IAC/InterActiveCorp — 2011 Form 10-K summary
Entity and period: The supplied filing is IAC/InterActiveCorp’s annual report for the year ended December 31, 2011, filed February 29, 2012—not a Match Group standalone filing. Match is one of IAC’s reporting segments. The filing also reports fourth-quarter 2011 results.
Business context
IAC operated more than 50 Internet businesses in over 30 countries across Search, Match, ServiceMagic, and Media & Other. Match provided subscription and advertising-supported online dating services; IAC reported approximately 2.7 million subscribers across its personals businesses at year-end. In 2011, IAC acquired OkCupid and increased its ownership of Meetic to 81%, bringing Meetic into consolidated results from September 1.
Financial results and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $2.059 billion (+26%) | $1.637 billion |
| GAAP operating income | $197.8 million | $49.8 million |
| Operating Income Before Amortization (non-GAAP) | $308.4 million; 15% of revenue | $189.6 million; 12% of revenue |
| Continuing-operations earnings (loss) | $175.6 million | $(9.4) million |
| Net earnings attributable to IAC shareholders | $174.2 million | $99.4 million |
| Diluted EPS from continuing operations | $1.89 | $(0.04) |
| Cash from continuing operating activities | $372.4 million | $340.7 million |
Revenue growth was broad-based: Search increased 31% to $1.094 billion; Match rose 29% to $518.0 million; ServiceMagic increased 13% to $205.1 million; and Media & Other rose 11% to $243.8 million. Search and Match were the largest operating-income contributors. IAC’s non-GAAP operating measure excludes specified noncash and acquisition-related items and should be considered alongside GAAP results.
Fourth-quarter 2011 revenue was $596.9 million, versus $451.4 million in fourth-quarter 2010. Operating income was $55.5 million versus a $21.4 million operating loss; continuing-operations earnings were $41.8 million versus a $32.7 million loss. Diluted EPS was $0.53 versus a $0.90 loss per share.
At year-end, cash and cash equivalents were $704.2 million and marketable securities were $165.7 million; current assets were $1.159 billion against current liabilities of $534.2 million. Long-term debt was $95.8 million: $15.8 million of 7% Senior Notes due January 2013 and $80.0 million of 5% Liberty Bonds due 2035. Operating cash flow increased about 9% year over year. Investing activities used $25.2 million, while financing activities used $372.2 million, including $507.8 million of share repurchases and $10.7 million of dividends.
Material changes and unusual items
- Meetic’s consolidation and OkCupid’s acquisition contributed to Match growth. The Meetic acquisition included a $32.6 million deferred-revenue write-off; remeasurement of IAC’s prior Meetic investment generated an $11.7 million loss.
- Operating income improved substantially versus 2010, which included $28.0 million of goodwill impairment and $15.5 million of intangible-asset impairment. The much larger 2009 loss reflected $916.9 million of goodwill impairment and other significant charges.
- 2011 continuing-operations results included a $4.0 million income tax benefit despite pretax income, principally due to a $43.7 million release of deferred tax liabilities associated with Meetic, audit settlements, and other tax effects. The 2010 net result included a $140.8 million after-tax gain on the Liberty Exchange; comparisons of net earnings are therefore affected by unusual items.
- IAC repurchased 13.6 million shares for $518.6 million during 2011 and paid its first quarterly dividend, $0.12 per share. A further $74.1 million of repurchases occurred from January 1 to January 27, 2012.
- A prior material weakness in controls over deferred income tax accounting had led to restatements of the 2010 Form 10-K and 2011 quarterly reports. Management reported remediation by December 31, 2011; the auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Outlook, risks, and contingencies
- Management expected 2012 capital expenditures to exceed 2011 levels and said cash, marketable securities, and expected operating cash flows should fund foreseeable operating needs, capital spending, repurchases, dividends, and investments. This is management’s expectation, not quantified earnings guidance.
- Google generated $970.4 million of 2011 revenue, about 47% of consolidated revenue, under a paid-listing agreement expiring March 31, 2016. Changes to, or loss of, this relationship could materially affect results.
- Other principal risks include advertising-market cyclicality, rising traffic-acquisition costs, dependence on third-party traffic and distribution partners, competition, privacy and data-security regulation, international operations, and acquisition integration and impairment risk.
- Unrecognized tax benefits, including interest, totaled $462.8 million at year-end; the company said approximately $60.3 million could decrease within 12 months, although the timing and outcome of audits remain uncertain.
- IAC described a lawsuit arising from its 2006 sale of PRC. The plaintiffs sought damages of up to $138.5 million; IAC disputed the claims and said it would defend them. Management stated that pending matters were not expected to have a material impact, while acknowledging uncertainty.
Important facts for investors to verify
- Confirm the issuer and scope: this is IAC’s 2011 Form 10-K, with Match presented as a segment—not a standalone Match Group report.
- Review the reconciliation of non-GAAP Operating Income Before Amortization to GAAP operating income and the effects of acquisition-related accounting and other unusual items.
- Assess Search’s dependence on Google, including the agreement’s economics, renewal prospects, and Google’s share of revenue.
- Examine Meetic’s post-acquisition performance, acquisition assumptions, and the effect of its consolidation on Match’s reported growth and profitability.
- Review tax-audit exposures and the deferred-tax control remediation, as well as the PRC litigation and other contingencies.
- Evaluate the use of cash for repurchases and dividends against the 2013 Senior Notes maturity, expected higher 2012 capital expenditures, and management’s liquidity outlook.