash has been used to fund common share
repurchases through October 28. IAC repurchased 18.1 million shares of common
stock from the spin-off through October 28, at an average price of $25.36.
Prior to the spin-off, IAC repurchased 26.4 million common shares at an
average price of $24.67. Additionally, in connection with the sale of its
interest in VUE in June, IAC received 28.3 million IAC common shares as part
of the consideration. The common share numbers for periods prior to the spin-
off are stated after giving effect to the reverse stock split and the average
price for repurchases prior to the spin-off has been adjusted for both the
reverse stock split and the value of the spin-off. Also, 13.1 million shares
of preferred stock for $656 million in cash were put to IAC in connection with
the spin-off.
Subsequent to September 30, 2005, there are some significant items which
will impact our net cash position of $1.4 billion. After giving effect to
these items, and adjusting for debt that is non-recourse to IAC, the Company
would have had approximately $1.3 billion in net cash and securities as of
September 30 as follows (rounding differences may exist):
Cash & Net Cash
Securities Debt (Debt)
($ in billions)
As reported as of September 30, 2005 (a) $3.1 $1.8 $1.4
LendingTree Loan's debt non-recourse
to IAC - (0.4) 0.4
Sub-total 3.1 1.4 1.8
Pro forma adjustments:
Income tax on sale of VUE
interests (12/05) (0.2) - (0.2)
Common share repurchases (10/1
- 10/28/05) (0.2) - (0.2)
Maturity of 6.75% senior notes
(11/15/05) (0.4) (0.4) -
Pro forma as of September 30, 2005 $2.3 $1.0 $1.3
(a) Includes restricted cash and cash and marketable securities in net
funds collected on behalf of Ticketing clients.
DILUTIVE SECURITIES
IAC has various tranches of dilutive securities. The table below details
these securities as well as potential dilution at various stock prices (shares
in millions).
Avg.
Strike / As of
Shares Conversion 10/28/05 Dilution at:
Share Price $25.65 $30.00 $35.00 $40.00 $45.00
Absolute Shares
as of 10/28/05 319.2 319.2 319.2 319.2 319.2 319.2
RSUs 5.8 5.8 5.8 5.8 5.8 5.8
Options 41.8 $17.14 12.2 13.3 14.3 15.0 15.5
Warrants 35.3 $27.81 4.5 5.5 7.9 10.4 13.1
Convertible Notes 4.3 $14.82 4.3 4.3 4.3 4.3 4.3
Other 0.2 0.2 0.2 0.1 0.1 0.1
Total Treasury Method
Dilution 27.0 29.1 32.4 35.7 38.9
% Dilution 7.8% 8.4% 9.2% 10.0% 10.9%
Total Treasury Method
Diluted Shares
Outstanding 346.3 348.4 351.7 354.9 358.1
IAC has outstanding approximately 6.1 million shares of restricted stock
and restricted stock units ("RSUs"), which generally vest over five years from
date of grant, including 3.1 million issued in 2005, and 0.3 million which
will be settled in cash and therefore have no dilutive effect.
OPERATING METRICS
Q3 2005 Q3 2004 Growth
RETAILING
Retailing - U.S.
Units shipped (mm) 12.4 9.2 35%
Gross profit % 37.6% 38.2%
Return rate 16.4% 15.4%
Average price point $58.89 $51.60 14%
Internet % (a) 23% 15%
HSN total homes - end of period (mm) 88.9 85.0 5%
Catalogs mailed (mm) 92.3 18.8 391%
SERVICES
Ticketing
Number of tickets sold (mm) 28.9 22.6 28%
Gross value of tickets sold (mm) $1,432 $1,103 30%
Lending
Transmitted QF's (000s) (b) 879.4 579.6 52%
Closings - units (000s) (c) 75.8 65.9 15%
Closings - dollars ($mm) $9,934 $6,871 45%
Real Estate
Closings - units (000s) 4.0 3.0 34%
Closings - dollars ($mm) $1,068 $762 40%
MEDIA & ADVERTISING
Ask Jeeves Revenue by traffic source
(pro forma)
Proprietary 65.9% 65.7%
Network 34.1% 34.3%
MEMBERSHIP & SUBSCRIPTIONS
Vacations
Members (000s) 1,764 1,681 5%
Confirmations (000s) 202 204 -1%
Share of confirmations online 22% 20%
Personals
Paid Subscribers (000s) 1,178.9 989.8 19%
(a) Internet demand as a percent of total Retailing - U.S. demand
excluding Liquidations and Services.
(b) Customer "Qualification Forms" (QFs) transmitted to at least one
exchange lender (including LendingTree Loans) plus QFs transmitted to
at least one GetSmart lender.
(c) Loan closings consist of loans closed by exchange lenders and directly
by LendingTree Loans.
GAAP FINANCIAL STATEMENTS
IAC CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; $ in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Service revenue $693,833 $415,317 $1,831,097 $1,279,796
Product sales 789,464 541,976 2,215,732 1,673,296
Net revenue 1,483,297 957,293 4,046,829 2,953,092
Cost of sales-service revenue 321,657 222,562 887,571 681,386
Cost of sales-product sales 482,493 322,649 1,352,310 1,024,155
Gross profit 679,147 412,082 1,806,948 1,247,551
Selling and marketing expense 264,378 138,891 679,681 414,755
General and administrative
expense 168,234 119,912 488,493 356,018
Other operating expense 35,134 22,839 87,585 63,260
Amortization of cable
distribution fees 17,403 18,046 51,183 53,079
Amortization of non-cash
distribution and marketing
expense - - - 1,301
Amortization of non-cash
compensation expense 84,775 13,495 113,778 47,761
Amortization of intangibles 50,176 46,605 133,933 142,636
Depreciation expense 37,730 35,514 108,141 104,651
Operating income 21,317 16,780 144,154 64,090
Other income (expense):
Interest income 20,062 45,847 115,075 134,437
Interest expense (11,108) (20,456) (51,718) (59,083)
Gain on sale of VUE (0) - 523,487 -
Equity in the income of VUE (0) 607 21,960 11,293
Equity in the income of
unconsolidated affiliates
and other 14,263 (1,354) 33,753 13,475
Total other income, net 23,217 24,644 642,557 100,122
Earnings from continuing
operations before income
taxes and minority interest 44,534 41,424 786,711 164,212
Income tax benefit (expense) (7,635) (6,215) (311,652) (53,609)
Minority interest in income
of consolidated subsidiaries (527) (672) (1,951) (1,685)
Earnings from continuing
operations 36,372 34,537 473,108 108,918
Gain on sale of Euvia, net of
tax (0) - 79,648 -
Income from discontinued
operations, net of tax 33,117 58,204 210,327 98,546
Earnings before preferred
dividends 69,489 92,741 763,083 207,464
Preferred dividends (1,412) (3,263) (7,938) (9,789)
Net earnings available to
common shareholders $68,077 $89,478 $755,145 $197,675
Earnings per share
Basic earnings per share
from continuing
operations $0.11 $0.09 $1.40 $0.28
Diluted earnings per share
from continuing
operations $0.10 $0.09 $1.33 $0.27
Basic earnings per share $0.21 $0.26 $2.27 $0.57
Diluted earnings per share $0.19 $0.24 $2.14 $0.53
IAC CONSOLIDATED BALANCE SHEET
(unaudited; $ in thousands)
September 30, December 31,
2005 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $909,398 $999,698
Restricted cash and cash equivalents 117,425 41,377
Marketable securities 2,103,160 2,409,745
Accounts and notes receivable, net 497,822 353,579
Loans available for sale, net 416,683 206,256
Inventories, net 428,599 240,917
Deferred income taxes 123,261 107,220
Other current assets 182,713 100,148
Assets held for sale 1,401 339,880
Current assets of discontinued operations 4,602 316,947
Total current assets 4,785,064 5,115,767
Total property, plant and equipment, net 536,876 427,257
Goodwill 7,356,999 5,361,825
Intangible assets, net 1,610,938 1,054,302
Long-term investments 86,522 1,469,020
Preferred interest exchangeable for
common stock - 1,428,530
Cable distribution fees, net 42,767 77,484
Notes receivable and advances, net
of current portion 639 615
Deferred charges and other 283,067 94,597
Non-current assets of discontinued
operations 7,473 7,369,468
TOTAL ASSETS $14,710,345 $22,398,865
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations and short-term borrowings $817,325 $562,953
Accounts payable, trade 288,619 259,510
Accounts payable, client accounts 290,645 176,921
Accrued distribution fees 28,939 36,903
Deferred revenue 123,146 99,258
Deferred income taxes 287 -
Income tax payable 628,035 56,672
Other accrued liabilities 514,503 389,365
Liabilities held for sale - 295,773
Current liabilities of discontinued
operations 18,072 1,015,083
Total current liabilities 2,709,571 2,892,438
Long-term obligations, net of
current maturities 962,975 796,715
Other long-term liabilities 204,539 101,332
Non-current liabilities of
discontinued operations 8,319 423,521
Deferred income taxes 1,346,371 2,130,386
Common stock exchangeable for
preferred interest - 1,428,530
Minority interest 5,237 20,639
Total shareholders' equity 9,473,333 14,605,304
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $14,710,345 $22,398,865
IAC CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; $ in thousands)
Nine Months Ended,
2005 2004
Cash flows from operating activities:
Earnings from continuing operations $473,108 $108,918
Adjustments to reconcile earnings
from continuing operations to net
cash (used in) provided by operating
activities:
Depreciation and amortization 242,074 247,287
Amortization of non-cash distribution
and marketing expense - 1,301
Amortization of non-cash compensation
expense 113,778 47,761
Amortization of cable distribution
fees 51,183 53,079
Deferred income taxes (1,054,605) 64,975
Gain on sale of VUE (523,487) -
Equity in income of unconsolidated
affiliates, including VUE (39,580) (24,024)
Non-cash interest income (29,511) (30,854)
Minority interest in income of
consolidated subsidiaries 1,951 1,685
Increase in cable distribution fees (20,067) (17,770)
Changes in current assets and liabilities:
Accounts and notes receivable (6,450) 11,372
Loans available for sale (210,376) -
Inventories (92,944) (63,228)
Prepaids and other assets (12,031) (2,516)
Accounts payable and accrued liabilities 548,778 (112,843)
Deferred revenue 32,308 24,310
Funds collected by Ticketmaster on
behalf of clients, net 78,666 38,639
Other, net (4,963) (2,661)
Net cash (used in) provided by
operating activities (452,168) 345,431
Cash flows provided by (used in)
investing activities:
Acquisitions, net of cash acquired (682,809) (172,371)
Capital expenditures (175,660) (120,448)
(Increase) decrease in long-term
investments and notes receivable (28,707) 26,570
Purchase of marketable securities (1,943,180) (2,726,133)
Proceeds from sale of marketable
securities 2,324,303 2,185,047
Proceeds from sale of VUE 1,882,291 -
Proceeds from sale of Euvia 183,016 -
Other, net 31,334 1,175
Net cash provided by (used in)
investing activities 1,590,588 (806,160)
Cash flows used in financing activities:
Borrowings 80,000 (0)
Increase in warehouse loans payable 205,644 -
Principal payments on long-term
obligations (38,344) (1,060)
Purchase of treasury stock (1,420,402) (429,507)
Proceeds from issuance of common
stock, including stock options 80,734 94,057
Redemption of preferred stock (655,727) -
Preferred dividends (7,938) (9,789)
Other, net (45,902) 658
Net cash used in financing activities (1,801,935) (345,641)
Net cash provided by discontinued
operations 599,771 1,021,718
Effect of exchange rates changes on
cash and cash equivalents (26,556) 9,980
Net (decrease) increase in cash and
cash equivalents (90,300) 225,328
Cash and cash equivalents at
beginning of period 999,698 759,617
Cash and cash equivalents at end of
period $909,398 $984,945
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
IAC RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
(unaudited; in millions)
Nine Months Ended September 30,
2005 2004
Net Cash Provided by Operating Activities $(452.2) $345.4
Warehouse loans payable 205.6 -
Capital expenditures (175.7) (120.4)
Tax Payments related to the VUE Gain 652.8 -
Preferred dividend paid (7.9) (9.8)
Free Cash Flow $222.7 $215.2
For the nine months ended September 30, 2005, consolidated Free Cash Flow
increased by $7.5 million due primarily to higher earnings, and Ticketing
client cash, offset by higher capital expenditures, higher cash taxes paid
other than the taxes paid on the VUE gain, and higher uses of working capital.
Free Cash Flow includes an increase in warehouse loans payable in Lending,
which is offset by a use of working capital related to an increase in loans
held for sale. We exclude cash taxes paid on the gain on the sale of IAC's
interest in VUE in the determination of Free Cash Flow because the proceeds on
the sale are excluded from cash provided by operating activities. Ticketing
client cash contributed $78.7 million to the change in operating cash flows,
versus $38.6 million in the prior year.
IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS
(unaudited; in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Diluted earnings per share $0.19 $0.24 $2.14 $0.53
GAAP diluted weighted average
shares outstanding 351,255 366,893 356,285 372,757
Net income $68,077 $89,478 $755,145 $197,675
Amortization of non-cash
distribution and marketing expense - - - 1,301
Amortization of non-cash
compensation 84,775 13,495 113,778 47,761
Amortization of intangibles 50,176 46,605 133,933 142,636
Gain on sale of Euvia, net of tax 0 - (79,648) -
Discontinued operations, net of tax (33,117) (58,204) (210,327) (98,546)
Gain on sale of VUE 0 - (523,487) -
Equity in the income of VUE (0) (607) (21,960) (11,293)
Net other income/expense related to
fair value adjustment on
derivatives (9,400) - (9,400) -
Impact of income taxes and minority
interest (46,358) (20,411) 133,814 (63,438)
Interest on convertible notes 412 - 412 -
Adjusted Net Income $114,565 $70,356 $292,260 $216,096
Adjusted EPS weighted average
shares outstanding 356,618 370,661 358,137 376,080
Adjusted EPS $0.32 $0.19 $0.82 $0.57
GAAP Basic weighted average shares
outstanding 326,421 346,702 332,426 348,239
Options, warrants and restricted
stock, treasury method 21,367 20,191 19,464 24,518
Conversion of convertible preferred
and convertible notes (if
applicable) 3,467 - 4,395 -
GAAP Diluted weighted average
shares outstanding 351,255 366,893 356,285 372,757
Pro forma adjustments - - - -
Options, warrants and RS, treasury
method not included in diluted
shares above - - - -
Add'l restricted shares and
convertible preferred and
convertible notes (if applicable) 5,363 3,768 1,852 3,323
Adjusted EPS shares outstanding 356,618 370,661 358,137 376,080
For adjusted EPS purposes, the impact of RSU's is based on the weighted
average amount of RSU's outstanding as compared with shares outstanding for
GAAP purposes, which includes RSU's on a treasury method basis.
IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP Q3 AND YTD
(unaudited; $ in millions; rounding differences may occur)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenue
Retailing:
U.S. $664.3 $437.1 $1,829.4 $1,343.0
International 85.2 72.0 280.7 244.6
Total Retailing 749.5 509.1 2,110.0 1,587.6
Services:
Ticketing 227.5 182.0 696.7 579.3
Lending 142.8 39.9 352.2 114.1
Real Estate 16.3 8.1 43.0 18.2
Teleservices 87.4 74.5 241.5 218.9
Home Services 12.2 1.9 30.5 1.9
Intra-sector Elimination - - - -
Total Services 486.2 306.3 1,363.9 932.4
Media & Advertising 83.5 7.9 104.0 20.6
Membership & Subscriptions:
Vacations 66.1 63.6 208.9 196.7
Personals 66.0 49.7 181.3 147.0
Discounts 30.8 25.6 88.5 85.9
Intra-sector elimination (0.0) - (0.8) (0.6)
Total Membership & Subscriptions 162.8 138.9 477.9 429.1
Emerging Businesses 9.6 1.7 19.6 1.9
Other (8.3) (6.6) (28.6) (18.5)
Total Revenue $1,483.3 $957.3 $4,046.8 $2,953.1
Operating Income Before Amortization
Retailing:
U.S. $56.7 $43.1 $172.2 $126.3
International (2.8) (2.9) (0.2) (1.3)
Total Retailing 54.0 40.2 172.0 125.0
Services:
Ticketing 49.9 32.4 159.6 126.0
Lending 30.6 7.7 66.7 18.6
Real Estate (2.4) (1.2) (13.8) (3.4)
Teleservices 4.4 5.9 11.0 13.3
Home Services 3.5 0.2 9.1 0.2
Total Services 86.0 45.1 232.6 154.7
Media & Advertising 9.3 (2.4) 10.2 (11.4)
Membership & Subscriptions:
Vacations 26.6 22.5 85.5 70.1
Personals 16.6 4.5 32.5 20.4
Discounts (7.1) (10.3) (31.7) (30.5)
Total Membership & Subscriptions 36.1 16.7 86.2 60.0
Emerging Businesses (2.4) 0.0 (8.3) (1.8)
Corporate Expense and other (26.6) (22.8) (100.9) (70.8)
Total Operating Income Before
Amortization $156.3 $76.9 $391.9 $255.8
Amortization of Non-Cash Items
Retailing:
U.S. $15.6 $13.2 $44.4 $39.7
International 0.3 0.3 1.0 1.0
Total Retailing 16.0 13.6 45.3 40.7
Services:
Ticketing 7.1 7.2 21.4 19.6
Lending 5.3 5.1 20.1 15.3
Real Estate 3.0 1.6 10.1 4.8
Teleservices - - - -
Home Services 0.9 - 1.4 -
Total Services 16.3 14.0 53.0 39.8
Media & Advertising 10.1 9.8 10.2 33.6
Membership & Subscriptions:
Vacations 6.3 6.3 18.9 18.9
Personals 0.9 1.7 2.8 7.0
Discounts 1.6 1.9 4.8 6.1
Total Membership & Subscriptions 8.7 9.9 26.5 32.0
Emerging Businesses 0.0 0.2 0.2 0.5
Corporate Expense and other 83.8 12.7 112.3 45.2
Total amortization of non-cash items $135.0 $60.1 $247.7 $191.7
IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP - continued
(unaudited; $ in millions; rounding differences may occur)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Operating Income (Loss)
Retailing
U.S. $41.1 $29.9 $127.8 $86.6
International (3.1) (3.3) (1.2) (2.3)
Total Retailing 38.0 26.6 126.6 84.3
Services:
Ticketing 42.8 25.2 138.1 106.4
Lending 25.3 2.6 46.6 3.3
Real Estate (5.4) (2.8) (23.9) (8.2)
Teleservices 4.4 5.9 11.0 13.3
Home Services 2.6 0.2 7.8 0.2
Total Services 69.6 31.1 179.6 114.9
Media and Advertising (0.9) (12.1) 0.0 (45.0)
Membership & Subscriptions:
Vacations 20.2 16.2 66.6 51.2
Personals 15.8 2.8 29.7 13.4
Discounts (8.6) (12.1) (36.6) (36.6)
Total Membership & Subscriptions: 27.4 6.8 59.7 28.0
Emerging Businesses (2.4) (0.2) (8.5) (2.2)
Corporate Expense and other (110.4) (35.5) (213.3) (115.9)
Total operating income 21.3 16.8 144.2 64.1
Total other income (expense), net 23.2 24.6 642.6 100.1
Earnings from cont. operations before
income taxes and min. int. 44.5 41.4 786.7 164.2
Income tax expense (7.6) (6.2) (311.7) (53.6)
Minority interest (0.5) (0.7) (2.0) (1.7)
Earnings from continuing operations 36.4 34.5 473.1 108.9
Gain on sale of Euvia, net of tax (0.0) - 79.6 -
Discontinued operations, net of tax 33.1 58.2 210.3 98.5
Earnings before preferred dividends 69.5 92.7 763.1 207.5
Preferred dividends (1.4) (3.3) (7.9) (9.8)
Net earnings available to common
shareholders $68.1 $89.5 $755.1 $197.7
Supplemental: Depreciation expense
Retailing
U.S. $10.0 $10.4 $30.5 $30.8
International 1.2 2.6 5.5 7.7
Total Retailing 11.2 13.0 35.9 38.5
Services:
Ticketing 9.2 8.6 27.5 23.7
Lending 1.5 0.7 3.9 2.1
Real Estate 0.3 0.2 0.7 0.5
Teleservices 3.9 4.3 11.4 13.7
Home Services 0.3 0.0 0.7 0.0
Total Services 15.1 13.8 44.3 40.0
Media and Advertising 4.8 0.8 6.9 2.9
Membership & Subscriptions:
Vacations 1.8 2.1 5.3 6.5
Personals 1.6 3.4 6.4 10.0
Discounts 1.2 0.8 3.4 2.6
Total Membership & Subscriptions: 4.6 6.3 15.2 19.1
Emerging Businesses 0.1 0.0 0.3 0.0
Corporate Expense and other 1.9 1.5 5.6 4.2
Total depreciation expense $37.7 $35.5 $108.1 $104.7
DEFINITIONS OF NON-GAAP MEASURES
Operating Income Before Amortization is defined as operating income
excluding: (1) amortization of non-cash distribution, marketing and
compensation expense, (2) amortization of intangibles and goodwill impairment,
if applicable, (3) pro forma adjustments for significant acquisitions, if
applicable, and (4) one-time items, if applicable. 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
payments to partners, 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
and minority interest, (1) amortization of non-cash distribution, marketing
and compensation expense, (2) amortization of intangibles and goodwill
impairment, if applicable, (3) pro forma adjustments for significant
acquisitions, if applicable, (4) equity income or loss from IAC's 5.44%
interest in VUE and gain on the sale of IAC's interest in VUE, (5) non-cash
income or expense reflecting changes in 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 Jeeves notes and the exercise of
certain IAC warrants, (6) one-time items, if applicable and (7) discontinued
operations. We believe Adjusted Net Income is useful to investors because it
represents IAC's consolidated results, taking into account depreciation, which
we believe is an ongoing cost of doing business, as well as other charges
which are not allocated to the operating businesses such as interest expense,
taxes and minority interest, but excluding the effects of any other non-cash
expenses.
Adjusted EPS is defined as Adjusted Net Income divided by weighted fully
diluted shares outstanding for Adjusted EPS purposes. We include dilution
from options and warrants per the treasury stock method and include all shares
relating to restricted stock/share units ("RSU") in shares outstanding for
Adjusted EPS. This differs from the GAAP method for including RSUs, which
treats them on a treasury method basis. In addition, convertible instruments
are assumed to be converted in determining shares outstanding for Adjusted
EPS, if the effect is dilutive. Shares outstanding for Adjusted EPS purposes
are therefore higher than shares outstanding for GAAP EPS purposes. We
believe Adjusted EPS is useful to investors because it represents, on a per
share basis, IAC's consolidated results, taking into account depreciation,
which we believe is an ongoing cost of doing business, as well as other
charges which are not allocated to the operating businesses such as interest
expense, taxes and minority interest, but excluding the effects of any other
non-cash expenses. Adjusted Net Income and Adjusted EPS have the same
limitations as Operating Income Before Amortization, and in addition Adjusted
Net Income and Adjusted EPS do not account for IAC's passive former ownership
in VUE. Therefore, we think it is important to evaluate these measures along
with our consolidated statement of operations.
Free Cash Flow is defined as net cash provided by operating activities,
including preferred dividends received from VUE, less capital expenditures and
preferred dividends paid by IAC. In addition, Free Cash Flow includes tax
distributions on the VUE common and preferred interests upon receipt of the
distributions by IAC. For purposes of Free Cash Flow, we also include changes
in warehouse loans payable in Lending due to the close connection that exists
with changes in loans held by sale which are included in cash provided by
operations. In addition, Free Cash Flow excludes the taxes paid on the gain on
the sale of IAC's interest in VUE due to the exclusion of the proceeds on the
sale from cash provided by operating activities. We believe Free Cash Flow is
useful to investors because it represents the cash that our operating
businesses generate, before taking into account cash movements that are non-
operational. Free Cash Flow has certain limitations in that it does not
represent the total increase or decrease in the cash balance for the period,
nor does it represent the residual cash flow for discretionary expenditures.
For example, it does not take into account stock repurchases. Therefore, we
think it is important to evaluate Free Cash Flow along with our consolidated
statement of cash flows.
We endeavor to compensate for the limitations of the non-GAAP measures
presented by also providing the comparable GAAP measures, GAAP financial
statements, and descriptions of the reconciling items and adjustments, to
derive the non-GAAP measures. For IAC's Principles of Financial Reporting, a
detailed explanation of why we believe these non-GAAP measures are useful to
investors and management, please refer to IAC's website at
http://www.iac.com/investors.htm.
OTHER INFORMATION
CONFERENCE CALL
IAC will audiocast its conference call with investors and analysts
discussing the company's Q3 financial results and certain forward-looking
information on Tuesday, November 1, 2005, at 11:00 a.m. Eastern Time (ET).
The live audiocast is open to the public at http://www.iac.com/investors.htm.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements relating to IAC's anticipated
financial performance, business prospects, new developments, pending
transactions and similar matters, and/or statements that use words such as
"anticipates," "estimates," "expects," "intends," "plans," "believes" and
similar expressions. These forward-looking statements are based on
management's current expectations and assumptions, which are inherently
subject to uncertainties, risks and changes in circumstances that are
difficult to predict. Actual results could differ materially from those
contained in the forward-looking statements included in this press release for
a variety of reasons, including, among others: changes in economic conditions
generally or in any of the markets or industries in which IAC's businesses
operate, changes in senior management at IAC and/or its businesses, the rate
of growth of the Internet, the e-commerce industry and broadband access, the
rate of online migration in the various markets and industries in which IAC's
businesses operate, technological changes, regulatory changes, consumer
acceptance of new products and services, the ability of IAC to expand
successfully in international markets, and the successful integration of
acquired businesses. Certain of these and other risks and uncertainties are
discussed in IAC's filings with the Securities and Exchange Commission
("SEC"). Other unknown or unpredictable factors also could have a material
adverse effect on IAC's business, financial condition and results of
operations. In light of these risks and uncertainties, the forward-looking
statements discussed in this press release may not occur. Accordingly, readers
should not place undue reliance on these forward-looking statements, which
only reflect the views of IAC management as of the date of this press release.
IAC does not undertake to update these forward-looking statements.
About IAC/InterActiveCorp
IAC operates leading and diversified businesses in sectors being
transformed by the internet, online and offline... our mission is to harness
the power of interactivity to make daily life easier and more productive for
people all over the world. To view a full list of the companies of IAC please
visit our website at http://iac.com
(Nasdaq: IACI) reported Q3 results today.
Q3 SUMMARY RESULTS
$ in millions (except per share amounts)
Q3 2005 Q3 2004 Growth
Revenue $1,483.3 $957.3 55%
Operating Income Before Amortization $156.3 $76.9 103%
Adjusted Net Income $114.6 $70.4 63%
Adjusted EPS $0.32 $0.19 69%
Operating Income $21.3 $16.8 27%
Net Income $68.1 $89.5 -24%
GAAP Diluted EPS $0.19 $0.24 -20%
Overall Highlights
-- IAC performed strongly with growth from each of its principal sectors.
-- Operating Income Before Amortization margins increased by 250 basis
points versus the prior year period.
-- IAC repurchased 18.1 million shares of its common stock between July 1
and October 28, 2005, at an average price of $25.36.
-- Operating income was impacted by a non-cash compensation charge of $67
million related to the Expedia spin-off (please see page 7 for more
information).
Sector Highlights
-- Retailing benefited from the inclusion of Cornerstone Brands and
improved top-line results at HSN, though gross margins declined
slightly. Online demand was strong and now represents 23% of IAC's
U.S. Retailing business.
-- Services was driven by significant growth at LendingTree, particularly
from closing loans in its own name along with double-digit growth from
the Lending exchange, strong domestic concert and sporting event ticket
sales, and international expansion in Ticketing.
-- Media & Advertising now includes Ask Jeeves which increased its share
of U.S. search queries to 6.4% in September (source: comScore) and the
decision to reduce the number of sponsored search results on Ask's U.S.
site is tracking favorably. Citysearch strengthened its position in
local online pay-for-performance advertising and delivered its second
consecutive quarter of profitable growth. Unique users at Citysearch
increased 168% to record levels.
-- Membership & Subscriptions was led by record results at Personals,
which increased worldwide subscribers by 19% and recently launched
Chemistry.com, a new premium relationship service. Vacations had soft
top-line growth but strong bottom-line performance and launched an
online travel and lifestyle membership club.
IAC acquired Ask Jeeves on July 19, and spun-off Expedia to shareholders
and effected a 1-for-2 reverse stock split on August 9. Accordingly, results
for Ask Jeeves are included from the date of acquisition, and results for
Expedia prior to the spin-off are treated as discontinued operations. Please
see page 10 for GAAP financial statements, and page 16 for definitions of non-
GAAP measures.
SECTOR RESULTS
Sector results for the third quarter ended September 30 were as follows ($ in
millions):
Q3 2005 Q3 2004 Growth
REVENUE
Retailing $749.5 509.1 47%
Services 486.2 306.3 59%
Media & Advertising 83.5 7.9 958%
Membership & Subscriptions 162.8 138.9 17%
Emerging Businesses 9.6 1.7 466%
Other (8.3) (6.6) -26%
Total $1,483.3 $957.3 55%
OPERATING INCOME BEFORE AMORTIZATION
Retailing $54.0 $40.2 34%
Services 86.0 45.1 91%
Media & Advertising 9.3 (2.4) NM
Membership & Subscriptions 36.1 16.7 116%
Emerging Businesses (2.4) 0.0 NM
Corporate (26.6) (22.8) -17%
Total $156.3 $76.9 103%
OPERATING INCOME (LOSS)
Retailing $38.0 $26.6 43%
Services 69.6 31.1 124%
Media & Advertising (0.9) (12.1) 93%
Membership & Subscriptions 27.4 6.8 302%
Emerging Businesses (2.4) (0.2) -1244%
Corporate (110.4) (35.5) -211%
Total $21.3 $16.8 27%
Please see discussion of financial and operating results beginning on page
3, and reconciliations to the comparable GAAP measures and further segment
detail beginning on page 13.
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
RETAILING:
Q3 2005 Q3 2004 Growth
Revenue $ in millions
U.S. $664.3 $437.1 52%
International 85.2 72.0 18%
$749.5 $509.1 47%
Operating Income Before Amortization
U.S. $56.7 $43.1 31%
International (2.8) (2.9) 6%
$54.0 $40.2 34%
Operating Income (Loss)
U.S. $41.1 $29.9 37%
International (3.1) (3.3) 6%
$38.0 $26.6 43%
Retailing results were driven primarily by the inclusion of Cornerstone
Brands, which was acquired in April 2005 and accordingly is not reflected in
the prior year results. U.S. Retailing also includes HSN, which modestly
improved its revenue growth as compared to the second quarter. While still in
the early stages, the integration of Cornerstone Brands is underway with a
number of products now being tested on HSN and HSN.com in anticipation of
increased cross-selling in 2006.
U.S. Retailing revenue benefited from a 35% increase in units shipped,
principally reflecting Cornerstone Brands as well as strong growth at HSN.com.
Profits grew at a slower pace than revenue due to the inclusion of Cornerstone
Brands (catalogs have relatively higher operating expenses) and lower gross
profit margins at HSN resulting primarily from increased clearance sales and
markdowns. Prior year results were adversely impacted by the Florida
hurricanes, which resulted in programming disruptions and increased costs, due
to mandatory evacuations. As compared to its prior year period, Cornerstone
Brands grew revenue at a double-digit rate.
International Retailing grew revenue by 18%, while profits grew more
slowly due principally to gross margin declines. Foreign exchange had little
impact on the results during the quarter.
SERVICES
Q3 2005 Q3 2004 Growth
Revenue $ in millions
Ticketing $227.5 $182.0 25%
Lending 142.8 39.9 258%
Real Estate 16.3 8.1 102%
Teleservices 87.4 74.5 17%
Home Services 12.2 1.9 550%
$486.2 $306.3 59%
Operating Income Before Amortization
Ticketing $49.9 $32.4 54%
Lending 30.6 7.7 298%
Real Estate (2.4) (1.2) -102%
Teleservices 4.4 5.9 -26%
Home Services 3.5 0.2 1508%
$86.0 $45.1 91%
Operating Income (Loss)
Ticketing $42.8 $25.2 70%
Lending 25.3 2.6 878%
Real Estate (5.4) (2.8) -95%
Teleservices 4.4 5.9 -26%
Home Services 2.6 0.2 1091%
$69.6 $31.1 124%
Services results were driven by significant growth at LendingTree,
particularly from closing loans in its own name along with double-digit growth
from the Lending exchange, strong domestic concert and sporting event ticket
sales, and international expansion in Ticketing. The segment formerly known
as Financial Services & Real Estate is now being reported as separate
segments, Lending and Real Estate.
Worldwide ticket sales increased by 28% and the gross value of tickets
increased by 30%. Domestic Ticketing revenue increased 29%. International
Ticketing revenue grew by 16%, or 14% excluding the benefit of foreign
exchange. Ticketmaster's purchase of the remaining interest in its Australian
joint venture (in April 2005) and an acquisition in Finland (in August 2004)
contributed 20% of Ticketing's overall revenue growth. Ticketing profit
growth was attributable to higher tickets sales and increased cross-selling on
behalf of IAC businesses and other affiliates.
The significantly higher revenue and profit generated from the loans
LendingTree is closing in its own name and improved conversion of customer
traffic into revenue-generating transactions benefited Lending's results.
Refinance mortgages performed strongly and increased as a percent of revenue
from the prior year period, while revenue from purchase and home equity loans
also increased. Lending profits grew faster than revenue due primarily to
lower marketing expenses as a percentage of revenue, offset partially by lower
gross margins as a percentage of revenue due to the higher costs related to
originating, funding and closing loans.
Real Estate revenue was driven by a 34% increase in closings, primarily
due to the acquisition of iNest in October 2004, and double-digit growth in
the company's other real estate businesses. Real Estate losses increased
principally due to higher marketing expenses relating to a test advertising
campaign for RealEstate.com. RealEstate.com now makes available 1.5 million
home listings.
Home Services includes ServiceMagic which was acquired in September 2004.
ServiceMagic acquired ImproveNet in August 2005 and these two businesses have
integrated their operations. The business continues to scale its network of
service providers.
MEDIA & ADVERTISING
Q3 2005 Q3 2004 Growth
$ in millions
Revenue $83.5 $7.9 958%
Operating Income Before Amortization $9.3 $(2.4) NM
Operating Loss $(0.9) $(12.1) 93%
Media & Advertising's results largely reflect Ask Jeeves, which was
acquired in July 2005 and therefore is not included for the entire period.
Ask Jeeves' properties increased their share of U.S. search queries to 6.4% in
September (source: comScore). Ask Jeeves' decision to significantly reduce the
number of sponsored search results on its site is believed to have enhanced
the search experience for users. Sector results were also favorably impacted
by increased pay-for-performance revenue and lower operating expenses at
Citysearch, which contributed positive earnings in the quarter.
For the full quarter, as compared to its prior year period, Ask Jeeves
increased revenue by 15%. This was attributable primarily to an increase in
queries in North America. Growth rates were adversely impacted by the reduced
monetization efforts, as anticipated. Profit margins at Ask Jeeves also
declined due to increased sales and marketing expense and higher revenue share
payments to third party traffic sources.
MEMBERSHIP & SUBSCRIPTIONS
Q3 2005 Q3 2004 Growth
Revenue $ in millions
Vacations $66.1 $63.6 4%
Personals 66.0 49.7 33%
Discounts 30.8 25.6 20%
$162.8 $138.9 17%
Operating Income Before Amortization
Vacations $26.6 $22.5 18%
Personals 16.6 4.5 271%
Discounts (7.1) (10.3) 31%
$36.1 $16.7 116%
Operating Income (Loss)
Vacations $20.2 $16.2 25%
Personals 15.8 2.8 472%
Discounts (8.6) (12.1) 29%
$27.4 $6.8 302%
Membership & Subscriptions results were led by record revenue and profits
at Personals, which increased paid subscribers by 19%, attributable largely to
Match.com's successful marketing efforts in the U.S., continued international
expansion, and higher revenue per subscriber. Revenue growth at Vacations was
slower than in prior quarters due to inventory constraints reflective of high-
occupancy levels in the travel industry, as well as slightly fewer vacation
confirmations as compared to the prior year period.
Vacations revenue growth was driven by a 5% increase in members and higher
average fees. Vacations profit growth was attributable to increased revenue
and higher gross margins, partially offset by costs associated with its newly
launched online travel and lifestyle membership club. 22% of vacations were
confirmed online during the quarter, versus 20% in the prior year period.
Personals revenue growth benefited from higher average prices for
packages. International subscribers grew by 13% driven by expansion in
several markets, most notably in Scandinavia and Latin America. Personals
profit growth was attributable to higher revenue partially offset by higher
marketing expenses, start-up costs in connection with Chemistry.com, a newly
launched premium relationship service, and charges in the prior year period
related to the elimination of non-core businesses.
OTHER ITEMS
Operating Income Before Amortization was impacted by a 17% increase in
corporate and other expense to $26.6 million, including transaction expenses
related to the spin-off of $2.1 million in Q3 (and $16.1 million year-to-
date). Operating income was impacted by the increase noted above, plus
significantly higher non-cash compensation expense. The increase in non-cash
compensation was principally due to a $67 million charge (or $49 million, net
of tax) related to the treatment of vested stock options in connection with
the Expedia spin-off. To a lesser degree, non-cash compensation increased due
to the acquisitions of Cornerstone and Ask Jeeves. These increases were
partially offset by a reduction in non-cash compensation expense of $5.5
million due to the cumulative effect of a change in the Company's estimate
related to the number of stock-based awards that are expected to vest.
Other income was impacted by a $9.4 million gain reflecting changes to the
fair value during the period ended September 30, 2005 of the derivatives that
were created in the Expedia spin-off. The derivatives arise due to IAC's
obligation to deliver both IAC and Expedia shares upon the conversion of the
Ask Jeeves notes and the exercise of certain IAC warrants. Net income was
also adversely impacted by the decreased contribution of our discontinued
operations due primarily to including Expedia's results through August 9, as
compared to the entire third quarter in the prior year.
The consolidated effective tax rates for continuing operations and
adjusted net income were 17% and 32% in Q3 2005 compared to 15% and 26%,
respectively, in Q3 2004. The Q3 2005 effective tax rates were lower than the
statutory rate of 35% due principally to the recognition of a capital loss, a
non-taxable gain associated with derivatives, interest received on IRS
refunds, and net adjustments related to the reconciliation of provision
accruals to tax returns. These favorable items were partially offset by state
taxes. With respect to continuing operations, these items were further offset
by non-deductible non-cash compensation. In 2004, the effective tax rate for
continuing operations and adjusted net income was lower than the statutory
rate due to tax-exempt interest and foreign tax credits, partially offset by
state taxes and foreign losses for which no benefit was recognized.
LIQUIDITY AND CAPITAL RESOURCES
During 2005, $1.6 billion in cash has been used to fund common share
repurchases through October 28. IAC repurchased 18.1 million shares of common
stock from the spin-off through October 28, at an average price of $25.36.
Prior to the spin-off, IAC repurchased 26.4 million common shares at an
average price of $24.67. Additionally, in connection with the sale of its
interest in VUE in June, IAC received 28.3 million IAC common shares as part
of the consideration. The common share numbers for periods prior to the spin-
off are stated after giving effect to the reverse stock split and the average
price for repurchases prior to the spin-off has been adjusted for both the
reverse stock split and the value of the spin-off. Also, 13.1 million shares
of preferred stock for $656 million in cash were put to IAC in connection with
the spin-off.
Subsequent to September 30, 2005, there are some significant items which
will impact our net cash position of $1.4 billion. After giving effect to
these items, and adjusting for debt that is non-recourse to IAC, the Company
would have had approximately $1.3 billion in net cash and securities as of
September 30 as follows (rounding differences may exist):
Cash & Net Cash
Securities Debt (Debt)
($ in billions)
As reported as of September 30, 2005 (a) $3.1 $1.8 $1.4
LendingTree Loan's debt non-recourse
to IAC - (0.4) 0.4
Sub-total 3.1 1.4 1.8
Pro forma adjustments:
Income tax on sale of VUE
interests (12/05) (0.2) - (0.2)
Common share repurchases (10/1
- 10/28/05) (0.2) - (0.2)
Maturity of 6.75% senior notes
(11/15/05) (0.4) (0.4) -
Pro forma as of September 30, 2005 $2.3 $1.0 $1.3
(a) Includes restricted cash and cash and marketable securities in net
funds collected on behalf of Ticketing clients.
DILUTIVE SECURITIES
IAC has various tranches of dilutive securities. The table below details
these securities as well as potential dilution at various stock prices (shares
in millions).
Avg.
Strike / As of
Shares Conversion 10/28/05 Dilution at:
Share Price $25.65 $30.00 $35.00 $40.00 $45.00
Absolute Shares
as of 10/28/05 319.2 319.2 319.2 319.2 319.2 319.2
RSUs 5.8 5.8 5.8 5.8 5.8 5.8
Options 41.8 $17.14 12.2 13.3 14.3 15.0 15.5
Warrants 35.3 $27.81 4.5 5.5 7.9 10.4 13.1
Convertible Notes 4.3 $14.82 4.3 4.3 4.3 4.3 4.3
Other 0.2 0.2 0.2 0.1 0.1 0.1
Total Treasury Method
Dilution 27.0 29.1 32.4 35.7 38.9
% Dilution 7.8% 8.4% 9.2% 10.0% 10.9%
Total Treasury Method
Diluted Shares
Outstanding 346.3 348.4 351.7 354.9 358.1
IAC has outstanding approximately 6.1 million shares of restricted stock
and restricted stock units ("RSUs"), which generally vest over five years from
date of grant, including 3.1 million issued in 2005, and 0.3 million which
will be settled in cash and therefore have no dilutive effect.
OPERATING METRICS
Q3 2005 Q3 2004 Growth
RETAILING
Retailing - U.S.
Units shipped (mm) 12.4 9.2 35%
Gross profit % 37.6% 38.2%
Return rate 16.4% 15.4%
Average price point $58.89 $51.60 14%
Internet % (a) 23% 15%
HSN total homes - end of period (mm) 88.9 85.0 5%
Catalogs mailed (mm) 92.3 18.8 391%
SERVICES
Ticketing
Number of tickets sold (mm) 28.9 22.6 28%
Gross value of tickets sold (mm) $1,432 $1,103 30%
Lending
Transmitted QF's (000s) (b) 879.4 579.6 52%
Closings - units (000s) (c) 75.8 65.9 15%
Closings - dollars ($mm) $9,934 $6,871 45%
Real Estate
Closings - units (000s) 4.0 3.0 34%
Closings - dollars ($mm) $1,068 $762 40%
MEDIA & ADVERTISING
Ask Jeeves Revenue by traffic source
(pro forma)
Proprietary 65.9% 65.7%
Network 34.1% 34.3%
MEMBERSHIP & SUBSCRIPTIONS
Vacations
Members (000s) 1,764 1,681 5%
Confirmations (000s) 202 204 -1%
Share of confirmations online 22% 20%
Personals
Paid Subscribers (000s) 1,178.9 989.8 19%
(a) Internet demand as a percent of total Retailing - U.S. demand
excluding Liquidations and Services.
(b) Customer "Qualification Forms" (QFs) transmitted to at least one
exchange lender (including LendingTree Loans) plus QFs transmitted to
at least one GetSmart lender.
(c) Loan closings consist of loans closed by exchange lenders and directly
by LendingTree Loans.
GAAP FINANCIAL STATEMENTS
IAC CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; $ in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Service revenue $693,833 $415,317 $1,831,097 $1,279,796
Product sales 789,464 541,976 2,215,732 1,673,296
Net revenue 1,483,297 957,293 4,046,829 2,953,092
Cost of sales-service revenue 321,657 222,562 887,571 681,386
Cost of sales-product sales 482,493 322,649 1,352,310 1,024,155
Gross profit 679,147 412,082 1,806,948 1,247,551
Selling and marketing expense 264,378 138,891 679,681 414,755
General and administrative
expense 168,234 119,912 488,493 356,018
Other operating expense 35,134 22,839 87,585 63,260
Amortization of cable
distribution fees 17,403 18,046 51,183 53,079
Amortization of non-cash
distribution and marketing
expense - - - 1,301
Amortization of non-cash
compensation expense 84,775 13,495 113,778 47,761
Amortization of intangibles 50,176 46,605 133,933 142,636
Depreciation expense 37,730 35,514 108,141 104,651
Operating income 21,317 16,780 144,154 64,090
Other income (expense):
Interest income 20,062 45,847 115,075 134,437
Interest expense (11,108) (20,456) (51,718) (59,083)
Gain on sale of VUE (0) - 523,487 -
Equity in the income of VUE (0) 607 21,960 11,293
Equity in the income of
unconsolidated affiliates
and other 14,263 (1,354) 33,753 13,475
Total other income, net 23,217 24,644 642,557 100,122
Earnings from continuing
operations before income
taxes and minority interest 44,534 41,424 786,711 164,212
Income tax benefit (expense) (7,635) (6,215) (311,652) (53,609)
Minority interest in income
of consolidated subsidiaries (527) (672) (1,951) (1,685)
Earnings from continuing
operations 36,372 34,537 473,108 108,918
Gain on sale of Euvia, net of
tax (0) - 79,648 -
Income from discontinued
operations, net of tax 33,117 58,204 210,327 98,546
Earnings before preferred
dividends 69,489 92,741 763,083 207,464
Preferred dividends (1,412) (3,263) (7,938) (9,789)
Net earnings available to
common shareholders $68,077 $89,478 $755,145 $197,675
Earnings per share
Basic earnings per share
from continuing
operations $0.11 $0.09 $1.40 $0.28
Diluted earnings per share
from continuing
operations $0.10 $0.09 $1.33 $0.27
Basic earnings per share $0.21 $0.26 $2.27 $0.57
Diluted earnings per share $0.19 $0.24 $2.14 $0.53
IAC CONSOLIDATED BALANCE SHEET
(unaudited; $ in thousands)
September 30, December 31,
2005 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents $909,398 $999,698
Restricted cash and cash equivalents 117,425 41,377
Marketable securities 2,103,160 2,409,745
Accounts and notes receivable, net 497,822 353,579
Loans available for sale, net 416,683 206,256
Inventories, net 428,599 240,917
Deferred income taxes 123,261 107,220
Other current assets 182,713 100,148
Assets held for sale 1,401 339,880
Current assets of discontinued operations 4,602 316,947
Total current assets 4,785,064 5,115,767
Total property, plant and equipment, net 536,876 427,257
Goodwill 7,356,999 5,361,825
Intangible assets, net 1,610,938 1,054,302
Long-term investments 86,522 1,469,020
Preferred interest exchangeable for
common stock - 1,428,530
Cable distribution fees, net 42,767 77,484
Notes receivable and advances, net
of current portion 639 615
Deferred charges and other 283,067 94,597
Non-current assets of discontinued
operations 7,473 7,369,468
TOTAL ASSETS $14,710,345 $22,398,865
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
obligations and short-term borrowings $817,325 $562,953
Accounts payable, trade 288,619 259,510
Accounts payable, client accounts 290,645 176,921
Accrued distribution fees 28,939 36,903
Deferred revenue 123,146 99,258
Deferred income taxes 287 -
Income tax payable 628,035 56,672
Other accrued liabilities 514,503 389,365
Liabilities held for sale - 295,773
Current liabilities of discontinued
operations 18,072 1,015,083
Total current liabilities 2,709,571 2,892,438
Long-term obligations, net of
current maturities 962,975 796,715
Other long-term liabilities 204,539 101,332
Non-current liabilities of
discontinued operations 8,319 423,521
Deferred income taxes 1,346,371 2,130,386
Common stock exchangeable for
preferred interest - 1,428,530
Minority interest 5,237 20,639
Total shareholders' equity 9,473,333 14,605,304
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $14,710,345 $22,398,865
IAC CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; $ in thousands)
Nine Months Ended,
2005 2004
Cash flows from operating activities:
Earnings from continuing operations $473,108 $108,918
Adjustments to reconcile earnings
from continuing operations to net
cash (used in) provided by operating
activities:
Depreciation and amortization 242,074 247,287
Amortization of non-cash distribution
and marketing expense - 1,301
Amortization of non-cash compensation
expense 113,778 47,761
Amortization of cable distribution
fees 51,183 53,079
Deferred income taxes (1,054,605) 64,975
Gain on sale of VUE (523,487) -
Equity in income of unconsolidated
affiliates, including VUE (39,580) (24,024)
Non-cash interest income (29,511) (30,854)
Minority interest in income of
consolidated subsidiaries 1,951 1,685
Increase in cable distribution fees (20,067) (17,770)
Changes in current assets and liabilities:
Accounts and notes receivable (6,450) 11,372
Loans available for sale (210,376) -
Inventories (92,944) (63,228)
Prepaids and other assets (12,031) (2,516)
Accounts payable and accrued liabilities 548,778 (112,843)
Deferred revenue 32,308 24,310
Funds collected by Ticketmaster on
behalf of clients, net 78,666 38,639
Other, net (4,963) (2,661)
Net cash (used in) provided by
operating activities (452,168) 345,431
Cash flows provided by (used in)
investing activities:
Acquisitions, net of cash acquired (682,809) (172,371)
Capital expenditures (175,660) (120,448)
(Increase) decrease in long-term
investments and notes receivable (28,707) 26,570
Purchase of marketable securities (1,943,180) (2,726,133)
Proceeds from sale of marketable
securities 2,324,303 2,185,047
Proceeds from sale of VUE 1,882,291 -
Proceeds from sale of Euvia 183,016 -
Other, net 31,334 1,175
Net cash provided by (used in)
investing activities 1,590,588 (806,160)
Cash flows used in financing activities:
Borrowings 80,000 (0)
Increase in warehouse loans payable 205,644 -
Principal payments on long-term
obligations (38,344) (1,060)
Purchase of treasury stock (1,420,402) (429,507)
Proceeds from issuance of common
stock, including stock options 80,734 94,057
Redemption of preferred stock (655,727) -
Preferred dividends (7,938) (9,789)
Other, net (45,902) 658
Net cash used in financing activities (1,801,935) (345,641)
Net cash provided by discontinued
operations 599,771 1,021,718
Effect of exchange rates changes on
cash and cash equivalents (26,556) 9,980
Net (decrease) increase in cash and
cash equivalents (90,300) 225,328
Cash and cash equivalents at
beginning of period 999,698 759,617
Cash and cash equivalents at end of
period $909,398 $984,945
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
IAC RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
(unaudited; in millions)
Nine Months Ended September 30,
2005 2004
Net Cash Provided by Operating Activities $(452.2) $345.4
Warehouse loans payable 205.6 -
Capital expenditures (175.7) (120.4)
Tax Payments related to the VUE Gain 652.8 -
Preferred dividend paid (7.9) (9.8)
Free Cash Flow $222.7 $215.2
For the nine months ended September 30, 2005, consolidated Free Cash Flow
increased by $7.5 million due primarily to higher earnings, and Ticketing
client cash, offset by higher capital expenditures, higher cash taxes paid
other than the taxes paid on the VUE gain, and higher uses of working capital.
Free Cash Flow includes an increase in warehouse loans payable in Lending,
which is offset by a use of working capital related to an increase in loans
held for sale. We exclude cash taxes paid on the gain on the sale of IAC's
interest in VUE in the determination of Free Cash Flow because the proceeds on
the sale are excluded from cash provided by operating activities. Ticketing
client cash contributed $78.7 million to the change in operating cash flows,
versus $38.6 million in the prior year.
IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS
(unaudited; in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Diluted earnings per share $0.19 $0.24 $2.14 $0.53
GAAP diluted weighted average
shares outstanding 351,255 366,893 356,285 372,757
Net income $68,077 $89,478 $755,145 $197,675
Amortization of non-cash
distribution and marketing expense - - - 1,301
Amortization of non-cash
compensation 84,775 13,495 113,778 47,761
Amortization of intangibles 50,176 46,605 133,933 142,636
Gain on sale of Euvia, net of tax 0 - (79,648) -
Discontinued operations, net of tax (33,117) (58,204) (210,327) (98,546)
Gain on sale of VUE 0 - (523,487) -
Equity in the income of VUE (0) (607) (21,960) (11,293)
Net other income/expense related to
fair value adjustment on
derivatives (9,400) - (9,400) -
Impact of income taxes and minority
interest (46,358) (20,411) 133,814 (63,438)
Interest on convertible notes 412 - 412 -
Adjusted Net Income $114,565 $70,356 $292,260 $216,096
Adjusted EPS weighted average
shares outstanding 356,618 370,661 358,137 376,080
Adjusted EPS $0.32 $0.19 $0.82 $0.57
GAAP Basic weighted average shares
outstanding 326,421 346,702 332,426 348,239
Options, warrants and restricted
stock, treasury method 21,367 20,191 19,464 24,518
Conversion of convertible preferred
and convertible notes (if
applicable) 3,467 - 4,395 -
GAAP Diluted weighted average
shares outstanding 351,255 366,893 356,285 372,757
Pro forma adjustments - - - -
Options, warrants and RS, treasury
method not included in diluted
shares above - - - -
Add'l restricted shares and
convertible preferred and
convertible notes (if applicable) 5,363 3,768 1,852 3,323
Adjusted EPS shares outstanding 356,618 370,661 358,137 376,080
For adjusted EPS purposes, the impact of RSU's is based on the weighted
average amount of RSU's outstanding as compared with shares outstanding for
GAAP purposes, which includes RSU's on a treasury method basis.
IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP Q3 AND YTD
(unaudited; $ in millions; rounding differences may occur)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenue
Retailing:
U.S. $664.3 $437.1 $1,829.4 $1,343.0
International 85.2 72.0 280.7 244.6
Total Retailing 749.5 509.1 2,110.0 1,587.6
Services:
Ticketing 227.5 182.0 696.7 579.3
Lending 142.8 39.9 352.2 114.1
Real Estate 16.3 8.1 43.0 18.2
Teleservices 87.4 74.5 241.5 218.9
Home Services 12.2 1.9 30.5 1.9
Intra-sector Elimination - - - -
Total Services 486.2 306.3 1,363.9 932.4
Media & Advertising 83.5 7.9 104.0 20.6
Membership & Subscriptions:
Vacations 66.1 63.6 208.9 196.7
Personals 66.0 49.7 181.3 147.0
Discounts 30.8 25.6 88.5 85.9
Intra-sector elimination (0.0) - (0.8) (0.6)
Total Membership & Subscriptions 162.8 138.9 477.9 429.1
Emerging Businesses 9.6 1.7 19.6 1.9
Other (8.3) (6.6) (28.6) (18.5)
Total Revenue $1,483.3 $957.3 $4,046.8 $2,953.1
Operating Income Before Amortization
Retailing:
U.S. $56.7 $43.1 $172.2 $126.3
International (2.8) (2.9) (0.2) (1.3)
Total Retailing 54.0 40.2 172.0 125.0
Services:
Ticketing 49.9 32.4 159.6 126.0
Lending 30.6 7.7 66.7 18.6
Real Estate (2.4) (1.2) (13.8) (3.4)
Teleservices 4.4 5.9 11.0 13.3
Home Services 3.5 0.2 9.1 0.2
Total Services 86.0 45.1 232.6 154.7
Media & Advertising 9.3 (2.4) 10.2 (11.4)
Membership & Subscriptions:
Vacations 26.6 22.5 85.5 70.1
Personals 16.6 4.5 32.5 20.4
Discounts (7.1) (10.3) (31.7) (30.5)
Total Membership & Subscriptions 36.1 16.7 86.2 60.0
Emerging Businesses (2.4) 0.0 (8.3) (1.8)
Corporate Expense and other (26.6) (22.8) (100.9) (70.8)
Total Operating Income Before
Amortization $156.3 $76.9 $391.9 $255.8
Amortization of Non-Cash Items
Retailing:
U.S. $15.6 $13.2 $44.4 $39.7
International 0.3 0.3 1.0 1.0
Total Retailing 16.0 13.6 45.3 40.7
Services:
Ticketing 7.1 7.2 21.4 19.6
Lending 5.3 5.1 20.1 15.3
Real Estate 3.0 1.6 10.1 4.8
Teleservices - - - -
Home Services 0.9 - 1.4 -
Total Services 16.3 14.0 53.0 39.8
Media & Advertising 10.1 9.8 10.2 33.6
Membership & Subscriptions:
Vacations 6.3 6.3 18.9 18.9
Personals 0.9 1.7 2.8 7.0
Discounts 1.6 1.9 4.8 6.1
Total Membership & Subscriptions 8.7 9.9 26.5 32.0
Emerging Businesses 0.0 0.2 0.2 0.5
Corporate Expense and other 83.8 12.7 112.3 45.2
Total amortization of non-cash items $135.0 $60.1 $247.7 $191.7
IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP - continued
(unaudited; $ in millions; rounding differences may occur)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Operating Income (Loss)
Retailing
U.S. $41.1 $29.9 $127.8 $86.6
International (3.1) (3.3) (1.2) (2.3)
Total Retailing 38.0 26.6 126.6 84.3
Services:
Ticketing 42.8 25.2 138.1 106.4
Lending 25.3 2.6 46.6 3.3
Real Estate (5.4) (2.8) (23.9) (8.2)
Teleservices 4.4 5.9 11.0 13.3
Home Services 2.6 0.2 7.8 0.2
Total Services 69.6 31.1 179.6 114.9
Media and Advertising (0.9) (12.1) 0.0 (45.0)
Membership & Subscriptions:
Vacations 20.2 16.2 66.6 51.2
Personals 15.8 2.8 29.7 13.4
Discounts (8.6) (12.1) (36.6) (36.6)
Total Membership & Subscriptions: 27.4 6.8 59.7 28.0
Emerging Businesses (2.4) (0.2) (8.5) (2.2)
Corporate Expense and other (110.4) (35.5) (213.3) (115.9)
Total operating income 21.3 16.8 144.2 64.1
Total other income (expense), net 23.2 24.6 642.6 100.1
Earnings from cont. operations before
income taxes and min. int. 44.5 41.4 786.7 164.2
Income tax expense (7.6) (6.2) (311.7) (53.6)
Minority interest (0.5) (0.7) (2.0) (1.7)
Earnings from continuing operations 36.4 34.5 473.1 108.9
Gain on sale of Euvia, net of tax (0.0) - 79.6 -
Discontinued operations, net of tax 33.1 58.2 210.3 98.5
Earnings before preferred dividends 69.5 92.7 763.1 207.5
Preferred dividends (1.4) (3.3) (7.9) (9.8)
Net earnings available to common
shareholders $68.1 $89.5 $755.1 $197.7
Supplemental: Depreciation expense
Retailing
U.S. $10.0 $10.4 $30.5 $30.8
International 1.2 2.6 5.5 7.7
Total Retailing 11.2 13.0 35.9 38.5
Services:
Ticketing 9.2 8.6 27.5 23.7
Lending 1.5 0.7 3.9 2.1
Real Estate 0.3 0.2 0.7 0.5
Teleservices 3.9 4.3 11.4 13.7
Home Services 0.3 0.0 0.7 0.0
Total Services 15.1 13.8 44.3 40.0
Media and Advertising 4.8 0.8 6.9 2.9
Membership & Subscriptions:
Vacations 1.8 2.1 5.3 6.5
Personals 1.6 3.4 6.4 10.0
Discounts 1.2 0.8 3.4 2.6
Total Membership & Subscriptions: 4.6 6.3 15.2 19.1
Emerging Businesses 0.1 0.0 0.3 0.0
Corporate Expense and other 1.9 1.5 5.6 4.2
Total depreciation expense $37.7 $35.5 $108.1 $104.7
DEFINITIONS OF NON-GAAP MEASURES
Operating Income Before Amortization is defined as operating income
excluding: (1) amortization of non-cash distribution, marketing and
compensation expense, (2) amortization of intangibles and goodwill impairment,
if applicable, (3) pro forma adjustments for significant acquisitions, if
applicable, and (4) one-time items, if applicable. 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
payments to partners, 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
and minority interest, (1) amortization of non-cash distribution, marketing
and compensation expense, (2) amortization of intangibles and goodwill
impairment, if applicable, (3) pro forma adjustments for significant
acquisitions, if applicable, (4) equity income or loss from IAC's 5.44%
interest in VUE and gain on the sale of IAC's interest in VUE, (5) non-cash
income or expense reflecting changes in 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 Jeeves notes and the exercise of
certain IAC warrants, (6) one-time items, if applicable and (7) discontinued
operations. We believe Adjusted Net Income is useful to investors because it
represents IAC's consolidated results, taking into account depreciation, which
we believe is an ongoing cost of doing business, as well as other charges
which are not allocated to the operating businesses such as interest expense,
taxes and minority interest, but excluding the effects of any other non-cash
expenses.
Adjusted EPS is defined as Adjusted Net Income divided by weighted fully
diluted shares outstanding for Adjusted EPS purposes. We include dilution
from options and warrants per the treasury stock method and include all shares
relating to restricted stock/share units ("RSU") in shares outstanding for
Adjusted EPS. This differs from the GAAP method for including RSUs, which
treats them on a treasury method basis. In addition, convertible instruments
are assumed to be converted in determining shares outstanding for Adjusted
EPS, if the effect is dilutive. Shares outstanding for Adjusted EPS purposes
are therefore higher than shares outstanding for GAAP EPS purposes. We
believe Adjusted EPS is useful to investors because it represents, on a per
share basis, IAC's consolidated results, taking into account depreciation,
which we believe is an ongoing cost of doing business, as well as other
charges which are not allocated to the operating businesses such as interest
expense, taxes and minority interest, but excluding the effects of any other
non-cash expenses. Adjusted Net Income and Adjusted EPS have the same
limitations as Operating Income Before Amortization, and in addition Adjusted
Net Income and Adjusted EPS do not account for IAC's passive former ownership
in VUE. Therefore, we think it is important to evaluate these measures along
with our consolidated statement of operations.
Free Cash Flow is defined as net cash provided by operating activities,
including preferred dividends received from VUE, less capital expenditures and
preferred dividends paid by IAC. In addition, Free Cash Flow includes tax
distributions on the VUE common and preferred interests upon receipt of the
distributions by IAC. For purposes of Free Cash Flow, we also include changes
in warehouse loans payable in Lending due to the close connection that exists
with changes in loans held by sale which are included in cash provided by
operations. In addition, Free Cash Flow excludes the taxes paid on the gain on
the sale of IAC's interest in VUE due to the exclusion of the proceeds on the
sale from cash provided by operating activities. We believe Free Cash Flow is
useful to investors because it represents the cash that our operating
businesses generate, before taking into account cash movements that are non-
operational. Free Cash Flow has certain limitations in that it does not
represent the total increase or decrease in the cash balance for the period,
nor does it represent the residual cash flow for discretionary expenditures.
For example, it does not take into account stock repurchases. Therefore, we
think it is important to evaluate Free Cash Flow along with our consolidated
statement of cash flows.
We endeavor to compensate for the limitations of the non-GAAP measures
presented by also providing the comparable GAAP measures, GAAP financial
statements, and descriptions of the reconciling items and adjustments, to
derive the non-GAAP measures. For IAC's Principles of Financial Reporting, a
detailed explanation of why we believe these non-GAAP measures are useful to
investors and management, please refer to IAC's website at
http://www.iac.com/investors.htm.
OTHER INFORMATION
CONFERENCE CALL
IAC will audiocast its conference call with investors and analysts
discussing the company's Q3 financial results and certain forward-looking
information on Tuesday, November 1, 2005, at 11:00 a.m. Eastern Time (ET).
The live audiocast is open to the public at http://www.iac.com/investors.htm.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements relating to IAC's anticipated
financial performance, business prospects, new developments, pending
transactions and similar matters, and/or statements that use words such as
"anticipates," "estimates," "expects," "intends," "plans," "believes" and
similar expressions. These forward-looking statements are based on
management's current expectations and assumptions, which are inherently
subject to uncertainties, risks and changes in circumstances that are
difficult to predict. Actual results could differ materially from those
contained in the forward-looking statements included in this press release for
a variety of reasons, including, among others: changes in economic conditions
generally or in any of the markets or industries in which IAC's businesses
operate, changes in senior management at IAC and/or its businesses, the rate
of growth of the Internet, the e-commerce industry and broadband access, the
rate of online migration in the various markets and industries in which IAC's
businesses operate, technological changes, regulatory changes, consumer
acceptance of new products and services, the ability of IAC to expand
successfully in international markets, and the successful integration of
acquired businesses. Certain of these and other risks and uncertainties are
discussed in IAC's filings with the Securities and Exchange Commission
("SEC"). Other unknown or unpredictable factors also could have a material
adverse effect on IAC's business, financial condition and results of
operations. In light of these risks and uncertainties, the forward-looking
statements discussed in this press release may not occur. Accordingly, readers
should not place undue reliance on these forward-looking statements, which
only reflect the views of IAC management as of the date of this press release.
IAC does not undertake to update these forward-looking statements.
About IAC/InterActiveCorp
IAC operates leading and diversified businesses in sectors being
transformed by the internet, online and offline... our mission is to harness
the power of interactivity to make daily life easier and more productive for
people all over the world. To view a full list of the companies of IAC please
visit our website at http://iac.com
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