IAC Reports Q1 Results

NEW YORK, April 29 /PRNewswire-FirstCall/ -- IAC (Nasdaq: IACI) released first
quarter 2009 results today.

SUMMARY RESULTS
$ in millions (except per share amounts)
----------------------------------------

Q1 2009 Q1 2008 Growth
------------------------
Revenue $332.0 $370.7 -10%

Operating Income Before Amortization (3.2) 18.6 NM
Adjusted Net Income (3.0) 10.6 NM
Adjusted EPS (0.02) 0.07 NM

Operating Loss (33.1) (11.1) -198%
Net (Loss) Income (28.4) 52.8 NM
GAAP Diluted EPS (0.19) 0.38 NM

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

Information Regarding the Results:

-- Q1 Revenue and profit declines reflect broader economic pressures on
advertising, coupled with certain actions we have taken that have
improved the consumer experience and usage metrics on Ask.com, but
have
reduced monetization in the short-term.
-- Q1 Net Income in the prior year included income from the discontinued
operations of HSN, Interval, Ticketmaster and Tree.com, which were
spun
off on August 20, 2008.
-- Q1 Free Cash Flow was $40 million, up 93% over the prior year, while
cash flow from operating activities attributable to continuing
operations was $49 million, up 33% over the prior year.
-- IAC repurchased 3 million common shares at an average price of $15.15
per common share between February 3, 2009 and April 24, 2009.

-- IAC ended Q1 with $2 billion in cash and marketable securities.

Principal Areas of Focus:

-- Search: The Ask Network became the 6th ranked U.S. property in
January;
its highest ranking ever. The Dictionary.com iPhone app, launched on
April 8th, has been downloaded over 1 million times already and is
currently in the top 10 most downloaded apps on iTunes.
-- Local: Grew the number of local merchants and user reviews strongly in
Q1 and acquired Urbanspoon on February 13th. Citysearch exited beta
and
rolled out its new site to its entire user base in Q1 and announced a
strategic partnership with MySpace to launch 'MySpace Local'
on March 31st. Consumers have downloaded the Urbanspoon and the
Citysearch local iPhone apps over 4 million times. ServiceMagic
acquired
Market Hardware, a provider of online marketing solutions for small
and
medium sized businesses, on January 23rd.

-- Personals: Worldwide subscribers grew 6% in Q1 driven by gains in the
U.S., the UK and Japan. Match announced an agreement to sell Match
Europe for shares of Meetic and a promissory note, with a total
current
value of approximately $140 million.

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

Q1 2009 Q1 2008 Growth
------- ------- ------
Revenue $ in millions

Media & Advertising $167.6 $215.5 -22%
Match 90.1 90.5 -1%
ServiceMagic 31.4 28.9 8%
Emerging Businesses 44.0 43.8 1%
Intercompany Elimination (1.0) (8.1) 87%
---- ---- ---
$332.0 $370.7 -10%
====== ====== ===
Operating Income Before
Amortization
Media & Advertising $10.1 $37.5 -73%
Match 9.9 10.1 -2%
ServiceMagic 2.8 6.1 -54%
Emerging Businesses (11.1) (7.8) -41%
Corporate (15.0) (27.4) 45%
----- ----- ---
$(3.2) $18.6 NM
===== ===== ===
Operating (Loss) Income
Media & Advertising $1.1 $31.3 -97%
Match 9.7 7.1 37%
ServiceMagic 2.0 5.6 -64%
Emerging Businesses (12.7) (9.3) -36%
Corporate (33.3) (45.8) 27%
----- ----- ---
$(33.1) $(11.1) -198%
====== ====== ====

Media & Advertising

Media & Advertising consists of our search properties such as Ask.com, Fun Web
Products, and Dictionary.com, our local business, Citysearch, and our
distribution business, which includes distributed search, sponsored listings
and toolbars.

Media & Advertising revenue reflects a sharp decline in network revenue,
resulting from the de-emphasis of certain partner relationships beginning in
Q1 2008 in conjunction with the renewed partnership with Google. The full
impact of this de-emphasis will be fully anniversaried beginning in Q2.
Revenue declines also reflect fewer queries across proprietary properties,
particularly at Fun Web Products and Ask.com, partially offset by continued
growth in partners and queries at the Ask toolbar business and the inclusion
of Dictionary.com (acquired July 3, 2008). Query declines at Ask.com were
mitigated by our new relationship with NASCAR and trends improved throughout
the quarter. Meanwhile, revenue per query declines at Ask.com reflect fewer
clicks per visit and a decrease in cost per click. Users continue to click
fewer times per visit as a result of the relaunched site's improved user
experience. Citysearch's revenue declined reflecting a difficult display
advertising environment, however, user reviews and the number of locations
covered by Citysearch's editorial voice continued to grow.

Media & Advertising profit declines reflect lower overall revenue and
increased advertising and related expenses associated with our NASCAR
partnership. Operating income reflects an increase of $2.3 million in
amortization of non-cash marketing.

Match

Revenue declined slightly reflecting a 15% 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, international
revenue grew and overall revenue grew 6%. International revenue declines were
offset by a 9% increase in U.S. subscribers due in part to continuing
improvements in features and functionality. Operating Income Before
Amortization declines reflect $3.3 million in expenses associated with the
pending sale of Match Europe to Meetic (announced February 19), partially
offset by lower customer acquisition costs as a percentage of revenue, due to
lower partner related costs in the current period. Operating income benefited
from a decrease in amortization of non-cash marketing of $2.8 million.

ServiceMagic

ServiceMagic revenue benefited from an increase in active service providers
and a 13% increase in service requests driven by increased marketing efforts.
Revenue and profits were adversely impacted by a shift in the mix of service
requests from higher margin discretionary home repair and improvement requests
to lower margin requests, due primarily to the general economic slowdown.
Operating Income Before Amortization declines also reflect increased marketing
costs with growth in service requests from paid channels outpacing free
requests, and higher operating expenses primarily associated with the
expansion of the sales force. Operating income reflects an increase in
amortization of intangibles of $0.3 million.

Emerging Businesses

Emerging Businesses include Shoebuy, Pronto.com, InstantAction.com, Connected
Ventures, RushmoreDrive.com, VSL, Life123.com and The Daily Beast. Revenue for
the period primarily reflects growth at Pronto.com, driven primarily by
continued improvements in customer acquisition and monetization, and growth at
Shoebuy, largely offset by the lower revenue from ReserveAmerica in the
current year period as a result of its sale to The Active Network on January
31, 2009. Operating Income Before Amortization declines are due primarily to
investment in The Daily Beast and InstantAction.com, partially offset by
profit growth at Pronto.com. Operating loss was further impacted by a goodwill
impairment charge of $1.1 million related to our gift card business, which was
subsequently sold in Q2 2009, and by decreases in amortization of intangibles
and non-cash compensation expense of $0.6 million and $0.3 million,
respectively.

Corporate

Corporate expenses for the prior year period included $8.6 million in expenses
related to the spin-offs. Corporate expenses in the current year period
benefited from lower professional fees and depreciation.

OTHER ITEMS

Other income (expense) in Q1 2008 included gains of $6.6 million related to
the increase in the fair value of the derivative assets created in connection
with the HSE sale and the Expedia spin-off. Equity in income of unconsolidated
affiliates in Q1 2008 included $7.2 million in income related to Jupiter Shop
Channel which was sold on December 8, 2008.

The effective tax rate for continuing operations was 8% in Q1 2009 on a
pre-tax loss of $32.6 million. The tax provision for adjusted net income was
$0.5 million in Q1 2009 on a pre-tax loss of $2.6 million. The continuing
operations effective tax rate, which was lower than the statutory rate of 35%,
and the adjusted net income tax provision, despite a pre-tax loss, were due
principally to an increase in the valuation allowance on deferred tax assets
related to losses from equity investments, non-deductible Meetic related
transaction costs, interest on tax contingencies and state taxes, partially
offset by foreign income taxed at lower rates. In Q1 2008 the Company recorded
a tax provision for continuing operations of $4.0 million on pre-tax income of
$0.6 million. The effective tax rate for adjusted net income was 57% in Q1
2008. These effective tax rates were higher than the statutory rate of 35%
due principally to non-deductible costs related to the spin-offs, a write-off
of a deferred tax asset related to executive compensation and state taxes,
partially offset by foreign income taxed at lower rates. The Q1 2008
effective tax rate for continuing operations was also impacted by interest on
tax contingencies.

OPERATING METRICS

Q1 2009 Q1 2008 Growth
------- ------- ------
MEDIA & ADVERTISING
-------------------
Revenue by traffic source (a)

Proprietary 70% 62%
Network 30% 38%

MATCH
-----
Paid Subscribers (000s) 1,438 1,352 6%

SERVICEMAGIC
------------
Service Requests (000s) (b) 996 881 13%
Accepts (000s) (c) 1,319 1,176 12%

(a) Proprietary includes, but is not limited to, Ask.com, Fun Web
Products, Dictionary.com, and Evite. Network includes, but is not
limited to, distributed search, sponsored listings, and toolbars.
(b) Fully completed and submitted customer requests for service on
ServiceMagic.
(c) 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.

LIQUIDITY AND CAPITAL RESOURCES

During Q1, IAC repurchased 2.4 million shares at an average price of $14.98
per share. IAC may purchase shares over an indefinite period of time,
depending on those factors IAC management deems relevant at any particular
time, including, without limitation, market conditions, share price, and
future outlook.

As of March 31, 2009, IAC had approximately $2 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 4/24/09 Dilution at:
------ ---------- ------- ------------------------------

Share Price $16.38 $20.00 $25.00 $30.00 $35.00

Absolute
Shares as of
4/24/09 149.6 149.6 149.6 149.6 149.6 149.6

RSUs and
Other 4.2 4.1 3.9 3.8 3.6 3.6
Options 16.0 $21.00 0.3 1.5 3.5 5.2 6.6
Warrants 18.4 $28.01 0.0 0.0 0.0 1.5 3.7

-------------------------------------
Total Treasury
Method Dilution 4.4 5.5 7.3 10.3 13.8
% Dilution 2.9% 3.5% 4.7% 6.5% 8.5%
Total Treasury
Method Diluted
Shares Outstanding 154.0 155.1 157.0 160.0 163.5
=====================================

CONFERENCE CALL

IAC will audiocast its conference call with investors and analysts discussing
the Company's Q1 financial results on Wednesday, April 29, 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 March 31,
------------------
2009 2008
---- ----

Revenue $332,010 $370,656
Costs and expenses:
Cost of revenue (exclusive of
depreciation shown separately below) 123,609 137,835
Selling and marketing expense 122,213 113,766
General and administrative expense 73,634 80,594
Product development expense 18,088 21,452
Depreciation 16,214 17,259
Amortization of non-cash marketing 2,305 2,796
Amortization of intangibles 8,015 8,062
Goodwill impairment 1,056 -
----- ---
Total costs and expenses 365,134 381,764
------- -------

Operating loss (33,124) (11,108)

Other income (expense):
Interest income 3,728 8,073
Interest expense (1,464) (11,978)
Equity in (losses) income of
unconsolidated affiliates (1,847) 5,779
Other income 146 9,817
--- -----
Total other income, net 563 11,691
--- ------

(Loss) earnings from continuing operations
before income taxes (32,561) 583
Income tax benefit (provision) 2,679 (4,036)
----- ------
Loss from continuing operations (29,882) (3,453)
Income from discontinued operations, net of tax 1,238 55,939
----- ------
Net (loss) earnings (28,644) 52,486
Net loss attributable to noncontrolling interest 258 330
--- ---
Net (loss) earnings attributable to
IAC shareholders $(28,386) $52,816
======== =======

Per share information attributable to
IAC shareholders:
Basic loss per share from
continuing operations $(0.20) $(0.02)
Diluted loss per share from
continuing operations $(0.20) $(0.02)

Basic (loss) earnings per share $(0.19) $0.38
Diluted (loss) earnings per share $(0.19) $0.38

Non-cash compensation expense
by function:
Cost of revenue $824 $817
Selling and marketing expense 954 945
General and administrative expense 15,444 15,692
Product development expense 1,358 1,432
----- -----
Total non-cash compensation expense $18,580 $18,886
======= =======

IAC CONSOLIDATED BALANCE SHEET
($ in thousands)
March 31, December 31,
2009 2008
---- ----
ASSETS (unaudited) (audited)

Cash and cash equivalents $1,792,795 $1,744,994
Marketable securities 216,528 125,592
Accounts receivable, net 91,762 98,402
Other current assets 223,036 217,798
------- -------
Total current assets 2,324,121 2,186,786

Property and equipment, net 313,196 326,961
Goodwill 1,894,740 1,910,295
Intangible assets, net 390,896 386,756
Long-term investments 141,221 120,582
Other non-current assets 309,526 319,218
------- -------
TOTAL ASSETS $5,373,700 $5,250,598
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable, trade $54,238 $52,833
Deferred revenue 59,518 50,886
Accrued expenses and other current liabilities 199,341 182,285
------- -------
Total current liabilities 313,097 286,004

Long-term obligations 95,844 95,844
Income taxes payable 406,814 403,043
Other long-term liabilities 23,204 15,400
Redeemable noncontrolling interest 27,541 22,771

Commitments and contingencies

SHAREHOLDERS' EQUITY
Common stock 222 210
Class B convertible common stock 16 16
Additional paid-in capital 11,267,536 11,112,014
Retained earnings 199,059 227,445
Accumulated other comprehensive
(loss) income (8,714) 2,180
Treasury stock (6,950,919) (6,914,329)
---------- ----------
Total shareholders' equity 4,507,200 4,427,536
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,373,700 $5,250,598
========== ==========

IAC CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited; $ in thousands)
Three Months Ended
March 31,
------------------
2009 2008
---- ----
Cash flows from operating activities
attributable to continuing operations:
Net (loss) earnings $(28,644) $52,486
Less: income from discontinued operations,
net of tax (1,238) (55,939)
------ -------
Loss from continuing operations (29,882) (3,453)
Adjustments to reconcile loss from
continuing operations to net cash
provided by operating activities
attributable to continuing operations:
Depreciation 16,214 17,259
Amortization of intangibles 8,015 8,062
Goodwill impairment 1,056 -
Non-cash compensation expense 18,580 18,886
Amortization of non-cash marketing 2,305 2,796
Deferred income taxes (3,937) (5,181)
Equity in losses (income)
of unconsolidated affiliates 1,847 (5,779)
Net increase in the fair value of the
derivatives created in the HSE sale
and the Expedia spin-off - (6,586)
Changes in current assets and liabilities:
Accounts receivable 1,778 13,364
Other current assets 1,633 (9,261)
Accounts payable and other current
liabilities 19,122 (8,859)
Income taxes payable 2,518 9,822
Deferred revenue 6,751 3,579
Other, net 2,699 1,951
----- -----
Net cash provided by operating activities
attributable to continuing operations 48,699 36,600
------ ------
Cash flows from investing activities
attributable to continuing operations:
Acquisitions, net of cash acquired (11,537) (4,717)
Capital expenditures (8,580) (15,848)
Proceeds from sales and maturities
of marketable securities 26,386 181,035
Purchases of marketable securities (118,033) (35,971)
Purchases of long-term investments (1,211) (48,391)
Other, net (8,402) 347
------ ---
Net cash (used in) provided by investing
activities attributable to
continuing operations (121,377) 76,455
-------- ------
Cash flows from financing activities
attributable to continuing operations:
Purchase of treasury stock (29,176) (145,590)
Issuance of common stock,
net of withholding taxes 148,778 (6,016)
Excess tax benefits from
stock-based awards 86 195
Other, net 1,054 262
----- ---
Net cash provided by (used in) financing
activities attributable to
continuing activities 120,742 (151,149)
------- --------
Total cash provided by (used in)
continuing operations 48,064 (38,094)
------ -------
Net cash (used in) provided by operating
activities attributable to
discontinued operations (527) 112,966
Net cash used in investing activities
attributable to discontinued
operations - (430,250)
Net cash used in financing activities
attributable to discontinued
operations - (8,582)
--- ------
Total cash used in discontinued
operations (527) (325,866)
Effect of exchange rate changes on
cash and cash equivalents 264 12,708
--- ------
Net increase (decrease) in
cash and cash equivalents 47,801 (351,252)
Cash and cash equivalents at
beginning of period 1,744,994 1,585,302
--------- ---------
Cash and cash equivalents at
end of period $1,792,795 $1,234,050
========== ==========

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)

Three Months Ended
March 31,
------------------
2009 2008
---- ----
Net cash provided by operating activities
attributable to continuing operations $48.7 $36.6
Capital expenditures (8.6) (15.8)
---- -----
Free Cash Flow $40.1 $20.8
===== =====

For the three months ended March 31, 2009, consolidated Free Cash Flow
increased by $19.4 million from the prior year period due principally to the
payment of discretionary cash bonuses for 2007 in Q1 2008 while cash bonuses
for 2008 were paid in Q4 2008. The increase also reflects lower capital
expenditures.

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

Three Months Ended
March 31,
------------------
2009 2008
---- ----

Diluted (loss) earnings per share $(0.19) $0.38
====== =====
GAAP diluted weighted average shares
outstanding 147,776 139,383
Net (loss) earnings attributable to IAC
shareholders $(28,386) $52,816
Non-cash compensation expense 18,580 18,886
Amortization of non-cash marketing 2,305 2,796
Amortization of intangibles 8,015 8,062
Goodwill impairment 1,056 -
Net increase in the fair value of the
derivatives created in the HSE sale and
the Expedia spin-off - (6,594)
Gain on sale of VUE interests and
related effects 1,516 1,619
Discontinued operations, net of tax (1,238) (55,939)
Impact of income taxes and
noncontrolling interest (4,857) (11,054)
------ -------
Adjusted Net Income $(3,009) $10,592
======= =======

Adjusted EPS weighted average shares
outstanding 147,776 146,510

Adjusted EPS $(0.02) $0.07
====== =====

GAAP Basic weighted average shares
outstanding 147,776 139,383
Options, warrants and RSUs,
treasury method - -
Conversion of convertible preferred
and convertible notes (if applicable) - -
--- ---
GAAP Diluted weighted average shares
outstanding 147,776 139,383
Options, warrants and RSUs, treasury
method not included in diluted shares
above - 3,739
Impact of RSUs and convertible
preferred and notes (if applicable),
net - 3,388
--- -----
Adjusted EPS shares outstanding 147,776 146,510
======= =======

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 March 31, 2009
------------------------------------------------------
Amorti-
Operating zation Amorti-
Income Non-cash of zation Operat-
Before compens- non-cash of Goodwill ing
Amorti- ation market- intang- impair- income
zation expense ing ibles ment (loss)
------------------------------------------------------
Media & Advertising $10.1 $(0.1) $(2.3) $(6.6) $- $1.1
Match 9.9 (0.1) - (0.1) - 9.7
ServiceMagic 2.8 (0.1) - (0.6) - 2.0
Emerging Businesses (11.1) 0.1 - (0.7) (1.1) (12.7)
Corporate (15.0) (18.3) - - - (33.3)
----- ----- --- --- --- -----
Total $(3.2) $(18.6) $(2.3) $(8.0) $(1.1) (33.1)
===== ====== ===== ===== =====
Other income, net 0.6
---
Loss from continuing
operations before
income taxes (32.6)
Income tax benefit 2.7
---
Loss from continuing
operations (29.9)
Income from discontinued
operations, net of tax 1.2
---
Net loss (28.6)
Net loss attributable to
noncontrolling interest 0.3
---
Net loss attributable to
IAC shareholders $(28.4)
======

Supplemental: Depreciation
Media & Advertising $8.5
Match 2.4
ServiceMagic 0.8
Emerging Businesses 1.7
Corporate 2.8
---
Total depreciation $16.2
=====

For the three months ended March 31, 2008
-----------------------------------------------
Amorti-
Operating zation Amorti-
Income Non-cash of zation Operat-
Before compens- non-cash of ing
Amorti- ation market- intang- income
zation expense ing ibles (loss)
-----------------------------------------------
Media & Advertising $37.5 $- $- $(6.2) $31.3
Match 10.1 - (2.8) (0.2) 7.1
ServiceMagic 6.1 (0.2) - (0.4) 5.6
Emerging Businesses (7.8) (0.2) - (1.2) (9.3)
Corporate (27.4) (18.5) - - (45.8)
----- ----- --- --- -----
Total $18.6 $(18.9) $(2.8) $(8.1) (11.1)
===== ====== ===== =====
Other income, net 11.7
----
Earnings from continuing
operations before
income taxes 0.6
Income tax provision (4.0)
----
Loss from continuing
operations (3.5)
Income from discontinued
operations, net of tax 55.9
----
Net earnings 52.5
Net loss attributable to
noncontrolling interest 0.3
---
Net earnings attributable to
IAC shareholders $52.8
=====

Supplemental: Depreciation
Media & Advertising $9.5
Match 2.1
ServiceMagic 0.8
Emerging Businesses 1.6
Corporate 3.3
---
Total depreciation $17.3
=====

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 noncontrolling interest, if applicable: (1) non-cash compensation
expense, (2) amortization of non-cash marketing, (3) amortization and
impairment of intangibles, (4) goodwill impairment, (5) pro forma adjustments
for significant acquisitions, (6) equity income or loss from IAC's 5.44%
interest in VUE and gain on the sale of IAC's interest in VUE, (7) non-cash
income or expense reflecting changes in the fair value of the derivatives
created in the Expedia spin-off as a result of both IAC and Expedia shares
being issuable upon the conversion of the Ask Convertible Notes and the
exercise of certain IAC warrants, (8) income or expense reflecting changes in
the fair value of the derivative asset associated with the HSE sale, (9)
impairment of our investment in Arcandor, (10) 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 noncontrolling interest, but excluding the
effects of any other non-cash expenses.

Adjusted EPS is defined as Adjusted Net Income divided by fully diluted
weighted average shares outstanding for Adjusted EPS purposes. We include
dilution from options and warrants 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 noncontrolling interest, but excluding the effects of any
other non-cash expenses. Adjusted Net Income and Adjusted EPS have the same
limitations as Operating Income Before Amortization, and in addition Adjusted
Net Income and Adjusted EPS do not account for IAC's former passive ownership
in VUE. Therefore, we think it is important to evaluate these measures along
with our consolidated statement of operations.

Free Cash Flow is defined as net cash provided by operating activities, less
capital expenditures 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 December 31, 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 HSE sale 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: changes in senior management at
IAC and/or its businesses, changes in our relationship with Google, continuing
adverse economic conditions, or the worsening thereof, in any of the markets
or industries in which IAC's businesses operate or generally, adverse trends
in the online advertising industry or the advertising industry generally, our
ability to convert visitors to our various websites into users and customers,
our ability to offer new or alternative products and services in a
cost-effective manner and consumer acceptance of these products and services,
operational and financial risks relating to acquisitions, changes in industry
standards and technology, our ability to expand successfully into
international markets and regulatory changes. Certain of these and other risks
and uncertainties are discussed in IAC's filings with the Securities and
Exchange Commission ("SEC"). Other unknown or unpredictable factors that
could also adversely affect IAC's business, financial condition and results of
operations may arise from time to time. In light of these risks and
uncertainties, these forwardlooking statements may not prove to be accurate.
Accordingly, you should not place undue reliance on these forwardlooking
statements, which only reflect the views of IAC management as of the date of
this press release. IAC does not undertake to update these forward-looking
statements.

About IAC

IAC operates more than 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

IAC Investor Relations, Eoin Ryan, +1-212-314-7400; or IAC Corporate
Communications, Stacy Simpson, +1-212-314-7280, or Leslie Cafferty,
1-212-314-7470