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

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 9, 2004

INTERACTIVECORP
(Exact name of Registrant as specified in charter)

Delaware
(State or other jurisdiction
of incorporation)		   0-20570
(Commission File Number)		   59-2712887
(IRS Employer Identification No.)
         
152 West 57th Street, New York, NY
(Address of principal executive offices)		   10019
(Zip Code)

        Registrant's telephone number, including area code:
 (212) 314-7300

ITEM 12.    RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        On February 9, 2004, the Registrant issued a press release announcing its results for the quarter and year ended December 31, 2003. The full text of this press release, appearing in Exhibit 99.1 hereto, is incorporated herein by reference.


SIGNATURES

        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.

    INTERACTIVECORP
         
    By:   /s/  GREGORY R. BLATT      
    Name:        Gregory R. Blatt
Title:          Senior Vice President and
                   General Counsel

Date: February 9, 2004

2


EXHIBIT INDEX

Exhibit No.
   Description
99.1   Press Release of InterActiveCorp dated February 9, 2004.

3



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SIGNATURES
EXHIBIT INDEX

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EXHIBIT 99.1

FOR IMMEDIATE RELEASE
February 9, 2004		   NEW YORK, NY

[IAC InterActiveCorp LOGO]

IAC REPORTS Q4 2003 RESULTS

IAC/InterActiveCorp (NASDAQ: IACI) reported Q4 2003 results today. Revenue grew 36% over the prior year to $1.8 billion and operating income grew 142% to $179 million. GAAP net income was $153 million versus $145 million in the prior year and GAAP EPS was $0.20 versus $0.30 in the prior year. The decrease in GAAP EPS was principally due to higher amortization of intangibles and non-cash compensation and higher shares outstanding in Q4 of 2003. For the full year 2003, GAAP EPS was $0.23 versus $4.54 in the prior year, which included a gain of $5.58 per share related to the Vivendi transaction.

IAC grew Operating Income Before Amortization ("OIBA") 131% to $292 million. Adjusted Net Income was $228 million versus $169 million in the prior year and Adjusted EPS was $0.29 versus $0.24 in the prior year. For the full year 2003, Adjusted EPS was $0.81 versus $0.33 in the prior year.

IAC's operating businesses delivered strong results for the quarter. IAC Travel ("IACT") increased revenues by 41% to $677 million, operating income by 119% to $108 million and OIBA by 111% to $150 million, driven by growth in its merchant hotel, packages and international businesses. Electronic Retailing also had solid results domestically and internationally, with total revenues up 14%, operating income up 21% and OIBA up 35%. Ticketing grew revenues, operating income and OIBA by 11%, 41% and 47%, respectively.

During the quarter, IAC repurchased 19 million shares for total consideration of $591 million.

Q4 SUMMARY RESULTS
$ in millions, except per share

 
   Q4 2003
   Q4 2002
   Growth
Revenue   $ 1,805   $ 1,330   36%
Operating income   $ 179   $ 74   142%
OIBA   $ 292   $ 126   131%
Net Income   $ 153   $ 145   5%
GAAP Diluted EPS   $ 0.20   $ 0.30   -34%
Adjusted Net Income   $ 228   $ 169   35%
Adjusted EPS   $ 0.29   $ 0.24   20%

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

Table of Contents:

Revenue, Operating Income and OIBA by Segment   Page 3

Discussion of Financial and Operating Results
 
Pages 4-5

Segment Operating Metrics
 
Page 6

Operating Highlights
 
Page 7

GAAP Financial Statements
 
Pages 8-10

Dilutive Securities and Liquidity and Capital Resources
 
Page 11

Reconciliations of GAAP to Non-GAAP Measures
 
Pages 12-15

Footnotes and Definitions
 
Pages 16-18

For definitions of non-GAAP items, please see page 18 of this release.

IAC recorded certain benefits and charges which impacted Q4 results. For a description of these items, please see pages 4 through 5 of this release.

For IAC's Principles of Financial Reporting, a detailed explanation of why we feel these non-GAAP items are useful to investors and management, please refer to IAC's Q3 2003 earnings release. This document, as well as other investor relations materials, are available for download on our website at www.iac.com/investor_relations.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

2


SEGMENT RESULTS

        IAC reported the following segment results for the fourth quarter ended December 31 ($ in millions):

 
   Q4 2003
   Q4 2002
   Growth
  
REVENUE                  
  IAC Travel   $ 677.4   $ 479.3   41 %
  Electronic Retailing     647.1     566.0   14 %
  Ticketing     183.0     164.3   11 %
  Personals     47.9     37.2   29 %
  Local Services     147.5     8.3   1674 %
  Financial Services and Real Estate     31.4     —   NM  
  Teleservices     78.2     77.9   0 %
  Other     (7.9 )   (3.0 ) -163 %
   
 
 
 
  Total   $ 1,804.6   $ 1,330.0   36 %
   
 
 
 

OPERATING INCOME
 
 
 
 
 
 
 
 
 
  IAC Travel   $ 108.3   $ 49.4   119 %
  Electronic Retailing     60.3     49.7   21 %
  Ticketing     29.2     20.8   41 %
  Personals     1.5     9.3   -84 %
  Local Services     40.5     (24.0 ) NM  
  Financial Services and Real Estate     (11.6 )   —   NM  
  Teleservices     6.6     3.8   75 %
  Corporate and other     (56.2 )   (35.2 ) -60 %
   
 
 
 
  Total   $ 178.6   $ 73.7   142 %
   
 
 
 

OPERATING INCOME BEFORE AMORTIZATION
 
 
 
 
 
 
 
 
 
  IAC Travel   $ 150.2   $ 71.0   111 %
  Electronic Retailing     73.8     54.8   35 %
  Ticketing     34.6     23.5   47 %
  Personals     8.3     10.3   -20 %
  Local Services     54.8     (7.7 ) NM  
  Financial Services and Real Estate     (1.7 )   —   NM  
  Teleservices     6.6     3.8   75 %
  Corporate and other     (35.1 )   (29.8 ) -18 %
   
 
 
 
  Total   $ 291.5   $ 125.9   131 %
   
 
 
 

The acquisitions of EPI, uDate, LendingTree and Hotwire closed on March 25, April 4, August 8, and November 5, 2003, respectively. Excluding the results from these businesses, revenue, operating income and OIBA growth in Q4 versus the prior year would have been 21%, 88% and 85%, respectively.

Operating income is presented on an actual basis, with no pro forma adjustments. Please see page 14 for further segment detail and full reconciliations of OIBA to the comparable GAAP measure.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

3


DISCUSSION OF FINANCIAL AND OPERATING RESULTS

IAC TRAVEL

Results at IACT were driven by continued strong growth in the U.S. and internationally, with IACT international gross bookings up 104%. Merchant hotel revenue was up 40% with 6.8 million merchant room nights in Q4, up 42%, driven by strong international growth. The merchant hotel business reported strong growth in spite of being affected by, as expected, the termination in September of the Hotels.com agreement with Travelocity (which accounted for 9.2% of IACT's revenue in Q4 2002), intensified competition from third party distributors and increased marketing from hotel chains promoting their direct sites. Packages revenue rose 58% to $82 million, from $52 million. Interval also contributed to this quarter's results, with higher revenue from deferred membership fees and continued cost efficiencies and online migration.

During Q4, IACT performed an analysis related to estimated supplier liabilities, resulting in an adjustment (and a corresponding increase to revenue, OIBA and operating income) of $22.4 million, which corresponds to $0.02 per diluted share. Excluding the liabilities adjustment, IACT's revenue, operating income, and OIBA would have grown 37%, 74%, and 80%, respectively, in Q4.

Effective Q1 2004, IAC will begin reporting revenue for Hotels.com business on a net basis rather than on a gross basis due to changes in business practices at Hotels.com that were implemented around the beginning of 2004. The change in business practices conforms Hotels.com with other IACT businesses in regards to its merchant hotel business and thus requires a change in its revenue presentation on a prospective basis. There will be no impact on operating income or OIBA from the change in reporting. The Company will supplement its GAAP disclosures with supplemental information that reflects merchant hotel revenue for Hotels.com on a net basis for all comparable prior periods presented.

ELECTRONIC RETAILING

Electronic Retailing is showing continued positive momentum, with HSN U.S. revenue up 11% to $521.3 million from $471.6 million, operating income up 9% to $51.6 million from $47.2 million and OIBA up 19% to $64.8 million from $54.4 million.    HSN.com revenues were up 28% over the prior year, and off air sales grew 24% year over year, with double-digit growth in the Autoship and Upsell programs.

HSN International revenue increased 33% to $125.7 million from $94.4 million, although on a Euro-equivalent basis revenue increased 12% over the prior year. Euvia's Neun Live contributed strongly to HSN International results, though increased competition is expected to impact Euvia's results in 2004.

TICKETING

Ticketing results were driven mainly by increased average revenue per ticket as a result of favorable currency exchange rates on international sales and contractual increases to convenience charges; and higher tickets sold primarily due to more concerts in the domestic market, led by internet onsales for Shania Twain and Bette Midler, and ticket sales related to the World Series. Ticketing margins expanded due to benefits of scale associated with higher revenue, online migration, greater cost efficiencies and the resolution of tax contingencies.

PERSONALS

Revenue growth in Personals was driven mainly by growth in paid subscribers, which increased 30% to approximately 939,000 from 725,000 in the prior year period. Excluding the results of uDate, paid subscribers would have grown 18%. The international business contributed 25% of paid subscribers in Q4, versus 14% in the prior period.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

4

Operating income and OIBA decreased by 84% and 20%, respectively due to increased investments in building out the domestic and international operations and recent pricing changes which reflect longer-term subscriptions with lower monthly fees. In addition, during Q4, certain UK operations of uDate were closed, resulting in a pretax and after-tax charge of approximately $1.4 million related to facility closure costs, employee costs and leasehold improvements.

LOCAL SERVICES

Results in Local Services were largely driven by the inclusion in this year's results of EPI, which was acquired on March 25, 2003. EPI is a highly seasonal business which sells the majority of its products in Q4. Excluding the results of EPI, Q4 revenue for Local Services would have been $6.7 million, operating income would have been a loss of $(16.2) million and OIBA would have been a loss of $(3.7) million.

TELESERVICES

Teleservices continued to make progress in its turnaround in Q4 2003. The improvement in OIBA was bolstered by lower depreciation and amortization resulting from reduced capital expenditures. However, PRC expects Q1 and Q2 2004 to be adversely impacted by normal seasonality and the anticipated termination of certain client programs. PRC expects modest growth for the full year 2004, weighted towards the second half of the year.

FINANCIAL SERVICES & REAL ESTATE

Results in Financial Services and Real Estate were impacted by lower than anticipated revenue from mortgage products, particularly refinancings. In addition, in anticipation of the seasonally stronger Q1, marketing spending increased in Q4 as compared to the prior year.

In 2004, LendingTree anticipates that the weakness in the refinance market will be offset by improved close rates and higher volume in purchase mortgages, home equity loans, and real estate transactions. The recent acquisitions of GetSmart and RealEstate.com are expected to generate incremental consumer demand and contribute an increasing share of Financial Services & Real Estate revenue. LendingTree expects to face increased competition as the industry competes for an expected smaller volume of mortgages in 2004.

OTHER

The impact of corporate expense on operating income increased, primarily because of non-cash compensation of $21 million which was recorded in connection with IAC's mergers with its formerly publicly traded subsidiaries, which were completed in 2003. We expect amortization of non-cash compensation of approximately $250 million for the full year 2004.

Other income in Q4 2003 was impacted by a $4.3 million reversal of certain contingent tax liabilities established when Ticketmaster was acquired by IAC in 1998. Such matters were favorably resolved over time, resulting in the reversal.

TAX RATE

In Q4, IAC had a tax rate of 28% for purposes of calculating net income from continuing operations and Adjusted Net Income. The tax rate was lower than normal due to the reversal of certain tax accruals and other tax benefits including a decrease of $13.3 million to deferred tax liabilities due to a change to IAC's effective tax rate as a result of IAC's mergers with its formerly public subsidiaries in 2003 and the Vivendi transaction in 2002. These adjustments are not expected to recur and IAC expects a tax rate of approximately 39% for purposes of calculating both net income and Adjusted Net Income for the full year 2004.

In Q4 2002, GAAP net income included tax benefits of $84 million, or $0.17 per diluted share, related to the reversal of tax liabilities at Styleclick and other tax benefits. The impact to Adjusted Net Income was $47 million, or $0.07 per diluted share, as Styleclick is part of discontinued operations.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

5


SEGMENT OPERATING METRICS

IAC TRAVEL
   Q4 2003
   Q4 2002
   Growth
  
  Gross Bookings (mm):                  
    Domestic   $ 2,070   $ 1,570   32 %
    International     354     174   104 %
   
 
 
 
    Total   $ 2,424   $ 1,744   39 %
  Net Revenue (mm): (a)                  
    Domestic   $ 384   $ 258   49 %
    International     61     30   102 %
   
 
 
 
    Total   $ 444   $ 288   54 %
  Packages revenue (mm)   $ 82   $ 52   58 %
  Number of transactions (mm)     6.5     4.8   34 %
  Merchant hotel room nights (mm) (b)     6.8     4.8   42 %
 
INTERVAL:
 
 
 
 
 
 
 
 
 
    Members (000s)     1,594     1,500   6 %
    Confirmations (000s)     175     151   16 %
    Share of confirmations online     17.0 %   10.3 %    
 
HSN — U.S. (Households as of end of period)
 
 
 
 
 
 
 
 
 
    Units Shipped (mm)     11.7     11.1   5 %
    Gross Profit %     36.1 %   36.8 %    
    Return Rate     17.3 %   18.1 %    
    Average price point   $ 49.05   $ 46.79   5 %
    Product mix:                  
      Home Hard Goods     35 %   30 %    
      Home Fashions     13 %   13 %    
      Jewelry     22 %   24 %    
      Health / Beauty     22 %   21 %    
      Apparel / Accessories     8 %   12 %    
  HSN total homes (mm)     81.2     78.8   3 %
  HSN FTEs (mm)     71.5     68.7   4 %
  HSN.com % of Sales     15 %   13 %    
 
TICKETING
 
 
 
 
 
 
 
 
 
    Number of tickets sold (mm)     25.0     24.1   4 %
    Gross value of tickets sold (mm)   $ 1,255   $ 1,106   13 %
 
PERSONALS
 
 
 
 
 
 
 
 
 
    Paid Subscribers (000s)     939.4     724.8   30 %
 
FINANCIAL SERVICES & REAL ESTATE
 
 
 
 
 
 
 
 
 
  Loan/Real Estate Requests transmitted:                  
    Number (000s)     448.5     553.7   -19 %
    Volume of Requests (bn)   $ 37.0   $ 57.2   -35 %
  Transactions closed in Quarter:                  
    Number     68.4     70.9   -3 %
    Volume of Transactions Closed (bn)   $ 6.7   $ 8.1   -18 %
  Transmit Rate     63.6 %   63.5 %    
  Static Pool Close Rate (c)     13.1 %   14.6 %    
  Number of Lenders     224     197   14 %
  Number of Realty Agencies     695     645   8 %

Note: rounding differences may exist.

(a)
Represents revenue as if Hotels.com gross bookings were presented on a net basis.

(b)
Merchant room nights are reported as stayed for Expedia and Hotels.com, and booked for Hotwire.

(c)
The static pool close rate includes loans and real estate transactions. Prior to 2003, the static pool close rate only included loan transactions. The static pool close rate for loans incorporates the average time lag between the submission of a loan request (a "QF") and the closure of a loan. It represents the closure rate of approved QFs from a static pool of requests submitted in the most recent quarter with a complete closure cycle. A static pool is considered to have a complete closure cycle after 120 days from the month in which a mortgage QF was submitted, 90 days after a home equity QF was submitted, 60 days after an auto or personal QF was submitted, and less than 30 days after a credit card QF was submitted. The static pool closing cycle for a real estate referral is 180 days from the month in which a real estate referral was submitted.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

6


OPERATING HIGHLIGHTS


SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

7


GAAP FINANCIAL STATEMENTS

IAC CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited; $ in thousands except per share amounts)

 
   Three Months Ended December 31,
   Twelve Months Ended December 31,
  
 
   2003
   2002
   2003
   2002
  
Service revenue   $ 1,016,733   $ 763,596   $ 3,896,148   $ 2,656,043  
Product sales     787,870     566,444     2,431,970     1,924,882  
   
 
 
 
 
  Net revenue     1,804,603     1,330,040     6,328,118     4,580,925  
Cost of sales-service revenue     516,805     445,321     2,068,286     1,573,491  
Cost of sales-product sales     442,121     345,689     1,400,753     1,202,519  
   
 
 
 
 
  Gross profit     845,677     539,030     2,859,079     1,804,915  
Selling and marketing     267,131     167,652     935,820     622,525  
General and administrative     203,071     157,533     711,781     437,848  
Other     29,266     26,773     116,413     84,510  
Cable distribution fees     16,989     15,001     62,527     53,680  
Amortization of non-cash distribution and marketing expense     6,747     9,859     51,432     37,344  
Amortization of non-cash compensation expense     21,991     5,635     128,185     15,637  
Amortization of intangibles     83,900     31,746     268,504     145,667  
Depreciation     38,080     46,366     172,453     170,819  
Restructuring costs     (362 )   (215 )   21     54,130  
Goodwill impairment     —     —     —     22,247  
Merger costs     295     4,934     11,760     7,910  
   
 
 
 
 
Operating income     178,569     73,746     400,183     152,598  
Other income (expense):                          
  Interest income     45,291     41,218     175,822     114,599  
  Interest expense     (25,654 )   (13,145 )   (92,913 )   (44,467 )
  Equity gains (losses) in VUE     2,393     8,846     (224,468 )   6,107  
  Equity in losses in unconsolidated subsidiaries and other expenses     10,666     15,639     3,767     (115,640 )
   
 
 
 
 
Total other income (expense), net     32,696     52,558     (137,792 )   (39,401 )
   
 
 
 
 
Earnings from continuing operations before income taxes and minority interest     211,265     126,304     262,391     113,197  
  Income tax (expense) benefit     (60,066 )   10,371     (70,691 )   (65,127 )
  Minority interest     (2,640 )   (16,768 )   (65,043 )   (46,073 )
   
 
 
 
 
Earnings from continuing operations before cumulative effect of accounting change     148,559     119,907     126,657     1,997  
  Gain on contribution of of USA Entertainment to VUE, net of tax     —     —     —     2,378,311  
  Gain on disposal of Broadcasting stations, net of tax     —     —     —     —  
  Discontinued operations, net of tax     7,459     28,209     40,739     34,184  
   
 
 
 
 
Earnings before cumulative effect of accounting change     156,018     148,116     167,396     2,414,492  
  Cumulative effect of accounting change, net of tax     —     —     —     (461,389 )
   
 
 
 
 
Earnings before preferred dividend     156,018     148,116     167,396     1,953,103  
  Preferred dividend     (3,263 )   (3,264 )   (13,055 )   (11,759 )
   
 
 
 
 
Net income   $ 152,755   $ 144,852   $ 154,341   $ 1,941,344  
   
 
 
 
 
Income (loss) per share:                          
  Basic earnings (loss) per share from continuing operations   $ 0.21   $ 0.26   $ 0.19   $ (0.02 )
  Diluted earnings (loss) per share from continuing operations   $ 0.19   $ 0.24   $ 0.17   $ (0.04 )
 
Basic earnings (loss) per share before cumulative effect of accounting change
 
$
0.22
 
$
0.32
 
$
0.26
 
$
5.64
 
  Diluted earnings (loss) per share before cumulative effect of accounting change   $ 0.20   $ 0.30   $ 0.23   $ 5.62  
 
Basic earnings (loss) per share
 
$
0.22
 
$
0.32
 
$
0.26
 
$
4.55
 
  Diluted earnings (loss) per share   $ 0.20   $ 0.30   $ 0.23   $ 4.54  

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

8

IAC CONSOLIDATED BALANCE SHEET
(unaudited; $ in thousands)

 
   December 1,
2003
   December 31,
2002
  
ASSETS
  
CURRENT ASSETS              
Cash and cash equivalents   $ 899,062   $ 1,998,114  
Restricted cash equivalents     31,356     40,696  
Marketable securities     2,419,735     1,929,058  
Accounts and notes receivable     429,424     308,377  
Inventories, net     215,995     192,751  
Deferred tax assets     65,071     2,007  
Other current assets, net     154,333     145,059  
Current assets of discontinued operations     —     8,079  
   
 
 
Total current assets     4,214,976     4,624,141  

Property, Plant and Equipment
 
 
 
 
 
 
 
  Computer and broadcast equipment     686,899     542,998  
  Buildings and leasehold improvements     155,212     141,063  
  Furniture and other equipment     154,378     137,388  
  Land     21,172     15,802  
  Projects in progress     30,962     20,487  
   
 
 
      1,048,623     857,738  
  Less accumulated depreciation and amortization     (575,446 )   (427,491 )
   
 
 
  Total property, plant and equipment, net     473,177     430,247  

Goodwill
 
 
11,291,768
 
 
5,997,842
 
Intangible assets, net     2,513,889     1,258,070  
Long-term investments     1,426,502     1,582,182  
Preferred interest exchangeable for common stock     1,428,530     1,428,530  
Cable distribution fees, net     128,971     167,249  
Deferred income taxes     —     —  
Notes receivable and advances, net of current portion     14,507     19,090  
Deferred charges and other, net     93,928     140,816  
Non-current assets of discontinued operations     340     10,825  
   
 
 
TOTAL ASSETS   $ 21,586,588   $ 15,658,992  
   
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
  

 
 
 
 
 
 
CURRENT LIABILITIES              
Current maturities of long-term obligations   $ 2,850   $ 24,957  
Accounts payable, trade     687,977     478,043  
Accounts payable, client accounts     142,002     131,348  
Cable distribution fees payable, net     39,142     39,107  
Deferred merchant bookings     218,822     149,348  
Deferred revenue     180,229     128,580  
Income tax payable     96,817     177,019  
Other accrued liabilities     494,280     401,510  
Current liabilities of discontinued operations     16,062     24,713  
   
 
 
Total current liabilities     1,878,181     1,554,625  

Long term obligations, net of current maturities
 
 
1,120,097
 
 
1,211,145
 
Other long-term liabilities     67,981     77,843  
Deferred income taxes     2,565,415     2,374,112  
Minority interest     110,799     1,081,274  
Common stock exchangeable for preferred interest     1,428,530     1,428,530  

SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Preferred stock     131     131  
Common stock     6,305     3,852  
Class B convertible common stock     646     646  
Additional paid-in capital and unearned compensation     13,634,926     5,941,141  
Retained earnings     2,276,952     2,122,611  
Accumulated other comprehensive income     36,896     15,697  
Treasury stock     (1,535,273 )   (147,617 )
Note receivable from key executive for common stock issuance     (4,998 )   (4,998 )
   
 
 
Total shareholders' equity     14,415,585     7,931,463  
   
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 21,586,588   $ 15,658,992  
   
 
 

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

9

IAC STATEMENT OF CASH FLOWS
(unaudited; $ in thousands)

 
   Twelve Months Ended December 31,
  
 
   2003
   2002
  
Cash flows from operating activities:              
  Income from continuing operations before cumulative effect of accounting change   $ 126,657   $ 1,997  
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Depreciation and amortization     440,957     316,486  
    Goodwill impairment     —     22,247  
    Amortization of non-cash distribution and marketing     51,432     37,344  
    Amortization of non-cash compensation expense     128,185     15,637  
    Cable distribution fees     62,527     53,680  
    Amortization of deferred financing costs     2,641     3,445  
    Deferred income taxes     (36,546 )   (42,231 )
    Loss on retirement of bonds     8,639     —  
    Equity in losses of unconsolidated affiliates     220,823     123,608  
    Non-cash interest income     (43,250 )   (22,448 )
    Minority interest     65,043     46,073  
    Non-cash restructuring charge     —     —  
    Increase in cable distribution fees     (28,349 )   (74,314 )
  Changes in current assets and liabilities:              
    Accounts receivable     (73,303 )   58,537  
    Inventories     (6,083 )   (820 )
    Accounts payable and accrued liabilities     276,384     127,420  
    Deferred revenue     75,697     39,391  
    Deferred merchant bookings     69,474     15,957  
    Cash collected on behalf of clients, net     1,683     26,381  
    Other, net     (37,943 )   30,091  
   
 
 
Net Cash Provided By Operating Activities     1,304,668     778,481  
  Cash flows from investing activities:              
    Acquisitions and deal costs, net of cash acquired     (1,092,009 )   (560,465 )
    Capital expenditures     (186,865 )   (162,055 )
    Recoupment of advance to Universal     —     39,422  
    Purchase of marketable securities, net of redemptions and other     (491,198 )   (1,208,600 )
    Proceeds from VUE transaction     —     1,618,710  
    Proceeds from sale of broadcast stations     —     589,625  
   
 
 
Net Cash (Used in) Provided By Investing Activities     (1,770,072 )   316,637  
Cash flows from financing activities:              
  Borrowings     —     29,159  
  Principal payments on long-term obligations     (28,033 )   (81,015 )
  Purchase of treasury stock by IAC and subsidiaries     (1,485,955 )   (6,278 )
  Payment of mandatory tax distribution to LLC partners     —     (154,083 )
  (Repurchase) issuance of bonds     (101,379 )   697,000  
  Purchase of Vivendi warrants     (407,398 )   —  
  Tax withholding payments on retired Expedia warrants     (32,247 )   —  
  Proceeds from sale of subsidiary stock, including stock options     57,358     87,842  
  Proceeds from issuance of common stock and LLC shares     1,430,053     151,708  
  Preferred dividend     (13,055 )   (10,222 )
  Other, net     13,016     (41,590 )
   
 
 
Net Cash (Used In) Provided By Financing Activities     (567,640 )   672,521  
Net Cash Used In Discontinued Operations     (85,632 )   (172,832 )
  Effect of exchange rate changes on cash and cash equivalents     19,624     11,131  
   
 
 
Net (Decrease) Increase In Cash and Cash Equivalents     (1,099,052 )   1,605,938  
Cash and cash equivalents at beginning of period     1,998,114     392,176  
   
 
 
Cash And Cash Equivalents at End of Period   $ 899,062   $ 1,998,114  
   
 
 

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

10

        DILUTIVE SECURITIES

IAC has various tranches of dilutive securities (warrants, convertible preferred, and options), including securities initially issued by its former public subsidiaries which have been converted to IAC securities. The table below details these securities as well as potential dilution at various stock prices (amounts in millions, except average strike/conversion price):

 
   Shares
   Avg.
Strike /
Conversion
   Dilution at:
   As of
2/4/04
  
Average Share Price           $35.00   $40.00   $45.00   $50.00   $30.84  
Absolute Shares as of 2/4/04   696.5       696.5   696.5   696.5   696.5   696.5  
RSUs   9.3       9.3   9.3   9.3   9.3   9.3  
Options   97.7   $11.42   38.5   40.7   42.4   43.7   36.2  
Warrants   79.2   $24.51   18.3   24.9   30.0   34.1   13.7  
Convertible Preferred   19.4   $33.75   19.4   20.2   20.8   21.3   0.0  
           
 
 
 
 
 
            (initial)                      
Total Treasury Method Dilution           85.6   95.1   102.5   108.5   59.2  
  % Dilution           10.9 % 12.0 % 12.8 % 13.5 % 7.8 %
Total Treasury Method Diluted Shares Outstanding           782.1   791.6   799.0   804.9   755.7  
           
 
 
 
 
 

        IAC has outstanding approximately 9.3 million shares of restricted stock and restricted stock units ("RSUs") which vest principally over a period of one to five years, including 4.7 million issued in 2003 and 4.5 million issued in 2004. Ultimately we expect our RSU program to result in total dilution to GAAP and Adjusted Net Income shares of approximately 2% to 3% over the next 5 years.

        During Q4, IAC repurchased 19 million shares of IAC common stock during the quarter for total consideration of $591 million and currently has 38.7 million shares remaining in its authorization. IAC may purchase shares over an indefinite time, on the open market or through private transactions, depending on market conditions, share price and other factors.

        LIQUIDITY AND CAPITAL RESOURCES

        As of December 31, 2003, IAC had $3.3 billion in cash and marketable securities. This includes $115 million in net cash collected on behalf of clients by Ticketmaster and $402 million in combined deferred merchant bookings and deferred revenue at IAC Travel.

        As of December 31, 2003, IAC had long-term debt of $1.1 billion, consisting mainly of 6.75% Senior Notes due 2005 and 7.00% Senior Notes due 2013. This does not include IAC's convertible preferred stock with a balance sheet carrying value based on the par value of $0.01 per share and a face value of $656 million. The convertible preferred is initially convertible at $33.75 (subject to downward adjustment if the price of IAC common stock is more than $35.10 at the time of conversion).

        SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

11

        RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS—Q4 AND FULL YEAR
(unaudited; in thousands except per share amounts)

 
   Three Months Ended December 31,
   Twelve Months Ended December 31,
  
 
   2003
   2002
   2003
   2002
  
Diluted earnings per share (a)   $ 0.20   $ 0.30   $ 0.23   $ 4.54  
GAAP diluted weighted average shares outstanding     786,761     491,137     643,331     426,317  

Net income
 
$
152,755
 
$
144,852
 
$
154,341
 
$
1,941,344
 
Amortization of non-cash distribution and marketing     6,747     9,859     51,432     37,344  
Amortization of non-cash compensation     21,991     5,635     128,185     15,637  
Amortization of intangibles     83,900     31,746     268,504     145,667  
Goodwill impairment (b)     —     —     —     22,247  
Merger costs (c)     295     4,934     11,760     7,910  
Gain on contribution of of USA Entertainment to VUE, net of tax     —     —     —     (2,378,311 )
Discontinued operations, net of tax (d)     (7,459 )   (28,209 )   (40,739 )   (34,184 )
Cumulative effect of accounting change     —     —     —     461,389  
Equity (income) loss from 5.44% common interest in VUE (e)     (2,393 )   (8,846 )   224,468     (6,107 )
Impact of pro forma adjustments, income taxes and minority interest (f)     (30,907 )   6,153     (191,011 )   14,390  
Add back of preferred dividend     3,263     3,264     13,055     —  
   
 
 
 
 
Adjusted Net Income   $ 228,192   $ 169,388   $ 619,995   $ 227,326  
   
 
 
 
 
Adjusted EPS weighted average shares outstanding     790,264     708,879     770,141     692,888  
Adjusted EPS   $ 0.29   $ 0.24   $ 0.81   $ 0.33  
   
 
 
 
 
GAAP Basic weighted average shares outstanding     706,817     449,339     600,063     426,317  
  Options, warrants and restricted stock, treasury method     60,510     22,364     43,268     —  
  Conversion of preferred shares to common (if applicable)     19,434     19,434     —     —  
   
 
 
 
 
GAAP Diluted weighted average shares outstanding     786,761     491,137     643,331     426,317  
  Pro forma adjustments     —     217,219     104,431     241,852  
  Options, warrants and RS, treasury method not included in diluted shares above     —     —     —     24,428  
  Expedia convertible preferred; add'l restricted shares for adjusted EPS     3,503     523     22,379     291  
   
 
 
 
 
Adjusted EPS shares outstanding (g)     790,264     708,879     770,141     692,888  
   
 
 
 
 

        SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

12

IAC RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
(unaudited; in millions)

 
   Twelve Months Ended
December 31,
  
 
   2003
   2002
  
Net Cash Provided by Operating Activities   $ 1,304.7   $ 778.5  
  Capital expenditures     (186.9 )   (162.1 )
  Funding to unconsolidated subsidiaries by HSN     —     (32.3 )
  Tax distributions from VUE     1.4     —  
  Preferred dividend paid     (13.1 )   (10.2 )
   
 
 
Free Cash Flow   $ 1,106.2   $ 573.9  
   
 
 

        $136 million of working capital was attributable to increased deferred merchant bookings and deferred revenue at IAC Travel, versus $74 million in the prior year.

        Please see pages 16-18 for footnotes and definitions of non-GAAP measures.

        SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

13

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP—Q4
(unaudited; $ in millions)

 
   Q4 2002
  
 
   Revenue
   Operating
expenses, ex D&A,
merger costs
   Depreciation
   Cable
distribution fees
   Operating Income
before Amortization
   Amortization
of non-cash
items
   Merger
costs(c)
   Pro Forma
Adjustments(f)
   Operating
Income
  
IAC Travel     479.3     (400.3 )   (7.9 )   —     71.0     (20.9 )   (0.7 )   —     49.4  
Electronic Retailing:                                                        
  HSN U.S. (h)     471.6     (388.4 )   (13.8 )   (15.0 )   54.4     (7.2 )   —     —     47.2  
  HSN International     94.4     (91.6 )   (2.4 )   —     0.5     2.1     —     —     2.6  
   
 
 
 
 
 
 
 
 
 
    Total Electronic Retailing     566.0     (480.0 )   (16.2 )   (15.0 )   54.8     (5.1 )   —     —     49.7  
Ticketing     164.3     (133.3 )   (7.6 )   —     23.5     (2.7 )   —     —     20.8  
Personals     37.2     (24.7 )   (2.2 )   —     10.3     (1.0 )   —     —     9.3  
Local Services     8.3     (14.3 )   (1.7 )   —     (7.7 )   (12.1 )   (4.2 )   —     (24.0 )
Teleservices     77.9     (64.8 )   (9.3 )   —     3.8     —     —     —     3.8  
Interactive Development     —     (1.1 )   —     —     (1.1 )   (1.1 )   —     —     (2.2 )
Corporate expense and other adjustments     —     (17.4 )   (1.4 )   —     (18.7 )   (4.4 )   —     —     (23.1 )
Disengagement expenses (i)     —     (9.3 )   —     —     (9.3 )   —     —     —     (9.3 )
Intersegment Elimination     (3.0 )   2.4     —     —     (0.6 )   —     —     —     (0.6 )
   
 
 
 
 
 
 
 
 
 
TOTAL   $ 1,330.0   $ (1,142.8 ) $ (46.4 ) $ (15.0 ) $ 125.9   $ (47.2 ) $ (4.9 ) $ —   $ 73.7  
   
 
 
 
 
 
 
 
 
 
                                    Other income, net     52.6  
                                                   
 
                                    Earnings from continuing operations before income taxes and minority interest     126.3  
                                    Income tax benefit     10.4  
                                    Minority interest     (16.8 )
                                                   
 
                                    Earnings from continuing operations     119.9  
                                    Discontinued operations     28.2  
                                                   
 
                                    Earnings before preferred dividend     148.1  
                                    Preferred dividend     (3.3 )
                                                   
 
                                    Net income   $ 144.9  
                                                   
 
 
   Q4 2003
  
 
   Revenue
   Operating
expenses, ex D&A,
merger costs
   Depreciation
   Cable
distribution fees
   Operating Income
before Amortization
   Amortization
of non-cash
items
   Merger
costs(c)
   Pro Forma
Adjustments(f)
   Operating
Income
  
IAC Travel (j)     677.4     (522.3 )   (4.8 )   —     150.2     (41.6 )   (0.3 )   —     108.3  
Electronic Retailing:                                                        
  HSN U.S. (h)     521.3     (430.4 )   (10.5 )   (15.6 )   64.8     (13.2 )   —     —     51.6  
  HSN International     125.7     (112.1 )   (3.3 )   (1.4 )   9.0     (0.3 )   —     —     8.7  
   
 
 
 
 
 
 
 
 
 
    Total Electronic Retailing     647.1     (542.5 )   (13.7 )   (17.0 )   73.8     (13.6 )   —     —     60.3  
Ticketing     183.0     (140.3 )   (8.1 )   —     34.6     (5.3 )   —     —     29.2  
Personals (k)     47.9     (37.6 )   (2.1 )   —     8.3     (6.8 )   —     —     1.5  
Local Services     147.5     (90.9 )   (1.8 )   —     54.8     (14.3 )   —     —     40.5  
Financial Services and Real Estate     31.4     (32.3 )   (0.8 )   —     (1.7 )   (9.9 )   —     —     (11.6 )
Teleservices     78.2     (66.5 )   (5.2 )   —     6.6     —     —     —     6.6  
Interactive Development     —     (0.8 )   (0.0 )   —     (0.8 )   —     —     —     (0.8 )
Corporate expense and other adjustments     —     (24.8 )   (1.6 )   —     (26.4 )   (21.1 )   —     —     (47.6 )
Disengagement expenses (i)     —     (7.8 )   —     —     (7.8 )   —     —     —     (7.8 )
Intersegment Elimination     (7.9 )   7.9     —     —     —     —     —     —     —  
   
 
 
 
 
 
 
 
 
 
TOTAL   $ 1,804.6   $ (1,458.0 ) $ (38.1 ) $ (17.0 ) $ 291.5   $ (112.6 ) $ (0.3 ) $ —   $ 178.6  
   
 
 
 
 
 
 
 
 
 
                                    Other income, net     32.7  
                                                   
 
                                    Earnings from continuing operations before income taxes and minority interest     211.3  
                                    Income tax expense     (60.1 )
                                    Minority interest     (2.6 )
                                                   
 
                                    Earnings from continuing operations     148.6  
                                    Discontinued operations     7.5  
                                                   
 
                                    Earnings before preferred dividend     156.0  
                                    Preferred dividend     (3.3 )
                                                   
 
                                    Net income   $ 152.8  
                                                   
 

Please see pages 16-18 for footnotes and definitions of non-GAAP measures.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

14

IAC RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP—FULL YEAR RESULTS
(unaudited; $ in millions)

 
   Year Ended December 31, 2002
  
 
   Revenue
   Operating
expenses,
ex D&A,
merger
costs
   Depreciation
   Cable
distribution
fees
   Operating
Income
before
Amortization
   Amortization
of non-
cash items
   Merger
costs (c)
   Pro Forma
Adjustments(f)
   Operating
Income
  
IAC Travel     1,599.4     (1,295.2 )   (24.4 )   —     279.8     (91.9 )   (2.3 )   (7.7 )   177.9  
Electronic Retailing:                                                        
  HSN U.S. (h)     1,613.2     (1,344.7 )   (53.0 )   (52.4 )   163.1     (32.6 )   —     —     130.5  
  HSN International (l)     309.0     (361.8 )   (7.5 )   (1.3 )   (61.6 )   (0.7 )   —     —     (62.3 )
   
 
 
 
 
 
 
 
 
 
    Total Electronic Retailing     1,922.2     (1,706.5 )   (60.5 )   (53.7 )   101.5     (33.3 )   —     —     68.2  
Ticketing     655.3     (518.1 )   (29.1 )   —     108.1     (11.1 )   —     —     96.9  
Personals     125.8     (89.7 )   (7.7 )   —     28.4     (5.8 )   —     —     22.6  
Local Services     30.8     (55.5 )   (7.6 )   —     (32.3 )   (48.3 )   (5.6 )   —     (86.3 )
Teleservices (m)     294.1     (262.4 )   (35.9 )   —     (4.1 )   (22.2 )   —     —     (26.4 )
Interactive Development     —     (2.6 )   —     —     (2.6 )   (2.9 )   —     —     (5.4 )
Corporate expense and other adjustments     —     (48.5 )   (7.0 )   —     (55.5 )   (9.4 )   —     —     (64.9 )
Disengagement expenses (i)     —     (31.8 )   —     —     (31.8 )   —     —     —     (31.8 )
Intersegment Elimination     (11.3 )   8.9     —     —     (2.4 )   4.1     —     —     1.7  
   
 
 
 
 
 
 
 
 
 
TOTAL   $ 4,616.4   $ (4,001.3 ) $ (172.3 ) $ (53.7 ) $ 389.1   $ (220.9 ) $ (7.9 ) $ (7.7 ) $ 152.6  
   
 
 
 
 
 
 
 
 
 
                                    Other income, net     (39.4 )
                                                   
 
                                    Earnings from continuing operations before income taxes and minority interest     113.2  
                                    Income tax expense     (65.1 )
                                    Minority interest     (46.1 )
                                                   
 
                                    Earnings from continuing operations     2.0  
                                    Gain on contribution of of USA Entertainment to VUE     2,378.3  
                                    Discontinued operations     34.2  
                                                   
 
                                    Earnings before cumulative effect of acct. change     2,414.5  
                                    Cumulative effect of accounting change, net of tax     (461.4 )
                                                   
 
                                    Earnings before preferred dividend     1,953.1  
                                    Preferred dividend     (11.8 )
                                                   
 
                                    Net income   $ 1,941.3  
                                                   
 
 
   Year Ended December 31, 2003
  
 
   Revenue
   Operating
expenses,
ex D&A,
merger
costs
   Depreciation
   Cable
distribution
fees
   Operating
Income
before
Amortization
   Amortization
of non-
cash items
   Merger
costs (c)
   Pro Forma
Adjustments(f)
   Operating
Income
  
IAC Travel     2,610.1     (2,046.9 )   (39.4 )   —     523.8     (165.2 )   (11.7 )   —     347.0  
Electronic Retailing:                                                        
  HSN U.S. (h)     1,763.7     (1,468.0 )   (44.3 )   (61.1 )   190.3     (50.8 )   —     —     139.5  
  HSN International     466.7     (421.2 )   (11.4 )   (1.4 )   32.6     (1.3 )   —     —     31.3  
   
 
 
 
 
 
 
 
 
 
    Total Electronic Retailing     2,230.4     (1,889.2 )   (55.8 )   (62.5 )   222.9     (52.1 )   —     —     170.8  
Ticketing     743.2     (568.4 )   (30.3 )   —     144.5     (27.9 )   (0.1 )   —     116.5  
Personals     185.3     (143.5 )   (10.7 )   —     31.0     (16.9 )   —     —     14.1  
Local Services     230.3     (198.3 )   (5.7 )   —     26.2     (55.6 )   —     —     (29.4 )
Financial Services and Real Estate     55.8     (53.4 )   (1.2 )   —     1.2     (17.7 )   —     —     (16.5 )
Teleservices     294.3     (258.3 )   (23.5 )   —     12.5     —     —     —     12.5  
Interactive Development     —     (3.8 )   (0.0 )   —     (3.8 )   (2.1 )   —     —     (5.9 )
Corporate expense and other adjustments     —     (69.8 )   (5.8 )   —     (75.5 )   (110.5 )   —     —     (186.0 )
Disengagement expenses (i)     —     (22.0 )   —     —     (22.0 )   —     —     —     (22.0 )
Intersegment Elimination     (21.3 )   20.6     —     —     (0.8 )   —     —     —     (0.8 )
   
 
 
 
 
 
 
 
 
 
TOTAL   $ 6,328.1   $ (5,233.1 ) $ (172.5 ) $ (62.5 ) $ 860.1   $ (448.1 ) $ (11.8 ) $ —   $ 400.2  
   
 
 
 
 
 
 
 
 
 
                                    Other income, net     (137.8 )
                                                   
 
                                    Earnings from continuing operations before income taxes and minority interest     262.4  
                                    Income tax expense     (70.7 )
                                    Minority interest     (65.0 )
                                                   
 
                                    Earnings from continuing operations     126.7  
                                    Discontinued operations     40.7  
                                                   
 
                                    Earnings before preferred dividend     167.4  
                                    Preferred dividend     (13.1 )
                                                   
 
                                    Net income   $ 154.3  
                                                   
 

Please see pages 16-18 for footnotes and definitions of non-GAAP measures.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENTS

15

FOOTNOTES

(a)
Diluted net income for GAAP EPS purposes is impacted by dilutive securities of subsidiaries of $6.2 million for the full year 2003 and $1.1 million and $5.3 million for the three months ended December 31, 2002 and the full year 2002, respectively. The amount represents dilutive options and warrants held by minority interests of Expedia, Hotels.com and Ticketmaster in excess of basic shares held by minority interests.

(b)
Goodwill impairment in Q2 2002 related to contingent purchase consideration incurred by PRC.

(c)
Merger costs incurred by Expedia, Hotels.com and Ticketmaster for investment banking, legal and accounting fees were related directly to the mergers and are treated as non-recurring for calculating Operating Income before Amortization and Adjusted Net Income. These costs were incurred solely in relation to the mergers, but may not be capitalized since Expedia, Hotels.com and Ticketmaster were considered the targets in the transaction for accounting purposes. These costs do not directly benefit operations in any manner, would not normally be recorded by IAC if not for the fact it already consolidated these entities, and are all related to the same transaction, as IAC simultaneously announced its intention to commence its exchange offer for the companies in 2002. The majority of costs are for advisory services provided by investment bankers, and the amounts incurred in 2003 were pursuant to the same fee letters entered into by each company in 2002. Given these factors, IAC believes it is appropriate to consider these costs as one-time. Operating Income before Amortization by segment is presented before one-time items.

(d)
Discontinued operations consisted of USA Entertainment in 2002, and Avaltus and ECS/Styleclick in 2002 and 2003.

(e)
During the Q1 2003, IAC received the audited financial statements of VUE for the year ended December 31, 2002, which disclosed that VUE recorded an impairment charge for goodwill and intangible assets and other long-lived assets of $4.5 billion in the period May 7, 2002 to December 31, 2002 based upon VUE management's review of the estimated fair value of VUE as of December 31, 2002. Because of delays in VUE's financial reporting, IAC records its 5.44% proportionate share of the results of VUE on a one-quarter lag. The Q2 2003 charge taken by IAC was approximately $245 million, before a tax benefit of $96 million. IAC holds preferred and common interests in VUE. IAC believes the action taken by Vivendi Universal does not affect the value of IAC's preferred interests in VUE, which are senior to the common interests in VUE, and the terminal value of which, pursuant to the VUE agreements, do not vary based on the value of VUE's businesses. IAC's 5.44% common interest is generally subject to a call right of Universal Studios beginning in 2007, and a put right of IAC beginning in 2010, in both cases based generally on private market values at the time.

(f)
Pro forma adjustments represent the impact of the merger with Ticketmaster, which closed January 17, 2003, the merger with Hotels.com, which closed June 23, 2003, and the merger with Expedia which closed August 8, 2003. Pro forma adjustments to 2002 also represent the impact of IAC's initial acquisition of a majority stake in Expedia which occurred in February 2002, the contribution of USA Entertainment to VUE which occurred in May 2002, the roll-up of USANi LLC which occurred in conjunction with the Vivendi transaction and the roll-up of Home Shopping Network, Inc., which occurred in June 2002. Also included is the impact of these transactions on shares outstanding. Revenue and OIBA by segment for 2002 are presented pro forma for the initial Expedia transaction. Operating income is presented on an actual basis.

(g)
For Adjusted EPS purposes, the impact of RSUs is based on the weighted average amount of RSUs outstanding, as compared with shares outstanding for GAAP purposes, which includes RSUs on a treasury method basis.

16

(h)
HSN U.S. includes results from IDL, which was previously included in HSN International. HSN U.S. revenue is shown net of disengagement related sales rebates.

(i)
Disengagement expenses relate to incremental costs in the disengagement markets to obtain carriage lost due to disengagement and marketing activities primarily to inform viewers of new channel positioning for the HSN service.

(j)
IAC Travel recently reversed reserves related to certain estimated supplier liabilities of $22.4 million. The reversal follows a reassessment of the Company's estimation of such liabilities based on historical experience and additional empirical evidence gathered in the fourth quarter.

(k)
Personals includes charges of $1.4 million related to the final restructuring charge for the closure of uDate's back office in the UK, which is now combined with the back office of Match International.

(l)
HSN International includes charges in Q3 2002 related to the shut-down of HSN's operations in Italy of $31.4 million and in Q2 2002 related to the shut-down of HSN's Spanish language service of $17.8 million.

(m)
Teleservices includes charges of $9.3 million in Q2 2002 related principally to the closure of certain of PRC's call centers as well as $22.2 million of goodwill impairment.

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

17


DEFINITIONS OF NON-GAAP MEASURES

        Operating Income Before Amortization ("OIBA") is defined as operating income plus: (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 and (4) one-time items.    We believe this measure is useful to investors because it represents the consolidated operating results from IAC's segments, taking into account depreciation, which we believe is an ongoing cost of doing business, but excluding the effects of any other non-cash expenses. OIBA 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 associated with IAC's employees, non-cash payments to partners, and acquisition-related accounting.

        Adjusted Net Income generally captures all income statement items that have been, or ultimately will be, settled in cash and is defined as net income available to common shareholders plus: (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, (4) equity income or loss from IAC's 5.44% interest in VUE, and (5) one-time items, net of related tax and minority interest. We believe Adjusted Net Income is useful to investors because it represents IAC's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses.

        Adjusted EPS is defined as Adjusted Net Income divided by weighted fully diluted shares outstanding for Adjusted EPS purposes. We include dilution from options and warrants per the treasury stock method and include all shares relating to restricted stock/share units ("RSU") in shares outstanding for Adjusted EPS. This differs from the GAAP method for including RSUs, which treats them on a treasury method basis. Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, IAC's consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges which are not allocated to the operating businesses such as interest expense, taxes and minority interest, but excluding the effects of any other non-cash expenses. Adjusted Net Income and Adjusted EPS have the same limitations as OIBA, and in addition Adjusted Net Income and Adjusted EPS do not account for IAC's passive ownership in VUE. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

        Free Cash Flow is defined as net cash provided by operating activities, less capital expenditures, investments to fund HSN International unconsolidated operations and preferred dividends paid. Free Cash Flow includes cash dividends received and tax related payments with respect to the VUE securities. We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account cash movements that are non-operational.

        Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. For example, it does not take into account treasury stock repurchases. Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

        We endeavor to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence, GAAP financial statements, and detailed descriptions of the reconciling items and adjustments, including quantifying such items, to derive the non-GAAP measures.

Conference Call

        IAC will audiocast its conference call with investors and analysts discussing the company's fourth quarter financial results and certain forward-looking information on Monday, February 9, 2004, at 11:00 a.m. Eastern Time (ET). The live audiocast is open to the public at www.iac.com/investor_relations.

SEE IMPORTANT NOTES AT THE END OF THIS DOCUMENT

18

Additional Information And Where To Find It

Safe Harbor Statement Under The Private Securities Litigation Reform Act Of 1995

        This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to IAC's anticipated financial performance, business prospects, new developments and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks," or similar expressions. These forward-looking statements are necessarily estimates reflecting the best judgment of IAC's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that could have a material adverse effect on IAC's business, financial condition or results of operations. You should understand that the following important factors could affect IAC's future results and could cause those results to differ materially from those expressed in the forward-looking statements: (1) the risk that IAC's businesses will not be integrated successfully; (2) material adverse changes in economic conditions generally or in such conditions affecting IAC's markets or industries; (3) future regulatory and legislative actions and conditions affecting IAC's operating areas; (4) competition from others; (5) successful integration of our businesses' management structures; (6) product demand and market acceptance; (7) the ability to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms; (8) the ability to maintain the integrity of IAC's systems and infrastructure; (9) the ability to expand into and successfully operate in foreign markets; (10) obtaining and retaining skilled workers and key executives, (11) acts of terrorism; and (12) war or political instability. In addition, investors should consider the other information contained in or incorporated by reference into IAC's filings with the U.S. Securities and Exchange Commission (the "SEC"), including its Annual Report on Form 10-K for the fiscal year ended 2002, especially in the Risk Factors and the Management's Discussion and Analysis sections, and its Quarterly Reports on Form 10-Q and its Current Reports on Form 8-K. Other unknown or unpredictable factors also could have material adverse effects on IAC's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this press release.

        IAC is not under any obligation and does not intend, except as specifically stated, to make publicly available any update or other revisions to any of the forward-looking statements contained in this press release to reflect circumstances existing after the date of this press release or to reflect the occurrence of future events 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.

About IAC/InterActiveCorp

        IAC/InterActiveCorp (Nasdaq: IACI) is the world's leading multi-brand interactive commerce company. IAC consists of IAC Travel, which includes Expedia, Inc., Hotels.com, Hotwire, Interval International, and TV Travel Shop; HSN; Ticketmaster, which oversees Evite and ReserveAmerica; Match.com; Lending Tree; IAC Local Services, which includes Citysearch and Entertainment Publications; and Precision Response Corporation.

Contact Us

IAC Investor Relations
Roger Clark / Lauren Rosenfield
(212) 314-7400

IAC Corporate Communications
Deborah Roth
(212) 314-7254

InterActiveCorp
152 West 57th Street, 42nd Floor New York, NY 10019 212.314.7300 Fax 212.314.7309 www.iac.com

        SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

19



QuickLinks

SEGMENT RESULTS
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
SEGMENT OPERATING METRICS
OPERATING HIGHLIGHTS
GAAP FINANCIAL STATEMENTS
DEFINITIONS OF NON-GAAP MEASURES