As filed with the Securities and Exchange Commission on May 10, 2005
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 March 31, 2005 |
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or |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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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.) |
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152 West 57th Street, New York, New York 10019 (Address of Registrant's principal executive offices) |
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(212) 314-7300 (Registrant's telephone number, including area code) |
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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 April 25, 2005, the following shares of the Registrant's common stock were outstanding:
| Common Stock, including 227,437 shares of restricted stock | 599,616,946 | |
| Class B Common Stock | 64,629,996 | |
| Total outstanding Common Stock | 664,246,942 | |
The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of April 25, 2005 was $10,375,299,426. 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 March 31, |
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2005 |
2004 |
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(In thousands, except per share amounts) |
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| Service revenue | $ | 1,020,395 | $ | 856,492 | ||||
| Product sales | 626,702 | 587,333 | ||||||
| Net revenue | 1,647,097 | 1,443,825 | ||||||
| Cost of sales-service revenue | 366,526 | 329,478 | ||||||
| Cost of sales-product sales | 382,828 | 365,269 | ||||||
| Gross profit | 897,743 | 749,078 | ||||||
| Selling and marketing expense | 339,284 | 308,174 | ||||||
| General and administrative expense | 216,066 | 167,321 | ||||||
| Other operating expense | 27,542 | 20,079 | ||||||
| Amortization of cable distribution fees | 16,726 | 17,222 | ||||||
| Amortization of non-cash distribution and marketing expense | 432 | 6,339 | ||||||
| Amortization of non-cash compensation expense | 50,529 | 68,968 | ||||||
| Amortization of intangibles | 74,376 | 79,717 | ||||||
| Depreciation expense | 45,150 | 42,150 | ||||||
| Operating income | 127,638 | 39,108 | ||||||
| Other income (expense): | ||||||||
| Interest income | 54,013 | 45,277 | ||||||
| Interest expense | (21,663 | ) | (19,393 | ) | ||||
| Equity in losses of VUE | (21,166 | ) | (352 | ) | ||||
| Equity in income of unconsolidated affiliates and other | 4,920 | 7,175 | ||||||
| Total other income, net | 16,104 | 32,707 | ||||||
| Earnings from continuing operations before income taxes and minority interest | 143,742 | 71,815 | ||||||
| Income tax expense | (73,967 | ) | (28,444 | ) | ||||
| Minority interest in income of consolidated subsidiaries | (351 | ) | (511 | ) | ||||
| Earnings from continuing operations | 69,424 | 42,860 | ||||||
| Income (loss) from discontinued operations, net of tax | 2,788 | (1,333 | ) | |||||
| Earnings before preferred dividends | 72,212 | 41,527 | ||||||
| Preferred dividends | (3,263 | ) | (3,264 | ) | ||||
| Net earnings available to common shareholders | $ | 68,949 | $ | 38,263 | ||||
| Earnings per share from continuing operations: | ||||||||
| Basic earnings per share | $ | 0.09 | $ | 0.06 | ||||
| Diluted earnings per share | $ | 0.09 | $ | 0.05 | ||||
| Net earnings per share available to common shareholders: | ||||||||
| Basic earnings per share | $ | 0.10 | $ | 0.05 | ||||
| Diluted earnings per share | $ | 0.09 | $ | 0.05 | ||||
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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March 31, 2005 |
December 31, 2004 |
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(unaudited) |
(audited) |
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(In thousands) |
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| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,951,465 | $ | 1,099,698 | ||||
| Restricted cash and cash equivalents | 59,246 | 41,377 | ||||||
| Marketable securities | 2,169,064 | 2,409,745 | ||||||
| Accounts and notes receivable, net of allowance of $22,644 and $22,217, respectively | 588,875 | 500,630 | ||||||
| Loans available for sale, net | 368,111 | 206,256 | ||||||
| Inventories, net | 248,168 | 240,977 | ||||||
| Deferred income taxes | 150,740 | 109,752 | ||||||
| Assets held for sale | 332,742 | 339,880 | ||||||
| Other current assets | 206,160 | 167,452 | ||||||
| Total current assets | 6,074,571 | 5,115,767 | ||||||
PROPERTY, PLANT AND EQUIPMENT: |
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| Computer and broadcast equipment | 809,923 | 794,730 | ||||||
| Buildings and leasehold improvements | 165,808 | 166,138 | ||||||
| Furniture and other equipment | 159,266 | 158,784 | ||||||
| Land | 20,285 | 21,168 | ||||||
| Projects in progress | 93,704 | 71,247 | ||||||
| 1,248,986 | 1,212,067 | |||||||
| Less: accumulated depreciation and amortization | (741,824 | ) | (702,366 | ) | ||||
| Total property, plant and equipment | 507,162 | 509,701 | ||||||
OTHER ASSETS: |
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| Goodwill | 11,267,079 | 11,210,964 | ||||||
| Intangible assets, net | 2,301,846 | 2,333,663 | ||||||
| Long-term investments | 1,500,950 | 1,609,335 | ||||||
| Preferred interest exchangeable for common stock | 1,428,530 | 1,428,530 | ||||||
| Cable distribution fees, net | 71,482 | 77,484 | ||||||
| Notes receivable and advances, net of current portion | 637 | 615 | ||||||
| Deferred charges and other | 72,775 | 112,466 | ||||||
| Non-current assets of discontinued operations | 340 | 340 | ||||||
| Total other assets | 16,643,639 | 16,773,397 | ||||||
| TOTAL ASSETS | $ | 23,225,372 | $ | 22,398,865 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. |
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3
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: |
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| Current maturities of long-term obligations and short-term borrowings | $ | 723,651 | $ | 562,966 | ||||
| Accounts payable, trade | 965,620 | 800,110 | ||||||
| Accounts payable, client accounts | 219,245 | 176,921 | ||||||
| Accrued distribution fees | 34,733 | 36,904 | ||||||
| Deferred merchant bookings | 704,349 | 361,199 | ||||||
| Deferred revenue | 121,778 | 104,611 | ||||||
| Income tax payable | 111,068 | 57,093 | ||||||
| Liabilities held for sale | 281,731 | 313,035 | ||||||
| Other accrued liabilities | 458,239 | 487,555 | ||||||
| Current liabilities of discontinued operations | 9,052 | 9,306 | ||||||
| Total current liabilities | 3,629,466 | 2,909,700 | ||||||
| Long-term obligations, net of current maturities | 785,522 | 779,453 | ||||||
| Other long-term liabilities | 152,488 | 151,580 | ||||||
| Deferred income taxes | 2,551,620 | 2,485,224 | ||||||
| Common stock exchangeable for preferred interest | 1,428,530 | 1,428,530 | ||||||
| Minority interest | 84,486 | 39,074 | ||||||
SHAREHOLDERS' EQUITY: |
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| Preferred stock $.01 par value; authorized 100,000,000 shares; 13,118,182 issued and outstanding | 131 | 131 | ||||||
| Common stock $.01 par value; authorized 1,600,000,000 shares; issued 699,924,244 and 696,983,299 shares respectively, and outstanding 630,814,957 and 633,019,550 shares, respectively, including 231,576 and 308,652 of restricted stock, respectively | 6,999 | 6,970 | ||||||
| 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 | 14,131,903 | 14,058,797 | ||||||
| Retained earnings | 2,497,709 | 2,428,760 | ||||||
| Accumulated other comprehensive income | 40,034 | 81,051 | ||||||
| Treasury stock 69,109,287 and 63,963,749 shares, respectively | (2,079,164 | ) | (1,966,053 | ) | ||||
| Note receivable from key executive for common stock issuance | (4,998 | ) | (4,998 | ) | ||||
| Total shareholders' equity | 14,593,260 | 14,605,304 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 23,225,372 | $ | 22,398,865 | ||||
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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Note Receivable From Key Executive for Common Stock Issuance |
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Class B Convertible Common Stock |
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Preferred Stock |
Common Stock |
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Addit. Paid-in Capital |
Retained Earnings |
Accum. Other Comp. Income |
Treasury Stock |
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Total |
$ |
Shares |
$ |
Shares |
$ |
Shares |
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(In thousands) |
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| Balance as of December 31, 2004 | $ | 14,605,304 | $ | 131 | 13,118 | $ | 6,970 | 696,983 | $ | 646 | 64,630 | $ | 14,058,797 | $ | 2,428,760 | $ | 81,051 | $ | (1,966,053 | ) | $ | (4,998 | ) | ||||||
| Comprehensive income: | |||||||||||||||||||||||||||||
| Net earnings for the three months ended March 31, 2005 | 72,212 | — | — | — | — | — | — | — | 72,212 | — | — | — | |||||||||||||||||
| Increase in unrealized losses in available for sale securities | (23,712 | ) | — | — | — | — | — | — | — | — | (23,712 | ) | — | — | |||||||||||||||
| Foreign currency translation | (13,929 | ) | — | — | — | — | — | — | — | — | (13,929 | ) | — | — | |||||||||||||||
| Net loss on derivative contracts | (3,376 | ) | — | — | — | — | — | — | — | — | (3,376 | ) | — | — | |||||||||||||||
| Comprehensive income | 31,195 | ||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, restricted stock, and other | 24,854 | — | — | 29 | 2,941 | — | — | 24,825 | — | — | — | — | |||||||||||||||||
| Income taxes related to stock options exercised, restricted stock, and other, net | (2,497 | ) | — | — | — | — | — | — | (2,497 | ) | — | — | — | — | |||||||||||||||
| Dividends on preferred stock | (3,263 | ) | — | — | — | — | — | — | — | (3,263 | ) | — | — | — | |||||||||||||||
| Amortization of non—cash compensation | 50,778 | — | — | — | — | — | — | 50,778 | — | — | — | — | |||||||||||||||||
| Purchase of treasury stock | (113,111 | ) | — | — | — | — | — | — | — | — | — | (113,111 | ) | — | |||||||||||||||
| Balance as of March 31, 2005 | $ | 14,593,260 | $ | 131 | 13,118 | $ | 6,999 | 699,924 | $ | 646 | 64,630 | $ | 14,131,903 | $ | 2,497,709 | $ | 40,034 | $ | (2,079,164 | ) | $ | (4,998 | ) | ||||||
Accumulated other comprehensive income, net of tax, is comprised of unrealized (losses) gains on available for sale securities of $(6,163) and $17,549 at March 31, 2005 and December 31, 2004, respectively, foreign currency translation adjustments of $50,983 and $64,912 at March 31, 2005 and December 31, 2004, respectively, and net losses from derivative contracts of $(4,786) and $(1,410) at March 31, 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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Three Months Ended March 31, |
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2005 |
2004 |
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(In thousands) |
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| Cash flows from operating activities: | ||||||||
| Earnings from continuing operations | $ | 69,424 | $ | 42,860 | ||||
| Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 119,526 | 121,867 | ||||||
| Amortization of cable distribution fees | 16,726 | 17,222 | ||||||
| Amortization of non-cash distribution and marketing expense | 432 | 6,339 | ||||||
| Amortization of non-cash compensation expense | 50,529 | 68,968 | ||||||
| Amortization of deferred financing costs | — | 161 | ||||||
| Deferred income taxes | 14,625 | (22,723 | ) | |||||
| Equity in losses (income) of unconsolidated affiliates, including VUE | 17,198 | (2,460 | ) | |||||
| Non-cash interest income | (10,870 | ) | (9,952 | ) | ||||
| Minority interest in income of consolidated subsidiaries | 351 | 511 | ||||||
| Increase in cable distribution fees | (13,150 | ) | (12,106 | ) | ||||
| Changes in current assets and liabilities: | ||||||||
| Accounts and notes receivable | (49,054 | ) | (17,233 | ) | ||||
| Loans available for sale | (161,804 | ) | — | |||||
| Inventories | (5,427 | ) | (6,275 | ) | ||||
| Prepaids and other assets | (43,030 | ) | (51,450 | ) | ||||
| Accounts payable and accrued liabilities | 130,862 | 60,297 | ||||||
| Deferred revenue | 21,859 | (64,390 | ) | |||||
| Deferred merchant bookings | 342,451 | 400,194 | ||||||
| Funds collected by Ticketmaster on behalf of clients, net | 31,895 | 81,972 | ||||||
| Other, net | (38 | ) | 2,334 | |||||
| Net cash provided by operating activities | 532,505 | 616,136 | ||||||
| Cash flows provided by (used in) investing activities: | ||||||||
| Acquisitions, net of cash acquired | 2,292 | (4,729 | ) | |||||
| Capital expenditures | (50,047 | ) | (34,215 | ) | ||||
| Increase in long-term investments and notes receivable | (29,189 | ) | (805 | ) | ||||
| Purchase of marketable securities | (475,783 | ) | (1,344,834 | ) | ||||
| Proceeds from the sale of marketable securities | 705,638 | 1,334,757 | ||||||
| Other, net | 16,364 | 8,893 | ||||||
| Net cash provided by (used in) investing activities | 169,275 | (40,933 | ) | |||||
| Cash flows provided by financing activities: | ||||||||
| Warehouse loan borrowings | 160,756 | — | ||||||
| Principal payments on long-term obligations | (299 | ) | (399 | ) | ||||
| Purchase of treasury stock by IAC | (2,213 | ) | (882 | ) | ||||
| Proceeds from subsidiary stock, including stock options | 555 | — | ||||||
| Proceeds from issuance of common stock, including stock options | 14,490 | 40,834 | ||||||
| Preferred dividends | (3,263 | ) | (3,264 | ) | ||||
| Other, net | (8,227 | ) | 10,470 | |||||
| Net cash provided by financing activities | 161,799 | 46,759 | ||||||
| Net cash used in discontinued operations | (635 | ) | (8,526 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (11,177 | ) | (1,211 | ) | ||||
| Net increase in cash and cash equivalents | 851,767 | 612,225 | ||||||
| Cash and cash equivalents at beginning of period | 1,099,698 | 859,618 | ||||||
| Cash and cash equivalents at end of period | $ | 1,951,465 | $ | 1,471,843 | ||||
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 1—ORGANIZATON
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 reporting segments:
On December 21, 2004, IAC announced its plans to separate into two independent public companies 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 will hold the travel and travel-related businesses of IAC as "Expedia." Following the completion of the Spin-Off:
In addition, I