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As filed with the Securities and Exchange Commission on August 9, 2004

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004

or

o
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   59-2712887
(State or other jurisdiction of
incorporation or organization)		   (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)

InterActiveCorp
(Former name, former address and former fiscal year, if changed since last report)

        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

        As of July 26, 2004, the following shares of the Registrant's common stock were outstanding:

Common Stock, including 379,478 shares of restricted stock   631,416,327
Class B Common Stock   64,629,996
   
Total outstanding Common Stock   696,046,323
   

        The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of July 26, 2004 was $13,904,581,516. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant are assumed to be affiliates of the Registrant.

PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

IAC/INTERACTIVECORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
  
 
   2004
   2003
   2004
   2003
  
 
    
   (In thousands)

    
  
Service revenue   $ 918,150   $ 962,489   $ 1,774,642   $ 1,817,824  
Product sales     583,002     564,022     1,197,247     1,095,421  
   
 
 
 
 
Net revenue     1,501,152     1,526,511     2,971,889     2,913,245  

Cost of sales—service revenue
 
 
336,675
 
 
521,028
 
 
666,153
 
 
988,538
 
Cost of sales—product sales     337,306     318,628     704,246     638,000  
   
 
 
 
 
Gross profit     827,171     686,855     1,601,490     1,286,707  

Selling and marketing expense
 
 
300,780
 
 
222,860
 
 
610,200
 
 
412,213
 
General and administrative expense     181,202     168,297     355,586     322,969  
Other operating expense     34,770     33,407     67,407     59,214  
Amortization of cable distribution fees     18,028     16,604     35,792     31,930  
Amortization of non-cash distribution and marketing expense     4,733     12,726     11,072     23,215  
Amortization of non-cash compensation expense     55,342     14,431     124,310     24,642  
Amortization of intangibles     79,931     55,558     159,648     107,714  
Depreciation expense     43,072     41,697     85,583     83,859  
Restructuring costs     (801 )   1,092     (801 )   (325 )
Merger costs     —     8,429     —     10,525  
   
 
 
 
 
Operating income     110,114     111,754     152,693     210,751  

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest income     48,386     44,526     93,795     84,356  
  Interest expense     (20,784 )   (22,340 )   (41,539 )   (46,618 )
  Equity in income (losses) of VUE     11,038     4,258     10,686     (239,018 )
  Equity in income (losses) in unconsolidated subsidiaries and other expenses     5,207     (171 )   12,735     (2,050 )
   
 
 
 
 
Total other income (expense), net     43,847     26,273     75,677     (203,330 )
   
 
 
 
 
Earnings from continuing operations before income taxes and minority interest     153,961     138,027     228,370     7,421  
  Income tax (expense) benefit     (59,526 )   (51,683 )   (88,749 )   2,491  
  Minority interest     (2,871 )   (28,415 )   (4,267 )   (54,142 )
   
 
 
 
 
Earnings (loss) from continuing operations     91,564     57,929     135,354     (44,230 )
 
(Loss) income from discontinued operations, net of tax
 
 
(18,368
)
 
38,265
 
 
(20,631
)
 
33,628
 
   
 
 
 
 
Earnings (loss) before preferred dividend     73,196     96,194     114,723     (10,602 )
 
Preferred dividend
 
 
(3,262
)
 
(3,264
)
 
(6,526
)
 
(6,528
)
   
 
 
 
 
Net income (loss) available to common shareholders   $ 69,934   $ 92,930   $ 108,197   $ (17,130 )
   
 
 
 
 
Income (loss) per share:                          
  Basic earnings (loss) per share from continuing operations   $ 0.13   $ 0.10   $ 0.18   $ (0.10 )
  Diluted earnings (loss) per share from continuing operations   $ 0.12   $ 0.09   $ 0.17   $ (0.11 )
 
Basic earnings (loss) per share
 
$
0.10
 
$
0.17
 
$
0.16
 
$
(0.03
)
  Diluted earnings (loss) per share   $ 0.09   $ 0.16   $ 0.14   $ (0.04 )

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

2


IAC/INTERACTIVECORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
   June 30, 2004
   December 31, 2003
  
 
   (unaudited)

   (audited)

  
 
   (In thousands)

  
ASSETS              
CURRENT ASSETS:              
  Cash and cash equivalents   $ 1,211,739   $ 899,062  
  Restricted cash equivalents     31,766     31,356  
  Marketable securities     2,515,018     2,419,735  
  Accounts and notes receivable, net of allowance of $26,696 and $30,999, respectively     452,735     429,424  
  Inventories, net     230,191     215,995  
  Deferred tax assets     66,132     65,071  
  Other current assets     202,376     154,333  
   
 
 
Total current assets     4,709,957     4,214,976  

PROPERTY, PLANT AND EQUIPMENT:
 
 
 
 
 
 
 
  Computer and broadcast equipment     727,454     686,899  
  Buildings and leasehold improvements     155,080     155,212  
  Furniture and other equipment     157,922     154,378  
  Land     21,116     21,172  
  Projects in progress     59,312     30,962  
   
 
 
        1,120,884     1,048,623  
  Less: accumulated depreciation and amortization     (640,159 )   (575,446 )
   
 
 
Total property, plant and equipment     480,725     473,177  

OTHER ASSETS:
 
 
 
 
 
 
 
  Goodwill     11,429,327     11,273,635  
  Intangible assets, net     2,469,890     2,513,889  
  Long-term investments     1,451,719     1,426,502  
  Preferred interest exchangeable for common stock     1,428,530     1,428,530  
  Cable distribution fees, net     108,990     128,971  
  Note receivables and advances, net of current portion     9,238     14,507  
  Deferred charges and other     75,409     93,928  
  Non-current assets of discontinued operations     340     340  
   
 
 
TOTAL ASSETS   $ 22,164,125   $ 21,568,455  
   
 
 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

3


IAC/INTERACTIVECORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
   June 30, 2004
   December 31, 2003
  
 
   (unaudited)

   (audited)

  
 
   (In thousands)

  
LIABILITIES AND SHAREHOLDERS' EQUITY              

CURRENT LIABILITIES:
 
 
 
 
 
 
 
Current maturities of long-term obligations   $ 5,843   $ 2,850  
Accounts payable, trade     815,130     687,977  
Accounts payable, client accounts     206,301     142,002  
Cable distribution fees payable     34,346     39,142  
Deferred merchant bookings     601,768     218,822  
Deferred revenue     103,687     180,229  
Income tax payable     178,078     96,817  
Other accrued liabilities     471,975     494,280  
Current liabilities of discontinued operations     10,584     16,062  
   
 
 
Total current liabilities     2,427,712     1,878,181  

Long-term obligations, net of current maturities
 
 
1,105,844
 
 
1,120,097
 
Other long-term liabilities     88,664     67,981  
Deferred income taxes     2,419,680     2,446,394  
Common stock exchangeable for preferred interest     1,428,530     1,428,530  
Minority interest     237,230     211,687  

SHAREHOLDERS' EQUITY:
 
 
 
 
 
 
 
Preferred stock — $.01 par value; authorized 100,000,000 shares; issued and outstanding 13,118,182     131     131  
Common stock — $.01 par value; authorized 1,600,000,000 shares; issued 686,928,351 and 679,006,913 shares respectively, and outstanding 630,767,237 and 631,022,816 shares, respectively, including 387,528 and 452,035 of restricted stock, respectively     6,869     6,790  
Class B convertible common stock — $.01 par value; authorized 400,000,000 shares; issued and outstanding 64,629,996     646     646  
Additional paid-in capital     13,847,209     13,634,926  
Retained earnings     2,385,149     2,276,952  
Accumulated other comprehensive income     6,679     36,896  
Treasury stock — 56,161,114 and 47,984,097 shares, respectively     (1,785,220 )   (1,535,758 )
Note receivable from key executive for common stock issuance     (4,998 )   (4,998 )
   
 
 
Total shareholders' equity     14,456,465     14,415,585  
   
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 22,164,125   $ 21,568,455  
   
 
 

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)

 
    
   Convertible
Preferred Stock
    
    
   Class B
Convertible
Common Stock
    
    
    
    
   Note Receivable
From Key
Executive for
Common Stock
Issuance
  
 
    
   Common Stock
    
    
   Accum.
Other
Comp
Income
    
  
 
    
   Addit.
Paid-in
Capital
   Retained
Earnings
   Treasury
Stock
  
 
   Total
   $
   Shares
   $
   Shares
   $
   Shares
  
 
   (In thousands)

  
Balance as of December 31, 2003   $ 14,415,585   $ 131   13,118   $ 6,790   679,007   $ 646   64,630   $ 13,634,926   $ 2,276,952   $ 36,896   $ (1,535,758 ) $ (4,998 )
  Comprehensive income:                                                                    
    Net income for the six months ended June 30, 2004     114,723     —   —     —   —     —   —     —     114,723     —     —     —  
    Decrease in unrealized gains in available for sale securities     (24,776 )   —   —     —   —     —   —     —     —     (24,776 )   —     —  
    Foreign currency translation     (1,355 )   —   —     —   —     —   —     —     —     (1,355 )   —     —  
    Net increase in loss on derivative contracts     (4,086 )   —   —     —   —     —   —     —     —     (4,086 )   —     —  
   
                                                             
  Comprehensive income     84,506                                                              
   
                                                             
Issuance of common stock upon exercise of stock option, restricted stock, and other     72,082     —   —     79   7,921     —   —     72,003     —     —     —     —  
Income tax benefit related to stock options exercised, restricted stock, and other     19,566     —   —     —   —     —   —     19,566     —     —     —     —  
Dividend on preferred stock     (6,526 )   —   —     —   —     —   —     —     (6,526 )   —     —     —  
Amortization of non-cash compensation     120,714     —   —     —   —     —   —     120,714     —     —     —     —  
Purchase of treasury stock     (249,462 )   —   —     —   —     —   —     —     —     —     (249,462 )   —  
   
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2004   $ 14,456,465   $ 131   13,118   $ 6,869   686,928   $ 646   64,630   $ 13,847,209   $ 2,385,149   $ 6,679   $ (1,785,220 ) $ (4,998 )
   
 
 
 
 
 
 
 
 
 
 
 
 

        Accumulated other comprehensive income is comprised of unrealized gains (losses) on available for sale securities of $(24,331) and $445 at June 30, 2004 and December 31, 2003, respectively, foreign currency translation adjustments of $35,536 and $36,891 at June 30, 2004 and December 31, 2003, respectively, and net losses from derivative contracts of $(4,526) and $(440) at June 30, 2004 and December 31, 2003.

        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)

 
   Six Months
Ended June 30,
  
 
   2004
   2003
  
 
   (In thousands)

  
Cash flows from operating activities:              
  Earnings (loss) from continuing operations   $ 135,354   $ (44,230 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
  Depreciation and amortization     245,231     191,573  
  Amortization of non-cash distribution and marketing expense     11,072     23,215  
  Amortization of non-cash compensation expense     124,310     24,642  
  Amortization of cable distribution fees     35,792     31,930  
  Amortization of deferred financing costs     161     1,076  
  Deferred income taxes     (60,309 )   (34,524 )
  Loss on retirement of bonds     —     2,502  
  Gain on sale of investment     —     (3,106 )
  Equity in (income) losses of unconsolidated subsidiaries, including VUE     (20,319 )   237,770  
  Non-cash interest income     (24,518 )   (17,699 )
  Minority interest     4,267     54,142  
  Increase in cable distribution fees     (14,750 )   (14,983 )
Changes in current assets and liabilities:              
  Accounts receivable and notes     12,198     (24,639 )
  Inventories     (19,699 )   7,517  
  Prepaids and other assets     (50,998 )   (8,047 )
  Accounts payable and accrued liabilities     219,448     227,510  
  Deferred revenue     19,365     96,733  
  Deferred merchant bookings     295,429     181,788  
  Funds collected by Ticketmaster on behalf of clients, net     50,159     23,666  
  Other, net     13,199     (18,096 )
   
 
 
Net cash provided by operating activities