As filed with the Securities and Exchange Commission on November 9, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2005 |
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Or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File No. 0-20570
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
59-2712887
(I.R.S. Employer Identification No.) |
152 West 57th Street, New York, New York 10019
(Address of Registrant's principal executive offices)
(212) 314-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of October 28, 2005, the following shares of the Registrant's common stock were outstanding:
Common Stock, including 146,002 shares of restricted stock | 293,780,991 | |
Class B Common Stock | 25,599,998 | |
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Total outstanding Common Stock | 319,380,989 | |
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The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of October 28, 2005 was $6,348,547,027. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant are assumed to be affiliates of the Registrant.
Item 1.
Consolidated Financial Statements
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
September 30, |
Nine Months Ended
September 30, |
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2005
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2004
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2005
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2004
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(In thousands, except per share amounts)
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Service revenue | $ | 693,833 | $ | 415,317 | $ | 1,831,097 | $ | 1,279,796 | ||||||
Product sales | 789,464 | 541,976 | 2,215,732 | 1,673,296 | ||||||||||
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Net revenue | 1,483,297 | 957,293 | 4,046,829 | 2,953,092 | ||||||||||
Cost of salesservice revenue | 321,657 | 222,562 | 887,571 | 681,386 | ||||||||||
Cost of salesproduct sales | 482,493 | 322,649 | 1,352,310 | 1,024,155 | ||||||||||
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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 | ||||||||||
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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 | | | 523,487 | | ||||||||||
Equity in income of VUE | | 607 | 21,960 | 11,293 | ||||||||||
Equity in income of unconsolidated affiliates and other | 14,263 | (1,354 | ) | 33,753 | 13,475 | |||||||||
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Total other income, net | 23,217 | 24,644 | 642,557 | 100,122 | ||||||||||
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Earnings from continuing operations before income taxes and minority interest | 44,534 | 41,424 | 786,711 | 164,212 | ||||||||||
Income tax expense | (7,635 | ) | (6,215 | ) | (311,652 | ) | (53,609 | ) | ||||||
Minority interest in income of consolidated subsidiaries | (527 | ) | (672 | ) | (1,951 | ) | (1,685 | ) | ||||||
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Earnings from continuing operations | 36,372 | 34,537 | 473,108 | 108,918 | ||||||||||
Gain on sale of EUVÍA, net of tax | | | 79,648 | | ||||||||||
Income from discontinued operations, net of tax | 33,117 | 58,204 | 210,327 | 98,546 | ||||||||||
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Earnings before preferred dividends | 69,489 | 92,741 | 763,083 | 207,464 | ||||||||||
Preferred dividends | (1,412 | ) | (3,263 | ) | (7,938 | ) | (9,789 | ) | ||||||
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Net earnings available to common shareholders | $ | 68,077 | $ | 89,478 | $ | 755,145 | $ | 197,675 | ||||||
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Earnings per share from continuing operations: | ||||||||||||||
Basic earnings per share | $ | 0.11 | $ | 0.09 | $ | 1.40 | $ | 0.28 | ||||||
Diluted earnings per share | $ | 0.10 | $ | 0.09 | $ | 1.33 | $ | 0.27 | ||||||
Net earnings per share available to common shareholders: | ||||||||||||||
Basic earnings per share | $ | 0.21 | $ | 0.26 | $ | 2.27 | $ | 0.57 | ||||||
Diluted earnings per share | $ | 0.19 | $ | 0.24 | $ | 2.14 | $ | 0.53 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
2
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, 2005
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December 31, 2004
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(unaudited)
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(audited)
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($ in thousands)
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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 of allowance of $26,467 and $19,150, respectively | 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 | |||||
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Total current assets | 4,785,064 | 5,115,767 | |||||
Total Property, Plant and Equipment, net |
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536,876 |
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427,257 |
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OTHER ASSETS: |
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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 | |||||
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TOTAL ASSETS | $ | 14,710,345 | $ | 22,398,865 | |||
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
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September 30, 2005
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December 31, 2004
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(unaudited)
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(audited)
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($ in thousands)
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LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: |
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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 | ||||||
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Total current liabilities | 2,709,571 | 2,892,438 | ||||||
Long-term obligations, net of current maturities |
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962,975 |
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796,715 |
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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 | ||||||
SHAREHOLDERS' EQUITY: |
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Preferred stock $.01 par value; authorized 100,000,000 shares; 846 and 13,118,182 shares issued and outstanding | | 131 | ||||||
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 394,146,237 shares and outstanding 301,711,634 shares, including 146,041 shares of restricted stock | 394 | | ||||||
Class B convertible common stock $.001 par value; authorized 400,000,000 shares; issued 32,314,998 shares and outstanding 25,599,998 shares | 32 | | ||||||
Common stock $.01 par value; authorized 1,600,000,000 shares; issued 348,491,650 shares and outstanding 316,509,775 shares, including 154,326 shares of restricted stock | | 3,485 | ||||||
Class B convertible common stock $.01 par value; authorized 400,000,000 shares; issued and outstanding 32,314,998 shares | | 323 | ||||||
Additional paid-in capital | 14,312,440 | 14,062,605 | ||||||
Retained earnings | 15,009 | 2,428,760 | ||||||
Accumulated other comprehensive income | 33,211 | 81,051 | ||||||
Treasury stock 99,149,603 and 31,981,875 shares, respectively | (4,882,755 | ) | (1,966,053 | ) | ||||
Note receivable from key executive for common stock issuance | (4,998 | ) | (4,998 | ) | ||||
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Total shareholders' equity | 9,473,333 | 14,605,304 | ||||||
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 14,710,345 | $ | 22,398,865 | ||||
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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Class B
Convertible Common Stock $.001 Par Value |
Common
Stock $.01 Par Value |
Class B
Convertible Common Stock $.01 Par Value |
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Note
Receivable From Key Executive for Common Stock Issuance |
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Preferred Stock
$.01 Par Value |
Common Stock
$.001 Par Value |
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Accum
Other Comp. Income |
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Addit.
Paid-in Capital |
Retained
Earnings |
Treasury
Stock |
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Total
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$
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Shares
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Shares
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Shares
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$
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Shares
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(In thousands)
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Balance as of December 31, 2004 | $ | 14,605,304 | $ | 131 | 13,118 | $ | | | $ | | | $ | 3,485 | 348,492 | $ | 323 | 32,315 | $ | 14,062,605 | $ | 2,428,760 | $ | 81,051 | $ | (1,966,053 | ) | $ | (4,998 | ) | |||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||
Net earnings for the nine months ended September 30, 2005 | 763,083 | | | | | | | | | | | | 763,083 | | | | ||||||||||||||||||||||||||||
Increase in unrealized losses in available for sale securities | (22,758 | ) | | | | | | | | | | | | | (22,758 | ) | | | ||||||||||||||||||||||||||
Foreign currency translation | (24,112 | ) | | | | | | | | | | | | | (24,112 | ) | | | ||||||||||||||||||||||||||
Net loss on derivative contracts | (970 | ) | | | | | | | | | | | | | (970 | ) | | | ||||||||||||||||||||||||||
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Comprehensive income | 715,243 | |||||||||||||||||||||||||||||||||||||||||||
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Issuance of common stock upon exercise of stock options, vesting of restricted stock units and other | 99,735 | | | 2 | 2,341 | | | 54 | 5,458 | | | 99,679 | | | | | ||||||||||||||||||||||||||||
Income tax benefit related to the exercise of stock options, vesting of restricted stock units and other, net | 5,247 | | | | | | | | | | | 5,247 | | | | | ||||||||||||||||||||||||||||
Dividends on preferred stock | (7,938 | ) | | | | | | | | | | | | (7,938 | ) | | | | ||||||||||||||||||||||||||
Amortization of non-cash compensation | 169,805 | | | | | | | | | | | 169,805 | | | | | ||||||||||||||||||||||||||||
Sale of VUE interests | 33,627 | | | | | | | | | | | 1,428,530 | | | (1,394,903 | ) | | |||||||||||||||||||||||||||
Issuance of securities in connection with the Ask Jeeves acquisition | 1,736,788 | | | | | | | 379 | 37,856 | | | 1,736,409 | | | | | ||||||||||||||||||||||||||||
Recapitalization of common stock(a) | | | | 392 | 391,806 | 32 | 32,315 | (3,918 | ) | (391,806 | ) | (323 | ) | (32,315 | ) | 3,817 | | | | | ||||||||||||||||||||||||
Redemption of preferred stock | (655,727 | ) | (131 | ) | (13,117 | ) | | | | | | | | | (655,596 | ) | | | | | ||||||||||||||||||||||||
Spin-Off of Expedia to shareholders | (5,812,352 | ) | | | | | | | | | | | (2,643,456 | ) | (3,168,896 | ) | | | | |||||||||||||||||||||||||
Recognition of derivatives related to convertible notes and certain warrants, net | 105,400 | | | | | | | | | | | 105,400 | | | | | ||||||||||||||||||||||||||||
Purchase of treasury stock | (1,521,799 | ) | | | | | | | | | | | | | | (1,521,799 | ) | | ||||||||||||||||||||||||||
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Balance as of September 30, 2005 | $ | 9,473,333 | $ | | 1 | $ | 394 | 394,147 | $ | 32 | 32,315 | $ | | | $ | | | $ | 14,312,440 | $ | 15,009 | $ | 33,211 | $ | (4,882,755 | ) | $ | (4,998 | ) | |||||||||||||||
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Accumulated other comprehensive income, net of tax, is comprised of unrealized (losses) gains on available for sale securities of $(5,209) and $17,549 at September 30, 2005 and December 31, 2004, respectively, foreign currency translation adjustments of $40,800 and $64,912 at September 30, 2005 and December 31, 2004, respectively, and net losses from derivative contracts of $(2,380) and $(1,410) at September 30, 2005 and December 31, 2004, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30,
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2004
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(In thousands)
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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 cable distribution fees | 51,183 | 53,079 | ||||||
Amortization of non-cash distribution and marketing expense | | 1,301 | ||||||
Amortization of non-cash compensation expense | 113,778 | 47,761 | ||||||
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 | ) | ||||
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Net cash (used in) provided by operating activities | (452,168 | ) | 345,431 | |||||
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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 Euvía | 183,016 | | ||||||
Other, net | 31,334 | 1,175 | ||||||
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Net cash provided by (used in) investing activities | 1,590,588 | (806,160 | ) | |||||
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Cash flows used in financing activities: | ||||||||
Borrowings | 80,000 | | ||||||
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 | |||||
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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 rate changes on cash and cash equivalents | (26,556 | ) | 9,980 | |||||
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Net (decrease) increase in cash and cash equivalents | (90,300 | ) | 225,328 | |||||
Cash and cash equivalents at beginning of period | 999,698 | 759,617 | ||||||
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Cash and cash equivalents at end of period | $ | 909,398 | $ | 984,945 | ||||
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1ORGANIZATION
IAC/InterActiveCorp 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. IAC/InterActiveCorp is referred to herein as either IAC or the Company.
IAC consists of the following sectors:
On December 21, 2004, IAC announced its plans to separate its travel businesses into an independent public company in order to better achieve certain strategic objectives of its various businesses. In these consolidated financial statements, we refer to this transaction as the "Spin-Off" and to the new company that holds IAC's former travel and travel-related businesses as "Expedia". IAC completed the Spin-Off prior to the commencement of trading on August 9, 2005. Immediately prior to the Spin-Off, IAC effected a one-for-two reverse stock split. Since the completion of the Spin-Off:
In addition, in March 2005, IAC entered into an agreement to sell its 48.6% ownership in EUVÍA. The sale closed on June 2, 2005.
Accordingly, the results of operations and statements of position of Expedia, EUVÍA and TV Travel Shop have been classified as discontinued operations for all periods presented. Further, all IAC common stock share information and related per share prices have been adjusted to reflect IAC's one-for-two reverse stock split.
Recent Developments
On April 1, 2005, IAC completed its acquisition of Cornerstone Brands, Inc. ("Cornerstone Brands"), a portfolio of leading print catalogs and online retailing sites that sell home products and leisure and casual apparel, for approximately $715 million, principally in cash.
In addition, on June 7, 2005, IAC completed a transaction with NBC Universal in which IAC sold its common and preferred interests in Vivendi Universal Entertainment LLLP ("VUE"), a joint venture formed in May 2002 between the Company and Vivendi Universal, S.A., for approximately $3.4 billion in aggregate consideration.
7
Further, on July 19, 2005, IAC completed the acquisition of Ask Jeeves, Inc. ("Ask Jeeves"), a leading provider of world-class information retrieval technologies, brands and services that are available to consumers across a range of platforms, including destination websites, downloadable search-based applications and portals. Under the terms of the agreement, IAC issued 1.2668 shares of IAC common stock for each share of Ask Jeeves common stock in a tax-free transaction valued as of the date of the agreement at approximately $1.7 billion, net of cash acquired. On May 5, 2005, IAC completed the buy back of 26.4 million shares of IAC common stock through its previously authorized share repurchase programs. These shares represent approximately sixty percent of the number of fully diluted shares IAC issued for the Ask Jeeves acquisition, thus effectively offsetting a substantial portion of the dilution from the transaction.
NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim consolidated financial statements and notes thereto of the Company are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2004.
In the opinion of management of the Company, all adjustments necessary for a fair presentation of such consolidated financial statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim consolidated financial statements and notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's annual audited consolidated financial statements and notes thereto.
Accounting Estimates
Management of the Company is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from these estimates.
Significant estimates underlying the accompanying consolidated financial statements include the inventory carrying adjustment, sales return and other revenue allowances, allowance for doubtful accounts, recoverability of intangibles, including goodwill and other long-lived assets, deferred income taxes, including related valuation allowances, various other operating allowances, reserves and accruals and assumptions related to the determination of stock-based compensation.
In conjunction with the Spin-Off and the upcoming adoption of the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment," the Company conducted an assessment of certain assumptions used in determining the expense related to stock-based compensation which was completed in the third quarter of 2005. The cumulative effect of the change in the Company's estimate related to the number of stock-based awards that are expected to vest resulted in a reduction in non-cash compensation expense of $5.5 million which is included in continuing operations and $35.3 million related to Expedia which is
8
included in discontinued operations. The after-tax effect of this change in estimate on earnings and earnings per share from continuing operations, income from discontinued operations and net income is $3.5 million or $0.01 per share, $22.0 million or $0.06 per share and $25.5 million or $0.07 per share, respectively.
Stock-Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure" ("SFAS No. 148"), which amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123. The Company adopted the expense recognition provision of SFAS No. 123 and is providing expense for stock-based compensation for grants made on or after January 1, 2003 on a prospective basis as provided by SFAS No. 148, and provided pro forma information in the notes to financial statements to provide the results as if all equity awards issued in prior years were being expensed. For restricted stock units issued, the value of the instrument is measured at the grant date as the fair value of IAC's common stock and amortized ratably as non-cash compensation over the vesting term. For stock options issued since 2003, including unvested options assumed in acquisitions, the value of the options is measured at the grant date (or acquisition date, if applicable) at fair value and amortized over the remaining vesting term.
In connection with the Spin-Off, all outstanding share based-compensation instruments of the Company were modified. Accordingly, on August 9, 2005, the Company recorded a modification charge of $67.0 million related to the treatment of vested stock options in connection with the Spin-Off. In addition, the Company recorded $1.7 million of expense related to the modification of unvested options. Beginning August 9, 2005, as a result of the modification, the Company is recognizing expense for all stock-based compensation instruments in the consolidated statement of operations, including options granted prior to January 1, 2003 that were previously accounted for under APB Opinion No. 25 "Accounting for Stock Issue to Employees".
9
The following table illustrates the effect on net earnings available to common shareholders and net earnings per share if the fair value-based method had been applied to all outstanding and unvested awards in each period:
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
(In thousands, except per share amounts)
|
|||||||||||||
Net earnings available to common shareholders, as reported | $ | 68,077 | $ | 89,478 | $ | 755,145 | $ | 197,675 | ||||||
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects | 37,510 | 35,371 | 104,727 | 111,380 | ||||||||||
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects | (17,338 | ) | (40,151 | ) | (86,794 | ) | (125,720 | ) | ||||||
|
|
|
|
|||||||||||
Pro forma net earnings available to common shareholders | $ | 88,249 | $ | 84,698 | $ | 773,078 | $ | 183,335 | ||||||
|
|
|
|
|||||||||||
Net earnings per share available to common shareholders: | ||||||||||||||
Basic as reported | $ | 0.21 | $ | 0.26 | $ | 2.27 | $ | 0.57 | ||||||
Basic pro forma | $ | 0.27 | $ | 0.24 | $ | 2.33 | $ | 0.53 | ||||||
Diluted as reported | $ | 0.19 | $ | 0.24 | $ | 2.14 | $ | 0.53 | ||||||
Diluted pro forma | $ | 0.25 | $ | 0.23 | $ | 2.19 | $ | 0.49 |
Pro forma information is determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair market value method. The fair value for these options was estimated at the grant date using a Black-Scholes option pricing model with the following weighted-average assumptions for 2005 and 2004: risk-free interest rates of 3.92% and 3.25%, respectively, a dividend yield of zero and volatility factors of 49.05% and 47.35%, respectively, based on the expected market price of IAC common stock based on historical trends; and a weighted-average expected life of the options of five years. In addition, the deduction line item in the table above included in the determination of pro forma expense for the three and nine months ended September 30, 2005, includes a favorable adjustment of $20.6 million due to the cumulative effect of the change in the Company's estimate related to the number of stock-based awards that are expected to vest.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period on a straight-line basis.
On December 16, 2004, the FASB issued FASB Statement No. 123 (R), "Share-Based Payment," which is a revision of SFAS No. 123. Statement 123(R) supersedes APB No. 25 and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations
10
based on their fair values. Pro forma disclosure is no longer an alternative. The Company is required to apply Statement 123(R) no later than the first quarter of 2006.
Currently, the Company uses the Black-Scholes formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of Statement 123(R) on January 1, 2006. Due to the modification related to the Spin-Off, the Company is recognizing expense for all stock-based compensation instruments in the statement of operations after the Spin-Off. However, had the Company adopted Statement 123(R) in periods prior to the Spin-Off, the impact of that standard would have approximated the impact of SFAS No. 123 as described above in the disclosure of pro forma net earnings and pro forma net earnings per share to the Company's consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company is currently assessing the impact of this pronouncement on its consolidated statement of operations and statement of cash flows.
Reclassifications
Certain amounts in the prior period's consolidated financial statements have been reclassified to conform to the 2005 presentation related to Expedia, EUVÍA and TV Travel Shop. Expedia, EUVÍA and TV Travel Shop are accounted for as discontinued operations and accordingly, are excluded from assets and liabilities of continuing operations as of September 30, 2005 and from the results of continuing operations for the three and nine months ended September 30, 2005. The December 31, 2004 balance sheet and the statements of operations for the three and nine months ended September 30, 2004 have been reclassified to conform to the current period presentation for Expedia, EUVÍA and TV Travel Shop.
See the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2004 for a summary of all other significant matters relating to accounting policies.
NOTE 3SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Non-Cash Transactions for the Nine Months Ended September 30, 2005
For the nine months ended September 30, 2005, the Company incurred non-cash compensation expense of $113.8 million.
On July 19, 2005, IAC completed the acquisition of Ask Jeeves. IAC issued an aggregate of 37.9 million shares of IAC common stock valued at $1.7 billion.
Prior to the commencement of trading on August 9, 2005, IAC completed the Spin-Off. The net assets comprising the Expedia businesses, which were spun-off by IAC, amounted to $5.8 billion and are included in the consolidated statement of shareholders' equity as a reduction to additional paid-in capital and retained earnings.
In connection with IAC's sale of its common and preferred interests in VUE, IAC received 28.3 million IAC shares into treasury, valued at $1.4 billion, as part of the consideration.
11
For the nine months ended September 30, 2005, the Company recognized $18.3 million of paid-in-kind interest income on the VUE Series A Preferred interest received in connection with the formation of VUE.
For the nine months ended September 30, 2005, the Company recognized pre-tax income of $39.6 million from equity income of unconsolidated affiliates, including income of $22.0 million from its common interest in VUE.
For the nine months ended September 30, 2005, the Company recognized non-cash revenues of $16.9 million as a result of deferred revenue recorded in connection with its various acquisitions.
Supplemental Disclosure of Non-Cash Transactions for the Nine Months Ended September 30, 2004
For the nine months ended September 30, 2004, the Company incurred non-cash compensation expense of $47.8 million and non-cash distribution and marketing expense of $1.3 million. Amortization of non-cash distribution and marketing expense consists mainly of expense recognized by Ticketmaster and Match.com related to barter arrangements, which expired in March 2004, for distribution secured from third parties.
For the nine months ended September 30, 2004, the Company recognized $30.0 million of paid-in-kind interest income on the VUE Series A Preferred interest received in connection with the formation of VUE.
For the nine months ended September 30, 2004, the Company recognized pre-tax income of $24.0 million from equity income of unconsolidated affiliates, including income of $11.3 million from its common interest in VUE.
For the nine months ended September 30, 2004, the Company recognized non-cash revenues of $11.9 million as a result of deferred revenue recorded in connection with its various acquisitions.
12
Discontinued Operations
Supplemental Disclosure of Non-Cash Transactions for the Nine Months Ended September 30, 2005
For the period ended August 8, 2005, Expedia incurred non-cash distribution and marketing expense of $5.8 million and non-cash compensation expense of $58.0 million. Amortization of non-cash distribution and marketing expense consists mainly of non-cash advertising secured from Universal Television as part of the VUE transaction.
For the period ended August 8, 2005, Expedia recognized pre-tax income of $0.6 million on equity earnings in unconsolidated affiliates.
Supplemental Disclosure of Non-Cash Transactions for the Nine Months Ended September 30, 2004
For the nine-months ended September 30, 2004, Expedia incurred non-cash distribution and marketing expense of $13.0 million and non-cash compensation expense of $134.4 million.
For the nine months ended September 30, 2004, Expedia recognized pre-tax losses of $0.1 million on equity losses in unconsolidated affiliates.
For the nine months ended September 30, 2004, Expedia recognized non-cash revenues of $0.1 million as a result of deferred revenue recorded in connection with its various acquisitions.
NOTE 4OPERATING SEGMENTS
The overall concept that IAC employs in determining its operating segments is to present the financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered or the target market. Expedia, EUVÍA, TV Travel Shop, Styleclick, ECS and Avaltus, a PRC subsidiary, are presented as discontinued operations and, accordingly, are excluded from the schedules below.
During the second quarter of 2005, and in contemplation of the Spin-Off, the chief operating decision maker and executive management realigned how they view the businesses and how the businesses are organized. Accordingly, beginning in the second quarter of 2005, IAC introduced sector reporting that corresponds to the areas of interactivity in which the Company operates and redefined its operating segments to present the results consistent with how the chief operating decision maker and executive management currently view the businesses. Further, during the third quarter of 2005, the chief operating decision maker and executive management realigned how they view the Financial Services and Real Estate operating segment, which is included in IAC's Services sector. Accordingly, beginning in the third quarter of 2005, IAC redefined its Financial Services and Real Estate operating segment to present the results of Lending and Real Estate each as a separate operating segment in its Services sector. The new segment presentation is as follows: the Retailing sector includes the U.S. and International Retailing operating segments; the Services sector includes the Ticketing, Lending, Real Estate, Teleservices and Home Services operating segments; Media & Advertising is its own sector and operating segment; and the Membership & Subscriptions sector includes the Vacations, Personals and
13
Discounts operating segments. In addition, IAC reports the performance of its Emerging Businesses and corporate expenses.
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
|||||||||||
|
(In thousands)
|
||||||||||||||
Revenue: | |||||||||||||||
Retailing: | |||||||||||||||
U.S. | $ | 664,290 | $ | 437,060 | $ | 1,829,358 | $ | 1,343,026 | |||||||
International | 85,234 | 72,002 | 280,652 | 244,583 | |||||||||||
|
|
|
|
||||||||||||
Total Retailing | 749,524 | 509,062 | 2,110,010 | 1,587,609 | |||||||||||
Services: | |||||||||||||||
Ticketing | 227,517 | 181,979 | 696,654 | 579,343 | |||||||||||
Lending | 142,783 | 39,870 | 352,234 | 114,087 | |||||||||||
Real Estate | 16,299 | 8,067 | 43,003 | 18,199 | |||||||||||
Teleservices | 87,440 | 74,531 | 241,549 | 218,879 | |||||||||||
Home Services | 12,205 | 1,877 | 30,504 | 1,877 | |||||||||||
|
|
|
|
||||||||||||
Total Services | 486,244 | 306,324 | 1,363,944 | 932,385 | |||||||||||
Media & Advertising | 83,471 | 7,890 | 103,967 | 20,610 | |||||||||||
Membership & Subscriptions: | |||||||||||||||
Vacations | 66,074 | 63,602 | 208,905 | 196,740 | |||||||||||
Personals | 65,990 | 49,741 | 181,339 | 147,049 | |||||||||||
Discounts | 30,797 | 25,570 | 88,463 | 85,890 | |||||||||||
Intra-sector elimination | (46 | ) | | (775 | ) | (618 | ) | ||||||||
|
|
|
|
||||||||||||
Total Membership & Subscriptions | 162,815 | 138,913 | 477,932 | 429,061 | |||||||||||
Emerging Businesses | 9,565 | 1,691 | 19,571 | 1,938 | |||||||||||
Intersegment elimination(a) | (8,322 | ) | (6,587 | ) | (28,595 | ) | (18,511 | ) | |||||||
|
|
|
|
||||||||||||
Total | $ | 1,483,297 | $ | 957,293 | $ | 4,046,829 | $ | 2,953,092 | |||||||
|
|
|
|
||||||||||||
Operating Income (Loss): | |||||||||||||||
Retailing: | |||||||||||||||
U.S. | $ | 41,072 | $ | 29,892 | $ | 127,841 | $ | 86,589 | |||||||
International | (3,079 | ) | (3,261 | ) | (1,195 | ) | (2,255 | ) | |||||||
|
|
|
|
||||||||||||
Total Retailing | 37,993 | 26,631 | 126,646 | 84,334 | |||||||||||
Services: | |||||||||||||||
Ticketing | 42,799 | 25,210 | 138,148 | 106,356 | |||||||||||
Lending | 25,270 | 2,585 | 46,622 | 3,324 | |||||||||||
Real Estate | (5,442 | ) | (2,797 | ) | (23,908 | ) | (8,243 | ) | |||||||
Teleservices | 4,380 | 5,899 | 10,999 | 13,265 | |||||||||||
Home Services | 2,596 | 218 | 7,766 | 218 | |||||||||||
|
|
|
|
||||||||||||
Total Services | 69,603 | 31,115 | 179,627 | 114,920 | |||||||||||
Media & Advertising | (855 | ) | (12,143 | ) | 2 | (44,965 | ) | ||||||||
Membership & Subscriptions: | |||||||||||||||
Vacations | 20,245 | 16,185 | 66,565 | 51,157 | |||||||||||
Personals | 15,769 | 2,757 | 29,691 | 13,409 | |||||||||||
Discounts | (8,641 | ) | (12,129 | ) | (36,576 | ) | (36,612 | ) | |||||||
|
|
|
|
||||||||||||
Total Membership & Subscriptions | 27,373 | 6,813 | 59,680 | 27,954 | |||||||||||
Emerging Businesses | (2,436 | ) | (181 | ) | (8,545 | ) | (2,238 | ) | |||||||
Corporate and other | (110,361 | ) | (35,455 | ) | (213,256 | ) | (115,915 | ) | |||||||
|
|
|
|
||||||||||||
Total | $ | 21,317 | $ | 16,780 | $ | 144,154 | $ | 64,090 | |||||||
|
|
|
|
14
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
|||||||||||
|
(In thousands)
|
||||||||||||||
Operating Income Before Amortization:(b) | |||||||||||||||
Retailing: | |||||||||||||||
U.S. | $ | 56,702 | $ | 43,125 | $ | 172,205 | $ | 126,289 | |||||||
International | (2,752 | ) | (2,933 | ) | (215 | ) | (1,271 | ) | |||||||
|
|
|
|
||||||||||||
Total Retailing | 53,950 | 40,192 | 171,990 | 125,018 | |||||||||||
Services: | |||||||||||||||
Ticketing | 49,886 | 32,450 | 159,586 | 125,977 | |||||||||||
Lending | 30,578 | 7,688 | 66,749 | 18,646 | |||||||||||
Real Estate | (2,396 | ) | (1,186 | ) | (13,833 | ) | (3,405 | ) | |||||||
Teleservices | 4,380 | 5,899 | 10,999 | 13,265 | |||||||||||
Home Services | 3,501 | 218 | 9,144 | 218 | |||||||||||
|
|
|
|
||||||||||||
Total Services | 85,949 | 45,069 | 232,645 | 154,701 | |||||||||||
Media & Advertising | 9,286 | (2,362 | ) | 10,249 | (11,371 | ) | |||||||||
Membership & Subscriptions: | |||||||||||||||
Vacations | 26,550 | 22,490 | 85,480 | 70,072 | |||||||||||
Personals | 16,645 | 4,490 | 32,495 | 20,360 | |||||||||||
Discounts | (7,085 | ) | (10,261 | ) | (31,749 | ) | (30,482 | ) | |||||||
|
|
|
|
||||||||||||
Total Membership & Subscriptions | 36,110 | 16,719 | 86,226 | 59,950 | |||||||||||
Emerging Businesses | (2,424 | ) | 21 | (8,305 | ) | (1,754 | ) | ||||||||
Corporate and other | (26,603 | ) | (22,759 | ) | (100,940 | ) | (70,756 | ) | |||||||
|
|
|
|
||||||||||||
Total | $ | 156,268 | $ | 76,880 | $ | 391,865 | $ | 255,788 | |||||||
|
|
|
|
15
The following table is a reconciliation of consolidated segment Operating Income Before Amortization to consolidated operating income and net earnings available to common shareholders.
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
(In thousands)
|
||||||||||||
Operating Income Before Amortization | $ | 156,268 | $ | 76,880 | $ | 391,865 | $ | 255,788 | |||||
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 | ) | |||||
|
|
|
|
||||||||||
Operating income | 21,317 | 16,780 | 144,154 | 64,090 | |||||||||
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 | | | 523,487 | | |||||||||
Equity in the income of VUE | | 607 | 21,960 | 11,293 | |||||||||
Equity in income (losses) of unconsolidated affiliates and other(a) | 14,263 | (1,354 | ) | 33,753 | 13,475 | ||||||||
Income tax expense | (7,635 | ) | (6,215 | ) | (311,652 | ) | (53,609 | ) | |||||
Minority interest in income of consolidated subsidiaries | (527 | ) | (672 | ) | (1,951 | ) | (1,685 | ) | |||||
Gain on sale of EUVÍA, net of tax | | | 79,648 | | |||||||||
Income from discontinued operations, net of tax | 33,117 | 58,204 | 210,327 | 98,546 | |||||||||
Preferred dividends | (1,412 | ) | (3,263 | ) | (7,938 | ) | (9,789 | ) | |||||
|
|
|
|
||||||||||
Net earnings available to common shareholders | $ | 68,077 | $ | 89,478 | $ | 755,145 | $ | 197,675 | |||||
|
|
|
|
16
The Company maintains operations in the United States, Germany, the United Kingdom, Canada and other international territories. Geographic information about the United States and international territories is presented below.
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
||||||||
|
(In thousands)
|
|||||||||||
Revenue | ||||||||||||
United States | $ | 1,290,060 | $ | 809,533 | $ | 3,470,003 | $ | 2,495,288 | ||||
All other countries | 193,237 | 147,760 | 576,826 | 457,804 | ||||||||
|
|
|
|
|||||||||
$ | 1,483,297 | $ | 957,293 | $ | 4,046,829 | $ | 2,953,092 | |||||
|
|
|
|
|
September 30, 2005
|
December 31, 2004
|
||||
---|---|---|---|---|---|---|
|
(In thousands)
|
|||||
Long-lived assets | ||||||
United States | $ | 543,910 | $ | 465,734 | ||
All other countries | 35,733 | 39,007 | ||||
|
|
|||||
$ | 579,643 | $ | 504,741 | |||
|
|
NOTE 5PROPERTY, PLANT AND EQUIPMENT
The balance of property, plant and equipment, net is as follows (in thousands):
|
September 30, 2005
|
December 31, 2004
|
||||||
---|---|---|---|---|---|---|---|---|
Computer and broadcast equipment | $ | 766,300 | $ | 649,845 | ||||
Buildings and leasehold improvements | 185,751 | 145,645 | ||||||
Furniture and other equipment | 161,832 | 135,268 | ||||||
Land | 20,623 | 21,160 | ||||||
Projects in progress | 103,559 | 64,321 | ||||||
|
|
|||||||
1,238,065 | 1,016,239 | |||||||
Less: accumulated depreciation and amortization | (701,189 | ) | (588,982 | ) | ||||
|
|
|||||||
Total property, plant and equipment, net | $ | 536,876 | $ | 427,257 | ||||
|
|
NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS
The balance of goodwill and intangible assets is as follows (in thousands):
|
September 30, 2005
|
December 31, 2004
|
||||
---|---|---|---|---|---|---|
|
(In thousands)
|
|||||
Goodwill | $ | 7,356,999 | $ | 5,361,825 | ||
Intangible assets with indefinite lives | 1,042,459 | 574,473 | ||||
Intangible assets with definite lives | 568,479 | 479,829 | ||||
|
|
|||||
$ | 8,967,937 | $ | 6,416,127 | |||
|
|
17
Intangible assets with indefinite lives relate principally to trade names and trademarks acquired in various acquisitions. At September 30, 2005, intangible assets with definite lives relate principally to the following (in thousands):
|
Cost
|
Accumulated
Amortization |
Net
|
Weighted Average
Amortization Life (Years) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Distribution agreements | $ | 244,900 | $ | (164,532 | ) | $ | 80,368 | 5.0 | ||||
Purchase agreements | 305,474 | (168,550 | ) | 136,924 | 8.0 | |||||||
Customer lists | 197,084 | (36,547 | ) | 160,537 | 7.6 | |||||||
Technology | 212,282 | (79,316 | ) | 132,966 | 4.4 | |||||||
Merchandise agreements | 44,957 | (25,105 | ) | 19,852 | 4.7 | |||||||
Other | 77,823 | (39,991 | ) | 37,832 | 2.9 | |||||||
|
|
|
||||||||||
Total | $ | 1,082,520 | $ | (514,041 | ) | $ | 568,479 | |||||
|
|
|
At December 31, 2004, intangible assets with definite lives relate principally to the following (in thousands):
|
Cost
|
Accumulated
Amortization |
Net
|
Weighted Average
Amortization Life (Years) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Distribution agreements | $ | 511,031 | $ | (405,945 | ) | $ | 105,086 | 5.1 | ||||
Purchase agreements | 291,941 | (133,499 | ) | 158,442 | 11.6 | |||||||
Customer lists | 147,824 | (22,320 | ) | 125,504 | 9.2 | |||||||
Technology | 89,482 | (53,490 | ) | 35,992 | 3.9 | |||||||
Merchandise agreements | 41,957 | (18,719 | ) | 23,238 | 5.8 | |||||||
Other | 56,920 | (25,353 | ) | 31,567 | 3.4 | |||||||
|
|
|
||||||||||
Total | $ | 1,139,155 | $ | (659,326 | ) | $ | 479,829 | |||||
|
|
|
Amortization of intangible assets with definite lives is computed on a straight-line basis and based on December 31, 2004 balances for the next five years and thereafter is estimated to be as follows (in thousands):
Years Ending December 31,
|
|
||
---|---|---|---|
2005 | $ | 151,023 | |
2006 | 103,123 | ||
2007 | 67,629 | ||
2008 | 48,694 | ||
2009 | 34,054 | ||
2010 and thereafter | 75,306 | ||
|
|||
$ | 479,829 | ||
|
18
The following table presents the balance of goodwill by segment including the changes in carrying amount of goodwill for the nine months ended September 30, 2005 (in thousands):
|
Balance as of January 1, 2005
|
Additions
|
(Deductions)
|
Foreign Exchange Translation
|
Balance as of September 30, 2005
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Retailing: | ||||||||||||||||
U.S. | $ | 2,436,892 | $ | 461,629 | $ | (5,916 | ) | $ | | $ | 2,892,605 | |||||
International | 108,779 | 1,311 | | | 110,090 | |||||||||||
|
|
|
|
|
||||||||||||
Total Retailing | 2,545,671 | 462,940 | (5,916 | ) | | 3,002,695 | ||||||||||
Services: | ||||||||||||||||
Ticketing | 1,036,019 | 17,410 | (1,309 | ) | (2,323 | ) | 1,049,797 | |||||||||
Lending | 510,593 | 1,612 | (10,481 | ) | | 501,724 | ||||||||||
Real Estate | 81,872 | 1,724 | (429 | ) | | 83,167 | ||||||||||
Teleservices | 128,655 | 691 | | | 129,346 | |||||||||||
Home Services | 112,973 | 6,354 | (14,939 | ) | | 104,388 | ||||||||||
|
|
|
|
|
||||||||||||
Total Services | 1,870,112 | 27,791 | (27,158 | ) | (2,323 | ) | 1,868,422 | |||||||||
Media & Advertising | | 1,538,854 | | | 1,538,854 | |||||||||||
Membership & Subscriptions: | ||||||||||||||||
Vacations | 467,564 | | (60 | ) | | 467,504 | ||||||||||
Personals | 221,728 | 249 | (51 | ) | (259 | ) | 221,667 | |||||||||
Discounts | 256,750 | 1,451 | (344 | ) | | 257,857 | ||||||||||
|
|
|
|
|
||||||||||||
Total Membership & Subscriptions | 946,042 | 1,700 | (455 | ) | (259 | ) | 947,028 | |||||||||
|
|
|
|
|
||||||||||||
Total | $ | 5,361,825 | $ | 2,031,285 | $ | (33,529 | ) | $ | (2,582 | ) | $ | 7,356,999 | ||||
|
|
|
|
|
Additions principally relate to new acquisitions, primarily Ask Jeeves and Cornerstone Brands. Deductions principally relate to adjustments to the carrying value of goodwill based upon the finalization of the valuation of intangible assets and their related deferred tax impacts and the income tax benefit realized pursuant to the exercise of stock options assumed in business acquisitions that were vested at the transaction date and are treated as a reduction in purchase price when the deductions are realized.
Ask Jeeves Acquisition
On July 19, 2005, IAC completed the acquisition of Ask Jeeves, a leading provider of world-class information retrieval technologies, brands and services that are available to consumers across a range of platforms, including destination websites, downloadable search-based applications and portals. Under the terms of the agreement, IAC issued 1.2668 shares of IAC common stock for each share of Ask Jeeves common stock in a tax-free transaction valued as of the date of the agreement at approximately $1.7 billion, net of cash acquired. Ask Jeeves joined IAC's Media & Advertising sector. IAC obtained a preliminary independent valuation of identifiable intangible assets acquired. This valuation identifies $352.5 million of intangible assets other than goodwill. The trade name was identified as an indefinite-lived intangible and $195.9 million was allocated to this asset. Intangibles with definite lives included existing technology ($116.4 million), distribution agreements ($12.7 million), customer lists ($17.0 million), advertising relationships ($4.2 million) and other ($6.3 million) and are being amortized over a weighted average period of 4.4 years. The purchase price paid for Ask Jeeves was based on
19
historical as well as expected performance metrics. The Company viewed Ask Jeeves' revenue, operating income, Operating Income Before Amortization, net income and cash flow as its most important valuation metrics. The Company agreed to consideration that resulted in a significant amount of goodwill for a number of reasons including: (1) Ask Jeeves' market position and brand; (2) Ask Jeeves' business model which complements the business models of the Company's other businesses; (3) growth opportunities in the markets in which Ask Jeeves operates; and (4) Ask Jeeves' distinctly unique, proprietary and exclusive service lines which enable the Company to grow. As a result, the predominant portion of the consideration was based on the expected financial performance of Ask Jeeves, and not the asset value on the books of Ask Jeeves at the time of acquisition.
Cornerstone Brands Acquisition
On April 1, 2005, the Company completed its acquisition of Cornerstone Brands, a portfolio of leading print catalogs and online retailing sites that sell home products and leisure and casual apparel, for approximately $715 million, principally in cash. Cornerstone Brands joined IAC's U.S. Retailing operating segment. IAC obtained a preliminary independent valuation of identifiable intangible assets acquired. This valuation identifies $309.1 million of intangible assets other than goodwill. The trade name was identified as an indefinite-lived intangible and $269.4 million was allocated to this asset. Intangibles with definite lives included customer lists ($31.4 million), existing technology ($4.1 million), vendor and supply agreements ($3.0 million) and intellectual property ($1.2 million) and are being amortized over a weighted average period of 4.8 years. The purchase price paid for Cornerstone Brands was based on historical as well as expected performance metrics. The Company viewed Cornerstone Brands' revenue, operating income, Operating Income Before Amortization, net income and cash flow as its most important valuation metrics. The Company agreed to a purchase price that resulted in a significant amount of goodwill for a number of reasons including: (1) Cornerstone Brand's market leading position and brands; (2) Cornerstone Brand's business model which complements the business models of the Company's other businesses; (3) growth opportunities in the markets in which Cornerstone Brands operates; and (4) Cornerstone Brand's distinctly unique, proprietary and exclusive product lines which will enable the Company to grow. As a result, the predominant portion of the purchase price was based on the expected financial performance of Cornerstone Brands, and not the asset value on the books of Cornerstone Brands at the time of the acquisition.
NOTE 7RESTRUCTURING CHARGES
As of September 30, 2005 and December 31, 2004, the accrual balance related to restructuring charges was $1.7 million and $1.8 million, respectively. The 2005 balance relates primarily to ongoing obligations for facility leases and employee termination agreements, and are expected to be paid out according to the terms of these arrangements.
During the nine months ended September 30, 2005, restructuring related expense, which is included in general and administrative expense in the accompanying statements of operations, was $0.4 million. Included in this amount are additional severance costs incurred in connection with the shut down of certain HSN facilities as HSN migrates certain operations to its new fulfillment center in Tennessee. In addition, during the nine months ended September 30, 2005, the Company made payments of $1.4 million related principally to lease obligations for abandoned facilities and employee termination costs. Also included in general and administrative expense in the accompanying statements of operations is restructure related income related to the settlement of an uncollectible receivable that
20
had been previously written off related to the restructuring of HSN's UK offices which did not impact the restructure accrual. In addition, the restructure accrual at September 30, 2005 increased by $0.9 million related to liabilities assumed in the Ask Jeeves acquisition.
NOTE 8EQUITY INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Through June 7, 2005, IAC beneficially owned 5.44% of the partnership common equity of VUE, plus certain preferred interests of VUE. This common interest was accounted for using the equity method. On June 7, 2005, the Company sold its common and preferred interests in VUE to NBC Universal (see Note 12 for further discussion of the sale of the VUE interests). Prior to the sale, the statement of operations data was historically recorded on a one-quarter lag due to the timing of receiving information from the partnership. During the fourth quarter of 2004, VUE recorded a charge related to asset impairments. Due to the one-quarter lag noted above, that charge was recorded by IAC in the first quarter of 2005. Equity in the income of VUE recognized in the nine months ended September 30, 2005 represents IAC's share in VUE's 2004 fourth quarter results as well as IAC's share of VUE's results from January 1, 2005 through June 7, 2005.
Due to the significance of the results of VUE in relation to IAC's results in 2005, summary financial information for VUE is presented below.
Summarized balances of the partnership are as follows (in thousands):
|
As of March 31, 2005
and for the period October 1, 2004 to June 7, 2005 |
||
---|---|---|---|
Current assets | $ | 3,755,581 | |
Non-current assets | 13,904,821 | ||
Current liabilities | 2,541,519 | ||
Non-current liabilities | 3,714,663 | ||
Net sales | 5,633,353 | ||
Gross profit | 1,707,191 | ||
Net income | 441,855 |
Summarized aggregated financial information for the Company's remaining equity investments, including Jupiter Shop Channel (Japan), TVSN (China) and TM Mexico, as of and for the nine months ended September 30, 2005 is as follows (in thousands):
|
As of and for the
nine months ended September 30, 2005 |
||
---|---|---|---|
Current assets | $ | 180,975 | |
Non-current assets | 67,112 | ||
Current liabilities | 120,082 | ||
Non-current liabilities | 28,037 | ||
Net sales | 504,668 | ||
Gross profit | 204,868 | ||
Net income | 49,046 |
In April 2005, Ticketmaster acquired the remaining interest in its Australian joint venture. Accordingly, the Company began to consolidate the results of the Australian joint venture effective April 2005.
In connection with the Spin-off, the Company's investment in eLong was contributed to Expedia.
21
NOTE 9EARNINGS PER SHARE
The following table sets forth the computation of Basic and Diluted GAAP earnings per share. All share information has been adjusted to reflect IAC's one-for-two reverse stock split in August 2005.
|
Three months ended
September 30, |
Nine months ended
September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
|||||||||
|
(In thousands, except per share data)
|
||||||||||||
Earnings from continuing operations: | |||||||||||||
Numerator: | |||||||||||||
Earnings from continuing operations | $ | 36,372 | $ | 34,537 | $ | 473,108 | $ | 108,918 | |||||
Preferred stock dividends(a)(b) | (1,412 | ) | (3,263 | ) | (7,938 | ) | (9,789 | ) | |||||
|
|
|
|
||||||||||
Net earnings from continuing operations available to common shareholders | 34,960 | 31,274 | 465,170 | 99,129 | |||||||||
Interest expense on convertible notes(c) | 412 | | 412 | | |||||||||
|
|
|
|
||||||||||
Net earnings from continuing operations available to common shareholders after assumed conversions | $ | 35,372 | $ | 31,274 | $ | 465,582 | $ | 99,129 | |||||
|
|
|
|
||||||||||
Denominator: | |||||||||||||
Basic shares outstanding | 326,421 | 346,702 | 332,426 | 348,239 | |||||||||
Dilutive securities including stock options, warrants and restricted stock and share units | 24,834 | 20,191 | 23,859 | 24,518 | |||||||||
|
|
|
|
||||||||||
Denominator for diluted earnings per shareweighted average shares(d) | 351,255 | 366,893 | 356,285 | 372,757 | |||||||||
|
|
|
|
||||||||||
Net earnings available to common shareholders: | |||||||||||||
Numerator: | |||||||||||||
Earnings before preferred dividends | $ | 69,489 | $ | 92,741 | $ | 763,083 | $ | 207,464 | |||||
Preferred stock dividends(a)(b) | (1,412 | ) | (3,263 | ) | (7,938 | ) | (9,789 | ) | |||||
|
|
|
|
||||||||||
Net earnings available to common shareholders | 68,077 | 89,478 | 755,145 | 197,675 | |||||||||
Interest expense on convertible notes(c) | 412 | | 412 | | |||||||||
|
|
|
|
||||||||||
Net earnings available to common shareholders after assumed conversions | $ | 68,489 | $ | 89,478 | $ | 755,557 | $ | 197,675 | |||||
|
|
|
|
||||||||||
Denominator: | |||||||||||||
Basic shares outstanding | 326,421 | 346,702 | 332,426 | 348,239 | |||||||||
Dilutive securities including stock options, warrants and restricted stock and share units | 24,834 | 20,191 | 23,859 | 24,518 | |||||||||
|
|
|
|
||||||||||
Denominator for diluted earnings per shareweighted average shares(d) | 351,255 | 366,893 | 356,285 | 372,757 | |||||||||
|
|
|
|
||||||||||
Earnings per share: | |||||||||||||
Basic earnings per share from continuing operations | $ | 0.11 | $ | 0.09 | $ | 1.40 | $ | 0.28 | |||||
Discontinued operations, net of tax | 0.10 | 0.17 | 0.87 | 0.28 | |||||||||
|
|
|
|
||||||||||
Basic earnings per share from net earnings | $ | 0.21 | $ | 0.26 | $ | 2.27 | $ | 0.57 | |||||
|
|
|
|
||||||||||
Diluted earnings per share from continuing operations | $ | 0.10 | $ | 0.09 | $ | 1.33 | $ | 0.27 | |||||
Discontinued operations, net of tax | 0.09 | 0.15 | 0.81 | 0.26 | |||||||||
|
|
|
|
||||||||||
Diluted earnings per share from net earnings | $ | 0.19 | $ | 0.24 | $ | 2.14 | $ | 0.53 | |||||
|
|
|
|
22
NOTE 10GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
In December 2002, IAC issued $750 million of 7% Senior Notes (the "2002 Senior Notes"). The notes, by their terms, are fully and unconditionally guaranteed by USANi LLC. USANi LLC is wholly owned by IAC. USANi LLC's guarantee will terminate on November 15, 2005 when the 6 3 / 4 % Senior Notes due 2005 cease to be outstanding.
The following tables present condensed consolidating financial information as of September 30, 2005 and for the three and nine months ended September 30, 2005 and 2004 for: (1) IAC on a stand-alone basis, (2) the guarantor, USANi LLC, on a stand-alone basis, (3) the combined non-guarantor subsidiaries of IAC (including the subsidiaries of USANi LLC) and (4) IAC on a consolidated basis.
As of and for the three and nine months ended September 30, 2005:
|
IAC
|
USANi LLC
|
Non-Guarantor
Subsidiaries |
Total
Eliminations |
IAC
Consolidated |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||
Balance Sheet as of September 30, 2005: | ||||||||||||||||
Current assets | $ | 792,872 | $ | 2,473,761 | $ | 1,513,829 | $ | | $ | 4,780,462 | ||||||
Current assets of discontinued operations | | | 4,602 | | 4,602 | |||||||||||
Property and equipment, net | | 26,269 | 510,607 | | 536,876 | |||||||||||
Goodwill and other intangible assets, net | | | 8,967,937 | | 8,967,937 | |||||||||||
Investment in subsidiaries | 11,451,359 | 1,140,021 | 10,359,118 | (22,950,498 | ) | | ||||||||||
Other assets | 141,974 | 5,895 | 265,126 | | 412,995 | |||||||||||
Non-current assets of discontinued operations | | | 7,473 | | 7,473 | |||||||||||
|
|
|
|
|
||||||||||||
Total assets | $ | 12,386,205 | $ | 3,645,946 | $ | 21,628,692 | $ | (22,950,498 | ) | $ | 14,710,345 | |||||
|
|
|
|
|
||||||||||||
Current liabilities | $ | 24,583 | $ | 1,360,581 | $ | 1,306,335 | $ | | $ | 2,691,499 | ||||||
Current liabilities of discontinued operations | | | 18,072 | | 18,072 | |||||||||||
Long-term debt, less current portion | 744,946 | | 218,029 | | 962,975 | |||||||||||
Other liabilities and minority interest | 700,704 | 8,520 | 846,923 | | 1,556,147 | |||||||||||
Intercompany liabilities | 1,442,639 | (1,519,690 | ) | 77,051 | | | ||||||||||
Non-current liabilities of discontinued operations | | | 8,319 | | 8,319 | |||||||||||
Interdivisional equity | | | 19,834,695 | (19,834,695 | ) | | ||||||||||
Shareholders' equity | 9,473,333 | 3,796,535 | (680,732 | ) | (3,115,803 | ) | 9,473,333 | |||||||||
|
|
|
|
|
||||||||||||
Total liabilities and shareholders' equity | $ | 12,386,205 | $ | 3,645,946 | $ | 21,628,692 | $ | (22,950,498 | ) | $ | 14,710,345 | |||||
|
|
|
|
|
||||||||||||
Statement of operations for the three months ended September 30, 2005: | ||||||||||||||||
Revenue | $ | | $ | | $ | 1,483,297 | $ | | $ | 1,483,297 | ||||||
Operating expenses | | (24,521 | ) | (1,437,459 | ) | | (1,461,980 | ) | ||||||||
Interest income (expense), net | (64,087 | ) | 76,744 | (3,703 | ) | | 8,954 | |||||||||
Other income, net | 99,574 | (6,915 | ) | 27,075 | (105,471 | ) | 14,263 | |||||||||
Income tax expense | | | (7,635 | ) | | (7,635 | ) | |||||||||
Minority interest | 885 | | (1,412 | ) | | (527 | ) | |||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 36,372 | 45,308 | 60,163 | (105,471 | ) | 36,372 | ||||||||||
Discontinued operations, net of tax | 33,117 | | 32,946 | (32,946 | ) | 33,117 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 69,489 | 45,308 | 93,109 | (138,417 | ) | 69,489 | ||||||||||
Preferred dividends | (1,412 | ) | | | | (1,412 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 68,077 | $ | 45,308 | $ | 93,109 | $ | (138,417 | ) | $ | 68,077 | |||||
|
|
|
|
|
||||||||||||
Statement of operations for the nine months ended September 30, 2005: |
23
Revenue | $ | | $ | | $ | 4,046,829 | $ | | $ | 4,046,829 | ||||||
Operating expenses | | (191,004 | ) | (3,711,671 | ) | | (3,902,675 | ) | ||||||||
Interest income (expense), net | (226,519 | ) | 240,065 | 49,811 | | 63,357 | ||||||||||
Other income, net | 699,786 | 695,367 | 93,065 | (909,018 | ) | 579,200 | ||||||||||
Income tax expense | | (6,256 | ) | (305,396 | ) | | (311,652 | ) | ||||||||
Minority interest | (159 | ) | | (1,792 | ) | | (1,951 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 473,108 | 738,172 | 170,846 | (909,018 | ) | 473,108 | ||||||||||
Discontinued operations, net of tax | 289,975 | 3,326 | 286,478 | (289,804 | ) | 289,975 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 763,083 | 741,498 | 457,324 | (1,198,822 | ) | 763,083 | ||||||||||
Preferred dividends | (7,938 | ) | | | | (7,938 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 755,145 | $ | 741,498 | $ | 457,324 | $ | (1,198,822 | ) | $ | 755,145 | |||||
|
|
|
|
|
||||||||||||
Statement of cash flows for the nine months ended September 30 2005: | ||||||||||||||||
Cash flows (used in) provided by operating activities | $ | (829,863 | ) | $ | 13,668 | $ | 364,027 | $ | | $ | (452,168 | ) | ||||
Cash flows (used in) provided by investing activities | (36,915 | ) | 1,524,434 | 103,069 | | 1,590,588 | ||||||||||
Cash flows provided by (used in) financing activities | 870,008 | (1,812,612 | ) | (859,331 | ) | | (1,801,935 | ) | ||||||||
Net cash provided by discontinued operations | | | 599,771 | | 599,771 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (3,230 | ) | | (23,326 | ) | | (26,556 | ) | ||||||||
Cash and cash equivalents at beginning of period | | 681,215 | 318,483 | | 999,698 | |||||||||||
|
|
|
|
|
||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 406,705 | $ | 502,693 | $ | | $ | 909,398 | ||||||
|
|
|
|
|
24
For the three and nine months ended September 30, 2004:
|
IAC
|
USANi LLC
|
Non-Guarantor
Subsidiaries |
Total
Eliminations |
IAC
Consolidated |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||
Statement of operations for the three months ended September 30, 2004: | ||||||||||||||||
Revenue | $ | | $ | | $ | 957,293 | $ | | $ | 957,293 | ||||||
Operating expenses | | (74,678 | ) | (865,835 | ) | | (940,513 | ) | ||||||||
Interest income (expense), net | 42,978 | (33,743 | ) | 16,156 | | 25,391 | ||||||||||
Other income (expense), net | (8,205 | ) | 12,502 | 2,786 | (7,830 | ) | (747 | ) | ||||||||
Income tax expense | | (1,514 | ) | (4,701 | ) | | (6,215 | ) | ||||||||
Minority interest | (236 | ) | | (436 | ) | | (672 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings (loss) from continuing operations | 34,537 | (97,433 | ) | 105,263 | (7,830 | ) | 34,537 | |||||||||
Discontinued operations, net of tax | 58,204 | | 58,204 | (58,204 | ) | 58,204 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings (loss) | 92,741 | (97,433 | ) | 163,467 | (66,034 | ) | 92,741 | |||||||||
Preferred dividends | (3,263 | ) | | | | (3,263 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings (loss) available to common shareholders | $ | 89,478 | $ | (97,433 | ) | $ | 163,467 | $ | (66,034 | ) | $ | 89,478 | ||||
|
|
|
|
|
||||||||||||
Statement of operations for the nine months ended September 30, 2004: | ||||||||||||||||
Revenue | $ | | $ | | $ | 2,953,092 | $ | | $ | 2,953,092 | ||||||
Operating expenses | | (237,279 | ) | (2,651,723 | ) | | (2,889,002 | ) | ||||||||
Interest income (expense), net | 104,024 | (75,356 | ) | 46,686 | | 75,354 | ||||||||||
Other income (expense), net | 36,482 | 67,863 | 3,952 | (83,529 | ) | 24,768 | ||||||||||
Income tax (expense) benefit | (31,352 | ) | 74,193 | (96,450 | ) | | (53,609 | ) | ||||||||
Minority interest | (236 | ) | | (1,449 | ) | | (1,685 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings (loss) from continuing operations | 108,918 | (170,579 | ) | 254,108 | (83,529 | ) | 108,918 | |||||||||
Discontinued operations, net of tax | 98,546 | | 98,546 | (98,546 | ) | 98,546 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings (loss) | 207,464 | (170,579 | ) | 352,654 | (182,075 | ) | 207,464 | |||||||||
Preferred dividends | (9,789 | ) | | | | (9,789 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings (loss) available to common shareholders | $ | 197,675 | $ | (170,579 | ) | $ | 352,654 | $ | (182,075 | ) | $ | 197,675 | ||||
|
|
|
|
|
||||||||||||
Statement of cash flows for the nine months ended September 30, 2004: | ||||||||||||||||
Cash flows provided by (used in) operating activities | $ | 72,140 | $ | (172,141 | ) | $ | 445,432 | $ | | $ | 345,431 | |||||
Cash flows (used in) provided by investing activities | (174,479 | ) | (756,476 | ) | 124,795 | | (806,160 | ) | ||||||||
Cash flows provided by (used in) financing activities | 102,339 | 1,041,803 | (1,489,783 | ) | | (345,641 | ) | |||||||||
Net cash provided by discontinued operations | | | 1,021,718 | | 1,021,718 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | | 4,998 | 4,982 | | 9,980 | |||||||||||
Cash and cash equivalents at beginning of period | | 523,634 | 235,983 | | 759,617 | |||||||||||
|
|
|
|
|
||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 641,818 | $ | 343,127 | $ | | $ | 984,945 | ||||||
|
|
|
|
|
25
On July 19, 2005, IAC completed the acquisition of Ask Jeeves. As part of the transaction, IAC irrevocably and unconditionally guaranteed Ask Jeeves' outstanding zero coupon subordinated convertible notes due 2008 in the principal amount of $115.0 million. Ask Jeeves is wholly owned by IAC.
The following tables present condensed consolidating financial information as of September 30, 2005 and for the three and nine months ended September 30, 2005 and 2004 for: (1) the guarantor, IAC, on a stand-alone basis, (2) Ask Jeeves, on a stand-alone basis, (3) the combined non-guarantor subsidiaries of IAC and (4) IAC on a consolidated basis.
As of and for the three and nine months ended September 30, 2005:
|
IAC
|
Ask Jeeves
|
Non-Guarantor
Subsidiaries |
Total
Eliminations |
IAC
Consolidated |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||
Balance Sheet as of September 30, 2005: | ||||||||||||||||
Current assets | $ | 792,872 | $ | 128,937 | $ | 3,858,653 | $ | | $ | 4,780,462 | ||||||
Current assets of discontinued operations | | | 4,602 | | 4,602 | |||||||||||
Property and equipment, net | | 46,699 | 490,177 | | 536,876 | |||||||||||
Goodwill and other intangible assets, net | | 1,804,134 | 7,163,803 | | 8,967,937 | |||||||||||
Investment in subsidiaries | 11,451,359 | 1,204,400 | 10,294,739 | (22,950,498 | ) | | ||||||||||
Other assets | 141,974 | 140,045 | 130,976 | | 412,995 | |||||||||||
Non-current assets of discontinued operations | | | 7,473 | | 7,473 | |||||||||||
|
|
|
|
|
||||||||||||
Total assets |
|
$ |
12,386,205 |
|
$ |
3,324,215 |
|
$ |
21,950,423 |
|
$ |
(22,950,498 |
) |
$ |
14,710,345 |
|
|
|
|
|
|
||||||||||||
Current liabilities |
|
$ |
24,583 |
|
$ |
61,665 |
|
$ |
2,605,251 |
|
$ |
|
|
$ |
2,691,499 |
|
Current liabilities of discontinued operations | | | 18,072 | | 18,072 | |||||||||||
Long-term debt, less current portion | 744,946 | 100,393 | 117,636 | | 962,975 | |||||||||||
Other liabilities and minority interest | 700,704 | 236,268 | 619,175 | | 1,556,147 | |||||||||||
Intercompany liabilities | 1,442,639 | (42,694 | ) | (1,399,945 | ) | | | |||||||||
Non-current liabilities of discontinued operations | | | 8,319 | | 8,319 | |||||||||||
Interdivisional equity | | 2,952,224 | 16,882,471 | (19,834,695 | ) | | ||||||||||
Shareholders' equity | 9,473,333 | 16,359 | 3,099,444 | (3,115,803 | ) | 9,473,333 | ||||||||||
|
|
|
|
|
||||||||||||
Total liabilities and shareholders' equity | $ | 12,386,205 | $ | 3,324,215 | $ | 21,950,423 | $ | (22,950,498 | ) | $ | 14,710,345 | |||||
|
|
|
|
|
||||||||||||
Statement of operations for the three months ended September 30, 2005: | ||||||||||||||||
Revenue | $ | | $ | 70,849 | $ | 1,412,448 | $ | | $ | 1,483,297 | ||||||
Operating expenses | | (73,778 | ) | (1,388,202 | ) | | (1,461,980 | ) | ||||||||
Interest income (expense), net | (64,087 | ) | (282 | ) | 73,323 | | 8,954 | |||||||||
Other income, net | 99,574 | 20,240 | (80 | ) | (105,471 | ) | 14,263 | |||||||||
Income tax expense | | (479 | ) | (7,156 | ) | | (7,635 | ) | ||||||||
Minority interest | 885 | | (1,412 | ) | | (527 | ) | |||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 36,372 | 16,550 | 88,921 | (105,471 | ) | 36,372 | ||||||||||
Discontinued operations, net of tax | 33,117 | | 32,946 | (32,946 | ) | 33,117 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 69,489 | 16,550 | 121,867 | (138,417 | ) | 69,489 | ||||||||||
Preferred dividends | (1,412 | ) | | | | (1,412 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 68,077 | $ | 16,550 | $ | 121,867 | $ | (138,417 | ) | $ | 68,077 | |||||
|
|
|
|
|
||||||||||||
26
Statement of operations for the nine months ended September 30, 2005: | ||||||||||||||||
Revenue | $ | | $ | 70,849 | $ | 3,975,980 | $ | | $ | 4,046,829 | ||||||
Operating expenses | | (73,778 | ) | (3,828,897 | ) | | (3,902,675 | ) | ||||||||
Interest income (expense), net | (226,519 | ) | (282 | ) | 290,158 | | 63,357 | |||||||||
Other income, net | 699,786 | 20,240 | 768,192 | (909,018 | ) | 579,200 | ||||||||||
Income tax expense | | (479 | ) | (311,173 | ) | | (311,652 | ) | ||||||||
Minority interest | (159 | ) | | (1,792 | ) | | (1,951 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 473,108 | 16,550 | 892,468 | (909,018 | ) | 473,108 | ||||||||||
Discontinued operations, net of tax | 289,975 | | 289,804 | (289,804 | ) | 289,975 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 763,083 | 16,550 | 1,182,272 | (1,198,822 | ) | 763,083 | ||||||||||
Preferred dividends | (7,938 | ) | | | | (7,938 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 755,145 | $ | 16,550 | $ | 1,182,272 | $ | (1,198,822 | ) | $ | 755,145 | |||||
|
|
|
|
|
||||||||||||
Statement of cash flows for the nine months ended September 30 2005: | ||||||||||||||||
Cash flows (used in) provided by operating activities | $ | (829,863 | ) | $ | 18,207 | $ | 359,488 | $ | | $ | (452,168 | ) | ||||
Cash flows (used in) provided by investing activities | (36,915 | ) | 101,983 | 1,525,520 | | 1,590,588 | ||||||||||
Cash flows provided by (used in) financing activities | 870,008 | (42,804 | ) | (2,629,139 | ) | | (1,801,935 | ) | ||||||||
Net cash provided by discontinued operations | | | 599,771 | | 599,771 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (3,230 | ) | (271 | ) | (23,055 | ) | | (26,556 | ) | |||||||
Cash and cash equivalents at beginning of period | | | 999,698 | | 999,698 | |||||||||||
|
|
|
|
|
||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 77,115 | $ | 832,283 | $ | | $ | 909,398 | ||||||
|
|
|
|
|
27
For the three and nine months ended September 30, 2004:
|
IAC
|
Ask Jeeves
|
Non-Guarantor
Subsidiaries |
Total
Eliminations |
IAC
Consolidated |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(In thousands)
|
|||||||||||||||
Statement of operations for the three months ended September 30, 2004: | ||||||||||||||||
Revenue | $ | | $ | | $ | 957,293 | $ | | $ | 957,293 | ||||||
Operating expenses | | | (940,513 | ) | | (940,513 | ) | |||||||||
Interest income (expense), net | 42,978 | | (17,587 | ) | | 25,391 | ||||||||||
Other income (expense), net | (8,205 | ) | | 15,288 | (7,830 | ) | (747 | ) | ||||||||
Income tax expense | | | (6,215 | ) | | (6,215 | ) | |||||||||
Minority interest | (236 | ) | | (436 | ) | | (672 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 34,537 | | 7,830 | (7,830 | ) | 34,537 | ||||||||||
Discontinued operations, net of tax | 58,204 | | 58,204 | (58,204 | ) | 58,204 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 92,741 | | 66,034 | (66,034 | ) | 92,741 | ||||||||||
Preferred dividends | (3,263 | ) | | | | (3,263 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 89,478 | $ | | $ | 66,034 | $ | (66,034 | ) | $ | 89,478 | |||||
|
|
|
|
|
||||||||||||
Statement of operations for the nine months ended September 30, 2004: | ||||||||||||||||
Revenue | $ | | $ | | $ | 2,953,092 | $ | | $ | 2,953,092 | ||||||
Operating expenses | | | (2,889,002 | ) | | (2,889,002 | ) | |||||||||
Interest income (expense), net | 104,024 | | (28,670 | ) | | 75,354 | ||||||||||
Other income (expense), net | 36,482 | | 71,815 | (83,529 | ) | 24,768 | ||||||||||
Income tax expense | (31,352 | ) | | (22,257 | ) | | (53,609 | ) | ||||||||
Minority interest | (236 | ) | | (1,449 | ) | | (1,685 | ) | ||||||||
|
|
|
|
|
||||||||||||
Earnings from continuing operations | 108,918 | | 83,529 | (83,529 | ) | 108,918 | ||||||||||
Discontinued operations, net of tax | 98,546 | | 98,546 | (98,546 | ) | 98,546 | ||||||||||
|
|
|
|
|
||||||||||||
Net earnings | 207,464 | | 182,075 | (182,075 | ) | 207,464 | ||||||||||
Preferred dividends | (9,789 | ) | | | | (9,789 | ) | |||||||||
|
|
|
|
|
||||||||||||
Net earnings available to common shareholders | $ | 197,675 | $ | | $ | 182,075 | $ | (182,075 | ) | $ | 197,675 | |||||
|
|
|
|
|
||||||||||||
Statement of cash flows for the nine months ended September 30, 2004: | ||||||||||||||||
Cash flows provided by operating activities | $ | 72,140 | $ | | $ | 273,291 | $ | | $ | 345,431 | ||||||
Cash flows used in investing activities | (174,479 | ) | | (631,681 | ) | | (806,160 | ) | ||||||||
Cash flows provided by (used in) financing activities | 102,339 | | (447,980 | ) | | (345,641 | ) | |||||||||
Net cash provided by discontinued operations | | | 1,021,718 | | 1,021,718 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | | | 9,980 | | 9,980 | |||||||||||
Cash and cash equivalents at beginning of period | | | 759,617 | | 759,617 | |||||||||||
|
|
|
|
|
||||||||||||
Cash and cash equivalents at end of period | $ | | $ | | $ | 984,945 | $ | | $ | 984,945 | ||||||
|
|
|
|
|
28
NOTE 11DERIVATIVE INSTRUMENTS
In 2004 and 2003, the Company entered into various interest rate swap agreements with notional amounts of $250 million and $150 million, respectively, related to a portion of the 2002 Senior Notes. The interest rate swaps allow IAC to receive fixed rate amounts in exchange for making floating rate payments based on LIBOR, which effectively changes the Company's interest rate exposure on a portion of the debt. As of September 30, 2005, of the $750 million total notional amount of the 2002 Senior Notes, the interest rate is fixed on $400 million with the balance of $350 million remaining at a floating rate of interest based on the spread over 6-month LIBOR. To further manage risk, the Company sold swap agreements for nominal gains during 2005 and 2004, which are being amortized over the remaining life of the 2002 Senior Notes. The changes in fair value of the interest rate swaps at September 30, 2005 and 2004 resulted in an unrealized loss of $5.3 million and an unrealized gain of $0.1 million, respectively. The fair value of the contracts is recorded in the accompanying balance sheet in other non-current assets with a corresponding offset to the carrying value of the related debt. The gain or loss on the derivative in the period of change and the loss or gain of the hedged item attributed to the hedged risk are recognized in the accompanying statements of operations and are offsetting.
LendingTree Loans, in connection with its mortgage banking operations, is exposed to additional interest rate risk. The fair value of loans held for sale is subject to change primarily due to changes in market interest rates. LendingTree Loans hedges the changes in fair value of the loans held for sale primarily by using mortgage forward delivery contracts. These hedging relationships are documented as fair value hedges. The fair value of loans held for sale is determined using current secondary market prices for loans with similar coupons, maturities and credit quality. For loans held for sale that are hedged with forward delivery contracts, the carrying value of the loans held for sale and the derivatives is adjusted for the change in fair value during the time the hedge was deemed to be highly effective. The effective portion of the derivative and the loss or gain of the hedged item attributed to the hedged risk are recognized in the accompanying statement of operations as a component of revenue and are offsetting. If it is determined that the hedging relationship is not highly effective, hedge accounting is discontinued. When hedge accounting is discontinued, the affected loans held for sale are no longer adjusted for changes in fair value, however, the changes in fair value of derivative instruments are recognized in current earnings as a component of revenue. For the three and nine months ended September 30, 2005, the Company recognized a less than $0.1 million loss and $1.2 million loss, respectively, related to hedge ineffectiveness and $1.3 million and $0.7 million in gains, respectively, related to changes in the fair value of derivative instruments when hedge accounting was discontinued. The fair value of the hedge instruments is recorded in other current assets in the accompanying balance sheet.
LendingTree Loans enters into commitments with consumers to originate loans at a locked in interest rate (interest rate lock commitments"IRLCs"). IAC reports IRLCs as derivative instruments in accordance with SEC Staff Accounting Bulletin No. 105, "Application of Accounting Principles to Loan Commitments" ("SAB 105"), and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and determines the fair value of IRLCs using current secondary market prices for underlying loans with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability, or fallout factor. Similar to loans held for sale, the fair value of IRLCs is subject to change primarily due to changes in interest rates and fallout factors. Under LendingTree Loans' risk management policy, LendingTree Loans hedges the changes in fair value of IRLCs primarily by entering into forward delivery contracts which can reduce the volatility of earnings. Both the IRLCs
29
and the related hedging instrument do not qualify for hedge accounting and are recorded at fair value with changes in fair value being recorded in current earnings as a component of revenue in the accompanying statement of operations. The change in the fair value of these derivative instruments for the three and nine months ended September 30, 2005 resulted in a gain of $2.8 million and $0.9 million, respectively, which has been recognized in the accompanying statement of operations. The fair value of the IRLCs is recorded in other current liabilities in the accompanying balance sheet.
On April 29, 2003, one of the Company's foreign subsidiaries entered into a five-year foreign exchange forward contract with a notional amount of $38.6 million, which was used to hedge against the change in value of a liability denominated in a currency other than the subsidiary's functional currency. This derivative contract has been designated as a cash flow hedge for accounting purposes and foreign exchange re-measurement gains and losses related to the contract and liability are recognized each period in the statements of operations and are offsetting. In addition, the remaining effective portion of the derivative's gain or loss is recorded in other comprehensive income (loss) until the liability is extinguished. The change in fair value of this foreign exchange forward contract at September 30, 2005 and 2004 resulted in an unrealized loss of $6.2 million and $6.1 million, respectively.
As a result of the Ask Jeeves acquisition, upon conversion of the Ask Jeeves' subordinated convertible notes, holders would receive shares of IAC common stock. Following the Spin-Off, IAC became obligated to deliver shares of both IAC and Expedia common stock upon conversion of the Ask Jeeves subordinated convertible notes. This obligation represents a derivative liability in IAC's accompanying balance sheet because it is not denominated solely in shares of IAC common stock. This derivative liability was valued at $90.3 million at September 30, 2005. Under the separation agreement relating to the Spin-Off, Expedia contractually assumed the obligation to deliver shares of Expedia common stock to IAC upon conversion by the holders of the Ask Jeeves subordinated convertible notes. This represents a derivative asset in IAC's accompanying balance sheet valued at $88.2 million at September 30, 2005. Both of these derivatives will be maintained at fair value each reporting period with any changes in fair value reflected in the statement of operations. The net change in the fair value of these derivatives for the three and nine months ended September 30, 2005 resulted in a gain of $8.9 million, which has been recognized in other income (expense) in the accompanying statement of operations. The derivative asset related to the Ask Jeeves subordinated convertible notes is recorded in other non-current assets and the derivative liability related to the Ask Jeeves subordinated convertible notes is recorded in other long-term liabilities in the accompanying balance sheet.
In connection with prior transactions, including among others, the acquisition of Ticketmaster, Hotels.com, and Hotwire.com, IAC assumed a number of warrants that were adjusted to become exercisable for shares of IAC common stock. Following the Spin-Off, IAC remained the contractually obligated party with respect to these warrants and each warrant represents the right to receive upon exercise by the holders thereof that number of shares of IAC common stock and Expedia common stock that the warrant holder would have received had the holder exercised the warrant immediately prior to the Spin-Off. Under the separation agreement, Expedia contractually assumed the obligation to deliver shares of Expedia common stock to IAC upon exercise of these warrants. This obligation of IAC to deliver shares of both IAC and Expedia common stock upon exercise of these warrants created a liability in the form of a derivative in IAC's accompanying balance sheet that will be maintained at fair value each reporting period with any changes in fair value reflected in the consolidated statement of operations. The derivative liability was valued at $4.3 million at September 30, 2005. The contractual
30
obligation of Expedia to deliver shares of Expedia common stock to IAC upon exercise by the warrant holders also created a derivative asset in IAC's accompanying balance sheet valued at $1.4 million at September 30, 2005. The net change in the fair value of these derivatives for the three and nine months ended September 30, 2005 resulted in a gain of $0.5 million which has been recognized in other income (expense) in the accompanying statement of operations. The derivative asset related to the warrants is recorded in other non-current assets and the derivative liability related to the warrants is recorded in other long-term liabilities in the accompanying balance sheet.
NOTE 12SALE OF VUE INTERESTS
On June 7, 2005, IAC completed a transaction with General Electric and Vivendi Universal in which IAC sold its common and preferred interests in VUE for approximately $3.4 billion in aggregate consideration consisting of approximately $1.9 billion in cash, 28.3 million IAC common shares formerly held by NBC Universal and $115 million of television advertising time that NBC Universal will provide through its media outlets over a three-year period. Based upon the closing price of IAC common stock on June 7, 2005 of $49.28 (as adjusted for the August 2005 reverse stock split), the 28.3 million IAC common shares have a market value of approximately $1.4 billion. The transaction resulted in an after-tax gain of $322.1 million. The after-tax gain was determined as follows (in thousands):
Proceeds received: | |||||
Cash | $ | 1,882,291 | |||
Value of 28.3 million IAC common shares | 1,394,903 | ||||
Television advertising time | 115,000 | ||||
|
|||||
Total proceeds received | 3,392,194 | ||||
|
|||||
Book value of VUE interests: | |||||
Common interest | 804,733 | ||||
Preferred A interest | 632,444 | ||||
Preferred B interest | 1,428,530 | ||||
|
|||||
Total book value of VUE interests | 2,865,707 | ||||
|
|||||
Subtotal | 526,487 | ||||
Less: Transaction costs | (3,000 | ) | |||
|
|||||
Pre-tax gain | 523,487 | ||||
Income tax expense | (201,384 | ) | |||
|
|||||
After-tax gain on sale of VUE interests | $ | 322,103 | |||
|
NOTE 13DISCONTINUED OPERATIONS
In March 2005, IAC, through its subsidiary HSN International, entered into an agreement to sell its 48.6% ownership in EUVÍA for approximately $204 million. The sale closed on June 2, 2005 and resulted in a pre-tax gain of $129.3 million and an after-tax gain of $79.6 million. EUVÍA operates two television channels, 9Live, an interactive game and quiz show-oriented television channel, and Sonnanklar, a travel-oriented television channel. In addition, during the second quarter of 2005, TV Travel Shop ceased the sale of third-party travel products through its broadcast programming. Further,
31
on August 9, 2005, IAC completed the spin-off of its travel business, including Expedia.com, Hotels.com, Hotwire and TripAdvisor, into an independent public company, Expedia, Inc. Accordingly, the results of operations and statements of position of these businesses are presented as discontinued operations for all periods presented. The 2005 results include a tax benefit of approximately $62.8 million related to the write-off of the Company's investment in TV Travel Shop. The net revenue and net earnings, net of the effect of any minority interest for the aforementioned discontinued operations for the applicable periods, were as follows (in thousands):
|
Three months ended
September 30, |
Nine months ended
September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
2005
|
2004
|
|||||||||
Net revenue | $ | 260,951 | $ | 547,850 | $ | 1,365,060 | $ | 1,524,564 | |||||
|
|
|
|
||||||||||
Income before income taxes and minority interest | $ | 78,632 | $ | 98,124 | $ | 276,936 | $ | 205,953 | |||||
Income tax expense | (46,148 | ) | (34,147 | ) | (61,236 | ) | (98,379 | ) | |||||
Minority interest in income of consolidated subsidiaries | 633 | (5,773 | ) | (5,373 | ) | (9,028 | ) | ||||||
|
|
|
|
||||||||||
Net earnings | $ | 33,117 | $ | 58,204 | $ | 210,327 | $ | 98,546 | |||||
|
|
|
|
The net assets transferred to Expedia as of August 9, 2005 and as reported as discontinued operations as of December 31, 2004 were as follows (in thousands):
|
August 9, 2005
|
December 31, 2004
|
|||||
---|---|---|---|---|---|---|---|
Current assets | $ | 544,511 | $ | 308,391 | |||
|
|
||||||
Goodwill | $ | 5,889,127 | $ | 5,849,139 | |||
Intangible assets, net | 1,227,380 | 1,279,361 | |||||
Other non-current assets | 126,453 | 232,219 | |||||
|
|
||||||
Total non-current assets | $ | 7,242,960 | $ | 7,360,719 | |||
|
|
||||||
Current liabilities | $ | 1,496,530 | $ | 982,178 | |||
|
|
||||||
Deferred income taxes | $ | 368,656 | $ | 349,293 | |||
Other long-term liabilities | 109,933 | 68,683 | |||||
|
|
||||||
Total non-current liabilities | $ | 478,589 | $ | 417,976 | |||
|
|
32
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Management Overview
IAC/ InterActiveCorp 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. All references to "IAC," the "Company," "we," "our," or "us" in this report are to IAC/InterActiveCorp.
IAC consists of the following sectors:
On December 21, 2004, IAC announced its plans to separate its travel businesses into an independent public company in order to better achieve certain strategic objectives of its various businesses. We refer to this transaction as the "Spin-Off" and to the new company that holds IAC's former travel and travel-related businesses as "Expedia". IAC completed the Spin-Off prior to the commencement of trading on August 9, 2005. Immediately prior to the Spin-Off, IAC effected a one-for-two reverse stock split. Since the completion of the Spin-Off:
In addition, in March 2005, the Company entered into an agreement to sell its 48.6% ownership in EUVÍA. The sale closed on June 2, 2005.
Accordingly, the results of operations and statements of position of Expedia, EUVÍA and TV Travel Shop have been presented as discontinued operations for all periods presented. Further, all IAC common stock share information and related per share prices have been adjusted to reflect IAC's one-for-two reverse stock split.
On April 1, 2005, IAC completed it acquisition of Cornerstone Brands, Inc. ("Cornerstone Brands"), a portfolio of leading print catalogs and online retailing sites that sell home products and leisure and casual apparel, for approximately $715 million, principally in cash.
In addition, on June 7, 2005, IAC completed a transaction with NBC Universal in which IAC sold its common and preferred interests in Vivendi Universal Entertainment, LLLP ("VUE"), a joint venture formed in May 2002 between the Company and Vivendi Universal, S.A., for approximately $3.4 billion in aggregate consideration.
Further, on July 19, 2005 IAC, completed the acquisition of Ask Jeeves, Inc. ("Ask Jeeves"), a leading provider of world-class information retrieval technologies, brands and services that are available to consumers across a range of platforms, including destination websites, downloadable search-based applications and portals. Under the terms of the agreement, IAC issued 1.2668 shares of IAC common
33
stock for each share of Ask Jeeves common stock in a tax-free transaction valued as of the date of the agreement at approximately $1.7 billion, net of cash acquired. On May 5, 2005, IAC completed the buy back of 26.4 million shares of IAC common stock through its previously authorized share repurchase programs. These shares represent approximately sixty percent of the number of fully diluted shares IAC issued for the Ask Jeeves acquisition, thus effectively offsetting a substantial portion of the dilution from the transaction.
Results of operations for the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004
Set forth below are the contributions made by our various sectors, our emerging businesses and corporate expenses to consolidated revenues, operating income and Operating Income Before Amortization (as defined in IAC's Principles of Financial Reporting) for the three and nine months ended September 30, 2005 and 2004 (rounding differences may occur):
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
Percentage
of total |
2004
|
Percentage
of total |
2005
|
Percentage
of total |
2004
|
Percentage
of total |
||||||||||||||
|
(Dollars in millions)
|
|||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retailing | $ | 749.5 | 51 | % | $ | 509.1 | 53 | % | $ | 2,110.0 | 52 | % | $ | 1,587.6 | 54 | % | ||||||
Services | 486.2 | 33 | % | 306.3 | 32 | % | 1,363.9 | 34 | % | 932.4 | 32 | % | ||||||||||
Media & Advertising | 83.5 | 6 | % | 7.9 | 1 | % | 104.0 | 3 | % | 20.6 | 1 | % | ||||||||||
Membership & Subscriptions | 162.8 | 11 | % | 138.9 | 15 | % | 477.9 | 12 | % | 429.1 | 15 | % | ||||||||||
Emerging Businesses | 9.6 | 1 | % | 1.7 | 0 | % | 19.6 | 0 | % | 1.9 | 0 | % | ||||||||||
Intersegment elimination | (8.3 | ) | (1 | )% | (6.6 | ) | (1 | )% | (28.6 | ) | (1 | )% | (18.5 | ) | (1 | )% | ||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total | $ | 1,483.3 | 100 | % | $ | 957.3 | 100 | % | $ | 4,046.8 | 100 | % | $ | 2,953.1 | 100 | % | ||||||
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
Percentage
of total |
2004
|
Percentage
of total |
2005
|
Percentage
of total |
2004
|
Percentage
of total |
||||||||||||||
|
(Dollars in millions)
|
|||||||||||||||||||||
Operating Income (Loss): | ||||||||||||||||||||||
Retailing | $ | 38.0 | 178 | % | $ | 26.6 | 159 | % | $ | 126.6 | 88 | % | $ | 84.3 | 132 | % | ||||||
Services | 69.6 | 327 | % | 31.1 | 185 | % | 179.6 | 125 | % | 114.9 | 179 | % | ||||||||||
Media & Advertising | (0.9 | ) | (4 | )% | (12.1 | ) | (72 | )% | 0.0 | 0 | % | (45.0 | ) | (70 | )% | |||||||
Membership & Subscriptions | 27.4 | 128 | % | 6.8 | 41 | % | 59.7 | 41 | % | 28.0 | 44 | % | ||||||||||
Emerging Businesses | (2.4 | ) | (11 | )% | (0.2 | ) | (1 | )% | (8.5 | ) | (6 | )% | (2.2 | ) | (3 | )% | ||||||
Corporate and other | (110.4 | ) | (518 | )% | (35.5 | ) | (211 | )% | (213.3 | ) | (148 | )% | (115.9 | ) | (181 | )% | ||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total | $ | 21.3 | 100 | % | $ | 16.8 | 100 | % | $ | 144.2 | 100 | % | $ | 64.1 | 100 | % | ||||||
|
|
|
|
|
|
|
|
34
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
Percentage
of total |
2004
|
Percentage
of total |
2005
|
Percentage
of total |
2004
|
Percentage
of total |
||||||||||||||
|
(Dollars in millions)
|
|||||||||||||||||||||
Operating Income Before Amortization: | ||||||||||||||||||||||
Retailing | $ | 54.0 | 35 | % | $ | 40.2 | 52 | % | $ | 172.0 | 44 | % | $ | 125.0 | 49 | % | ||||||
Services | 86.0 | 55 | % | 45.1 | 59 | % | 232.6 | 59 | % | 154.7 | 60 | % | ||||||||||
Media & Advertising | 9.3 | 6 | % | (2.4 | ) | (3 | )% | 10.2 | 3 | % | (11.4 | ) | (4 | )% | ||||||||
Membership & Subscriptions | 36.1 | 23 | % | 16.7 | 22 | % | 86.2 | 22 | % | 60.0 | 23 | % | ||||||||||
Emerging Businesses | (2.4 | ) | (2 | )% | | 0 | % | (8.3 | ) | (2 | )% | (1.8 | ) | (1 | )% | |||||||
Corporate and other | (26.6 | ) | (17 | )% | (22.8 | ) | (30 | )% | (100.9 | ) | (26 | )% | (70.8 | ) | (28 | )% | ||||||
|
|
|
|
|
|
|
|
|||||||||||||||
Total | $ | 156.3 | 100 | % | $ | 76.9 | 100 | % | $ | 391.9 | 100 | % | $ | 255.8 | 100 | % | ||||||
|
|
|
|
|
|
|
|
IAC Consolidated Results
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue increased $526.0 million, or 55%, as a result of revenue increases of $240.5 million, or 47%, from the Retailing sector, $179.9 million, or 59%, from the Services sector, $75.6 million, or 958%, from the Media & Advertising sector and $23.9 million, or 17%, from the Membership & Subscriptions sector. The revenue growth from the Retailing sector was driven primarily by the acquisition of Cornerstone Brands on April 1, 2005 as well as improved top-line results at HSN. The increase in the Services sector was driven by significant growth at Lending, fueled by direct loan originations and growth in the Lending exchange, as well as strong domestic concert and sporting event ticket sales and international expansion at our Ticketing segment. The revenue growth from the Media & Advertising sector was driven primarily by the acquisition of Ask Jeeves on July 19, 2005, while Membership & Subscription results were led by strong results at Personals, which increased worldwide subscribers by 19%.
Gross profit increased $267.1 million, or 65%, reflecting improved results at the Services sector, which were primarily driven by the Lending and Ticketing results, and the Retailing sector, which was primarily driven by the acquisition of Cornerstone Brands. The increase in gross profit also reflects improved results in the Media & Advertising sector due primarily to the acquisition of Ask Jeeves and to a lesser extent, improved results in the Membership & Subscriptions driven by the growth in Personals.
Selling and marketing expenses increased $125.5 million, or 90%, primarily reflecting the impact of the Cornerstone Brands acquisition in the Retailing sector, increases at Lending and the impact of the Ask Jeeves acquisition in the Media & Advertising sector. The Lending segment experienced increased selling and marketing expense in order to build its brands through on-line and direct consumer advertising mediums. In addition, Personals' increased selling and marketing expenses primarily due to higher customer acquisition costs relating primarily to the company's offline marketing campaign which began in the first quarter of 2005 and continued through the third quarter. As a percentage of revenue, selling and marketing expense increased to 18% for 2005 from 15% in 2004 on a consolidated IAC basis.
General and administrative expense increased $48.3 million, or 40%, due primarily to the inclusion of the results of LendingTree Loans, Cornerstone Brands and Ask Jeeves in the 2005 results as well as the acquisition of ServiceMagic in September 2004. In addition, several operating segments incurred higher employee costs in 2005 due in part to increased head count and IAC incurred approximately $2.1 million of transaction expenses in connection with the Spin-Off in the third quarter of 2005.
35
Depreciation expense increased $2.2 million, or 6%, due primarily to capital expenditures of $58.3 million during 2005 and various acquisitions, partially offset by certain fixed assets becoming fully depreciated during the period.
Operating Income Before Amortization increased $79.4 million, or 103%, due primarily to the strong growth from each of the principal sectors.
Operating income increased $4.5 million, or 27%, reflecting the increase in Operating Income Before Amortization noted above, which was almost entirely offset by the significant increase in non-cash compensation of $71.3 million. The increase in non-cash compensation was principally due to a $67.0 million charge related to the treatment of vested stock options in connection with the Spin-Off and, to a lesser degree, non-cash compensation expense related to unvested stock options and restricted stock assumed in the Ask Jeeves and Cornerstone Brands acquisitions. 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.
Interest income decreased $25.8 million in 2005 compared with 2004 primarily as a result of decreased interest income earned on the VUE preferred securities as these interests were sold on June 7, 2005. Interest expense decreased $9.3 million in 2005 compared with 2004 primarily as a result of lower amortization of investment premiums, partially offset by interest expense on the Ask Jeeves convertible notes and interest expense on the warehouse lines of credit at LendingTree Loans.
The Company sold its interests in VUE in June 2005 and therefore had no equity income from its investment in VUE for the three months ended September 30, 2005. The Company realized $0.6 million of equity income from its investment in VUE for the three months ended September 30, 2004.
Equity in income of unconsolidated affiliates and other increased by $15.6 million due primarily to a $9.4 million gain related to the change in fair value during the period ended September 30, 2005 of the derivatives that were created in the Spin-Off. The derivatives arise due to IAC's obligation to deliver both IAC and Expedia shares upon the conversion of the Ask Jeeves convertible notes and the exercise of certain IAC warrants. These derivatives are marked to market each quarter with the change in fair value recorded as "Other income (loss)" in the accompanying statement of operations. Additionally, there was a $3.5 million increase in the equity income of unconsolidated affiliates of HSN International, including Jupiter Shop Channel.
The effective tax rate from continuing operations was 17% in 2005 and 15% in 2004. The 2005 effective tax rate was 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 and non-deductible non-cash compensation. In 2004, the effective tax rate for continuing operations 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.
Minority interest in income of consolidated subsidiaries principally represents minority ownership of certain of Ticketmaster's international operations.
In March 2005, the Company entered into an agreement to sell its 48.6% ownership interest in EUVÍA. The sale closed on June 2, 2005. During the second quarter of 2005, TV Travel Shop ceased the sale of third-party travel products through its broadcast programming. Further, on August 9, 2005, IAC completed the Spin-Off to its shareholders. Accordingly, the results of operations and statements of position of these businesses are presented as discontinued operations for all periods presented. Income from these discontinued operations in the third quarter of 2005 and 2004 was $33.1 million and $58.2 million, respectively, net of tax. The 2005 amounts are principally due to the results of Expedia
36
through August 8, 2005, as the Spin-Off was effected before the commencement of trading on August 9, 2005. The 2004 amounts reflect the results of Expedia for the full quarter as well as EUVÍA and TVTS. Expedia's results for the third quarter of 2005 include a $35.3 million, or $22.0 million after-tax, favorable adjustment to non-cash compensation expense related 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.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue increased $1.1 billion, or 37%, as a result of revenue increases of $522.4 million, or 33%, from the Retailing sector, $431.6 million, or 46%, from the Services sector, $83.4 million, or 404%, from the Media & Advertising sector and $48.9 million, or 11% from Membership & Subscriptions. The revenue growth from the Retailing and Media & Advertising sectors were driven primarily by the acquisition of Cornerstone Brands and the acquisition of Ask Jeeves, respectively. The increase in the Services sector was driven by significant growth at LendingTree, fueled in part by loan originations, as well as strong domestic ticket sales and international expansion at our Ticketing segment. The growth in Membership & Subscriptions was led by Personals.
Gross profit increased $559.4 million, or 45%, reflecting improved operating results at each of the principal sectors. The increase in gross profit at each of the sectors was driven primarily by the same factors noted above in the three month discussion.
Selling and marketing expense increased $264.9 million, or 64%. As a percentage of revenue, selling and marketing expense increased to 17% for 2005 from 14% in 2004. The increase in selling and marketing expense primarily reflects the impact of the Cornerstone Brands acquisition in the Retailing sector, increases at Lending as noted above in the three month discussion, and the acquisition of Ask Jeeves in the Media & Advertising sector. In addition, Personals experienced higher selling and marketing expenses related to higher customer acquisition costs relating primarily to the company's offline marketing campaign as noted above in the three month discussion.
General and administrative expense increased $132.5 million, or 37%, due primarily to the acquisitions noted above as well as the acquisition of ServiceMagic in Sepetmber 2004. General and administrative expenses also reflect increased employee costs at several operating segments. In addition, IAC incurred approximately $16.1 million of transaction expenses in connection with the Spin-Off in 2005.
Depreciation expense increased $3.5 million, or 3%, due primarily to capital expenditures of $175.7 million during 2005 and various acquisitions, partially offset by certain fixed assets becoming fully depreciated during the period.
Operating Income Before Amortization increased $136.1 million, or 53%, due primarily to the improved operating results at each of the principal sectors.
Operating income increased $80.1 million, or 125%, reflecting the increase in Operating Income Before Amortization noted above, as well as decreased amortization of intangibles of $8.7 million, or 6%, and decreased non-cash distribution and marketing expense of $1.3 million. Partially offsetting these decreases was an increase in non-cash compensation expense of $66.0 million, or 138%, due primarily to the charge related to the treatment of vested stock options in connection with the Spin-Off as noted above in the three month discussion.
Interest income decreased $19.4 million in 2005 compared with 2004 as a result of a decrease in interest income earned on the VUE preferred securities, as these interests were sold on June 7, 2005, partially offset by higher interest rates earned during 2005. Interest expense decreased $7.4 million in 2005 compared to 2004 due primarily to the factors noted above in the three month discussion, partially offset by the impact of higher interest rates on interest rate swap arrangements.
37
The Company realized a gain in 2005 of $523.5 million from the sale of its common and preferred interests in VUE to NBC Universal on June 7, 2005. In addition, the Company realized equity income from its investment in VUE in 2005 of $22.0 million compared with $11.3 million in 2004. Equity income in 2005 represents IAC's share in VUE's fourth quarter 2004 and first quarter 2005 results, which IAC had previously consistently recorded on a one-quarter lag, and IAC's share in VUE's results from April 1, 2005 through the date of sale.
Equity in income of unconsolidated affiliates and other increased by $20.3 million due primarily to a $16.7 million gain on the sale of our minority interest share in the Italian home shopping operations, a $9.4 million increase related to the change in fair value of the derivatives that were created in the Spin-Off as noted above, an increase in foreign currency exchange gains of $7.1 million, and a $4.6 million increase in the equity income of unconsolidated affiliates of HSN International. Partially offsetting these increases were increased realized losses on the sale of marketable securities of $18.4 million.
The effective tax rate from continuing operations was 40% and 33% in 2005 and 2004, respectively. The 2005 rate is higher than the federal statutory rate of 35% due principally to state taxes, non-deductible transaction expenses related to the Spin-Off, and the amortization of non-deductible non-cash compensation. The 2004 rate was lower than the federal statutory rate of 35% due principally to foreign tax credits and tax-exempt interest, partially offset by non-deductible amortization of intangibles and state taxes.
Minority interest in income of consolidated subsidiaries principally represents minority ownership of certain of Ticketmaster's international operations.
Income from discontinued operations in 2005 was $210.3 million, principally due to the income of Expedia through August 8, 2005 and the results of EUVÍA through June 2, 2005, as well as a tax benefit of $62.8 million related to the write-off of the investment in TV Travel Shop. Additionally, the Company recognized a gain on sale of EUVÍA of $79.6 million, net of tax. Income from discontinued operations in 2004 was $98.5 million, principally due to the income of Expedia and EUVÍA, partially offset by losses at TVTS.
38
In addition to the discussion of consolidated results, the following is a discussion of the results of each sector.
|
Three months ended
September 30, |
Nine months ended
September 30, |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
Growth
|
2005
|
2004
|
Growth
|
||||||||||||
(Dollars in millions) | ||||||||||||||||||
Revenue: | ||||||||||||||||||
Retailing: | ||||||||||||||||||
U.S. | $ | 664.3 | $ | 437.1 | 52 | % | $ | 1,829.4 | $ | 1,343.0 | 36 | % | ||||||
International | 85.2 | 72.0 | 18 | % | 280.7 | 244.6 | 15 | % | ||||||||||
|
|
|
|
|
|
|||||||||||||
Total Retailing | 749.5 | 509.1 | 47 | % | 2,110.0 | 1,587.6 | 33 | % | ||||||||||
Services: | ||||||||||||||||||
Ticketing | 227.5 | 182.0 | 25 | % | 696.7 | 579.3 | 20 | % | ||||||||||
Lending | 142.8 | 39.9 | 258 | % | 352.2 | 114.1 | 209 | % | ||||||||||
Real Estate | 16.3 | 8.1 | 102 | % | 43.0 | 18.2 | 136 | % | ||||||||||
Teleservices | 87.4 | 74.5 | 17 | % | 241.6 | 218.9 | 10 | % | ||||||||||
Home Services | 12.2 | 1.9 | 550 | % | 30.5 | 1.9 | 1,525 | % | ||||||||||
|
|
|
|
|
|
|||||||||||||
Total Services | 486.2 | 306.3 | 59 | % | 1,363.9 | 932.4 | 46 | % | ||||||||||
Media & Advertising | 83.5 | 7.9 | 958 | % | 104.0 | 20.6 | 404 | % | ||||||||||
Membership & Subscriptions: | ||||||||||||||||||
Vacations | 66.1 | 63.6 | 4 | % | 208.9 | 196.7 | 6 | % | ||||||||||
Personals | 66.0 | 49.7 | 33 | % | 181.3 | 147.1 | 23 | % | ||||||||||
Discounts | 30.8 | 25.6 | 20 | % | 88.5 | 85.9 | 3 | % | ||||||||||
Intra-sector elimination | | | N/A | (0.8 | ) | (0.6 | ) | (26 | )% | |||||||||
|
|
|
|
|
|
|||||||||||||
Total Membership & Subscriptions | 162.8 | 138.9 | 17 | % | 477.9 | 429.1 | 11 | % | ||||||||||
Emerging Businesses | 9.6 | 1.7 | 466 | % | 19.6 | 1.9 | 910 | % | ||||||||||
Intersegment elimination | (8.3 | ) | (6.6 | ) | (26 | )% | (28.6 | ) | (18.5 | ) | (54 | )% | ||||||
|
|
|
|
|
|
|||||||||||||
Total | $ | 1,483.3 | $ | 957.3 | 55 | % | $ | 4,046.8 | $ | 2,953.1 | 37 | % | ||||||
|
|
|
|
|
|
39
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
Growth
|
2005
|
2004
|
Growth
|
||||||||||||
(Dollars in millions) | ||||||||||||||||||
Operating Income (Loss): | ||||||||||||||||||
Retailing: | ||||||||||||||||||
U.S. | $ | 41.1 | $ | 29.9 | 37 | % | $ | 127.8 | $ | 86.6 | 48 | % | ||||||
International | (3.1 | ) | (3.3 | ) | 6 | % | (1.2 | ) | (2.3 | ) | 47 | % | ||||||
|
|
|
|
|
|
|||||||||||||
Total Retailing | 38.0 | 26.6 | 43 | % | 126.6 | 84.3 | 50 | % | ||||||||||
Services: | ||||||||||||||||||
Ticketing | 42.8 | 25.2 | 70 | % | 138.1 | 106.4 | 30 | % | ||||||||||
Lending | 25.3 | 2.6 | 878 | % | 46.6 | 3.3 | 1,303 | % | ||||||||||
Real Estate | (5.4 | ) | (2.8 | ) | (95 | )% | (23.9 | ) | (8.2 | ) | (190 | )% | ||||||
Teleservices | 4.4 | 5.9 | (26 | )% | 11.0 | 13.3 | (17 | )% | ||||||||||
Home Services | 2.6 | 0.2 | 1,091 | % | 7.8 | 0.2 | 3,456 | % | ||||||||||
|
|
|
|
|
|
|||||||||||||
Total Services | 69.6 | 31.1 | 124 | % | 179.6 | 114.9 | 56 | % | ||||||||||
Media & Advertising | (0.9 | ) | (12.1 | ) | 93 | % | 0.0 | (45.0 | ) | 100 | % | |||||||
Membership & Subscriptions: | ||||||||||||||||||
Vacations | 20.2 | 16.2 | 25 | % | 66.6 | 51.2 | 30 | % | ||||||||||
Personals | 15.8 | 2.8 | 472 | % | 29.7 | 13.4 | 121 | % | ||||||||||
Discounts | (8.6 | ) | (12.1 | ) | 29 | % | (36.6 | ) | (36.6 | ) | 0 | % | ||||||
|
|
|
|
|
|
|||||||||||||
Total Membership & Subscriptions | 27.4 | 6.8 | 302 | % | 59.7 | 28.0 | 113 | % | ||||||||||
Emerging Businesses | (2.4 | ) | (0.2 | ) | (1,244 | )% | (8.5 | ) | (2.2 | ) | (282 | )% | ||||||
Corporate and other | (110.4 | ) | (35.5 | ) | (211 | )% | (213.3 | ) | (115.9 | ) | (84 | )% | ||||||
|
|
|
|
|
|
|||||||||||||
Total | $ | 21.3 | $ | 16.8 | 27 | % | $ | 144.2 | $ | 64.1 | 125 | % | ||||||
|
|
|
|
|
|
40
|
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2004
|
Growth
|
2005
|
2004
|
Growth
|
||||||||||||
(Dollars in millions) | ||||||||||||||||||
Operating Income Before Amortization: | ||||||||||||||||||
Retailing: | ||||||||||||||||||
U.S. | $ | 56.7 | $ | 43.1 | 31 | % | $ | 172.2 | $ | 126.3 | 36 | % | ||||||
International | (2.8 | ) | (2.9 | ) | 6 | % | (0.2 | ) | (1.3 | ) | 83 | % | ||||||
|
|
|
|
|
|
|||||||||||||
Total Retailing | 54.0 | 40.2 | 34 | % | 172.0 | 125.0 | 38 | % | ||||||||||
Services: | ||||||||||||||||||
Ticketing | 49.9 | 32.4 | 54 | % | 159.6 | 126.0 | 27 | % | ||||||||||
Lending | 30.6 | 7.7 | 298 | % | 66.7 | 18.6 | 258 | % | ||||||||||
Real Estate | (2.4 | ) | (1.2 | ) | (102 | )% | (13.8 | ) | (3.4 | ) | (306 | )% | ||||||
Teleservices | 4.4 | 5.9 | (26 | )% | 11.0 | 13.3 | (17 | )% | ||||||||||
Home Services | 3.5 | 0.2 | 1,508 | % | 9.1 | 0.2 | 4,099 | % | ||||||||||
|
|
|
|
|
|
|||||||||||||
Total Services | 86.0 | 45.1 | 91 | % | 232.6 | 154.7 | 50 | % | ||||||||||
Media & Advertising | 9.3 | (2.4 | ) | NM | 10.2 | (11.4 | ) | NM | ||||||||||
Membership & Subscriptions: | ||||||||||||||||||
Vacations | 26.6 | 22.5 | 18 | % | 85.5 | 70.1 | 22 | % | ||||||||||
Personals | 16.6 | 4.5 | 271 | % | 32.5 | 20.4 | 60 | % | ||||||||||
Discounts | (7.1 | ) | (10.3 | ) | 31 | % | (31.7 | ) | (30.5 | ) | (4 | )% | ||||||
|
|
|
|
|
|
|||||||||||||
Total Membership & Subscriptions | 36.1 | 16.7 | 116 | % | 86.2 | 60.0 | 44 | % | ||||||||||
Emerging Businesses | (2.4 | ) | | NM | (8.3 | ) | (1.8 | ) | (374 | )% | ||||||||
Corporate and other | (26.6 | ) | (22.8 | ) | (17 | )% | (100.9 | ) | (70.8 | ) | (43 | )% | ||||||
|
|
|
|
|
|
|||||||||||||
Total | $ | 156.3 | $ | 76.9 | 103 | % | $ | 391.9 | $ | 255.8 | 53 | % | ||||||
|
|
|
|
|
|
|||||||||||||
Operating Income Before Amortization as a percentage of revenue | 11 | % | 8 | % | 10 | % | 9 | % | ||||||||||
|
|
|
|
Retailing
Revenue, Operating Income Before Amortization and operating income for the Retailing sector increased in the three and nine months ended September 30, 2005 driven primarily by the inclusion of Cornerstone Brands, which was acquired on April 1, 2005. U.S. Retailing also includes HSN, which modestly improved its year-over-year revenue growth in the third quarter as compared to the second quarter of 2005. While still in the early stages, bringing Cornerstone Brands merchandise to the HSN audience 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.
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
U.S. revenue grew 52% to $664.3 million and benefited from a 35% increase in units shipped, principally reflecting Cornerstone Brands as well as strong online sales growth at HSN.com. In addition, revenue benefited from a 14% increase in average price point, partially offset by a 6% increase in return rates. Excluding the results of Cornerstone Brands, HSN's revenue growth was 9% in the third quarter of 2005 compared with 2004.
Operating Income Before Amortization grew 31% to $56.7 million, due primarily to the higher revenues noted above, partially offset by a decrease in gross profit margins of 60 basis points. Although U.S. Retailing benefited from higher gross margins at Cornerstone Brands, as the company's catalog
41
business typically enjoy higher gross margins than its other retailing operations, gross margins at HSN declined primarily due to increased clearance sales and markdowns as well as increased shipping and handling promotions and higher freight costs. Operating Income Before Amortization was also impacted by higher operating expenses at Cornerstone Brands as catalogs have relatively higher operating expenses. The 2004 results were also negatively impacted by a $3.5 million impairment charge related to the closure of the warehouse facility in Salem, VA as well as the Florida hurricanes, which resulted in programming disruptions and increased costs, due to mandatory evacuations, partially offset by a reversal of a reserve of $2.5 million as a result of the final resolution of a legal dispute.
Operating income grew 37% to $41.1 million due primarily to the increase in Operating Income Before Amortization described above, partially offset by a $2.1 million increase in amortization of intangibles primarily resulting from the acquisition of Cornerstone Brands and a $0.3 million increase in amortization of non-cash compensation expense.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 36% to $1.8 billion largely as a result of the acquisition of Cornerstone Brands in April 2005. Excluding the results of Cornerstone Brands, revenue grew 7% as a result of increased units shipped, increased average price point and a slight decline in return rates.
Operating Income Before Amortization grew 36% to $172.2 million, due primarily to the acquisition of Cornerstone Brands, growth in HSN revenue and an increase in gross profit margins by 60 basis points due primarily to the acquisition of Cornerstone Brands. Excluding the results of Cornerstone Brands, gross profit margins decreased 50 basis points due to the factors noted above in the three month discussion. This decrease was partially offset by the impact of a $5.8 million favorable adjustment to certain accrued liabilities in the nine months ended September 30, 2005.
Operating income grew 48% to $127.8 million due to the increase in Operating Income Before Amortization described above, partially offset by a $4.4 million increase in amortization of intangibles and a $0.3 million increase in amortization of non-cash compensation expense as noted above.
International
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue grew 18% to $85.2 million in U.S. dollars due primarily to revenue growth across nearly all product lines at HSE-Germany, offset partially by higher return rates. Foreign exchange had little impact on the results during the quarter. Weakness in the Wellness product line negatively impacted the 2004 results.
Operating Income Before Amortization slightly improved to a loss of $2.8 million and operating loss slightly improved to $3.1 million, due to the increase of revenue noted above partially offset by lower average gross margins resulting from the sale of clearance items and increased operating expenses.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 15% to $280.7 million in U.S. dollars, or 11% excluding the benefit of foreign exchange, due to the revenue factors described above as well as improved overall return rates for the year-to-date period in comparison to the prior year. Operating Income Before Amortization improved to a loss of $0.2 million and operating loss improved to $1.2 million, respectively, due to the growth in HSE-Germany noted above, partially offset by an unfavorable arbitration settlement in the second quarter 2005 related to a former Spanish language service.
42
In the first quarter of 2005, the Company entered into an agreement to sell its 48.6% ownership interest in EUVÍA. The sale closed on June 2, 2005. Accordingly, the results of operations and statement of position of EUVÍA are presented as discontinued operations for all periods presented.
Services
Revenue, Operating Income Before Amortization and operating income for the Services sector increased in the three and nine months ended September 30, 2005, driven primarily by significant growth at Lending, particularly from closing loans in its own name along with strong growth from the Lending exchange, as well as strong domestic growth in concert and sporting event ticket sales and international expansion in our Ticketing segment. The segment formerly known as Financial Services & Real Estate is now being reported as separate segments, Lending and Real Estate.
Revenue includes $7.0 million and $5.5 million for the three months ended September 30, 2005 and 2004, respectively, and $25.2 million and $15.8 million for the nine months ended September 30, 2005 and 2004, respectively, for services provided to other IAC businesses.
In addition to the operating segment results discussed below, the Services sector includes the results of the Teleservices and Home Services operating segments as noted on pages 39 through 41. Home Services includes ServiceMagic which was acquired in September 2004. ServiceMagic acquired ImproveNet in August 2005 and these two businesses have integrated their operations.
Ticketing
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue grew 25% to $227.5 million driven by increases in both domestic and international revenue as total worldwide tickets sold increased by 28% to 28.9 million. Domestic revenue increased by 29% primarily due to strong concert and sporting event ticket sales compared with the prior year. International revenue increased by 16%, or 14% excluding the benefit of foreign exchange, due primarily to Ticketmaster's purchase of the remaining interest in its Australian joint venture in April 2005, strong ticket sales in Canada, and the acquisition in Finland in August 2004. These effects on international revenue were partially offset by the absence of non-recurring license income related to the Athens 2004 Summer Olympics.
Operating Income Before Amortization increased 54% to $49.9 million reflecting the higher revenue growth described above, a favorable mix of tickets sold through its distribution channels and increased cross-selling on behalf of IAC businesses and other affiliates. These increases were partially offset by higher domestic ticket royalties as a percentage of revenue and increased costs associated with the development and support of ticketing technology. We expect to continue to experience higher operating costs in certain areas, including the development and support of ticketing technology. Domestic ticketing royalties are also expected to continue to increase as a percentage of revenue.
Operating income increased 70% to $42.8 million reflecting the results discussed as well as a $0.2 million decrease in amortization of intangibles.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 20% to $696.7 million reflecting a 21% increase in the number of worldwide tickets sold. Domestic revenue increased by 18% due primarily to the strength in the U.S. concert season and solid sporting event ticket sales in 2005. International revenue increased by 28%, or 24% excluding the benefit of foreign exchange, due to the factors described above in the three month discussion, as well as increased revenues from the acquisition in Sweden in June 2004.
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Operating Income Before Amortization and operating income increased 27% and 30% to $159.6 million and $138.1 million, respectively, reflecting the increase in revenue noted above, partially offset by higher domestic ticket royalties as a percentage of revenue and increased costs associated with the development and support of ticketing technology. Further, operating income was negatively impacted by a $2.1 million increase in amortization of intangibles related to recent acqusitions.
Lending
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue grew 258% to $142.8 million, driven primarily by an increase in revenue from loans closed, reflecting LendingTree's strategy to close in its own name a portion of the loans sourced through the LendingTree exchange which began in December 2004 with the acquisition of Home Loan Center (now known as LendingTree Loans), and increased growth in the Lending exchange. The addition of LendingTree Loans resulted in a substantial increase in revenue per closing. 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. The dollar value of closed loans in 2005 increased 45% to $9.9 billion. This includes refinance mortgages of $5.8 billion, purchase mortgages of $2.4 billion and home equity loans of $1.5 billion. The dollar value of closed loans in 2004 was $6.9 billion, including refinance mortgages of $3.0 billion, purchase mortgages of $2.0 billion and home equity loans of $1.6 billion.
Operating Income Before Amortization increased 298% to $30.6 million primarily due to growth in revenues reflecting in part higher revenue per closing as described above. Operating Income Before Amortization grew faster than revenue due primarily to lower marketing expenses as a percentage of revenue as marketing efficiency benefited from higher revenue per closing associated with loans closed in our own name, offset in part by lower gross margins as a percentage of revenue due to the higher costs of origination, funding and closing of such loans.
Operating income increased 878% to $25.3 million due to the increase in Operating Income Before Amortization described above, as well as a $0.1 million decrease in amortization of non-cash compensation expense, partially offset by a $0.3 million increase in amortization of intangibles.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 209% to $352.2 million driven primarily by the factors described above. The dollar value of closed loans in 2005 increased 21% to $25.5 billion. This includes refinance mortgages of $14.2 billion, purchase mortgages of $6.2 billion and home equity loans of $4.3 billion. The dollar value of closed loans in 2004 was $21.0 billion, including refinance mortgages of $10.7 billion, purchase mortgages of $4.8 billion and home equity loans of $4.6 billion.
Operating Income Before Amortization increased 258% to $66.7 million in 2005 reflecting the growth in revenues described above as well as a decrease in marketing costs as a percentage of revenue. These increases were offset in part by higher overhead costs incurred as a result of infrastructure changes resulting from the acquisition of LendingTree Loans in December 2004 and the higher costs of originating, funding and closing loans as described above.
Operating income increased to $46.6 million in 2005 primarily due to the increase in Operating Income Before Amortization described above and a $0.5 million decrease in amortization of non-cash compensation expense, partially offset by a $5.3 million increase in amortization of intangibles.
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Real Estate
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue from the real estate businesses grew 102% to $16.3 million, due to a 34% increase in closings primarily driven by the acquisition of iNest in October 2004 and solid growth in the company's other real estate businesses.
Operating Income Before Amortization loss increased 102% to a loss of $2.4 million in 2005 from a loss of $1.2 million in 2004 due to increased on-line advertising expense and increased customer rebates as well as increases in overhead costs incurred as a result of the growth of the overall Real Estate businesses.
Operating loss increased 95% to $5.4 million in 2005 primarily due to the increase in Operating Income Before Amortization loss described above, a $1.4 million increase in amortization of intangibles and a $0.1 million increase in amortization of non-cash compensation expense.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 136% to $43.0 million driven primarily by the acquisition of iNest and growth of the other real estate businesses as described above. Operating Income Before Amortization loss increased 306% to $13.8 million reflecting increased marketing costs relating to a test advertising campaign for RealEstate.com, customer rebates for real estate closings and increases in overhead costs as noted above. Operating loss increased 190% to $23.9 million in 2005 primarily due to the increase in Operating Income Before Amortization loss described above, a $5.1 million increase in amortization of intangibles and a $0.1 million increase in amortization of non-cash compensation expense.
Media & Advertising
Media & Advertising consists of the results of Ask Jeeves, Citysearch and Evite. Media & Advertising reflect the inclusion of Ask Jeeves, since its acquisition on July 19, 2005.
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue grew 958% to $83.5 million, primarily due to increased revenue from the acquisition of Ask Jeeves in July 2005 as well as increased traffic at Citysearch which favorably impacted its pay-for-performance revenue.
Operating Income Before Amortization increased by $11.6 million primarily resulting from the Ask Jeeves acquisition. Additionally, Citysearch continues to benefit from higher revenues along with cost cutting initiatives as it lowers operating costs.
Operating loss improved to $0.9 million from an operating loss of $12.1 million in 2004 reflecting the increase in Operating Income Before Amortization described above, partially offset by a $0.4 million increase in amortization of intangibles. The increase in the amortization of intangibles is due to the Ask Jeeves acquisition, partially offset by certain Citysearch intangibles becoming fully amortized in 2004.
Comparing Ask Jeeves' results on a standalone basis, for the full quarter, Ask Jeeves revenue increased 15% compared to the prior year period. Ask Jeeves revenue increase was primarily driven by an increase in queries in North America and increased volume through new syndication partnerships. Site changes on the Ask Jeeves U.S. site launched in August 2005 had an adverse impact on revenue growth and operating income in the third quarter 2005, as anticipated, and is expected to continue to adversely impact revenues and margins in the near-term. Ask Jeeves was also adversely impacted by
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increased selling and marketing expense incurred for a newly launched off-line marketing campaign and higher revenue share payments to third party traffic sources.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 404% to $104.0 million, primarily due to the factors described above in the three month discussion.
Operating Income Before Amortization improved to $10.2 million in 2005, from a loss of $11.4 million in 2004 primarily driven by the Ask Jeeves acquisition and increased revenue and reduced operating costs at Citysearch.
Operating income improved $45.0 million in 2005, primarily due to the increase in Operating Income Before Amortization described above. In addition, benefiting operating income in 2005 is a $23.0 million decrease in amortization of intangibles primarily resulting from certain Citysearch intangibles becoming fully amortized in 2004, partially offset by the increase in amortization of intangibles resulting from the Ask Jeeves acquisition, as a well as a $0.4 million decrease in non-cash distribution and marketing expense.
Comparing Ask Jeeves' results on a standalone basis, for the full nine months, Ask Jeeves revenue increased 57% compared to the prior year period. Revenue growth was primarily driven by acquisitions made by Ask Jeeves in the second half of 2004 and the factors noted above in the three month discussion.
Membership & Subscriptions
Membership & Subscriptions sector results were led by record revenue and profits at the Personals segment.
In addition to the operating segment results discussed below, the Membership & Subscriptions sector included results from the Discounts operating segment as noted on pages 39 through 41.
Vacations
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Vacations grew revenues by 4% to $66.1 million, primarily driven by increases in membership revenue and higher average fees, partially offset by a decrease in confirmed vacations. Revenue growth at Vacations was slower than in prior quarters due to inventory constraints reflective of high-occupancy levels in the travel industry. Total active members increased 5% to 1.8 million.
Operating Income Before Amortization and operating income increased 18% and 25% to $26.6 million and $20.2 million, respectively, due primarily to the higher revenue noted above, and higher gross margins, partially offset by costs associated with its newly launched online travel and lifestyle membership club. Vacations confirmed online were 22% during 2005, compared with 20% in the prior year.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Vacations grew revenues by 6% to $208.9 million, driven by increased membership revenue, higher average fees and increased confirmed vacations as compared to the prior year. Operating Income Before Amortization and operating income grew by 22% and 30%, respectively, due to the factors described above.
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Personals
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Revenue grew 33% to $66.0 million, reflecting a 19% increase in paid subscribers to 1.2 million and an increase in the average revenue per paid subscriber due to higher package prices implemented in early 2005. International subscribers grew 13% over the prior year period driven by expansion in several markets, most notably in Scandinavia and Latin America.
Operating Income Before Amortization increased 271% to $16.6 million due to the increased revenue noted above, partially offset by higher customer acquisition costs relating primarily to the company's offline marketing campaign and start-up costs in connection with Chemistry.com, a newly launched premium relationship service. Results in the prior year period were impacted by charges related to the elimination of non-core businesses.
The increase in operating income of 472% to $15.8 million reflects an increase in Operating Income Before Amortization described above and a $0.9 million decrease in amortization of intangibles which resulted from certain intangibles becoming fully amortized in 2004 and early 2005.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Revenue grew 23% to $181.3 million, primarily driven by the factors described above as well as expansion in France and Spain. Operating Income Before Amortization increased 60% to $32.5 million in 2005 as a result of increased revenue, partially offset by higher customer acquisition costs relating primarily to the company's off-line marketing campaign noted above. Negatively impacting the 2004 results were charges related to the elimination of certain non-core business lines.
The increase in operating income of 121% to $29.7 million reflects an increase in Operating Income Before Amortization described above and a $3.5 million decrease in amortization of intangibles which resulted from certain intangibles becoming fully amortized in 2004 and early 2005 and a $0.6 million decrease in non-cash distribution and marketing expense.
Corporate and Other
For the three months ended September 30, 2005 compared to the three months ended September 30, 2004
Corporate operating expenses for the third quarter of 2005 were $110.4 million compared with $35.5 million for the same period in 2004, of which $83.8 million and $12.7 million relate to amortization of non-cash compensation in 2005 and 2004, respectively. The increase in amortization of non-cash compensation was principally due to a $67.0 million charge related to the treatment of vested stock options in connection with the Spin-Off. To a lesser degree, amortization of non-cash compensation expense increased due to expense related to unvested stock options and restricted stock assumed in the Ask Jeeves and Cornerstone Brands acquisitions. These increases were partially offset by a reduction in amortization of 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. Amortization of non-cash compensation related to equity awards assumed in acquisitions is recorded over the remaining vesting period of the equity awards and therefore will decline over time as the awards vest. In addition, Corporate operating expenses include $2.1 million related to transaction expenses incurred in 2005 associated with the Spin-Off.
For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004
Corporate operating expenses in 2005 were $213.3 million compared with $115.9 million in 2004, of which $112.3 million and $45.2 million relate to amortization of non-cash compensation in 2005 and 2004, respectively. Amortization of non-cash compensation increased principally due to the factors described above in the three month discussion. In addition, Corporate operating expenses include $16.1 million related to transaction expenses incurred in 2005 associated with the Spin-Off.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
All IAC common stock share information has been adjusted to reflect IAC's one-for-two reverse stock split in August 2005.
As of September 30, 2005, the Company had $1.0 billion of cash and cash equivalents and restricted cash and cash equivalents and $2.1 billion of marketable securities on hand, including $224.7 million in funds representing amounts equal to the face value of tickets sold by Ticketing on behalf of its clients.
Net cash (used in) provided by operating activities was approximately ($452.2) million in 2005 and $345.4 million in 2004. Cash used in operations in 2005 was negatively impacted by higher cash tax payments made, including $652.8 million related to the VUE gain, increases related to loans available for sale at LendingTree Loans which were not included in the prior year period and higher uses of working capital, including higher inventory. Partially offsetting these declines were higher earnings and increased contribution to working capital from Ticketing client cash of $78.7 million in 2005 compared with $38.6 million in 2004, primarily due to timing of settlements with venues. There tends to be a seasonal element to the inventory balances for the Retailing sector and the Discounts segment as inventory tends to be higher in the third quarter in anticipation of the fourth quarter selling season. At September 30, 2005, inventory, net of reserves, increased $187.7 million to $428.6 million from $240.9 million at December 31, 2004 due in part to the acquisition of Cornerstone Brands, which contributed $118.0 million of the increase, as well as increases at HSN U.S., Discounts and HSE-Germany. The increases in inventory at HSN U.S. and HSE-Germany relate primarily to increased merchandise purchases as well as lower than anticipated sales during the year. The total net cash tax payments impacting operating cash flows were $754.2 million in 2005 compared with $48.6 million in 2004.
Cash provided by investing activities in 2005 of $1.6 billion resulted from the proceeds generated from the sale of IAC's common and preferred interests in VUE of $1.9 billion, net proceeds of $381.1 million generated from the sale of marketable securities and proceeds from the sale of EUVÍA of $183.0 million. Partially offsetting these amounts were acquisitions, net of cash acquired, of $682.8 million and capital expenditures of $175.7 million. Cash acquisitions in 2005 primarily relate to Cornerstone Brands. Cash used in investing activities in 2004 of $806.2 million relates primarily to net purchases of marketable securities of $541.1 million, acquisitions, net of cash acquired, of $172.4 million and capital expenditures of $120.5 million. Cash acquisitions in 2004 primarily relate to ServiceMagic.
Cash used in financing activities in 2005 of $1.8 billion was primarily due to the purchase of treasury stock of $1.4 billion and the redemption of IAC's convertible preferred stock of $655.7 million, partially offset by increased borrowings under various warehouse lines of credit of $205.6 million at LendingTree Loans, $80.0 million of borrowings under the Liberty Bond program (see below) and proceeds from the issuance of common stock pursuant to stock option exercises of $80.7 million. Cash used in financing activities in 2004 of $345.6 million was primarily due to the purchase of treasury stock of $429.5 million partially offset by proceeds from the issuance of common stock pursuant to stock option exercises of $94.1 million.
As of September 30, 2005, the Company has $1.8 billion in short and long-term obligations, of which $817.3 million, consisting primarily of $360.8 million of 1998 Senior Notes due November 15, 2005 and various warehouse lines of credit, are classified as current. The warehouse lines of credit are used by LendingTree Loans to fund mortgage and home equity loans that are held for sale. Interest rates under these lines of credit fall within a range of 30-day LIBOR plus 75-100 basis points in the ordinary course of business, but may exceed this range under certain circumstances. Under the terms of these lines of credit, LendingTree Loans is required to maintain various financial and other covenants. The balance of these warehouse lines of credit at September 30, 2005 was $405.1 million. IAC
48
anticipates that the repayment of the 1998 Senior Notes on November 15, 2005 will come from current cash balances. Repayments of the warehouse lines of credit will come from the sale of loans held for sale by LendingTree Loans.
On July 19, 2005, as part of the Ask Jeeves acquisition, IAC guaranteed $115.0 million par value of Ask Jeeves' Zero Coupon Convertible Subordinated Notes due June 1, 2008. In addition, in connection with the financing of the construction of IAC's corporate headquarters, on August 31, 2005, the New York City Industrial Development Agency (the "Agency") issued $80 million in aggregate principal amount of New York City Industrial Development Agency Liberty Bonds (IAC/InterActiveCorp Project), Series 2005 (the "Liberty Bonds"). The Liberty Bonds pay interest at a rate of 5% per annum, payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2006, and mature on September 1, 2035. IAC is obligated to make all principal, interest and other payments in respect of the Liberty Bonds pursuant to certain security and payment arrangements between IAC and the Agency, which arrangements were entered into in connection with the closing of the Liberty Bond issuance. Liberty Bonds proceeds may only be used for certain expenditures relating to the construction of IAC's corporate headquarters and may not be used for general corporate purposes. The convertible notes and the Liberty Bonds are classified as long-term obligations on the accompanying balance sheet at September 30, 2005.
In November 2004, IAC announced that its Board of Directors authorized the repurchase of up to 40 million shares of IAC common stock. This authorization was in addition to the 11.4 million shares IAC had remaining under the two repurchase authorizations announced in March 2003 and November 2003, which initially covered a total of 40 million shares. Pursuant to the Board's previous authorizations, during the nine months ended September 30, 2005, IAC purchased 36.3 million shares of IAC common stock for aggregate consideration of $1.4 billion. Further, IAC repurchased an additional 10.8 million shares from October 1, 2005 through November 8, 2005 for aggregate consideration of $279.4 million. At November 8, 2005, IAC had 4.4 million shares remaining in its authorizations. Going forward, IAC may purchase shares on an opportunistic basis over an indefinite period of time, on the open market or through private transactions, depending on those factors IAC deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
On June 7, 2005 IAC completed a transaction with NBC Universal in which it sold its interests in VUE. After paying applicable taxes on the transaction, IAC expects to net approximately $1.0 billion in cash. As part of the consideration in this transaction, IAC received 28.3 million IAC shares into treasury valued at $1.4 billion.
IAC anticipates that it will need to invest in the development and expansion of its overall operations. The Company may make a number of acquisitions, which could result in the reduction of its cash balance or the incurrence of debt. Furthermore, future capital expenditures are expected to be higher than current amounts over the next several years.
Future demand for our products and services may be impacted by future economic and political developments. We believe that our financial situation would enable us to absorb a significant potential downturn in business. As a result, in management's opinion, available cash, internally generated funds and available borrowings will provide sufficient capital resources to meet IAC's foreseeable needs.
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IAC'S PRINCIPLES OF FINANCIAL REPORTING
IAC reports Operating Income Before Amortization as a supplemental measure to GAAP. This measure is one of 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. This non-GAAP measure 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. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure which we discuss below.
Definition of IAC's Non-GAAP Measure
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 income statement of certain expenses, including non-cash compensation, non-cash payments to partners, and acquisition-related accounting. IAC endeavors to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items and adjustments, including quantifying such items, to derive the non-GAAP measure.
Non-Cash Expenses That Are Excluded From Our Non-GAAP Measure
Amortization of non-cash compensation expense consists of restricted stock and options expense, which includes the expense related to modifications of options in connection with the spin-off of Expedia, unvested options assumed by IAC in its acquisitions and expense associated with grants of restricted stock units for compensation purposes. These expenses are not paid in cash and we include the related shares in our fully diluted shares outstanding.
Amortization of non-cash distribution and marketing expense consists mainly of the non-cash advertising secured from Universal Television as part of the transaction pursuant to which VUE was created. The non-cash advertising from Universal is available for television advertising primarily on the USA and Sci Fi cable channels without any cash cost. Ticketmaster and Match.com also recognized non-cash distribution and marketing expense related to barter arrangements, which expired in March 2004, for distribution secured from third parties, whereby advertising was provided by Ticketmaster and Match.com to a third party in return for distribution over the third party's network.
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 and will not be replaced with cash costs when the intangibles are fully amortized.
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RECONCILIATION OF OPERATING INCOME BEFORE AMORTIZATION
The following table is a reconciliation of Operating Income Before Amortization to operating income and net earnings available to common shareholders for the three months and nine months ended September 30, 2005 and 2004.
|
Three months ended September 30,
|
Nine months ended September 30,
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2005
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2004
|
2005
|
2004
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|||||||||
(In thousands) | |||||||||||||
Operating Income Before Amortization | $ | 156,268 | $ | 76,880 | $ | 391,865 | $ | 255,788 | |||||
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 | ) | |||||
|
|
|
|
||||||||||
Operating income | 21,317 | 16,780 | 144,154 | 64,090 | |||||||||
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 | | | 523,487 | | |||||||||
Equity in income of VUE | | 607 | 21,960 | 11,293 | |||||||||
Equity in income (losses) of unconsolidated affiliates and other | 14,263 | (1,354 | ) | 33,753 | 13,475 | ||||||||
Income tax expense | (7,635 | ) | (6,215 | ) | (311,652 | ) | (53,609 | ) | |||||
Minority interest in income of consolidated subsidiaries | (527 | ) | (672 | ) | (1,951 | ) | (1,685 | ) | |||||
Gain on sale of EUVÍA, net of tax | | | 79,648 | | |||||||||
Income from discontinued operations, net of tax | 33,117 | 58,204 | 210,327 | 98,546 | |||||||||
Preferred dividends | (1,412 | ) | (3,263 | ) | (7,938 | ) | (9,789 | ) | |||||
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|
|
|
||||||||||
Net earnings available to common shareholders | $ | 68,077 | $ | 89,478 | $ | 755,145 | $ | 197,675 | |||||
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RECONCILIATION OF NON-GAAP MEASURE
The following table reconciles Operating Income Before Amortization to operating income (loss) for the Company's reporting segments and to net earnings available to common shareholders in total (in millions, rounding differences may occur):
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For the three months ended September 30, 2005:
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Operating Income
Before Amortization |
Amortization of
non-cash items |
Operating income
(loss) |
||||||||
Retailing: | |||||||||||
U.S. | $ | 56.7 | $ | (15.6 | ) | $ | 41.1 | ||||
International | (2.8 | ) | (0.3 | ) | (3.1 | ) | |||||
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|
|
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Total Retailing | 54.0 | (16.0 | ) | 38.0 | |||||||
Services: | |||||||||||
Ticketing | 49.9 | (7.1 | ) | 42.8 | |||||||
Lending | 30.6 | (5.3 | ) | 25.3 | |||||||
Real Estate | (2.4 | ) | (3.0 | ) | (5.4 | ) | |||||
Teleservices | 4.4 | | 4.4 | ||||||||
Home Services | 3.5 | (0.9 | ) | 2.6 | |||||||
|
|
|
|||||||||
Total Services | 86.0 | (16.3 | ) | 69.6 | |||||||
Media & Advertising | 9.3 | (10.1 | ) | (0.9 | ) | ||||||
Membership & Subscriptions: | |||||||||||
Vacations | 26.6 | (6.3 | ) | 20.2 | |||||||
Personals | 16.6 | (0.9 | ) | 15.8 | |||||||
Discounts | (7.1 | ) | (1.6 | ) | (8.6 | ) | |||||
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|
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Total Membership & Subscriptions | 36.1 | (8.7 | ) | 27.4 | |||||||
Emerging Businesses | (2.4 | ) | | (2.4 | ) | ||||||
Corporate and other | (26.6 | ) | (83.8 | ) | (110.4 | ) | |||||
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|
|
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Total | $ | 156.3 | $ | (135.0 | ) | $ | 21.3 | ||||
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|
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Other income, net | 23.2 | ||||||||||
|
|||||||||||
Earnings from continuing operations before income taxes and minority interest | 44.5 | ||||||||||
Income tax expense | (7.6 | ) | |||||||||
Minority interest in income of consolidated subsidiaries | (0.5 | ) | |||||||||
|
|||||||||||
Earnings from continuing operations | 36.4 | ||||||||||
Income from discontinued operations, net of tax | 33.1 | ||||||||||
|
|||||||||||
Earnings before preferred dividends | 69.5 | ||||||||||
Preferred dividends | (1.4 | ) | |||||||||
|
|||||||||||
Net earnings available to common shareholders | $ | 68.1 | |||||||||
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55
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "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, anticipated trends and prospects in the various industries in which IAC and its businesses operate, IAC's business prospects and strategy, and anticipated financial position, liquidity and capital needs. These forward-looking statements reflect the views of IAC management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements 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 report for a variety of reasons, including, among others:
56
Certain of these factors and other factors, risks and uncertainties are discussed in IAC's filings with the 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 report 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 report. IAC is not under any obligation and does not intend to publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's short-term investment portfolio, loans held for sale and long-term debt, including the current portion thereof, and its warehouse line of credit. The Company invests its excess cash in debt securities of government agencies and high quality corporate issuers. The portfolio is reviewed on a periodic basis and adjusted in the event that the credit ratings of securities held in the portfolio deteriorates.
Based on the Company's total debt investment securities as of September 30, 2005, a 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the debt securities by approximately $28.8 million. Such potential increase or decrease are based on certain simplifying assumptions, including a constant level and rate of debt securities and an
57
immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. Conversely, since almost all of the Company's cash balance of approximately $1.0 billion is invested in variable rate interest earning assets, the Company would also earn more (less) interest income due to such an increase (decrease) in interest rates.
At September 30, 2005, the Company's outstanding debt approximated $1.8 billion, a majority of which is fixed rate obligations. If market rates decline, the Company runs the risk that the related required payments on the fixed rate debt will exceed those based on market rates. As part of its risk management strategy, the Company uses derivative instruments, including interest rate swaps, to hedge some of this interest rate exposure. The Company's intent is to offset gains and losses resulting from this exposure with losses and gains on the derivative contracts used to hedge it, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. The Company's objective in managing its exposure to interest rate risk on its long-term debt is to maintain its mix of floating rate and fixed rate debt within a certain range. During 2004 and 2003, the Company entered into interest rate swap agreements related to a portion of the 2002 Senior Notes, which allow IAC to receive fixed rate amounts in exchange for making floating rate payments based on the LIBOR. As of September 30, 2005, of the $750 million notional amount outstanding under the 2002 Senior Notes, the interest rate is fixed on $400 million at 7% and floating on $350 million, with the rate based on a spread over 6-month LIBOR. In July 2005, the Company unwound swap agreements with a notional amount of $50 million and during 2004 the Company unwound swap agreements with a notional amount of $250 million and $100 million for nominal gains, all of which are being amortized over the remaining life of the 2002 Senior Notes. The changes in fair value of the interest rate swaps at September 30, 2005 resulted in an unrealized loss of $5.3 million.
The majority of the Company's outstanding fixed-rate debt relates to the $750 million outstanding under the 2002 Senior Notes, the $360.8 million outstanding under the 1998 Senior Notes and the $80 million outstanding under the New York City Industrial Development Agency Liberty Bonds (IAC/InterActiveCorp Project) Series 2005. Excluding the $350 million under the 2002 Senior Notes which currently pays a variable interest rate as a result of the outstanding swap agreements noted above, a 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by approximately $36.8 million. Such potential increase or decrease are based on certain simplifying assumptions, including a constant level and rate of fixed-rate debt for all maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. If the LIBOR rates were to increase (decrease) by 100 basis points, then the annual interest payments on the $350 million of variable-rate debt would have increased (decreased) by $3.5 million. Such potential increase or decrease are based on certain simplifying assumptions, including a constant level and rate of variable-rate debt for all maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.
LendingTree Loans is exposed to interest rate risk for loans it originates until those loans are sold in the secondary market ("loans held for sale") and as a party to interest rate lock commitments ("IRLCs") to fund mortgage loans at interest rates previously agreed upon with the borrower for specified periods of time.
LendingTree Loans hedges the changes in fair value of the loans held for sale primarily by using mortgage forward delivery contracts. These hedging relationships are designated as fair value hedges. For loans held for sale that are hedged with forward delivery contracts, the carrying value of the loans held for sale and the derivatives are adjusted for the change in fair value during the time the hedge was deemed to be highly effective. The effective portion of the derivative and the loss or gain of the hedged item attributed to the hedged risk are recognized in the accompanying statement of operations as a component of revenue and are offsetting. If it is determined that the hedging relationship is not highly effective, hedge accounting is discontinued. When hedge accounting is discontinued, the affected
58
loans held for sale are no longer adjusted for the changes in fair value, however, the changes in fair value of the derivative instruments are recognized in current earnings as a component of revenue. For the three and nine months ended September 30, 2005, the Company recognized a less than $0.1 million loss and $1.2 million loss, respectively, related to hedge ineffectiveness and $1.3 million and $0.7 million in gains, respectively, related to changes in the fair value of derivative instruments when hedge accounting was discontinued.
IRLCs are derivative instruments and, therefore, are required to be recorded at fair value, with changes in fair value reflected in current period earnings. To manage the interest rate risk associated with the IRLCs the Company uses derivative instruments, including mortgage forward delivery contracts. These instruments do not qualify for hedge accounting. The changes in fair value of these instruments for the three and nine months ended September 30, 2005 resulted in net gains of $2.8 million and $0.9 million, respectively, which have been recognized as a component of revenue in the accompanying statement of operations.
The Company formally designates and documents all hedging relationships as either fair value hedges or cash flow hedges, as applicable, and documents the objective and strategy for undertaking the hedge transaction.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in the European Union and Canada. The Company's primary exposure to foreign currency risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar, primarily the Euro, British Pound Sterling and Canadian Dollar. However, the exposure is mitigated since the Company has generally reinvested profits from international operations in order to grow the businesses.
As the Company increases its operations in international markets it becomes increasingly exposed to potentially volatile movements in currency exchange rates. The economic impact of currency exchange rate movements on the Company are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause the Company to adjust its financing and operating strategies.
As currency exchange rates change, translation of the income statements of the Company's international businesses into U.S. dollars affects year-over-year comparability of operating results. Historically, the Company has not hedged translation risks because cash flows from international operations were generally reinvested locally.
Foreign exchange gains and losses were not material to the Company's earnings in 2005 and 2004. However, the Company periodically reviews its strategy for hedging transaction risks. The Company's objective in managing its foreign exchange risk is to minimize its potential exposure to the changes that exchange rates might have on its earnings, cash flows and financial position.
During the second quarter of 2003, one of the Company's foreign subsidiaries entered into a foreign exchange forward contract with a notional amount of $38.6 million which was used to hedge against the change in value of a liability denominated in a currency other than the subsidiary's functional currency. Foreign exchange re-measurement gains and losses related to the contract and liability are recognized each period in the statements of operations and are offsetting. The change in fair value of this foreign exchange forward contract at September 30, 2005 resulted in an unrealized loss of $6.2 million.
Equity Price Risk
The Company has a minimal investment in equity securities of publicly traded companies. These investments, as of September 30, 2005, were considered available-for-sale and included in long-term
59
assets with the unrealized gain deferred as a component of shareholders' equity. It is not customary for the Company to make significant investments in equity securities as part of its marketable securities investment strategy.
In connection with the Spin-Off, derivative liabilities were created due to IAC's obligation to deliver shares of both IAC and Expedia common stock upon conversion of the Ask Jeeves subordinated convertible notes and exercise of certain IAC warrants. Derivative assets were also created due to Expedia's contractual obligation to deliver shares of Expedia common stock to IAC upon conversion by the holders of the Ask Jeeves subordinated convertible notes and upon exercise of the warrants. Both the derivative liabilities and derivative assets are marked to market each quarter, and the changes in fair values, which are based upon changes in both IAC and Expedia common stock, are recognized in current earnings as a component of other income (expense).
Item 4.
Controls and Procedures
The Company monitors and evaluates on an ongoing basis its disclosure controls and internal control over financial reporting in order to improve their overall effectiveness. In the course of this evaluation, the Company modifies and refines its internal processes as conditions warrant.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in our filings with the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and Forms, and include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(d) of the Exchange Act, the Company, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, also evaluated whether any changes occurred to the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such control. Based on that evaluation, there has been no such change during the period covered by this report.
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In the ordinary course of business, the Company and its subsidiaries are parties to litigation involving property, personal injury, contract, and other claims. The amounts that may be recovered in such matters may be subject to insurance coverage.
Rules of the Securities and Exchange Commission require the description of material pending legal proceedings, other than ordinary, routine litigation incident to the registrant's business, and advise that proceedings ordinarily need not be described if they primarily involve damages claims for amounts (exclusive of interest and costs) not exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of management, none of the pending litigation matters which the Company and its subsidiaries are defending, including those described below, involves or is likely to involve amounts of that magnitude. The litigation matters described below involve issues or claims that may be of particular interest to the Company's shareholders, regardless of whether any of these matters may be material to the financial position or operations of the Company based upon the standard set forth in the SEC's rules.
Securities Class Action Litigation against IAC
This litigation, In re IAC/InterActiveCorp Securities Litigation , pending in the United States District Court for the Southern District of New York and arising out of the Company's August 4, 2004 announcement of its earnings for the second quarter of 2004, is described in detail on pages 29-30 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The consolidated amended complaint, filed on May 20, 2005, generally alleges that the value of the Company's stock was artificially inflated by pre-announcement statements about its financial results and forecasts that were false and misleading due to the defendants' alleged failure to disclose various problems faced by the Company's travel businesses. The plaintiffs seek to represent a class of shareholders who purchased IAC common stock between March 31, 2003 and August 3, 2004. The defendants are IAC and fourteen current or former officers or directors of the Company or its former Expedia travel business. The complaint purports to assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, as well as Sections 11 and 15 of the Securities Act of 1933, and seeks damages in an unspecified amount.
The two related shareholder derivative actions ( Garber and Butler ) have been consolidated with the securities class action for pre-trial purposes. The consolidated shareholder derivative complaint, filed on July 5, 2005 against IAC (as a nominal defendant) and sixteen current or former officers or directors of the Company or its former Expedia travel business, is based upon factual allegations similar to those in the securities class action and purports to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, violation of Section 14(a) of the Exchange Act, and contribution and indemnification. The complaint seeks an order voiding the election of the Company's current Board of Directors, as well as damages in an unspecified amount, various forms of equitable relief, restitution, and disgorgement of remuneration received by the individual defendants from the Company.
On September 15, 2005, IAC and the other defendants filed motions to dismiss both the securities class action and the shareholder derivative suits. The plaintiffs' responses to the motions are scheduled to be filed by November 15, 2005.
The Company believes that the claims in the class action and the derivative suits lack merit and will continue to defend vigorously against them.
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Consumer Class Action Litigation against Ticketmaster
Illinois. On November 22, 2002, a purported class action was filed in Illinois state court, challenging Ticketmaster's charges to customers for UPS ticket delivery. See Mitchell B. Zaveduk, Individually and as the Representative of a Class of Similarly Situated Persons v. Ticketmaster et al. , No. 02 CH 21148 (Circuit Court, Cook County). The lawsuit alleges in essence that it is unlawful for Ticketmaster not to disclose that the fee it charges to customers to have their tickets delivered by UPS contains a profit component. The complaint asserted claims for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act and for unjust enrichment and sought restitution to the purported class of the difference between what Ticketmaster charged for UPS delivery and what it paid UPS for that service.
On May 20, 2003, the court granted Ticketmaster's motion to dismiss the common-law claim for unjust enrichment but declined to dismiss the claim under the Illinois statute. On July 7, 2004, the plaintiff filed an amended complaint, adding claims for breach of contract and for violation of the California Consumers' Legal Remedies Act and Section 17200 of the California Business and Professions Code. On August 13, 2004, the court granted Ticketmaster's motion to dismiss the claim under the California Consumers' Legal Remedies Act. On October 28, 2004, the court granted Ticketmaster's motion to dismiss the claim for breach of contract but declined again to dismiss the claim under the Illinois statute. On June 16, 2005, the court denied Ticketmaster's motion for summary judgment on the remaining Illinois and California statutory claims. Discovery in the case has been stayed.
California. On October 21, 2003, a purported representative action was filed in California state court, challenging Ticketmaster's charges to online customers for UPS ticket delivery. See Curt Schlesinger et al. v. Ticketmaster , No. BC304565 (Superior Court, Los Angeles County). Similar to the Illinois case, this lawsuit alleges in essence that it is unlawful for Ticketmaster not to disclose on its website that the fee it charges to online customers to have their tickets delivered by UPS contains a profit component. The complaint asserted a claim for violation of Section 17200 of the California Business and Professions Code and, like the Illinois case, sought restitution or disgorgement of the difference between the total UPS-delivery fees charged by Ticketmaster in connection with online ticket sales and the amount it paid to UPS for that service.
On January 9, 2004, the court denied Ticketmaster's motion to stay the case in favor of the earlier-filed Illinois case. On December 31, 2004, the court denied Ticketmaster's motion for summary judgment. On April 1, 2005, the court denied the plaintiffs' motion for leave to amend their complaint to include UPS-delivery fees charged in connection with ticket orders placed by telephone. Citing Proposition 64, a recently approved California ballot initiative that outlawed so-called "representative" actions brought on behalf of the general public, the court ruled that since the named plaintiffs did not order their tickets by telephone, they lacked standing to assert a claim based on telephone ticket sales. The plaintiffs were granted leave to file an amended complaint that would survive application of Proposition 64.
On August 31, 2005, the plaintiffs filed an amended class-action and representative-action complaint alleging (i) as before, that Ticketmaster's website disclosures in respect of its charges for UPS ticket delivery violate Section 17200 of the California Business and Professions Code, and (ii) for the first time, that Ticketmaster's website disclosures in respect of its ticket order-processing fees constitute false advertising in violation of Section 17500 of the California Business and Professions Code. On this latter claim, the amended complaint seeks restitution or disgorgement of the entire amount of order-processing fees charged by Ticketmaster during the applicable statute-of-limitations period.
On September 1, 2005, in light of the newly pleaded claim based upon order-processing fees, Ticketmaster removed the case to federal court pursuant to the recently enacted federal Class Action
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Fairness Act. See Curt Schlesinger et al. v. Ticketmaster , No. CV-05-6515 (U.S. District Court, Central District of California. On October 3, 2005, the plaintiffs filed a motion to remand the case to state court, which Ticketmaster has opposed. This motion was argued on November 7, 2005, and remains pending.
The Company believes that the claims in both the Illinois and the California lawsuits lack merit and will continue to defend vigorously against them.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth purchases by the Company of its Common Stock during the quarter ended September 30, 2005:
Period
|
(a) Total Number of
Shares Purchased |
(b) Average Price
Paid Per Share(1) |
(c) Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs(2) |
(d) Maximum Number of
Shares that May Yet Be Purchased Under Publicly Announced Plans or Programs(3)(4) |
|||||
---|---|---|---|---|---|---|---|---|---|
July 2005 | | | | 25,032,954 | |||||
August 2005 | | | | 25,032,954 | |||||
September 2005 | 9,870,600 | $ | 25.10 | 9,870,600 | 15,162,354 | ||||
|
|
|
|
||||||
Total | 9,870,600 | $ | 25.10 | 9,870,600 | 15,162,354 | ||||
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Item 4.
Submission of Matters to a Vote of Security Holders
Annual Meeting
On July 19, 2005, the Company's annual meeting of stockholders (the "Annual Meeting") was held. Stockholders present in person or by proxy, representing 537,023,990 shares of IAC Common Stock (entitled to one vote per share), 64,629,996 shares of IAC Class B Common Stock (entitled to ten votes per share) and 13,114,586 shares of IAC Preferred Stock (entitled to two votes per share), voted on the following matters:
1. Election of Directors the stockholders elected the following ten directors of the Company, three of whom were elected by holders of IAC Common Stock only, and seven of whom were elected by holders of IAC Common Stock, IAC Class B Common Stock and IAC Preferred Stock, voting together as a single class, each to hold office until the next annual meeting of stockholders or until
63
their successors have been duly elected and qualified. In each case, the affirmative vote of a plurality of the total number of votes cast was required to elect each director. Stockholders eligible to vote voted as follows:
Holders of IAC Common Stock, voting as a separate class:
|
Number of Votes Cast in
Favor |
Number of Votes Cast
Against or For Which Authority Was Withheld |
||
---|---|---|---|---|
Donald R. Keough | 533,060,987 | 3,963,003 | ||
Bryan Lourd | 532,662,186 | 4,361,804 | ||
Gen. H. Norman Schwarzkopf | 533,287,026 | 3,736,964 |
Holders of IAC Common Stock, IAC Class B Common Stock and IAC Preferred Stock, voting together as a single class:
|
Number of Votes Cast
in Favor |
Number of Votes Cast
Against or For Which Authority Was Withheld |
||
---|---|---|---|---|
Edgar Bronfman, Jr. | 1,205,550,216 | 4,002,906 | ||
Barry Diller | 1,177,878,108 | 31,675,014 | ||
Victor A. Kaufman | 1,177,905,762 | 31,647,360 | ||
Marie-Josée Kravis | 1,205,774,435 | 3,778,687 | ||
Steven Rattner | 1,205,955,933 | 3,597,189 | ||
Alan G. Spoon | 1,205,962,007 | 3,591,115 | ||
Diane Von Furstenberg | 1,175,942,878 | 33,610,244 |
2. The Spin-Off Proposal the stockholders approved amendments to IAC's Certificate of Incorporation that would effect the spin-off of Expedia, Inc. (the "Spin-Off"). The affirmative vote of (i) the holders of a majority of the outstanding shares of IAC Common Stock, voting as a separate class, (ii) the holders of a majority of the outstanding shares of IAC Class B Common Stock, voting as a separate class, (iii) a majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class and (iv) a majority of the shares of IAC Common Stock actually voting, excluding shares owned or controlled by IAC management, was required to approve the Spin-Off Proposal. Stockholders eligible to vote voted as follows:
Holders of a majority of the outstanding shares of IAC Common Stock, voting as a separate class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
491,541,057 | 545,549 | 189,130 | 44,748,254 |
Holders of a majority of the outstanding shares of IAC Class B Common Stock, voting as a separate class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
646,299,960 | | | |
64
A majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
1,163,784,081 | 548,125 | 189,206 | 45,031,710 |
A majority of the shares of IAC Common Stock actually voting, excluding shares owned or controlled by IAC management:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
||
---|---|---|---|---|
358,772,827 | 545,549 | 189,130 |
3. The Reverse Stock Split Proposal the stockholders approved amendments to IAC's Certificate of Incorporation to effect a one-for-two reverse stock split of IAC Common Stock and Class B Common Stock. The affirmative vote of a majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class, was required to approve the Reverse Stock Split Proposal, which was conditioned upon the completion of the Spin-Off. Stockholders eligible to vote voted as follows:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
1,148,639,075 | 1,801,096 | 14,081,241 | 45,031,710 |
4. The Corporate Opportunity Proposal the stockholders approved the addition of new provisions to IAC's Certificate of Incorporation that generally provide that no IAC officer or director who is also an Expedia officer or director will be liable for breach of fiduciary duty because such individual directs a corporate opportunity to Expedia instead of IAC or does not communicate information regarding a corporate opportunity to IAC that the officer or director has directed to Expedia. The affirmative vote of a majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class, was required to approve the Corporate Opportunity Proposal, which was conditioned upon the completion of the Spin-Off. Stockholders eligible to vote voted as follows:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
1,160,975,333 | 3,044,431 | 501,648 | 45,031,710 |
5. The Director Removal Proposal the stockholders approved an amendment to IAC's Certificate of Incorporation that deleted the provision regarding removal of directors so that IAC's Bylaws will govern director removal procedures under Delaware law. The affirmative vote of (i) the holders of a majority of the outstanding shares of IAC Common Stock, voting as a separate class, (ii) the holders of a majority of the outstanding shares of IAC Class B Common Stock, voting as a separate class and (iii) a majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class, was required to approve the Director Removal Proposal. Stockholders eligible to vote voted as follows:
Holders of a majority of the outstanding shares of IAC Common Stock, voting as a separate class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
473,615,551 | 2,355,835 | 16,304,350 | 44,748,254 |
65
Holders of a majority of the outstanding shares of IAC Class B Common Stock, voting as a separate class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
646,299,960 | | | |
A majority of the voting power represented by all outstanding shares of IAC Common Stock, Class B Common Stock and Preferred Stock, voting together as a single class:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
1,145,859,867 | 2,357,195 | 16,304,350 | 45,031,710 |
6. The 2005 Stock and Annual Incentive Plan Proposal The stockholders approved the IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan. The affirmative vote of a majority of the total voting power of those shares of IAC Common Stock, Class B Common Stock and Preferred Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class, was required to approve the 2005 Stock and Annual Incentive Plan Proposal. Stockholders eligible to vote voted as follows:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
Number of Broker No Votes
|
|||
---|---|---|---|---|---|---|
1,109,095,884 | 55,003,991 | 421,537 | 45,031,710 |
7. The Auditor Ratification Proposal the holders of IAC Common Stock, IAC Class B Common Stock and IAC Preferred Stock, voting as a single class, also ratified the appointment of Ernst & Young LLP as the Company's independent auditors for the year ended December 31, 2005. The affirmative vote of a majority of the total voting power of those shares of IAC Common Stock, Class B Common Stock and Preferred Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class, was required to approve the Auditor Ratification Proposal. Those shareholders eligible to vote voted as follows:
Number of Votes Cast in Favor
|
Number of Votes Cast Against
|
Number of Votes Abstaining
|
||
---|---|---|---|---|
1,194,678,395 | 14,642,204 | 232,523 |
Exhibit No.
|
Description
|
Location
|
||
---|---|---|---|---|
2.1 | | Separation Agreement, dated as of August 9, 2005, between IAC/InterActiveCorp and Expedia, Inc. | ||
3.1 |
|
Restated Certificate of Incorporation of IAC/InterActiveCorp. |
|
Exhibit 3.1 to IAC's Registration Statement on Form 8-A/A, filed on August 12, 2005. |
3.2 |
|
Certificate of Designations of Series B Cumulative Convertible Preferred Stock of IAC/InterActiveCorp. |
|
Exhibit 3.2 to IAC's Registration Statement on Form 8-A/A, filed on August 12, 2005. |
3.3 |
|
Amended and Restated ByLaws of IAC/InterActiveCorp. |
|
Exhibit 99.1 to IAC's Current Report on Form 8-K, filed on September 20, 2002. |
66
67
68
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 9, 2005 | IAC/INTERACTIVECORP | |||
|
|
By: |
|
/s/ BARRY DILLER Barry Diller Chairman and Chief Executive Officer |
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
|
|
|
|
|
/s/
BARRY DILLER
Barry Diller |
Chairman of the Board, Chief Executive Officer and Director | November 9, 2005 | ||
/s/ THOMAS J. MCINERNEY Thomas J. McInerney |
|
Executive Vice President and Chief Financial Officer |
|
November 9, 2005 |
/s/ MICHAEL H. SCHWERDTMAN Michael H. Schwerdtman |
|
Senior Vice President and Controller (Chief Accounting Officer) |
|
November 9, 2005 |
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Exhibit 2.1
EXECUTION COPY
SEPARATION AGREEMENT
by and between
IAC/INTERACTIVECORP
and
EXPEDIA, INC.
Dated as of August 9, 2005
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iii
SEPARATION AGREEMENT
This SEPARATION AGREEMENT, dated as of August 9, 2005, is entered into by and between IAC/InterActiveCorp, a Delaware corporation ( IAC ), and Expedia, Inc., a Delaware corporation and wholly owned Subsidiary of IAC ( Expedia ).
RECITALS:
WHEREAS, the Board of Directors of IAC ( IAC Board ) has determined it is appropriate and desirable to separate IAC and Expedia into two publicly-traded companies by separating IACs principal travel and travel-related businesses, and related assets and liabilities, and contributing them to Expedia and effecting a reclassification of the capital stock of IAC pursuant to the Charter Amendments (as defined below);
WHEREAS, the IAC Board has adopted a resolution approving an amendment to IACs restated certificate of incorporation (the Reverse Stock Split Charter Amendment ) and recommended that the holders of common stock, par value $0.01 per share, of IAC ( Old IAC Common Stock ), holders of Class B common stock, par value $0.01 per share, of IAC ( Old IAC Class B Common Stock ), and holders of Series A Cumulative Convertible preferred stock, par value $0.01 per share, of IAC ( Old IAC Series A Preferred Stock , and together with Old IAC Common Stock and Old IAC Class B Common Stock, the Old IAC Capital Stock ) approve and adopt the Reverse Stock Split Charter Amendment in conformity with Section 242 of the General Corporation Law of the State of Delaware (the DGCL ), pursuant to which IAC will effectuate a one-for-two reverse stock split with respect to Old IAC Common Stock and Old IAC Class B Common Stock (the Reverse Stock Split );
WHEREAS, the IAC Board has adopted a resolution approving amendments to IACs restated certificate of incorporation (the Spin-Off Charter Amendments , and together with the Reverse Stock Split Charter Amendment, the Charter Amendments ) and recommended that the holders of Old IAC Capital Stock approve and adopt the Spin-Off Charter Amendments in conformity with Section 242 of the DGCL, whereby, among other matters, the Old IAC Common Stock and the Old IAC Class B Common Stock will be reclassified (the Reclassification ) as follows:
Each then issued and outstanding share of Old IAC Common Stock will be reclassified into (a) one share of common stock, par value $0.001 per share, of IAC ( New IAC Common Stock ) and (b) 1/100th of a share of Series 1 Mandatory Exchangeable preferred stock, par value $0.01 per share, of IAC (the New IAC Series 1 Preferred Stock ), which 1/100th of a share of New IAC Series 1 Preferred Stock shall, pursuant to its terms, automatically and immediately exchange into one share of common stock, par value $0.001 per share, of Expedia ( Expedia Common Stock );
Each then issued and outstanding share of Old IAC Class B Common Stock will be reclassified into (a) one share of Class B common stock, par value $0.001 per share, of IAC and (b) 1/100th of a share of Series 2 Mandatory Exchangeable preferred stock, par value $0.01 per share, of IAC (the New IAC Series 2 Preferred Stock ), which 1/100th of a share of New IAC Series 2 Preferred Stock shall, pursuant to its terms, automatically and immediately exchange
1
into one share of Class B common stock, par value $0.001 per share, of Expedia ( Expedia Class B Common Stock );
WHEREAS, at IACs Annual Meeting of Stockholders held on July 19, 2005, the holders of Old IAC Capital Stock approved the Charter Amendments by the requisite votes required under the DGCL (and otherwise);
WHEREAS, in connection with the Reclassification, holders of Old IAC Series A Preferred Stock will receive one of the following, at the holders option, in respect of each share of Old IAC Series A Preferred Stock: (a) $50.00 in cash plus accrued and unpaid dividends, (b) the securities that the holder would have received had the share of Old IAC Series A Preferred Stock been converted based upon the applicable conversion ratio into shares of Old IAC Common Stock immediately prior to the Reverse Stock Split and the Reclassification or (c) one share of Series A Convertible preferred stock, par value $0.001 per share, of Expedia ( Expedia Series A Preferred Stock ) and one share of Series B Convertible preferred stock, par value $0.01 per share, of IAC ( New IAC Series B Preferred Stock );
WHEREAS, pursuant to their terms, the warrants to purchase shares of Old IAC Common Stock set forth on Schedule 1.01(a) (the Old IAC Severable Warrants ) will be converted into (a) warrants to purchase shares of New IAC Common Stock ( New IAC Unitary Warrants ) and (b) warrants to purchase shares of Expedia Common Stock ( Expedia Warrants );
WHEREAS, pursuant to their terms, the warrants to purchase shares of Old IAC Common Stock set forth on Schedule 1.01(b) (the Old IAC Integrated Warrants , and together with the Old IAC Severable Warrants, the Old IAC Warrants ) will be converted into warrants to purchase shares of New IAC Common Stock and shares of Expedia Common Stock ( New IAC Integrated Warrants );
WHEREAS, the Parties wish to set forth in this Agreement the terms on which, and the conditions subject to which, they intend to implement the measures described above; and
WHEREAS, IAC and Expedia intend that the Separation (as defined below) and the Reclassification will qualify for United States federal income tax purposes as transactions that are generally tax free under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the Code ) and hereby adopt the Agreement as a plan of reorganization .
NOW THEREFORE, in consideration of the mutual agreements, covenants and other provisions set forth in this Agreement, the Parties hereby agree as follows:
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2005 Internal Control Audit and Management Assessments has the meaning set forth in Section 12.01(b).
AAA has the meaning set forth in Section 10.03.
Accounts Receivable means in respect of any Person, (a) all trade accounts and notes receivable and other rights to payment from customers and all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or otherwise disposed of or services rendered to customers, (b) all other accounts and notes receivable and all security for such accounts or notes, and (c) any claim, remedy or other right relating to any of the foregoing.
Action means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by any Person or any Governmental Authority or before any Governmental Authority or any arbitration or mediation tribunal.
Adjusted Exercise Price has the meaning set forth in Section 4.03(a)(ii).
Affiliate of any Person means any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such first Person as of the date on which or at any time during the period for when such determination is being made. For purposes of this definition, Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract or otherwise, and the terms Controlling and Controlled have meanings correlative to the foregoing.
Agent has the meaning set forth in Section 4.04.
Agreement means this Separation Agreement, including all of the Schedules and Exhibits hereto.
Ancillary Agreements has the meaning set forth in Section 2.09.
Applicable Law means any applicable law, statute, rule or regulation of any Governmental Authority or any outstanding order, judgment, injunction, ruling or decree by any Governmental Authority.
Appurtenances means, in respect of any Land, all privileges, rights, easements, servitudes, hereditaments and appurtenances and similar interests belonging to or for the benefit of such Land, including all easements and servitudes appurtenant to and for the benefit of any Land (a Dominant Parcel ) for, and as the primary means of, access between, the Dominant Parcel and a public way, or for any other use upon which lawful use of the Dominant Parcel for the purposes for which it is presently being used is dependent, and all rights existing in and to any streets, alleys, passages and other rights-of-way included therein or adjacent thereto.
Asset-Related Claims means, in respect of any Asset, all claims of the owner against Third Parties relating to such Asset, whether choate or inchoate, known or unknown, absolute or contingent, disclosed or non-disclosed.
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Assets means assets, properties and rights (including goodwill), wherever located (including in the possession of owners or Third Parties or elsewhere), whether real, personal or mixed, tangible or intangible, movable or immovable, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of a Person, including the following:
Assumed Liabilities has the meaning set forth in Section 2.06.
Business Concern means any corporation, company, limited liability company, partnership, joint venture, trust, unincorporated association or any other form of association.
Business Day means any day excluding (a) Saturday, Sunday and any other day which, in New York City is a legal holiday or (b) a day on which banks are authorized by Applicable Law to close in New York City.
Business Records means, in respect of any Person, all data and Records relating to such Person, including client and customer lists and Records, referral sources, research and development reports and Records, cost information, sales and pricing data, customer prospect lists, customer and vendor data, production reports and Records, service and warranty Records, equipment logs, operating guides and manuals, financial and accounting Records, personnel Records (subject to Applicable Law), creative materials, advertising materials, promotional materials, studies, reports, correspondence and other similar documents and records.
Charter Amendments shall have the meaning set forth in the recitals hereto.
Claim Notice has the meaning set forth in Section 7.04(b).
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Code has the meaning set forth in the recitals hereto.
Confidential Information has the meaning set forth in Section 9.07(a).
Consent means any approval, consent, ratification, waiver or other authorization.
Contract means any contract, agreement, lease, purchase and/or commitment, license, consensual obligation, promise or undertaking (whether written or oral and whether express or implied) that is legally binding on any Person or any part of its property under Applicable Law, including all claims or rights against any Person, choses in action and similar rights, whether accrued or contingent with respect to any such contract, agreement, lease, purchase and/or commitment, license, consensual obligation, promise or undertaking, but excluding this Agreement and any Ancillary Agreement save as otherwise expressly provided in this Agreement or in any Ancillary Agreement.
Contractual Asset means, in respect of any Person, any Contract of, or relating to, such Person, any outstanding offer or solicitation made by, or to, such Person to enter into any Contract, and any promise or undertaking made by any other Person to such Person, whether or not legally binding.
Corporate Contract has the meaning set forth in Section 5.03.
Corporate Contracts has the meaning set forth in Section 5.03.
Deferred Beneficiary has the meaning set forth in Section 3.01(b).
Deferred Excluded Asset has the meaning set forth in Section 3.01(a).
Deferred Separated Asset has the meaning set forth in Section 3.01(a).
Deferred Transactions has the meaning set forth in Section 11.01(a)(ii).
Deferred Transfer Asset has the meaning set forth in Section 3.01(a).
Deposit Rights means rights relating to deposits and prepaid expenses, claims for refunds and rights of set-off in respect thereof.
DGCL has the meaning set forth in the recitals hereto.
Disclosing Party has the meaning set forth in Section 9.08.
Dispute has the meaning set forth in Section 10.02(a).
Dispute Notice has the meaning set forth in Section 10.02(a).
Effective Date means August 9, 2005.
Effective Date Cash Balance has the meaning set forth in Section 5.05.
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Effective Time means 9:15 a.m., New York City time, on the Effective Date.
EHS Liabilities means any Liability arising from or under any Environmental Law or Occupational Health and Safety Law.
Employee Matters Agreement means the Employee Matters Agreement attached hereto as Exhibit A .
Encumbrance means, with respect to any asset, mortgages, liens, hypothecations, pledges, charges, security interests or encumbrances of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under Applicable Law.
Environmental Law means any Applicable Law from any Governmental Authority (a) relating to the protection of the environment (including air, water, soil and natural resources) or (b) the use, storage, handling, release or disposal of Hazardous Substances.
Escrow Agent has the meaning set forth in Section 5.04(a).
Escrow Agreement has the meaning set forth in Section 5.04(a).
Exchange Act means the United States Securities Exchange Act of 1934, as amended.
Excluded Assets has the meaning set forth in Section 2.05(a).
Expedia has the meaning set forth in the preamble hereto.
Expedia Annual Report has the meaning set forth in Section 12.01(d).
Expedias Auditors has the meaning set forth in Section 12.01(a).
Expedia Claims has the meaning set forth in Section 7.01(a).
Expedia Class B Common Stock has the meaning set forth in the recitals hereto.
Expedia Common Stock has the meaning set forth in the recitals hereto.
Expedia Common Stock Escrow Account has the meaning set forth in Section 5.04(a).
Expedia Conversion Obligations has the meaning set forth in Section 5.04(c).
Expedia Escrow Shares has the meaning set forth in Section 5.04(a).
Expedia Group means the Separated Entities, the domestic and international businesses, Subsidiaries and investments owned, operated and/or managed thereby and the assets and liabilities contained therein.
Expedia Group Balance Sheet means the combined balance sheet of Expedia Group as of June 30, 2005, substantially in the form attached as Schedule 1.01(c) .
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Expedia Indemnified Parties has the meaning set forth in Section 7.03.
Expedia Opening Balance Sheet has the meaning set forth in Section 2.03(e).
Expedia Parties has the meaning set forth in Section 7.01(b).
Expedia Releasors has the meaning set forth in Section 7.01(a).
Expedia Series A Preferred Stock has the meaning set forth in the recitals hereto.
Expedia Warrant Factor means 0.88933, which equals (x) $22.50, the closing per-share price of Expedia Common Stock in the when issued market on August 8, 2005, as listed on the NASDAQ as of 4:00 P.M. Eastern Daylight time, divided by (y) $25.30, the closing per-share price of Old IAC Common Stock trading regular way on August 8, 2005, as listed on the NASDAQ as of 4:00 P.M. Eastern Daylight time.
Expedia Warrants has the meaning set forth in the recitals hereto.
GAAP has the meaning set forth in Section 2.03(d).
Governmental Authority means any local, state, national or supranational court, arbitration panel, governmental or regulatory authority, agency, stock exchange, commission or body in any jurisdiction in or outside of the United States.
Governmental Authorization means any Consent, license, certificate, franchise, registration or permit issued, granted, given or otherwise made available by, or under the authority of, any Governmental Authority or pursuant to any Applicable Law.
Ground Lease means any long-term lease (including any emphyteotic lease) of Land in which most of the rights and benefits comprising ownership of the Land and the Improvements thereon or to be constructed thereon, if any, and the Appurtenances thereto for the benefit thereof, are transferred to the tenant for the term thereof.
Ground Lease Property means, in respect of any Person, any Land, Improvement or Appurtenance of such Person that is subject to a Ground Lease.
Group means IAC Group or Expedia Group, as the context requires.
Hazardous Substance means any substance to the extent presently listed, defined, designated or classified as hazardous, toxic or radioactive under any applicable Environmental Law, including petroleum and any derivative or by-products thereof.
IAC has the meaning set forth in the preamble hereto.
IACs Auditors has the meaning set forth in Section 12.01(a).
IAC Board has the meaning set forth in the recitals hereto.
IAC Businesses means the Separated Businesses and the Remaining IAC Businesses.
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IAC Claims has the meaning set forth in Section 7.01(b).
IAC Group means IAC, its Subsidiaries (other than any member of Expedia Group) and their respective domestic and international businesses, assets and liabilities.
IAC Indemnified Parties has the meaning set forth in Section 7.02.
IAC Parties has the meaning set forth in Section 7.01(a).
IAC Releasors has the meaning set forth in Section 7.01(b).
IAC Warrant Factor means 1.11067, which equals (x) $28.10, the closing per-share price of New IAC Common Stock in the when issued market on August 8, 2005, as listed on the NASDAQ as of 4:00 P.M. Eastern Daylight time, divided by (y) $25.30, the closing per-share price of Old IAC Common Stock trading regular way on August 8, 2005, as listed on the NASDAQ as of 4:00 P.M. Eastern Daylight time.
Improvements means, in respect of any Land, all buildings, structures, plants, fixtures and improvements located on such Land, including those under construction.
Indemnified Party has the meaning set forth in Section 7.04(a).
Indemnifying Party has the meaning set forth in Section 7.04(b).
Indenture has the meaning set forth in Section 5.04(b).
Information means any information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, test procedures, research, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, manufacturing techniques, manufacturing variables, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, products, product plans, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer information, customer services, supplier information, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
Insurance Benefits means, in respect of any Asset or Liability, all insurance benefits, including rights to Insurance Proceeds, arising from or relating to such Asset or Liability.
Insurance Proceeds means those monies (in each case net of any costs or expenses incurred in the collection thereof and net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments)):
8
Intangible Property Rights means, in respect of any Person, all intangible rights and property of such Person, including IT Assets, going concern value and goodwill.
Intercompany Accounts means all balances related to indebtedness, including any intercompany indebtedness, loan, guaranty, receivable, payable or other account between a member of IAC Group, on the one hand, and a member of Expedia Group, on the other hand.
Inventories means, in respect of any Person, all inventories of such Person wherever located, including all finished goods, (whether or not held at any location or facility of such Person or in transit to or from such Person), work in process, raw materials, spare parts and all other materials and supplies to be used or consumed by the Person in production of finished goods.
IT Assets means computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, all other information technology equipments and all associated documentation.
Jeeves has the meaning set forth in Section 5.04(b).
Jeeves Notes has the meaning set forth in Section 5.04(a).
Jeeves Supplemental Indenture has the meaning set forth in Section 5.04(b).
Land means, in respect of any Person, all parcels and tracts of land in which the Person has an ownership interest.
Liability means, with respect to any Person, any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exoneration covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities and requirements, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, joint or several, whenever arising, and including those arising under any Applicable Law, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys fees and any and all costs and expenses, whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions) or Order of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, in each case, whether or not recorded or reflected or otherwise disclosed or required to be recorded or reflected or otherwise disclosed, on the books and records or financial statements of any Person, including any Specified Financial Liability, EHS Liability or Liability for Taxes.
NASDAQ means the National Association of Securities Dealers Inc. Automated Quotation System.
New IAC Common Stock has the meaning set forth in the recitals hereto.
9
New IAC Integrated Warrants has the meaning set forth in the recitals hereto.
New IAC Series 1 Preferred Stock has the meaning set forth in the recitals hereto.
New IAC Series 2 Preferred Stock has the meaning set forth in the recitals hereto.
New IAC Series B Preferred Stock has the meaning set forth in the recitals hereto.
New IAC Unitary Warrants has the meaning set forth in the recitals hereto.
Notice Period has the meaning set forth in Section 7.04(b).
Occupational Health and Safety Law means any Applicable Law designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (such as those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions.
Old IAC Capital Stock has the meaning set forth in the recitals hereto.
Old IAC Class B Common Stock has the meaning set forth in the recitals hereto.
Old IAC Common Stock has the meaning set forth in the recitals hereto.
Old IAC Series A Preferred Stock has the meaning set forth in the recitals hereto.
Old IAC Integrated Warrants has the meaning set forth in the recitals hereto.
Old IAC Severable Warrants has the meaning set forth in the recitals hereto.
Old IAC Warrants has the meaning set forth in the recitals hereto.
Order means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Authority or arbitrator.
Ordinary Course of Business means any action taken by a Person that is in the ordinary course of the normal, day-to-day operations of such Person and is consistent with the past practices of such Person.
Parties together and each Party individually, means the parties to this Agreement and, in the singular, means either of them.
Person means any individual, Business Concern or Governmental Authority.
Potential Contributor has the meaning set forth in Section 7.06(a).
Prime Rate means the rate which JPMorgan Chase & Co. (or any successor thereto or other major money center commercial bank agreed to by the Parties hereto) announces from time to time as its prime lending rate, as in effect from time to time.
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Providing Party has the meaning set forth in Section 9.08.
Real Property means any Land and Improvements and all Appurtenances thereto and any Ground Lease Property.
Reclassification has the meaning set forth in the recitals hereto.
Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
Registered Securities means the shares of New IAC Common Stock, the shares of New Expedia Common Stock, the shares of New IAC Series B Preferred Stock, the shares of Expedia Series A Preferred Stock, certain of the New IAC Unitary Warrants and certain of the Expedia Warrants.
Registration Statement means the registration statement on Form S-4 first filed by IAC and Expedia with the SEC on April 25, 2005 (together with all amendments thereto) in connection with the registration under the Securities Act of the Registered Securities.
Regulation S-K means Regulation S-K of the General Rules and Regulations promulgated by the SEC pursuant to the Securities Act.
Remaining IAC Businesses means all IAC Businesses other than the Separated Businesses.
Remaining IAC Entity means any Business Concern that is a member of IAC Group on and after the Effective Time.
Representatives means, with respect to any Person, any of such Persons directors, officers, employees, agents, consultants, advisors, accountants or attorneys.
Requesting Party has the meaning set forth in Section 9.01(a).
Response has the meaning set forth in Section 10.02(a).
Retained Liabilities has the meaning set forth in Section 2.06.
Retaining Person has the meaning set forth in Section 3.01(b).
Reverse Stock Split has the meaning set forth in the recitals hereto.
Reverse Stock Split Charter Amendment has the meaning set forth in the recitals hereto.
SEC means the Securities and Exchange Commission.
Securities Act means the United States Securities Act of 1933, as amended.
Senior Party Representatives has the meaning set forth in Section 10.02(a).
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Separated Assets has the meaning set forth in Section 2.03.
Separated Businesses means those domestic and international travel and travel-related businesses, Subsidiaries and investments owned, operated and/or managed by the Separated Entities.
Separated Entities means those Business Concerns which are identified on Schedule 2.03(b) and which on and after the Effective Time shall form part of Expedia Group.
Separation means the transfer of the Separated Entities and Separated Businesses, directly or indirectly, from IAC to Expedia.
Services has the meaning ascribed thereto in the Transition Services Agreement.
Shared Litigation Liability means any Liability from, relating to, arising out of, or derivative of any matter, claim or litigation, whether actual or potential, associated with any securities law litigation relating to any public disclosure (or absence of public disclosure) with respect to the Separated Businesses or the Separated Entities made by IAC prior to the Effective Time, including the fees and expenses of outside counsel retained by IAC in connection with the defense and/or settlement of any such matter. For purposes of this definition, the phrase securities law litigation shall include claims alleging any untrue statement of material fact or omission to state a material fact in alleged violation of the Securities Act, the Exchange Act or any similar state law and any claims premised on, related to or derivative of such alleged statements, omissions or violations, whether payable to any current, past or future holders of IAC or Expedia securities, to any of the co-defendants in such action or to any Governmental Authority. For the avoidance of doubt, Shared Litigation Liability shall include those matters set forth on Schedule 2.06(c) . Notwithstanding anything in Section 7.06 to the contrary, the amount of any Shared Litigation Liability shall be net of any Insurance Proceeds actually recovered by or on behalf of any member of IAC Group or any member of Expedia Group.
Specified Financial Liabilities or SFLS mean, in respect of any Person, all liabilities, obligations, contingencies, instruments and other Liabilities of a financial nature with Third Parties of, or relating to, such Person, including any of the following:
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Spin-Off Charter Amendments has the meaning set forth in the recitals hereto.
Subsidiary of any Person means any corporation, partnership, limited liability entity, joint venture or other organization, whether incorporated or unincorporated, of which a majority of the total voting power of capital stock or other interests entitled (without the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof, is at the time owned or controlled, directly or indirectly, by such Person.
Tangible Personal Property means, in respect of any Person, all machinery, equipment, tools, furniture, office equipment, supplies, materials, vehicles and other items of tangible personal or movable property (other than Inventories and IT Assets) of every kind and wherever located that are owned or leased by the Person, together with any express or implied warranty by the manufacturers, sellers or lessors of any item or component part thereof and all maintenance Records and other documents relating thereto.
Tax has the meaning set forth in the Tax Sharing Agreement.
Tax Sharing Agreement means the Tax Sharing Agreement attached hereto as Exhibit B .
Third Party means a Person that is not a Party to this Agreement, other than a member of IAC Group or a member of Expedia Group, and that is not an Affiliate thereof.
Third Party Claim has the meaning set forth in Section 7.04(b).
Third Party Consent has the meaning set forth in Section 2.07.
Transfer Impediment has the meaning set forth in Section 3.01(a).
Transition Service Schedule has the meaning set forth in the Transition Services Agreement.
Transition Services Agreement means the Transition Services Agreement attached hereto as Exhibit C .
Trustee has the meaning set forth in Section 5.04(b).
Unreleased Liabilities has the meaning set forth in Section 3.02.
Unreleased Person has the meaning set forth in Section 3.02.
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Schedule 1.01(a) |
Old IAC Severable Warrants |
Schedule 1.01(b) |
Old IAC Integrated Warrants |
Schedule 1.01(c) |
Expedia Group Balance Sheet |
Schedule 2.03(a) |
Separated Assets |
Schedule 2.03(b) |
Separated Entities |
Schedule 2.06(a) |
Assumed Liabilities |
Schedule 2.06(b) |
Retained Liabilities |
Schedule 2.06(c) |
Shared Litigation Liabilities |
Exhibit A |
Employee Matters Agreement |
Exhibit B |
Tax Sharing Agreement |
Exhibit C |
Transition Services Agreement |
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Notwithstanding the foregoing, there shall be excluded from the definition of Assets under this Section 2.03 Business Records to the extent they are included in or primarily relate to any Excluded Asset or Retained Liability or Remaining IAC Business or their transfer is prohibited by Applicable Law or pursuant to agreements between IAC or any other member of IAC Group and Third Parties or otherwise would subject IAC or any other member of IAC Group to liability for such transfer. Access to such excluded Business Records shall be governed by Article IX.
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In addition, nothing contained in Section 7.01(a) or (b) hereof shall release any Party from honoring its existing obligations to indemnify any director, officer or employee of either Group who was a director, officer or employee of such Party on or prior to the Effective Time, to the extent that such director, officer or employee becomes a named defendant in any litigation involving such Party and was entitled to such indemnification pursuant to then existing obligations.
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Nothing in this Section 12.01 shall require either party to violate any agreement with any Third Party regarding the confidentiality of confidential and proprietary Information relating to that Third Party or its business; provided , however , that in the event that a Party is required under this Section 12.01 to disclose any such Information, such Party shall use commercially reasonable efforts to seek to obtain such Third Party Consent to the disclosure of such Information.
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If to IAC, to:
IAC/InterActiveCorp
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telecopier: (212) 632-9642
with a copy to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon, Esq.
Telecopier: (212) 403-2000
If to Expedia, to:
Expedia, Inc.
3150 139th Avenue SE
Bellevue, WA 98005
Attention: General Counsel
Telecopier: (425) 679-7251
48
Any Party may, by notice to the other Party as set forth herein, change the address or fax number to which such notices are to be given.
49
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
50
IN WITNESS WHEREOF, the Parties have caused this Separation Agreement to be executed by their duly authorized representatives.
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/s/ Gregory R. Blatt |
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Name: Gregory R. Blatt |
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Title: Executive Vice President |
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EXPEDIA, INC. |
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/s/ Keenan M. Conder |
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Name: Keenan M. Conder |
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Title: Senior Vice President |
51
Exhibit 10.1
EXECUTION COPY
AMENDED AND RESTATED
GOVERNANCE AGREEMENT
among
IAC/INTERACTIVECORP,
LIBERTY MEDIA CORPORATION,
and
BARRY DILLER
DATED AS OF AUGUST 9, 2005
TABLE OF CONTENTS
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ii
EXECUTION COPY
Amended and Restated Governance Agreement
Amended and Restated Governance Agreement, dated as of August 9, 2005, among IAC/InterActiveCorp, a Delaware corporation ( IAC , or the Company ), Liberty Media Corporation, for itself and on behalf of the members of its Stockholder Group ( Liberty ) and Mr. Barry Diller ( Mr. Diller ) for himself and on behalf of the members of his Stockholder Group.
WHEREAS, the parties hereto have agreed that the Company, Liberty and Mr. Diller shall enter into this Agreement in order to amend and restate in its entirety the respective rights and obligations of the parties set forth in the Amended and Restated Governance Agreement, dated as of December 16, 2001 (the 2001 Governance Agreement ).
WHEREAS, the Company, Liberty and Mr. Diller desire to establish in this Agreement certain provisions concerning Libertys and Mr. Dillers relationships with the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the Company, Liberty and Mr. Diller hereby agree as follows:
No Third Party Transferee shall have any rights or obligations under this Agreement, except as specifically provided for in this Agreement and except that if such Third Party Transferee shall acquire Beneficial Ownership of more than 5% of the outstanding Total Equity Securities upon consummation of any Transfer or series of related Transfers from a Stockholder, to the extent such Stockholder has the right to Transfer a Demand Registration and assigns such right in connection with a Transfer, such Third Party Transferee shall have the right to initiate one or more Demand Registrations pursuant to Section 6.07 or any registration rights agreement that replaces or supersedes Section 6.07 (and shall be entitled to such other rights that a Stockholder would have applicable to such Demand Registration), subject to the obligations of such Stockholder applicable to such demand (and the number of Demand Registrations to which such Stockholder is entitled under Section 6.07 hereof shall be correspondingly decreased).
2
3
4
5
For purposes of this Agreement, the following terms shall have the following meanings:
6
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9
10
Liberty Media
Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Attention: General Counsel
Facsimile: (720) 875-5382
with a copy to:
Baker Botts
L.L.P.
30 Rockefeller Plaza
44
th
Floor
New York, New York 10112
Attention: Frederick H. McGrath
Facsimile: (212) 408-2501
if to Mr. Diller, to:
Barry Diller
Chairman and Chief Executive Officer
IAC/InterActiveCorp
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Facsimile: (212) 632-9642
with a copy to:
11
IAC/InterActiveCorp
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 632-9642
with a copy to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon
Andrew J. Nussbaum
Facsimile: (212) 403-2000
if to the Company, to:
IAC/InterActiveCorp
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 632-9642
with a copy to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon
Andrew J. Nussbaum
Facsimile: (212) 403-2000
or such address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective when delivered personally, telegraphed, or telecopied, or, if mailed, five business days after the date of the mailing.
12
13
14
Section 6.15. Headings . The titles of Articles and Sections of this Agreement are for convenience only and shall not be interpreted to limit or otherwise affect the provisions of this Agreement.
15
IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Governance Agreement to be duly executed as of the day and year first above written.
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IAC/INTERACTIVECORP |
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By |
/s/ Gregory R. Blatt |
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Name: |
Gregory R. Blatt |
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Title: |
Executive Vice President |
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LIBERTY MEDIA CORPORATION |
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/s/ Authorized Representative |
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Name: |
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/s/ Barry Diller |
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BARRY DILLER |
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[SIGNATURE PAGE TO AMENDED AND RESTATED GOVERNANCE AGREEMENT]
Exhibit 10.2
EXECUTION COPY
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
between
LIBERTY MEDIA CORPORATION
and
BARRY DILLER
Dated as of August 9, 2005
IAC/INTERACTIVECORP
TABLE OF CONTENTS
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ii
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of August 9, 2005, between Liberty Media Corporation, a Delaware corporation ( Liberty ), for itself and on behalf of the members of the Liberty Stockholder Group and Mr. Barry Diller ( Diller ), for himself and on behalf of the members of the Diller Stockholder Group.
WHEREAS, the parties hereto have agreed that Liberty and Diller shall enter into this Agreement in order to amend and restate in its entirety the respective rights and obligations of the parties set forth in the Amended and Restated Stockholders Agreement, dated as of December 16, 2001 (the 2001 Stockholders Agreement ); and
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:
1997 Stockholders Agreement means the Stockholders Agreement, dated as of October 19, 1997, among Universal Studios, Inc., Liberty, Diller and The Seagram Company Ltd., as in effect as of such date and without giving effect to any termination of such agreement (including in connection with the execution of any agreement intended to supersede such agreement).
Affiliate means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person. For purposes of this definition, natural persons shall not be deemed to be Affiliates of each other, and none of Liberty, Diller or the Company shall be deemed to be Affiliates of any of the others. In addition, for purposes of this definition, Expedia, Inc. and the Company shall not be deemed Affiliates of one another as a result of such entities being under the common control of the Stockholders.
Agreement means this Amended and Restated Stockholders Agreement as it may be amended, supplemented, restated or modified from time to time.
BDTV I means BDTV, Inc., a Delaware corporation.
BDTV II means BDTV II, Inc., a Delaware corporation.
BDTV III means BDTV III, Inc., a Delaware corporation.
BDTV IV means BDTV IV, Inc., a Delaware corporation.
BDTV Entities means, collectively, the BDTV Limited Entities and the BDTV Unrestricted Entities.
BDTV Limited Entities means, collectively, BDTV I and BDTV II.
BDTV Unrestricted Entities means BDTV III, BDTV IV and each other BDTV Entity that may be formed subsequent to the date hereof; provided that each of Liberty and Diller acknowledges and agrees that any corporation, partnership, limited liability company or other business association hereafter formed by Diller and Liberty to hold Common Shares will be a BDTV Unrestricted Entity and will be a corporation, partnership, limited liability company or other business association having a capital structure and governance rights substantially similar to that of BDTV III.
beneficial owner or beneficially own has the meaning given such term in Rule 13d-3 under the Exchange Act and a Persons beneficial ownership of Common Shares or Voting Securities shall be calculated in accordance with the provisions of such Rule; provided , however , that for purposes of determining beneficial ownership, (i) a Person shall be deemed to be the beneficial owner of any Equity which may be acquired by such Person (disregarding any legal impediments to such beneficial ownership), whether within 60 days or thereafter, upon the conversion, exchange or exercise of any warrants, options (which options held by Diller shall be deemed to be exercisable), rights or other securities issued by the Company, (ii) no Person shall be deemed to beneficially own any Equity solely as a result of such Persons execution of this Agreement (including by virtue of holding a proxy with respect to any shares) or the Governance Agreement, and (iii) Liberty shall be deemed to be the beneficial owner of all of the Common Shares owned by each BDTV Entity, other than for purposes of Articles III and V of this Agreement. Notwithstanding the foregoing, for purposes of calculating the Minimum Stockholder Amount, a Person shall be deemed to be the beneficial owner only of Common Shares which are issued and outstanding.
Board means the Board of Directors of the Company.
Business Day shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York.
Capital Stock means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in or issued by such Person.
Cause means (i) the conviction of, or pleading guilty to, any felony, or (ii) the willful, continued and complete failure to attend to managing the business affairs of the Company, after written notice of such failure from the Board and reasonable opportunity to cure.
CEO means the Chief Executive Officer of the Company.
CEO Termination Date means the later of (i) such time as Diller no longer serves as CEO and (ii) such time as Diller no longer holds the Liberty Proxy (other than suspension of such proxy pursuant to Section 3.3(e)).
Class B Common Stock means the Class B common stock, par value $0.001 per share, of the Company and any securities of the Company issued in respect thereof, or in substitution
2
therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than Common Stock issued upon conversion of Class B Common Stock).
Commission means the Securities and Exchange Commission, and any successor commission or agency having similar powers.
Common Shares means, collectively, the Common Stock and the Class B Common Stock.
Common Stock means the common stock, par value $0.001 per share, of the Company and any securities of the Company issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.
Company means IAC/InterActiveCorp, a Delaware corporation, and any successor by merger, consolidation, or other business combination.
Contingent Matters shall have the meaning ascribed to such term in the Governance Agreement.
control (including the terms controlled by and under common control with ), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.
Daily Hedging Limit means a number of shares of Common Stock not to exceed on any single day 25% of the average daily trading volume of the Common Stock during the three full calendar months preceding the date of determination (disregarding any sales by Liberty).
Diller Interest Purchase Price means the cash amount (or cash value of Equity) contributed by Diller to a BDTV Entity plus interest on such amount, from the date of such contribution to the date of purchase of Dillers Interest in such BDTV Entity by a member of the Liberty Stockholder Group, at the rate of interest per annum in effect from time to time and publicly announced by The Bank of New York as its prime rate of interest, compounded annually. For purposes of BDTV I, BDTV II, BDTV III and BDTV IV, the cash amount (or cash value of Equity) initially contributed by Diller was $100 in each such BDTV Entity.
Diller Stockholder Group means (i) Diller and (ii) any Affiliate of Diller which (A) Diller controls and (B) in which Diller owns, directly or indirectly, 90% or more of the outstanding Capital Stock or other ownership interests, which such Affiliate holds Equity subject to this Agreement.
Director means any member of the Board.
Disabled means the disability of Diller after the expiration of more than 180 consecutive days after its commencement which is determined to be total and permanent by a
3
physician selected by Liberty and reasonably acceptable to Diller, his spouse or a personal representative designated by Diller; provided that Diller shall be deemed to be disabled only following the expiration of 90 days following receipt of a written notice from the Company and such physician specifying that a disability has occurred if within such 90-day period he fails to return to managing the business affairs of the Company. A total disability shall mean mental or physical incapacity that prevents Diller from managing the business affairs of the Company.
Eligible Stockholder Amount means, in the case of Diller, the equivalent of 2,200,000 Common Shares and, in the case of Liberty (including, in the case of Liberty, all of the Common Shares owned by the BDTV Entities), 2,000,000 shares of Common Stock, in each case determined on a fully diluted basis (taking into account, in the case of Diller, all unexercised Options, whether or not then exercisable).
Equity means any and all shares of Capital Stock of the Company, securities of the Company convertible into, or exchangeable for, such shares, and options, warrants or other rights to acquire such shares.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value means, as to any securities or other property, the cash price at which a willing seller would sell and a willing buyer would buy such securities or property in an arms-length negotiated transaction without time constraints.
FCC means the Federal Communications Commission or its successor.
FCC Regulations means, as of any date, all federal communications statutes and all rules, regulations, orders, decrees and policies of the FCC as then in effect, and any interpretations or waivers thereof or modifications thereto.
Governance Agreement means the Amended and Restated Governance Agreement, among the Company, Diller and Liberty, of even date herewith, as it may be amended, supplemented, restated or modified from time to time hereafter.
Group shall have the meaning assigned to it in Section 13(d)(3) of the Exchange Act.
Hedging Transaction means any (i) short sale, (ii) any purchase, sale or grant of any right (including, without limitation, any put or call option), or (iii) any forward sale (whether for a fixed or variable number of shares or at a fixed or variable price) of or with respect to, or any non-recourse loan secured by, Common Stock or any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Common Stock, and such term includes (a) the pledge of Common Stock in connection with any of the foregoing to secure the obligations of the pledgor under a Hedging Transaction and (b) the pledge of a Hedging Transaction itself to secure any extension of credit to a party based, in whole or part, on the value thereof.
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
4
Independent Investment Banking Firm means an investment banking firm of nationally recognized standing that is, in the reasonable judgment of the Person engaging such firm, qualified to perform the task for which it has been engaged.
Liberty Stockholder Group means Liberty and those Subsidiaries of Liberty that, from time to time, hold Equity subject to this Agreement.
Market Sale means a brokers transaction within the meaning of Section 4(4) of the Securities Act.
Minimum Stockholder Amount means Common Shares representing at least 50.1% of the outstanding voting power of the outstanding Common Shares.
Options means options to acquire Capital Stock of the Company granted by the Company to Diller and outstanding from time to time.
Permitted Designee means any Person designated by a Stockholder, who shall be reasonably acceptable to the other Stockholder, to exercise such Stockholders rights pursuant to Section 4.3.
Permitted Transferee means (i) with respect to Liberty, any member of the Liberty Stockholder Group, and (ii) with respect to Diller, any member of the Diller Stockholder Group. In addition, each of Liberty and Diller shall be a Permitted Transferee of its respective Permitted Transferees.
Person means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof or any Group comprised of two or more of the foregoing.
Public Stockholder means any Person that, together with its Affiliates (a) has sole or shared voting power with respect to Voting Securities representing no more than 10% of the voting power of the outstanding Voting Securities or (b) has sole or shared power to dispose of Equity representing no more than 10% of the Equity to be tendered or exchanged in any applicable tender or exchange offer, as the case may be.
Reference Rate means, for any day, a fixed rate per annum equal to the yield, expressed as a percentage per annum, obtained at the official auction of 90-day United States Treasury Bills most recently preceding the date thereof plus 100 basis points.
Related Hedging Transactions means a series of Hedging Transactions between members of the Liberty Stockholder Group on the one hand, and the same counterparty or its Affiliates, on the other hand, which Hedging Transactions each have specified maturity dates occurring within a period of thirty days.
Securities Act means the Securities Act of 1933, as amended.
Stockholder means each of Liberty and Diller.
5
Stockholder Group means one or more of the Diller Stockholder Group and the Liberty Stockholder Group. For purposes of this Agreement, (i) prior to the time that Liberty acquires Dillers interest in a BDTV Entity, each BDTV Entity shall be deemed to be a member of the Liberty Stockholder Group except as otherwise expressly set forth herein and (ii) a Stockholders Permitted Designee shall be deemed to be a member of the designating Stockholders Stockholder Group (other than for purposes of Section 4.1(a)(w)).
Subsidiary means, with respect to any Person, any corporation or other entity of which at least a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person.
Third Party Transferee means any Person to whom a Stockholder (including a Third Party Transferee subject to this Agreement pursuant to Sections 4.5(b) and 4.5(c)) or a Permitted Transferee Transfers Common Shares, other than a Permitted Transferee of such Stockholder or a member of another Stockholder Group.
Transfer means, directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Common Shares beneficially owned by a Stockholder or any interest in any Common Shares beneficially owned by a Stockholder, provided , however , that a merger or consolidation in which a Stockholder is a constituent corporation shall not be deemed to be the Transfer of any Common Shares beneficially owned by such Stockholder ( provided , that a significant purpose of any such transaction is not to avoid the provisions of this Agreement).
Voting Securities means at any time shares of any class of Capital Stock of the Company which are then entitled to vote generally in the election of Directors.
Term |
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Section |
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Appraisal |
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Section 4.3(c) |
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Diller |
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Preamble |
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Diller Termination Date |
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Section 6.2(b) |
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Exchange Notice |
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Section 4.4(a) |
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Expedia Shares |
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Section 5.2 |
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Initiating Party |
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Section 4.2(a) |
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L/D Offer Notice |
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Section 4.3(b) |
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L/D Offer Price |
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Section 4.3(c) |
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L/D Other Party |
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Section 4.3(b) |
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L/D Transferring Party |
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Section 4.3(a) |
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Liberty |
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Preamble |
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Liberty Lending Limit |
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Section 4.3(f) |
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Liberty Proxy |
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Section 3.3(a) |
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Liberty Proxy Shares |
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Section 3.3(a) |
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Term |
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Liberty Termination Date |
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Section 6.2(a) |
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Litigation |
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Section 6.14 |
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Non-Transferring Stockholder |
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Section 4.4(a) |
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Settlement Threshold |
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Section 4.3(e) |
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Stock Lending Transaction |
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Section 4.2(f) |
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Tag-Along Notice |
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Section 4.2(a) |
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Tag-Along Sale |
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Section 4.2(a) |
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Tag-Along Shares |
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Section 4.2(a) |
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Tag Party |
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Section 4.2(a) |
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Transferring Stockholders |
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Section 4.4(a) |
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For purposes of determining whether Liberty is permitted to transfer the Common Shares held by a BDTV Unrestricted Entity, (i) such BDTV Unrestricted Entity shall be deemed to be a member of the Liberty Stockholder Group and the restrictions on transfers of interests in BDTV Entities shall not apply to Liberty (subject, however, to the other restrictions on transfer of Common Shares set forth herein, including the Right of First Refusal applicable to the Class B Common Stock) and (ii) in connection with any proposed sale by any member of the Liberty Stockholder Group of the Common Shares held by a BDTV Entity (or its equity interest in such BDTV Entity), such member of the Liberty Stockholder Group shall be entitled to purchase Dillers entire interest in such BDTV Entity for an amount in cash equal to the Diller Interest Purchase Price or, at such purchasers election, require Diller to sell his interest in such BDTV Entity to any such transferee for a pro rata portion of the consideration to be paid by the applicable transferee in such transaction.
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At such time as (i) the CEO Termination Date has occurred or Diller becomes Disabled or (ii) the Diller Stockholder Group ceases to own its Eligible Stockholder Amount of Common Shares, Diller shall be required to sell his entire interest in the BDTV Entities to Liberty (or Libertys designee) at a price equal to the Diller Interest Purchase Price.
In addition, at such time as the CEO Termination Date has occurred or Diller has become Disabled, neither the Diller Stockholder Group nor the Liberty Stockholder Group shall have any obligation under this Agreement with respect to the matters covered under Sections 3.3, 4.1 and 4.3.
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If to Liberty:
Liberty Media Corporation |
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12300 Liberty Boulevard |
|
Englewood, CO 80112 |
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Attention: |
General Counsel |
Telephone: |
(720) 875-5400 |
Facsimile: |
(720) 875-5382 |
with a copy to:
Baker Botts LLP |
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30 Rockefeller Plaza |
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44 th Floor |
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New York, NY 10112 |
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Attention: |
Frederick H. McGrath, Esq. |
Telephone: |
(212) 408-2530 |
Facsimile: |
(212) 259-2530 |
If to Diller:
c/o IAC/InterActiveCorp |
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152 West 57th Street |
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New York, NY 10112 |
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Attention: |
General Counsel |
Telephone: |
(212) 314-7274 |
Facsimile: |
(212) 632-9642 |
with a copy to:
Wachtell, Lipton, Rosen & Katz |
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51 West 52nd Street |
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New York, NY 10019 |
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Attention: |
Pamela S. Seymon, Esq. |
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Andrew J. Nussbaum, Esq. |
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Stockholders Agreement as of the date first written above.
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LIBERTY MEDIA CORPORATION |
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/s/ BARRY DILLER |
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BARRY DILLER |
[SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT]
Exhibit 10.3
EXECUTION COPY
TAX SHARING AGREEMENT
by and between
IAC/INTERACTIVECORP
and
EXPEDIA, INC.
Dated as of
August 9, 2005
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (this Agreement ), dated as of August 9, 2005, by and between IAC/InterActiveCorp, a Delaware corporation ( Parent ), and Expedia, Inc., a Delaware corporation and wholly owned subsidiary of Parent ( SpinCo ).
W I T N E S S E T H
WHEREAS, Parent and SpinCo have entered into a Separation Agreement, dated as of August 9, 2005 (the Separation Agreement ), providing for the Separation of the Parent Group from the SpinCo Group;
WHEREAS, pursuant to the terms of the Separation Agreement, Parent will contribute all of the Separated Assets to SpinCo and its Subsidiaries and will cause SpinCo and its Subsidiaries to assume the Assumed Liabilities;
WHEREAS, for U.S. federal income tax purposes, it is intended that the Contribution and the Spin-Off shall qualify as a tax-free transaction under Sections 355(a) and 368(a)(1)(D) of the Code;
WHEREAS, at the close of business on the Effective Date, the taxable year of SpinCo shall close for U.S. federal income tax purposes; and
WHEREAS, the parties hereto wish to provide for the payment of Income Taxes and Other Taxes and entitlement to refunds thereof, allocate responsibility and provide for cooperation in connection with the filing of returns in respect of Income Taxes and Other Taxes, and provide for certain other matters relating to Income Taxes and Other Taxes.
NOW, THEREFORE, in consideration of the premises and the representations, covenants and agreements herein contained and intending to be legally bound hereby, Parent and SpinCo hereby agree as follows:
Actually Realized or Actually Realizes shall mean, for purposes of determining the timing of the incurrence of any Spin-Off Tax Liability, Income Tax Liability or Other Tax Liability or the realization of a Refund (or any related Income Tax or Other Tax cost or benefit), whether by receipt or as a credit or other offset to Taxes payable, by a Person in respect of any payment, transaction, occurrence or event, the time at which the amount of Income Taxes or Other Taxes paid (or Refund realized) by such Person is increased above (or reduced below) the amount of Income Taxes or Other Taxes that such Person would have been required to pay (or Refund that such Person would have realized) but for such payment, transaction, occurrence or event.
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Aggregate Spin-Off Tax Liabilities shall mean the sum of the Spin-Off Tax Liabilities with respect to each Taxing Jurisdiction.
Business Day shall mean any day other than a Saturday, a Sunday or a day on which banking institutions located in the State of New York are authorized or obligated by law or executive order to close.
Carryback shall mean the carryback of a Tax Attribute (including, without limitation, a net operating loss, a net capital loss or a tax credit) by a member of the SpinCo Group from a Post-Distribution Taxable Period to a Pre-Distribution Taxable Period during which such member of the SpinCo Group was included in a Combined Return filed for such Pre-Distribution Taxable Period.
Cash Acquisition Merger shall mean a merger of a newly formed Subsidiary of SpinCo with a corporation, limited liability company, limited partnership, general partnership or joint venture (in each case, not previously owned directly or indirectly by SpinCo) solely for cash pursuant to which SpinCo acquires such corporation, limited liability company, limited partnership, general partnership or joint venture and no Equity Securities of SpinCo or any SpinCo Subsidiary are issued, sold, redeemed or acquired, directly or indirectly.
Code shall mean the Internal Revenue Code of 1986, as amended.
Combined Return shall mean a consolidated, combined or unitary Income Tax Return or Other Tax Return that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the SpinCo Group.
Contribution shall mean those certain capital contributions to SpinCo by Parent made in connection with the Spin-Off.
Distribution Date shall mean the date on which the Spin-Off is completed.
Distribution-Related Proceeding shall mean any Proceeding in which the IRS, another Tax Authority or any other party asserts a position that could reasonably be expected to adversely affect the Tax-Free Status of any of the Spin-Off-Related Transactions.
EMA shall mean the Employee Matters Agreement by and between Parent and SpinCo dated as of August 9, 2005.
Equity Securities shall mean any stock or other securities treated as equity for tax purposes, options, warrants, rights, convertible debt, or any other instrument or security that affords any Person the right, whether conditional or otherwise, to acquire stock or to be paid an amount determined by reference to the value of stock.
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Expedia Service Provider shall mean any Expedia Employee as such term is defined in the EMA or any other provider of services to any member of the SpinCo Group.
Fifty-Percent or Greater Interest shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.
Final Determination shall mean the final resolution of liability for any Income Tax or Other Tax, which resolution may be for a specific issue or adjustment or for a taxable period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for Refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such taxable period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a Refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all periods during which such Refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; or (e) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.
IAC Service Provider shall mean any IAC Employee as such term is defined in the EMA or any other provider of services to any member of the Parent Group.
Income Tax (a) shall mean (i) any federal, state, local or foreign tax, charge, fee, impost, levy or other assessment that is based upon, measured by, or calculated with respect to (A) net income or profits (including, but not limited to, any capital gains, gross receipts, or minimum tax, and any tax on items of tax preference, but not including sales, use, value added, real property gains, real or personal property, transfer or similar taxes), (B) multiple bases (including, but not limited to, corporate franchise, doing business or occupation taxes), if one or more of the bases upon which such tax may be based, by which it may be measured, or with respect to which it may be calculated is described in clause (a)(i)(A) of this definition, or (C) any net worth, franchise or similar tax, in each case together with (ii) any interest and any penalties, fines, additions to tax or additional amounts imposed by any Tax Authority with respect thereto and (b) shall include any transferee or successor liability in respect of an amount described in clause (a) of this definition.
Income Tax Benefit shall mean, with respect to the effect of any Carryback on the Income Tax Liability of Parent or the Parent Group for any taxable period, the excess of (a) the hypothetical Income Tax Liability of Parent or the Parent Group for such taxable period, calculated as if such Carryback had not been utilized but
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with all other facts unchanged over (b) the actual Income Tax Liability of Parent or the Parent Group for such taxable period, calculated taking into account such Carryback (and treating a Refund as a negative Income Tax Liability, for purposes of such calculation).
Income Tax Liabilities shall mean all liabilities for Income Taxes.
Income Tax Return shall mean any return, report, filing, statement, questionnaire, declaration or other document required to be filed with a Tax Authority in respect of Income Taxes.
Indemnified Party shall mean any Person seeking indemnification pursuant to the provisions of this Agreement.
Indemnifying Party shall mean any party hereto from which any Indemnified Party is seeking indemnification pursuant to the provisions of this Agreement.
IRS shall mean the Internal Revenue Service of the United States.
Losses shall mean any and all losses, liabilities, claims, damages, obligations, payments, costs and expenses, matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown (including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions).
Option shall have the meaning ascribed to such term in the EMA.
Other Tax Liabilities shall mean all liabilities for Other Taxes.
Other Tax Returns shall mean any return, report, filing, statement, questionnaire, declaration or other document required to be filed with a Tax Authority in respect of Other Taxes.
Other Taxes shall mean all forms of taxation, whenever created or imposed, and whether of the United States of America or elsewhere, and whether imposed by a local, municipal, governmental, State, federation or other body, and without limiting the generality of the foregoing, shall include superfund, sales, use, ad valorem, value added, occupancy, transfer, recording, withholding, payroll, employment, excise, occupation, premium or property taxes (in each case, together with any related interest, penalties and additions to tax, or additional amounts imposed by any Tax Authority thereon); provided , however , that Other Taxes shall not include any Income Taxes.
Parent Consolidated Group shall mean the affiliated group of corporations (within the meaning of Section 1504(a) of the Code without regard to the exclusions in Section 1504(b)(1) through (8)) of which Parent is the common parent (and any predecessor or successor to such affiliated group).
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Parent Group shall mean (a) Parent and each Person that is a direct or indirect Subsidiary of Parent (including any Subsidiary of Parent that is disregarded for U.S. federal Income Tax purposes (or for purposes of any state, local, or foreign tax law)) immediately after the Spin-Off after giving effect to the Spin-Off-Related Transactions, (b) any corporation (or other Person) that shall have merged or liquidated into Parent or any such Subsidiary and (c) any predecessor or successor to any Person otherwise described in this definition.
Parent Separate Return shall mean any Separate Return required to be filed by Parent or any member of the Parent Group.
Permitted Transaction shall mean any transaction that satisfies the requirements of Sections 4(c).
Person shall mean any individual, partnership, joint venture, limited liability company, corporation, association, joint stock company, trust, unincorporated organization or similar entity or a governmental authority or any department or agency or other unit thereof.
Post-Distribution Taxable Period shall mean a taxable period that, to the extent it relates to a member of the SpinCo Group, begins after the Distribution Date.
Pre-Distribution Taxable Period shall mean a taxable period that, to the extent it relates to a member of the SpinCo Group, ends on or before the Distribution Date.
Private Letter Ruling shall mean (a) any private letter ruling issued by the IRS in connection with any of the Spin-Off-Related Transactions or (b) any similar ruling issued by any other Tax Authority in connection with any of the Spin-Off-Related Transactions.
Private Letter Ruling Documents shall mean (a) any Private Letter Ruling, any request for a Private Letter Ruling submitted to the IRS, together with the appendices and exhibits thereto and any supplemental filings or other materials subsequently submitted to the IRS, in connection with the Spin-Off-Related Transactions, or (b) any similar filings submitted to any other Tax Authority in connection with any such request for a Private Letter Ruling.
Proceeding shall mean any audit or other examination, or judicial or administrative proceeding relating to liability for, or Refunds or adjustments with respect to, Income Taxes or Other Taxes.
Refund shall mean any refund of Income Taxes or Other Taxes, including any reduction in Income Tax Liabilities or Other Tax Liabilities by means of a credit, offset or otherwise.
Representative shall mean with respect to a Person, such Persons officers, directors, employees and other authorized agents.
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Restriction Period shall mean the period beginning on the date hereof and ending on the twenty five (25) month anniversary of the Distribution Date.
Separate Return shall mean (a) in the case of any Income Tax Return or Other Tax Return required to be filed by any member of the SpinCo Group (including any consolidated, combined or unitary return), any such tax return that does not include any member of the Parent Group and (b) in the case of any Income Tax Return or Other Tax Return required to be filed by any member of the Parent Group (including any consolidated, combined or unitary return), any such tax return that does not include any member of the SpinCo Group.
Separation Agreement shall have the meaning set forth in the recitals of this Agreement.
SpinCo Adjustment shall mean an adjustment of any item of income, gain, loss, deduction or credit attributable to members of the SpinCo Group (including, in the case of any state or local consolidated, combined or unitary income or franchise taxes, a change in one or more apportionment factors of members of the SpinCo Group) pursuant to a Final Determination for a Pre-Distribution Taxable Period.
SpinCo Board shall mean the Board of Directors of SpinCo.
SpinCo Business shall mean each trade or business actively conducted (within the meaning of Section 355(b) of the Code) by SpinCo or any member of the SpinCo Group immediately after the Spin-Off, as set forth in the Tax Opinion Documents.
SpinCo Consolidated Group shall mean the affiliated group of corporations (within the meaning of Section 1504(a) of the Code without regard to the exclusions in Section 1504(b)(1) through (8)) of which SpinCo is the common parent, determined immediately after the Spin-Off (and any predecessor or successor to such affiliated group other than the Parent Consolidated Group).
SpinCo Group shall mean (a) SpinCo and each Person that is a direct or indirect Subsidiary of SpinCo (including any Subsidiary of SpinCo that is disregarded for U.S. federal Income Tax purposes (or for purposes of any State, local, or foreign tax law)) immediately after the Spin-Off after giving effect to the Spin-Off-Related Transactions, (b) any corporation (or other Person) that shall have merged or liquidated into SpinCo or any such Subsidiary and (c) any predecessor or successor to any Person otherwise described in this definition.
SpinCo Separate Return shall mean any Separate Return required to be filed by SpinCo or any member of the SpinCo Group, including, without limitation, (a) any U.S. consolidated federal Income Tax Returns of the SpinCo Consolidated Group required to be filed with respect to a Post-Distribution Taxable Period and (b) any U.S. consolidated federal Income Tax Returns for any group of which any member of the SpinCo Group was the common parent.
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SpinCo Tax Benefit shall mean, with respect to any Taxing Jurisdiction, any decrease in Income Tax Liability or Other Tax Liability (or increase in a Refund) Actually Realized with respect to a Combined Return that is attributable to a SpinCo Adjustment.
SpinCo Tax Liability shall mean, with respect to any Taxing Jurisdiction, any increase in Income Tax Liability or Other Tax Liability (or reduction in a Refund) Actually Realized with respect to a Combined Return that is attributable to a SpinCo Adjustment.
Spin-Off shall mean the distribution of Expedia Common Stock, Expedia Class B Common Stock and Expedia Series A Preferred Stock pursuant to the Reclassification.
Spin-Off-Related Transactions shall mean the Contribution together with the Spin-Off.
Spin-Off Tax Liabilities shall mean, with respect to any Taxing Jurisdiction, the sum of (a) any increase in Income Tax Liability or Other Tax Liability (or reduction in a Refund) Actually Realized as a result of any corporate-level gain or income recognized with respect to the failure of any of the Spin-Off-Related Transactions to qualify for Tax-Free Status under the income tax laws of such Taxing Jurisdiction pursuant to any settlement, Final Determination, judgment, assessment, proposed adjustment or otherwise, (b) interest on such amounts calculated pursuant to such Taxing Jurisdictions laws regarding interest on tax liabilities at the highest Underpayment Rate for corporations in such Taxing Jurisdiction from the date such additional gain or income was recognized until full payment with respect thereto is made pursuant to Section 3 hereof (or in the case of a reduction in a Refund, the amount of interest that would have been received on the foregone portion of the Refund but for the failure of any of the Spin-Off-Related Transactions to qualify for Tax-Free Status), and (c) any penalties actually paid to such Taxing Jurisdiction that would not have been paid but for the failure of any of the Spin-Off-Related Transactions to qualify for Tax-Free Status in such Taxing Jurisdiction.
Tax Attribute shall mean a consolidated, combined or unitary net operating loss, net capital loss, unused investment credit, unused foreign tax credit, or excess charitable contribution (as such terms are used in Treasury Regulations 1.1502-79 and 1.1502-79A or comparable provisions of foreign, State or local tax law), or a minimum tax credit or general business credit.
Tax Authority shall mean a governmental authority (foreign or domestic) or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including, without limitation, the IRS).
Tax Benefits shall have the meaning set forth in Section 3(a) hereof.
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Tax Counsel shall mean tax counsel of recognized national standing that is acceptable to Parent.
Tax-Free Status shall mean the qualification of each of the Spin-Off-Related Transactions, as the case may be, (a) as a transaction described in Sections 355(a) and 368(a)(1)(D) of the Code, (b) as a transaction in which the stock distributed thereby is qualified property for purposes of Section 361(c) of the Code, and (c) as a transaction in which Parent, the members of the Parent Group, SpinCo and the members of the SpinCo Group recognize no income or gain other than intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.
Taxing Jurisdiction shall mean the United States and every other government or governmental unit having jurisdiction to tax Parent or SpinCo or any of their respective Affiliates.
Tax Opinion shall mean the tax opinion issued by Tax Counsel in connection with the Spin-Off-Related Transactions.
Tax Opinion Documents shall mean the Tax Opinion and the information and representations provided by, or on behalf of, Parent or SpinCo to Tax Counsel in connection therewith.
Tax-Related Losses shall mean:
(a) the Aggregate Spin-Off Tax Liabilities,
(b) all accounting, legal and other professional fees, and court costs incurred in connection with any settlement, Final Determination, judgment or other determination with respect to such Aggregate Spin-Off Tax Liabilities, and
(c) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by Parent or SpinCo in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority payable by Parent or SpinCo or their respective Affiliates, in each case, resulting from the failure of any of the Spin-Off-Related Transactions to qualify for Tax-Free Status.
Underpayment Rate shall mean the annual rate of interest described in Section 6621(c) of the Code for large corporate underpayments of Income Tax (or similar provision of state, local, or foreign Income Tax law, as applicable), as determined from time to time.
Unqualified Tax Opinion shall mean an unqualified opinion of Tax Counsel on which Parent may rely to the effect that a transaction will not disqualify any of the Spin-Off-Related Transactions from Tax-Free Status, assuming that the Spin-Off-Related Transactions would have qualified for Tax-Free Status if such transaction did not occur.
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(i) Deductions. To the extent permitted by law, Parent (or the appropriate member of the Parent Group) shall claim all Tax deductions arising by reason of exercises of Options or compensatory warrants held by IAC Service Provider to acquire Parent common stock or SpinCo common stock, and SpinCo (or the appropriate member of the SpinCo Group) shall claim all Tax deductions arising by reason of exercises of Options or compensatory warrants held by Expedia Service Provider to acquire Parent common stock or SpinCo common stock. For purposes of this Section 11(b)(i), Mr. Barry Diller shall be treated as an IAC Service Provider only with respect to his Options to acquire Parent common stock and as an Expedia Service Provider only with respect to his Options to acquire SpinCo common stock; provided , however , if there is a Final Determination that Parent and not SpinCo is entitled to a deduction with respect to any such SpinCo Options held by Mr. Barry Diller, Parent shall pay to SpinCo, when Actually Realized, any Tax Benefit relating thereto. For purposes of this Section 11(b)(i), Mr. Victor A. Kaufman shall be treated as an IAC Service Provider.
(ii) Withholding and Reporting . Parent shall, to the extent required by law, withhold applicable Taxes and satisfy applicable Tax reporting obligations with respect to exercises of Options or compensatory warrants held by IAC Service Providers to acquire Parent common stock or SpinCo common stock, and SpinCo shall, to the extent required by law, withhold applicable Taxes and satisfy applicable Tax reporting obligations with respect to exercises of Options or compensatory warrants held by Expedia Service Providers to acquire Parent common stock or SpinCo common stock.
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If to Parent, to: |
IAC/InterActiveCorp |
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152 West 57 th Street |
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New York, NY 10019 |
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Attention: General Counsel |
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Telecopier: (212) 632-9642 |
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If to SpinCo to: |
Expedia, Inc. |
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3150 139 th Avenue SE |
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Bellevue, WA 98005 |
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Attention: General Counsel |
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Telecopier: (425) 679-7251 |
Such names and addresses may be changed by notice given in accordance with this Section 12.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the day and year first written above.
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IAC/INTERACTIVECORP |
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/s/ Gregory R. Blatt |
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Gregory R. Blatt |
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Executive Vice President |
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/s/ Keenan M. Conder |
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Name: |
Keenan M. Conder |
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Senior Vice President |
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Exhibit 10.4
EXECUTION COPY
EMPLOYEE MATTERS AGREEMENT
by and between
IAC/INTERACTIVECORP
and
EXPEDIA, INC.
Dated as of August 9, 2005
TABLE OF CONTENTS
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i
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EMPLOYEE MATTERS AGREEMENT
This Employee Matters Agreement (this Agreement ), dated as of August 9, 2005, with effect as of the Effective Time, is entered into by and between IAC/InterActiveCorp, a Delaware corporation ( IAC ), and Expedia, Inc., a Delaware corporation ( Expedia ).
RECITALS :
WHEREAS, IAC and Expedia have entered into a Separation Agreement pursuant to which the Parties (as defined below) have set out the terms on which, and the conditions subject to which, they wish to implement the Separation (as defined in the Separation Agreement) (such agreement, as amended, restated or modified from time to time, the Separation Agreement ).
WHEREAS, in connection therewith, IAC and Expedia have agreed to enter into this Agreement to allocate between them assets, liabilities and responsibilities with respect to certain employee compensation, pension and benefit plans, programs and arrangements and certain employment matters.
NOW THEREFORE, in consideration of the mutual agreements, covenants and other provisions set forth in this Agreement, the Parties hereby agree as follows:
Unless otherwise defined in this Agreement, capitalized words and expressions and variations thereof used in this Agreement or in its Appendices have the meanings set forth below. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Separation Agreement.
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IAC shall not assume any Liability relating to health and welfare claims incurred by or on behalf of Expedia Employees or Former Expedia Employees or their respective covered dependents prior to, on or after the Effective Date, and such claims shall be satisfied pursuant to Section 4.1(a). A claim or Liability (1) for medical, dental, vision and/or prescription drug benefits shall be deemed to be incurred upon the rendering of health services giving rise to the obligation to pay such benefits; (2) for life insurance and accidental death and dismemberment and business travel accident insurance benefits and workers compensation benefits shall be deemed to be incurred upon the occurrence of the event giving rise to the entitlement to such benefits; (3) for salary continuation or other disability benefits shall be deemed to be incurred upon the effective date of an individuals disability giving rise to the entitlement to such benefits under the applicable disability policy; and (4) for a period of continuous hospitalization shall be deemed to be incurred on the date of admission to the hospital.
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(a) if to IAC:
IAC/InterActiveCorp
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Facsimile No.: (212) 632-9642
with copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Michael S. Katzke, Esq.
Facsimile No.: (212) 403-2345
(b) if to Expedia:
Expedia, Inc.
3150 139th Ave SE
Bellevue, WA 98005
Attention: General Counsel
Fax: (425) 679-7251
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IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be duly executed as of the day and year first above written.
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Name: Gregory R. Blatt |
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Title: Executive Vice President |
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Title: Senior Vice President |
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Exhibit 10.5
EXECUTION COPY
TRANSITION SERVICES AGREEMENT
by and between
IAC/INTERACTIVECORP
and
EXPEDIA, INC.
DATED AS OF August 9, 2005
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT, dated as of August 9, 2005 (this Services Agreement ), is entered into by and between IAC/InterActiveCorp, a Delaware corporation ( IAC ), and Expedia, Inc., a Delaware corporation and wholly owned Subsidiary of IAC ( Expedia ). Capitalized terms used herein but not defined herein shall have the meaning set for the in that certain Separation Agreement, dated as of the date hereof, by and between IAC and Expedia (the Separation Agreement ).
WHEREAS, the Board of Directors of IAC has determined it is appropriate and desirable to separate IAC and Expedia into two publicly-traded companies by separating IACs principal travel and travel-related businesses, and related assets and liabilities, and contributing them to Expedia and effecting a reclassification of the capital stock of IAC;
WHEREAS, IAC and Expedia expect to enter into the Separation Agreement on the date hereof, which sets forth, among other things, the assets, liabilities, rights and obligations of each of the Parties for purposes of effecting the separation of IAC and Expedia; and
WHEREAS, in connection therewith, (a) Expedia desires to procure certain services from IAC, and IAC is willing to provide such services to Expedia, during a transition period commencing on the Effective Date, on the terms and conditions set forth in this Services Agreement; and (b) IAC desires to procure certain services from Expedia, and Expedia is willing to provide such services to IAC, during a transition period commencing on the Effective Date, on the terms and conditions set forth in this Services Agreement.
NOW THEREFORE, in consideration of the mutual agreements, covenants and other provisions set forth in this Services Agreement, the Parties hereby agree as follows:
ARTICLE I
Definitions
1.01. All terms used herein and not defined herein shall have the meanings assigned to them in the Separation Agreement.
ARTICLE II
Agreement To Provide and Accept Services
2.01. Provision of Services .
(a) On the terms and subject to the conditions contained herein, IAC shall provide, or shall cause its Subsidiaries and Affiliates and their respective employees designated by IAC (such designated Subsidiaries, Affiliates and employees, together with IAC, being herein collectively referred to as the IAC Service Providers ) to provide, to Expedia the services ( IAC S ervices ) listed on the attached Schedules (the Schedules ) as being performed by the IAC. Subject to Section 3.01 , any decisions as to which of the IAC Service Providers (including the decisions to use third parties) shall provide the IAC Services shall be made by IAC in its sole
discretion, except to the extent specified in the applicable Schedule. Each IAC Service shall be provided in exchange for the consideration set forth with respect to such IAC Service on the applicable Schedule or as the Parties may otherwise agree in writing. Each IAC Service shall be provided and accepted in accordance with the terms, limitations and conditions set forth herein and on the applicable Schedule.
(b) On the terms and subject to the conditions contained herein, Expedia shall provide, or shall cause its Subsidiaries and Affiliates and their respective employees designated by it (such designated Subsidiaries, Affiliates and employees, together with Expedia, being herein collectively referred to as the Expedia Service Providers and together with the IAC Service Providers, the Service Providers ) to provide, to IAC the services ( Expedia S ervices and together with the IAC Services, the Services ) listed on the attached Schedules as being performed by Expedia. Subject to Section 3.01 , any decisions as to which of the Expedia Service Providers (including the decisions to use third parties) shall provide the Expedia Services shall be made by Expedia in its sole discretion, except to the extent specified in the applicable Schedule. Each Expedia Service shall be provided in exchange for the consideration set forth with respect to such Service on the applicable Schedule or as the Parties may otherwise agree in writing. Each Expedia Service shall be provided and accepted in accordance with the terms, limitations and conditions set forth herein and on the applicable Schedule.
(c) As used in this Services Agreement, the term Receiving P arty shall mean the Party receiving Services.
2.02. Books and Records; Availability of Information . Each Party shall create and maintain accurate books in connection with the provision of the Services performed by it and, upon reasonable notice from the other Party, shall make available for inspection and copy by such other Partys agents such records during reasonable business hours. Each Party shall make available on a timely basis to the Service Providers all information and materials reasonably requested by such Service Providers to enable them to provide the Services. Each Party shall provide to the Service Providers reasonable access to such Partys premises to the extent necessary for the purpose of providing the Services.
ARTICLE III
Services; Payment; Independent Contractors
3.01. Services To Be Provided . (a) Unless otherwise agreed by the Parties (including to the extent specified in the applicable Schedule), (i) the Service Providers shall be required to perform the Services only in a manner, scope, nature and quality as provided by or within IAC that is similar in all material respects to the manner in which such Services were performed immediately prior to the Effective Date, and (ii) the Services shall be used for substantially the same purposes and in substantially the same manner (including as to volume, amount, level or frequency, as applicable) as the Services have been used immediately prior to the Effective Date; provided , however , that the applicable Schedule shall control the scope of the Service to be performed (to the extent provided therein), unless otherwise agreed in writing. Each Party and the Service Providers shall act under this Services Agreement solely as an independent contractor and not as an agent or employee of any other Party or any of such Partys Affiliates.
(b) The provision of Services by Service Providers shall be subject to Article V hereof.
(c) Each Party agrees to use its reasonable efforts to reduce or eliminate its dependency on the Services as soon as is reasonably practicable; provided that a breach of this Section 3.01(c) shall not affect a Service Providers obligation to provide any Service through the term applicable to such Service.
3.02. The Parties will use good-faith efforts to reasonably cooperate with each other in all matters relating to the provision and receipt of Services. Such cooperation shall include obtaining all consents, licenses or approvals necessary to permit each Party to perform its obligations hereunder; provided , however , under no circumstances shall any Service Provider be required to make any payments to any third party in respect of any such consents, licenses or approvals nor shall any Service Provider be required to make any alternative arrangements in the event that any such consents, licenses or approvals are not obtained.
3.03. Additional Services .
(a) From time to time during the term, each of IAC and Expedia may request the other Party (i) to provide additional (including as to volume, amount, level or frequency, as applicable) or different services which the other Party is not expressly obligated to provide under this Agreement if such services are of the type and scope provided within IAC during fiscal year 2005 or (ii) expand the scope of any Service (such additional or expanded services, the Additional Services ). The Party receiving such request shall consider such request in good faith and shall use commercially reasonable efforts to provide such Additional Service; provided , no Party shall be obligated to provide any Additional Services if it does not, in its reasonable judgment, have adequate resources to provide such Additional Services or if the provision of such Additional Services would interfere with the operation of its business. The Party receiving the request for Additional Services shall notify the requesting Party within fifteen (15) days as to whether it will or will not provide the Additional Services.
(b) If a Party agrees to provide Additional Services pursuant to Section 3.03(a), then a representative of each party shall in good faith negotiate the terms of a supplemental Schedule to this Agreement which will describe in detail the service, project scope, term, price and payment terms to be charged for the Additional Service. Once agreed to in writing, the supplemental Schedule shall be deemed part of this Agreement as of such date and the Additional Services shall be deemed Services provided hereunder, in each case subject to the terms and conditions of this Agreement.
3.04. Payments .
(a) Statements will be delivered to the Receiving Party within fifteen days after the end of each month by the Service Providers designated by each Party for Services provided to the Receiving Party during the preceding month, and each such statement shall set forth a brief description of such Services, the amounts charged therefor, and, except as the Parties may agree, such amounts shall be due and payable by the Receiving Party within 30 days after the date of such statement. Statements not paid within such 30-day period shall be subject
to late charges, calculated at an interest rate per annum equal to the Prime Rate plus 2% (or the maximum legal rate, whichever is lower), and calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment. Payments shall be made by wire transfer to an account designated in writing from time to time by Service Provider.
3.05. Disclaimer of Warranty . EXCEPT AS EXPRESSLY SET FORTH IN THIS SERVICES AGREEMENT, THE SERVICES TO BE PURCHASED UNDER THIS SERVICES AGREEMENT ARE FURNISHED AS IS, WHERE IS, WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. In the event that the provision of any Service for the account of a Receiving Party by a Service Provider conflicts with such Service Providers provision of such Service for its own account, priority for the provision of such Service shall be allocated in a equitable manner on an aggregate basis, and in a manner consistent with the Receiving Partys level of use of such Service during fiscal year 2005 up to the Effective Date (or as described in the applicable Schedule).
3.06. Taxes . In the event that any Tax is properly chargeable on the provision of the Services as indicated on the applicable Schedule, the Receiving Party shall be responsible for and shall pay the amount of any such Tax in addition to and at the same time as the Service fees. All Service fees and other consideration will be paid free and clear of and without withholding or deduction for or on account of any Tax, except as may be required by law.
3.07. Use of Services . The Receiving Party shall not, and shall cause its Affiliates not to, resell any Services to any person whatsoever or permit the use of the Services by any person other than in connection with the conduct of the Receiving Partys operations as conducted immediately prior to the Effective Date.
ARTICLE IV
Term of Services
4.01. The provision of Services shall commence on the Effective Date and shall terminate no later than 18 months after the date hereof or as of the date indicated for each such Service on the applicable Schedule; provided , however , that subject to the applicable Schedule, any Service may be cancelled or reduced in amount or any portion thereof by the Receiving Party upon 90 days written notice thereof (or such other notice period if one is set forth for such Service on the applicable Schedule) subject to the requirement that the Receiving Party pay to the Service Provider the actual out-of-pocket costs incurred by the Service Provider, as well as the actual incremental internal costs incurred by the Service Providers, in each case directly resulting from such cancellation (including employee severance and other termination costs), which out-of-pocket and internal costs shall be set forth in a written statement provided by the Service Provider to the Receiving Party; provided , further , that such costs shall not exceed amounts payable hereunder in respect of the applicable Service for the 90 days prior to such termination. The forgoing notwithstanding and subject to Section 7.02 , (1) a Service Provider may immediately terminate any individual Service provided to a Receiving Party in the event
that the Receiving Party fails to make payments for such Service under Section 3.02 and has not cured such failure within 30 days of written notice of such failure from the Service Provider, and (2) upon 90 days written notice, the Service Provider may terminate any Service provided to the Receiving Party at such time as the Service Provider no longer provides the same Service to itself for its own account.
4.02. In the event a Receiving Party requests an extension of the term of provision of Services, such request shall be considered in good faith by the Service Provider. Any terms, conditions or costs or fees to be paid by the Receiving Party for Services provided during an extended term will be on mutually acceptable terms. For the avoidance of doubt, under no circumstances shall a Service Provider be required to extend the term of provision of any Service if (i) the Service Provider does not, in its reasonable judgment, have adequate resources to continue providing such Services, (ii) the extension of the term would interfere with the operation of the Service Providers business or (iii) the extension would require capital expenditure on the part of the Service Provider or otherwise require the Service Provider to renew or extend any Contract with any third party.
ARTICLE V
Force Majeure
5.01. The Service Providers shall not be liable for any expense, loss or damage whatsoever arising out of any interruption of Service or delay or failure to perform under this Services Agreement that is due to acts of God, acts of a public enemy, acts of terrorism, acts of a nation or any state, territory, province or other political division thereof, changes in applicable law, fires, floods, epidemics, riots, theft, quarantine restrictions, freight embargoes or other similar causes beyond the reasonable control of the Service Providers. In any such event, the Service Providers obligations hereunder shall be postponed for such time as its performance is suspended or delayed on account thereof. Each Service Provider will promptly notify the recipient of the Service, either orally or in writing, upon learning of the occurrence of such event of force majeure. Upon the cessation of the force majeure event, such Service Provider will use commercially reasonable efforts to resume, or to cause any other relevant Service Provider to resume, its performance with the least practicable delay ( provided that, at the election of the applicable Receiving Party, the applicable term for such suspended Services shall be extended by the length of the force majeure event).
ARTICLE VI
Liabilities
6.01. Consequential and Other Damages . Except as otherwise provided in the Separation Agreement, none of the Service Providers shall be liable to the Receiving Party with respect to this Services Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, for any special, indirect, incidental or consequential damages whatsoever (except, in each case, to the extent any such amount is paid to third parties by a Receiving Party or its Affiliates) which in any way arise out of, relate to or are a consequence of, the performance
or nonperformance by it hereunder or the provision of, or failure to provide, any Service hereunder, including with respect to loss of profits, business interruptions or claims of customers.
6.02. Limitation of Liability . Subject to Section 6.03 hereof, the liability of any Service Provider with respect to this Services Agreement or any act or failure to act in connection herewith (including, but not limited to, the performance or breach hereof), or from the sale, delivery, provision or use of any Service provided under or covered by this Services Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, shall be limited to actions or omissions resulting from intentional breach of this Services Agreement or gross negligence, and, in any event, such liability shall not exceed the fees previously paid to such Service Provider under this Services Agreement.
6.03. Obligation To Re-perform . In the event of any breach of this Services Agreement by any Service Provider resulting from any error or defect in the performance of any Service (which breach Service Provider can reasonably be expected to cure by re-performance in a commercially reasonable manner), the Service Provider shall use its reasonable commercial efforts to correct in all material respects such error, defect or breach or reperform in all material respects such Service at the request of the Receiving Party.
6.04. Indemnity . Except as otherwise provided in this Service Agreement (including the limitation of liability provisions in this Article VI ), each Party shall indemnify, defend and hold harmless the other Party from and against any Liability arising out of the intentional breach or gross negligence of the indemnifying Party or its Affiliates, employees, agents, or contractors (including with respect to the performance or nonperformance of any Service hereunder).
ARTICLE VII
Termination
7.01. Termination . Notwithstanding anything herein to the contrary, this Services Agreement shall terminate, and the obligation of the Service Providers to provide or cause to be provided any Service shall cease, on the earliest to occur of (i) the last date indicated for the termination of any Service on the Schedules, as the case may be, (ii) the date on which the provision of all Services has been terminated or canceled pursuant to Article IV hereof, or (iii) the date on which this Services Agreement is terminated by Expedia or IAC, as the case may be, in accordance with the terms of Section 7.02 hereof; provided that, in each case, no such termination shall relieve any Party of any liability for any breach of any provision of this Services Agreement prior to the date of such termination.
7.02. Breach of Services Agreement; Dispute Resolution . Subject to Article VI hereof, and without limiting a Partys obligations under Section 4.01, if a Party shall cause or suffer to exist any material breach of any of its obligations under this Services Agreement, including any failure to make a payment within 30 days after receipt of the statement describing the Services provided for pursuant to Section 3.04 with respect to more than one Service provided hereunder, and that Party does not cure such default in all material respects within 30 days after receiving written notice thereof from the non-breaching Party, the non-breaching
Party shall have the right to terminate this Services Agreement immediately thereafter. In the event a dispute arises between the Parties regarding the terms of this Services Agreement, such dispute shall be governed by Article X of the Separation Agreement.
7.03. Sums Due . In addition to any other payments required pursuant to this Service Agreement, in the event of a termination of this Services Agreement, the Service Providers shall be entitled to the immediate payment of, and the Receiving Party shall within three Business Days, pay to the Service Providers, all accrued amounts for Services, Taxes and other amounts due under this Services Agreement as of the date of termination.
7.04. Effect of Termination . Section 2.02 hereof and Articles V, VI , VII and VIII hereof shall survive any termination of this Services Agreement.
ARTICLE VIII
Miscellaneous
8.01. Incorporation of Separation Agreement Provisions . The following provisions of the Separation Agreement are hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provisions shall apply as if fully set forth herein (references in this Section 8.01 to an Article or Section shall mean Articles or Sections of the Separation Agreement, and references in the material incorporated herein by reference shall be references to the Separation Agreement): Sections 14.02 , 14.03 , 14.06 , 14.07 , 14.09 , 14.10 , 14.11 , 14.14 and 14.15 .
8.02. Ownership of Work Product . Subject to the terms of the Separation Agreement, (i) each Service Provider acknowledges and agrees that it will acquire no right, title or interest (including any license rights or rights of use) to any work product resulting from the provision of Services hereunder for the Receiving Partys exclusive use and such work product shall remain the exclusive property of the Receiving Party and (ii) each Receiving Party acknowledges and agrees that it will acquire no right, title or interest (other than a non-exclusive, worldwide right of use) to any work product resulting from the provision of Services hereunder that is not for the Receiving Partys exclusive use and such work product shall remain the exclusive property, subject to license, of the Service Provider.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.
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/s/ Gregory R. Blatt |
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Gregory R. Blatt |
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Executive Vice President |
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EXPEDIA, INC. |
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By: |
/s/ Dara Khosrowshahi |
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Name: |
Dara Khosrowshahi |
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Title: |
Chief Executive Officer |
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Exhibit 10.7
FORM OF IAC/INTERACTIVECORP RESTRICTED STOCK UNIT AGREEMENT
THIS AGREEMENT, dated as of the award date (the Award Date) designated on the Summary of Award referenced below, between IAC/InterActiveCorp, a Delaware corporation (the Corporation), and the employee of the Corporation or one of its businesses (the Employee) designated as receiving an award of restricted stock units (the Restricted Stock Units) by the Compensation/Benefits Committee of the Board of Directors of the Corporation (or such other Committee as the Board may from time to time designate) (the Committee).
All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the Corporations 2005 Stock and Annual Incentive Plan (the Plan).
(a) Subject to the provisions of this Agreement and to the provisions of the Plan, the Corporation hereby grants Restricted Stock Units to the Employee pursuant to Section 7 of the Plan. Reference is made to the Summary of Award that can be found on the Smith Barney Benefit Access System at www.benefitaccess.com. Your Summary of Award, which sets forth the number of Restricted Stock Units granted to you by the Corporation and the Award Date (among other information), is hereby incorporated by reference into, and shall be read as part and parcel of, this Agreement.
(b) Subject to the terms and conditions of this Agreement , the provisions of the Plan [and subject to the satisfaction of performance goals approved by the Committee on [DATE]], the Restricted Stock Units shall vest and no longer be subject to any restriction (such period during which restrictions apply is the Restriction Period):
Vesting Date |
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Percentage of Total Award Vesting |
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On the first anniversary of the Award Date |
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20 |
% |
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On the second anniversary of the Award Date |
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20 |
% |
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On the third anniversary of the Award Date |
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20 |
% |
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On the fourth anniversary of the Award Date |
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20 |
% |
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On the fifth anniversary of the Award Date |
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20 |
% |
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(c) Notwithstanding the provisions of Paragraph 1(b), in the event the Employee incurs a Termination of Employment by the Corporation for Cause, or the Employee voluntarily incurs a Termination of Employment within two (2) years after any event or circumstance that would have been grounds for a Termination of Employment for Cause, the Employees Restricted Stock Units (whether or not vested) shall be forfeited and canceled in their entirety upon such Termination of Employment, and the Corporation may cause the Employee, immediately upon notice from the Corporation, either to return the shares or cash issued upon
settlement of Restricted Stock Units which vested during the two-year period after the events or circumstances giving rise to or constituting grounds for such T ermination of Employment for Cause or to pay to the Corporation an amount equal to the aggregate amount, if any, that the Employee had previously realized in respect of any and all shares issued upon settlement of Restricted Stock Units which vested during the two-year period after the events or circumstances giving rise to or constituting grounds for such T ermination of Employment for Cause ( i.e ., the value of the Restricted Stock Units upon vesting), in each case including any dividend equivalents or other distributions received in respect of any such Restricted Stock Units.
(d) In the event the Employee incurs a Termination of Employment during the Restriction Period for any reason other than as set forth in Paragraph 1(c), all remaining unvested Restricted Stock Units shall be forfeited by the Employee and canceled in their entirety effective immediately upon such termination.
(e) For purposes of this Agreement, employment with the Corporation shall include employment with the Corporations Affiliates ( excluding Expedia, Inc. and its subsidiaries) and its successors. Nothing in this Agreement or the Plan shall confer upon the Employee any right to continue in the employ of the Corporation or any of its Affiliates or interfere in any way with the right of the Corporation or any such Affiliates to terminate the Employees employment at any time.
As soon as practicable after any Restricted Stock Units have vested and are no longer subject to the Restriction Period (or at such later date specified by the Committee or in accordance with the election of the Employee, if the Committee so permits) , such Restricted Stock Units shall be settled. Subject to Paragraph 8 (pertaining to the withholding of taxes), for each Restricted Stock Unit settled pursuant to this Section 2, the Corporation shall (i) if the Employee is employed within the United States, issue one share of Common Stock for each Restricted Stock Unit vesting at such time and cause to be delivered to the Employee one or more unlegended, freely-transferable stock certificates in respect of such shares issued upon settlement of the vesting Restricted Stock Units or (ii) if the Employee is employed outside the United States, pay, or cause to be paid, to the Employee an amount of cash equal to the Fair Market Value of one share of Common Stock for each Restricted Stock Unit vesting at such time. Notwithstanding the foregoing, the Corporation shall be entitled to hold the shares or cash issuable upon settlement of Restricted Stock Units that have vested until the Corporation or the agent selected by the Corporation to manage the Plan under which the Restricted Stock Units have been issued (the Agent) shall have received from the Employee a duly executed Form W-9 or W-8, as applicable.
During the Restriction Period and until such time as the Restricted Stock Units are ultimately settled as provided in Paragraph 2 above, the Restricted Stock Units shall not be transferable by the Employee by means of sale, assignment, exchange, encumbrance, pledge, hedge or otherwise.
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4. Rights as a Stockholder
Except as otherwise specifically provided in this Agreement, during the Restriction Period the Employee shall not be entitled to any rights of a stockholder with respect to the Restricted Stock Units. Notwithstanding the foregoing, if the Corporation declares and pays dividends on the Common Stock during the Restriction Period, the Employee will be credited with additional amounts for each Restricted Stock Unit equal to the dividend that would have been paid with respect to such Restricted Stock Unit if it had been an actual share of Common Stock, which amount shall remain subject to restrictions (and as determined by the Committee may be reinvested in Restricted Stock Units or may be held in kind as restricted property) and shall vest concurrently with the vesting of the Restricted Stock Units upon which such dividend equivalent amounts were paid. Notwithstanding the foregoing, dividends and distributions other than regular quarterly cash dividends, if any, may result in an adjustment pursuant to Paragraph 5.
In the event of (i) a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Corporation (each, a Share Change), or (ii) a merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, Disaffiliation, or similar event affecting the Corporation or any of its Subsidiaries (each, a Corporate Transaction), the Committee or the Board may in its discretion make such substitutions or adjustments as it deems appropriate and equitable to the number of Restricted Stock Units and the number and kind of shares of Common Stock underlying the Restricted Stock Units.
In the case of Corporate Transactions, such adjustments may include, without limitation (i) the cancellation of the Restricted Stock Units in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Restricted Stock Units, as determined by the Committee or the Board in its sole discretion, (ii) the substitution of other property (including, without limitation, cash or other securities of the Corporation and securities of entities other than the Corporation) for the shares of Common Stock underlying the Restricted Stock Units and (iii) in connection with any Disaffiliation, arranging for the assumption of the Restricted Stock Units, or the replacement of the Restricted Stock Units with new awards based on other property or other securities (including, without limitation, other securities of the Corporation and securities of entities other than the Corporation), by the affected
Subsidiary, Affiliate, or division or by the entity that controls such Subsidiary, Affiliate, or division following such Disaffiliation (as well as any corresponding adjustments to any Restricted Stock Units that remain based upon securities of the Corporation).
The determination of the Committee regarding any such adjustment will be final and conclusive and need not be the same for all Participants.
Unless otherwise determined by the Committee, in the event of a Change in Control, the provisions of Section 10 of the Plan shall apply.
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The Corporation agrees to pay any and all original issue taxes and stock transfer taxes that may be imposed on the issuance of shares received by an Employee in connection with the Restricted Stock Units, together with any and all other fees and expenses necessarily incurred by the Corporation in connection therewith.
(a) The Restricted Stock Units shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body, then in any such event, the award of Restricted Stock Units shall not be effective unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
(b) The Employee acknowledges that the Employee is subject to the Corporations policies regarding compliance with securities laws, including but not limited to its Securities Trading Policy (as in effect from time to time and any successor policies), and, pursuant to these policies, if the Employee is on the Corporations insider list, the Employee shall be required to obtain pre-clearance from the Corporations General Counsel prior to purchasing or selling any of the Corporations securities, including any shares issued upon vesting of the Restricted Stock Units, and may be prohibited from selling such shares other than during an open trading window. The Employee further acknowledges that, in its discretion, the Corporation may prohibit the Employee from selling such shares even during an open trading window if the Corporation has concerns over the potential for insider trading.
No later than the date as of which an amount first becomes includible in the gross income of the Employee for federal, state, local or foreign income or employment or other tax purposes with respect to any Restricted Stock Units, the Employee shall pay to the Corporation, or make arrangements satisfactory to the Corporation regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Corporation under this Agreement shall be conditioned on compliance by the Employee with this Paragraph 8, and the Corporation and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Employee, including deducting such amount from the delivery of shares or cash issued upon settlement of the Restricted Stock Units that gives rise to the withholding requirement.
All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, overnight courier, or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
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If to the Employee: at the last known address on record at the Corporation.
If to the Corporation:
IAC/InterActiveCorp
Carnegie Hall Tower
152 West 57
th
Street, 42
nd
Floor
New York, NY 10019
Attention: General Counsel
Facsimile: (212) 314-7497
or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Paragraph 9. Notice and communications shall be effective when actually received by the addressee. Notwithstanding the foregoing, the Employee consents to electronic delivery of documents required to be delivered by the Corporation under the securities laws.
Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Corporation.
The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without reference to principles of conflict of laws, as applied to contracts executed in and performed wholly within the State of Delaware. In addition to the terms and conditions set forth in this Agreement, the Restricted Stock Units are subject to the terms and conditions of the Plan, which are hereby incorporated by reference.
Any and all disputes arising under or out of this Agreement, including without limitation any issues involving the enforcement or interpretation of any of the provisions of this Agreement, shall be resolved by the commencement of an appropriate action in the state or federal courts located within the state of Delaware, which shall be the exclusive jurisdiction for the resolution of any such disputes. The Employee hereby agrees and consents to the personal jurisdiction of said courts over the Employee for purposes of the resolution of any and all such disputes.
The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
In the event of any conflict between this Agreement and the Plan, the Plan shall control. In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to
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which the Committee has the power, among others, to (i) interpret the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan, and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.
In the event of any (i) conflict between the Summary of Award (or any other information posted on the Smith Barney Benefit Access System) and this Agreement, the Plan and/or the books and records of the Corporation, or (ii) ambiguity in the Summary of Award (or any other information posted on the Smith Barney Benefit Access System), this Agreement, the Plan and/or the books and records of the Corporation, as applicable, shall control.
The Corporation may modify, amend or waive the terms of the Restricted Stock Unit award, prospectively or retroactively, but no such modification, amendment or waiver shall impair the rights of the Employee without his or her consent, except as required by applicable law, NASDAQ or stock exchange rules, tax rules or accounting rules. The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.
The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.
This Agreement may be executed in counterparts, which together shall constitute one and the same original.
17. Data Protection
The Employee authorizes the release from time to time to the Corporation (and any of its subsidiaries or affiliated companies) and to the Agent (together, the Relevant Companies) of any and all personal or professional data that is necessary or desirable for the administration of the Plan and/or this Agreement (the Relevant Information). Without limiting the above, Employee permits his or her employing company to collect, process, register and transfer to the Relevant Companies all Relevant Information (including any professional and personal data that may be useful or necessary for the purposes of the administration of the Plan and/or this Agreement and/or to implement or structure any further grants of equity awards (if any)). Employee hereby authorizes the Relevant Information to be transferred to any jurisdiction in which the Corporation, his or her employing company or the Agent considers appropriate. Employee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
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IN WITNESS WHEREOF, as of the date first above written, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Employee has hereunto set the Employees hand. Electronic acceptance of this Agreement pursuant to the Corporations instructions to Employee (including through an online acceptance process managed by the Agent) is acceptable.
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Name: |
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Exhibit 10.8
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of June 7, 2005, between IAC/InterActiveCorp, a Delaware corporation (IAC or the Corporation), and Barry Diller (the Optionee).
W I T N E S S E T H
In consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties hereto agree as follows:
Subject to the provisions of this Agreement, the provisions of the IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan (the Plan) and approval of the Plan by the Corporations stockholders, the Corporation hereby grants to the Optionee as of June 7, 2005 (the Grant Date) (i) an option to purchase 4,800,000 shares of common stock of the Corporation, par value $.01 per share (Common Stock), at the exercise price of $32.03 per share and (ii) an option to purchase 2,800,000 shares of Common Stock at the exercise price of $43.12 per share (collectively, the Stock Options). The Stock Options shall be Nonqualified Stock Options. Unless earlier terminated pursuant to the terms of this Agreement, the Stock Options shall expire on the tenth anniversary of the Grant Date. Capitalized terms not defined herein shall have the meaning set forth in the Plan.
The Stock Options shall become vested and exercisable with respect to 100% of the shares of Common Stock covered thereby on the fifth anniversary of the Grant Date, subject to the Optionees continued employment through such anniversary and Paragraphs 4 and 6 of this Agreement. Upon the Optionees Termination of Employment, the portion of the Stock Options that is not vested as of such date, in accordance with the foregoing provisions of this Paragraph 2 or the provisions of Paragraphs 4 and 6 of this Agreement, shall cease vesting and terminate immediately.
In the event of the Optionees Termination of Employment due to death, Disability, by the Optionee for Good Reason or by the Corporation without Cause (each a Qualifying Termination), the Stock Options shall vest and be exercisable with respect to a percentage of the shares of Common Stock covered thereby equal to 20% for each full year of the Optionees completed service with the Corporation from the Grant Date through the Qualifying Termination. The portion of the Stock Options, if any, which are exercisable at the time of such Qualifying Termination may be exercised by the Optionee (or the Optionees guardian or legal representative or beneficiary, in the event of the Optionees Disability or death) at any time prior to the first to occur of (a) one (1) year after such Qualifying Termination or (b) the expiration date of the Stock Options.
For purposes of this Agreement, Good Reason means, any of the following actions taken without the Optionees prior written consent: (A) a reduction in the Optionees rate of annual base salary from the rate of annual base salary in effect for the Optionee, (B) a relocation of the Optionees principal place of business more than 35 miles from New York City or (C) a material and demonstrable adverse change in the nature and scope of the Optionees duties from those in effect on the Grant Date. Following the effective time of the spin-off (the Spin-Off) of Expedia (Expedia) by the Corporation (the Effective Time), the Optionees salary for purposes of determinations under clause (A) above, and duties for purposes of determinations under clause (C) above, will be based upon the salaries and duties, respectively, of Optionee at the Corporation and Expedia, as applicable.
(a) In the event of the Optionees Termination of Employment by the Optionee without Good Reason, the portion of the Stock Options, if any, which is exercisable at the time of such Termination of Employment (including any portion of the Stock Options that have vested as a result of a Change in Control in accordance with Paragraph 6 of this Agreement) may be exercised prior to the first to occur of (a) the first anniversary of such Termination of Employment or (b) the expiration date of the Stock Options.
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(b) In the event of the Optionees Termination of Employment for Cause, the entire Stock Options (whether or not vested) shall be forfeited and canceled in its entirety upon such Termination of Employment. In the event the Optionee exercised the Stock Options within one year prior to the Optionees Termination of Employment for Cause, the Corporation shall be entitled to recover from the Optionee at any time within two (2) years following such exercise, and the Optionee shall pay over to the Corporation, the excess of the aggregate Fair Market Value of the Common Stock subject to such exercise on the date of exercise over the aggregate exercise price of the Common Stock subject to such exercise.
(c) Nothing in this Agreement or the Plan shall confer upon the Optionee any right to continue in the employ of the Corporation or any of its Subsidiaries or affiliates or interfere in any way with the right of the Corporation or any such Subsidiaries or affiliates to terminate the Optionees employment at any time.
In the event of a Change in Control of the Corporation (as defined below), each Stock Option shall vest and be exercisable with respect to a percentage of the shares of Common Stock covered thereby equal to 20% plus an additional 20% for each full year of the Optionees completed service with the Corporation from the Grant Date through the Change in Control. For purposes of this Agreement, Change in Control shall have the meaning set forth in the Plan; provided , that , no Change in Control shall occur under this Agreement so long as Optionee has sufficient voting power with respect to the Corporation (or ultimate parent entity of the company resulting from such Change in Control transaction) such that, taking into account all of the circumstances, he effectively controls the election of a majority of the Board of the Corporation or the board of directors of such ultimate parent entity (it being understood that, depending upon the circumstances, the Optionee may exercise effective control even if he has the right to vote shares representing significantly less than a majority of the total voting power of the Corporation in the election of directors). Following a Change in Control, vesting of those portions of the Stock Options, if any, which did not vest as a result of the Change of Control will continue pursuant to the other terms of this Agreement.
Unless the Committee determines otherwise, the Stock Options are non-transferable by the Optionee other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order or, as set forth in Section 5(j) of the Plan, to the Optionees family members or to a charitable organization, and the Stock Options may be exercised, during the lifetime of the Optionee, only by the Optionee or by the Optionees guardian or legal representative or any transferee described above.
Neither Optionee nor any transferee of the Stock Options shall have any rights as a stockholder with respect to any shares covered by such Stock Options until the date of the issuance of a stock certificate to such individual for such shares. No adjustment shall be made
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for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date a stock certificate is issued, except as provided in the Plan.
Immediately following the Effective Time, the Stock Options will be adjusted and vesting conditions will be set in the manner set forth in Section 5.3(d) of the Employee Matters Agreement by and between the Corporation and Expedia, Inc. (the EMA). Following the adjustments in Section 5.3(d) of the EMA, the term Stock Options (when used in this Agreement) shall cover any securities into which Stock Options are adjusted and the term Common Stock (when used in this Agreement) shall cover any securities into which Common Stock is adjusted, any adjustments of the Stock Options in the event of future corporate transactions with respect to the Corporation or changes in the Common Stock shall be effectuated based upon the adjustment provisions of the Plan or any successor plan with respect to the Stock Options, and with respect to Stock Options adjusted into stock options for the common stock of Expedia (Expedia Common Stock) the term Corporation (when used in this Agreement) shall refer to Expedia. Following the adjustments in Section 5.3(d) of the EMA, employment with IAC, corporate transactions with respect to IAC and changes in Common Stock of IAC shall not affect the Stock Options for Expedia Common Stock, and employment with Expedia, corporate transactions with respect to Expedia and changes in the Common Stock of Expedia shall not affect the Stock Options for IAC Common Stock.
The Corporation agrees to pay any and all original issue taxes and stock transfer taxes that may be imposed on the issuance of shares acquired pursuant to exercise of the Stock Options, together with any and all other fees and expenses necessarily incurred by the Corporation in connection therewith. Notwithstanding the foregoing, the Optionee shall be solely responsible for any other taxes (including, without limitation, federal, state, local or foreign income, social security, withholding, estate or excise taxes) that may be payable as a result of the Optionees participation in the Plan or as a result of the exercise of the Stock Options and/or the sale, disposition or transfer of any shares of Common Stock acquired upon the Optionees exercise of the Stock Options.
The exercise of the Stock Options shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any government regulatory body or (iii) an agreement by the Optionee with respect to the disposition of shares of Common Stock is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such listing, registration, qualification, consent, or approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee.
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No later than the date of exercise of the Stock Options granted hereunder, the Optionee shall pay to the Corporation or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Stock Options and the Corporation shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Optionee, federal, state and local taxes of any kind required by law to be withheld upon the exercise of such Stock Options. The Optionee may settle this withholding obligation with Common Stock, including the Common Stock that is otherwise to be received upon exercise of the Stock Options, unless the Committee determines otherwise.
All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, overnight courier, or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Optionee:
Barry Diller
c/o IAC/InterActiveCorp
152 W. 57
th
Street
New York, NY 10019
If to the Corporation:
IAC/InteractiveCorp
Carnegie Hall Tower
152 West 57
th
Street
New York, NY 10019
Attention: General Counsel
Facsimile: (212) 632-9642
or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Paragraph 13. Notice and communications shall be effective when actually received by the addressee.
Except as otherwise provided hereunder, this Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Corporation, and to any transferee or successor of the Optionee pursuant to Paragraph 7.
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The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without reference to principles of conflict of laws, as applied to contracts executed in and performed wholly within the State of Delaware.
The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
This Agreement is subject to all the terms, conditions and provisions of the Plan. In the event of any conflict between this Agreement and the Plan, this Agreement shall control. In the event of any ambiguity in this Agreement, any term which is not defined in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.
The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.
This Agreement may not be modified, amended or waived except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.
This Agreement may be executed in counterparts, which together shall constitute one and the same original.
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IN WITNESS WHEREOF, as of the date first above written, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Optionee has hereunto set the Optionees hand.
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IAC/INTERACTIVECORP |
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/s/ Gregory R. Blatt |
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Gregory R. Blatt |
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Executive
Vice President, General
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/s/ Barry Diller |
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Barry Diller |
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Exhibit 10.9
AMENDMENT NUMBER 1
TO
DATED AS OF FEBRUARY 5, 2004
BETWEEN VICTOR KAUFMAN
AND IAC/INTERACTIVECORP
This amendment (this Amendment ) to that Agreement (the Agreement ), dated as of February 5, 2004, by and between IAC/InterActiveCorp (the Company) and Victor Kaufman (Executive), is effective as of the consummation of the spin-off (the Transaction ) of Expedia, Inc., a Delaware company (Expedia), from the Company, as contemplated by the Registration Statement on Form S-4 initially filed on April 25, 2005 (the Amendment Effective Date ). All capitalized terms used herein without definition will have the meaning given them in the Agreement.
WHEREAS, it is the intention of the parties to amend the terms of the Agreement as a result of the Transaction as set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Upon the Amendment Effective Date, the third sentence of Section 2 of the Agreement shall be deleted and replaced with the following:
IAC acknowledges that Executive intends to serve as Vice Chairman of Expedia. During the Term, the Executive shall devote at least 80% of his business time and attention (defined consistent with past practice) to his duties to the IAC Group and Expedia, provided , that the Executive agrees that the Executives duties to the IAC Group shall be the Executives first priority among his business activities.
2. Upon the Amendment Effective Date, Section 3 of the Agreement shall be deleted in its entirety.
3. Neither the Venture nor any activities undertaken by Executive on behalf of Expedia shall be deemed competitive with the IAC Group.
4. In the event that Executive ceases to be Vice Chairman of Expedia for any reason whatsoever after the Amendment Effective Date but during the Term, the amendment to the agreement contemplated by Section 1 and Section 2 hereof shall, from such point forward, be null and void.
5. In the event the Company determines that Executive is in breach of the Agreement, he shall be provided notice and a reasonable opportunity to cure.
6. Except as explicitly set forth herein, the Agreement will remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of June 6, 2005.
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/s/ Gregory R. Blatt |
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Gregory R. Blatt |
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Executive Vice President, General |
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Counsel & Secretary |
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/s/ Victor A. Kaufman |
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Victor A. Kaufman |
Certification
I, Barry Diller, Chairman and Chief Executive Officer of IAC/InterActiveCorp ("IAC"), certify that:
Date: November 9, 2005 |
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By: |
/s/ BARRY DILLER Barry Diller Chairman and Chief Executive Officer |
Certification
I, Thomas J. McInerney, Executive Vice President and Chief Financial Officer of IAC/InterActiveCorp ("IAC"), certify that:
Date: November 9, 2005
By: |
/s/
THOMAS J. MCINERNEY
Thomas J. McInerney Executive Vice President and Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Barry Diller, Chairman and Chief Executive Officer of IAC/InterActiveCorp (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:
Dated: November 9, 2005
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By: |
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/s/ BARRY DILLER Barry Diller Chairman and Chief Executive Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. McInerney, Executive Vice President and Chief Financial Officer of IAC/InterActiveCorp (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge:
Dated: November 9, 2005
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By: |
/s/ THOMAS J. MCINERNEY Thomas J. McInerney Executive Vice President and Chief Financial Officer |