IACI » Topics » FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

This excerpt taken from the IACI 10-Q filed Nov 9, 2007.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

        As of September 30, 2007, the Company had $1.4 billion of cash and cash equivalents and restricted cash and cash equivalents and $409.7 million of marketable securities, including $301.0 million in funds representing amounts equal to the face value of tickets sold by Ticketmaster on behalf of its clients.

        During the nine months ended September 30, 2007 and 2006, IAC purchased 15.6 million and 34.0 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $508.6 million and $909.2 million, respectively. In 2006, the Company announced that its Board of Directors authorized the repurchase of up to 60 million shares of IAC common stock of which 50.8 million shares remain at October 26, 2007. IAC may purchase shares over an indefinite period of time, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

        Net cash provided by operating activities attributable to continuing operations was $600.0 million and $544.1 million in 2007 and 2006, respectively. The increase of $55.9 million in net cash provided by operating activities reflects an increase in net proceeds from sales of loans held for sale of $105.6 million, partially offset by an increase in cash taxes paid of $50.8 million and a decreased contribution from Ticketmaster client funds of $7.8 million which is primarily due to timing of settlements with clients. The net proceeds from sales of loans held for sale is directly related to the net payments under various warehouse lines of credit which is included within cash flows from financing activities. During the nine months ended September 30, 2007, inventory increased by $76.1 million to $402.1 million from $326.0 million at December 31, 2006, primarily due to increased merchandise purchases at the Catalogs business as inventory levels tend to be higher in the second and third quarters to support their summer and fourth quarter selling seasons, respectively. Also contributing to the increase in merchandise purchases is the Entertainment segment as it prepares for its 2008 fundraising season.

        Net cash provided by investing activities attributable to continuing operations in 2007 of $52.3 million primarily resulted from the net proceeds of $500.0 million related to the purchases, sales and maturities of marketable securities, partially offset by acquisitions, net of cash acquired, of $185.5 million, capital expenditures of $159.5 million and the net increase in long-term investments of $120.0 million. During 2007 the Company invested $255.7 million in entities that are accounted for under the equity method. The most significant investment made by the Company, which included the conversion of a $26.5 million convertible note, was in Front Line Management Group, Inc. On August 9, 2007, the Company sold a portion of its investment in Front Line to Warner Music Group at the same per share price that the Company paid to acquire its holding in Front Line. Net cash provided by investing activities attributable to continuing operations in 2006 of $444.3 million primarily resulted from the net proceeds of $690.5 million related to the purchases, sales and maturities of marketable securities, partially offset by capital expenditures of $163.9 million and acquisitions, net of cash acquired, of $80.1 million.

        Net cash used in financing activities attributable to continuing operations in 2007 of $721.4 million was primarily due to the purchase of treasury stock of $542.9 million, net payments under various warehouse lines of credit of $194.5 million at LendingTree Loans and principal payments on long-term obligations of $20.6 million, partially offset by the proceeds from the issuance of common stock pursuant to stock-based awards, net of withholding taxes, of $21.9 million and the excess tax benefits from stock-based awards of $12.5 million. The net payments under various warehouse lines of credit is directly related to the net proceeds from sales of loans held for sale included within cash flows from operating activities. Net cash used in financing activities attributable to continuing operations in 2006 of $891.6 million was primarily due to the purchase of treasury stock in the amount of $927.1 million, net payments under various warehouse lines of credit of $38.8 million at LendingTree Loans and principal

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payments on long-term obligations of $11.7 million, partially offset by the proceeds from the issuance of common stock pursuant to stock-based awards, net of withholding taxes, of $49.8 million and the excess tax benefits from stock-based awards of $14.1 million.

        Net cash used in discontinued operations in 2007 of $10.0 million relates primarily to the operations of HSE and iBuy. Net cash used in discontinued operations in 2006 of $38.3 million relates primarily to the operations of HSE. The Company does not expect future cash flows associated with existing discontinued operations to be significant.

        As of September 30, 2007, the Company had $1.0 billion in short and long-term obligations, of which $177.0 million, consisting primarily of various warehouse lines of credit, the LendingTree Loans installment note payable due January 31, 2008 and the Ask Zero Coupon Convertible Subordinated Notes due June 1, 2008 (the "Convertible Notes"), are classified as current. Long-term debt consists primarily of the 7% Senior Notes due 2013 (the "2002 Senior Notes") and the New York City Industrial Development Agency Liberty Bonds due September 1, 2035 ("Liberty Bonds"). Interest on the Liberty Bonds is payable at a rate of 5% per annum.

        As of September 30, 2007, LendingTree Loans had warehouse lines of credit totaling $650 million, of which $144.0 million was outstanding. Borrowings under the warehouse lines of credit are used to fund, and are secured by, consumer residential loans that are held for sale. Loans under the warehouse lines of credit are repaid from proceeds from the sales of loans held for sale by LendingTree Loans. The interest rate under these lines of credit is 30-day LIBOR plus 100 basis points, but may be higher under certain circumstances. As of September 30, 2007, LendingTree Loans had a committed line of $500 million, which expires on December 31, 2007, and an uncommitted line of $150 million. Under the terms of the committed warehouse line of credit, LendingTree Loans is required to maintain various financial and other covenants. These financial covenants include maintaining (i) minimum levels of tangible net worth, cash on hand with a certain lender and liquid assets, (ii) a maximum ratio of total liabilities to net worth and (iii) positive pre-tax net income on a quarterly basis. During the third quarter LendingTree Loans was not in compliance with the quarterly positive pre-tax net income covenant. LendingTree Loans received a waiver of this covenant breach on September 28, 2007. Borrowings under these lines of credit are non-recourse to IAC and LendingTree. The committed line of credit can be canceled at the option of the lender without default upon one hundred eighty days notice. Funding liquidity to mortgage companies has become constrained, and the situation continues to evolve rapidly. While LendingTree Loans intends to extend the committed facility on or prior to expiration and believes that, upon such extension, the availability under this facility will be sufficient to fund its operating needs in the foreseeable future, no assurance can be made that the committed facility will be extended on terms that are satisfactory to LendingTree Loans or at all, or that LendingTree Loans would be able to secure funding from another source. Since LendingTree Loans is highly dependent on the availability of credit to finance its operations, continuing disruptions in the credit markets could adversely impact its results of operations and financial condition.

        In connection with the IAC Search & Media acquisition, IAC guaranteed $115 million principal amount of the Convertible Notes, which are convertible at the option of the holders into shares of both IAC common stock and Expedia common stock at an initial conversion price of $13.34 per share, subject to certain adjustments. Upon conversion, IAC and Expedia have the right, subject to certain conditions, to deliver cash (or a combination of cash and shares) in lieu of shares of its respective common stock. During the nine months ended September 30, 2007, $7.7 million of Convertible Notes was converted into 0.3 million IAC common shares and 0.3 million Expedia common shares. The remaining outstanding principal amount of the Convertible Notes is $12.3 million at September 30, 2007.

        IAC anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its overall operations. The Company may make a number of

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acquisitions, which could result in the reduction of its cash balance or the incurrence of debt. The Company expects that 2007 capital expenditures will be approximately the same as in 2006. Furthermore, other expenditures are expected to be higher than current amounts over the next several years, primarily due to increased marketing and distribution expenses as well as the continued improvement and expansion of technology infrastructure, including data centers.

        The Company has considered its anticipated operating cash flows in 2007, cash and cash equivalents and marketable securities, current borrowing capacity under warehouse lines of credit and access to capital markets and believes that these are sufficient to fund its operating needs, including debt requirements, commitments and contingencies and capital and investing commitments for the foreseeable future.

This excerpt taken from the IACI 10-Q filed Aug 9, 2007.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2007, the Company had $1.1 billion of cash and cash equivalents and restricted cash and cash equivalents and $785.3 million of marketable securities, including $268.1 million in funds representing amounts equal to the face value of tickets sold by Ticketmaster on behalf of its clients.

During the six months ended June 30, 2007 and 2006, IAC purchased 7.6 million and 21.6 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $288.2 million and $589.2 million, respectively. In 2006, the Company announced that its Board of Directors authorized the repurchase of up to 60 million shares of IAC common stock of which 58.8 million shares remain at July 27, 2007. IAC may purchase shares over an indefinite period of time, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

Net cash provided by operating activities attributable to continuing operations was $406.5 million and $403.0 million in 2007 and 2006, respectively. The increase of $3.5 million in net cash provided by operating activities reflects an increase in net proceeds from sales of loans held for sale of $110.1 million, partially offset by an increase in net cash taxes paid of $24.9 million and a decreased contribution from Ticketmaster client funds of $22.7 million which is primarily due to timing of settlements with clients. The net change related to loans held for sale is offset by the net change in borrowings under the warehouse lines of credit which is included within the financing cash flows. During the six months ended June 30, 2007, inventory increased by $21.7 million to $347.6 million from $326.0 million at December 31, 2006 primarily due to increased merchandise purchases as well as lower than anticipated sales at the Retailing sector. Also contributing to the increase in merchandise purchases is the Catalogs business as inventory levels tend to be higher in the second and third quarters to support their summer and fourth quarter selling season, respectively.

Net cash used in investing activities attributable to continuing operations in 2007 of $375.9 million primarily resulted from the increase in long-term investments of $221.6 million, acquisitions, net of cash acquired, of $185.5 million and capital expenditures of $104.3 million, partially offset by the net proceeds of $120.9 million related to the purchases, sales and maturities of marketable securities. During the second quarter of 2007, the Company made investments which totaled $247.8 million in entities that are accounted for under the equity method. This includes the conversion of a convertible note which was carried at $26.5 million. The most significant investment made by the Company was in Front Line Management Group, Inc. Net cash provided by investing activities attributable to continuing operations in 2006 of $220.7 million primarily resulted from the net proceeds of $393.5 million related to the purchases, sales and maturities of marketable securities, partially offset by capital expenditures of $110.2 million and acquisitions, net of cash acquired, of $57.9 million.

Net cash used in financing activities attributable to continuing operations in 2007 of $438.2 million was primarily due to the purchase of treasury stock of $322.6 million, increased net payments under various warehouse lines of credit of $125.9 million at LendingTree Loans and principal payments on long-term obligations of $20.1 million, partially offset by the proceeds from the issuance of common stock pursuant to stock option exercises of $20.7 million and the excess tax benefits from stock-based awards of $11.2 million. The increased payments under various warehouse lines of credit are directly related to the decrease in loans held for sale included within cash flows from operations. Net cash used in financing activities attributable to continuing operations in 2006 of $535.9 million was primarily due to the purchase of treasury stock in the amount of $583.3 million, increased net payments under various warehouse lines of credit of $11.6 million at LendingTree Loans and principal payments on long-term obligations of $11.1 million, partially offset by the proceeds from the issuance of common stock pursuant to stock option exercises of $35.5 million and the excess tax benefits from stock-based awards of $12.3 million.

Net cash used in discontinued operations in 2007 of $3.1 million relates primarily to the operations of HSE and iBuy. Net cash used in discontinued operations in 2006 of $32.6 million relates primarily to the operations of HSE. The Company does not expect future cash flows associated with existing discontinued operations to be significant.

As of June 30, 2007, the Company had $1.1 billion in short and long-term obligations, of which $245.8 million, consisting primarily of various warehouse lines of credit, the LendingTree Loans

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installment note payable due January 31, 2008 and the Ask Zero Coupon Convertible Subordinated Notes due June 1, 2008 (the “Convertible Notes”), are classified as current. Long-term debt consists primarily of the 7% Senior Notes due 2013 (the “2002 Senior Notes”) and the New York City Industrial Development Agency Liberty Bonds due September 1, 2035 (“Liberty Bonds”). The Company believes that its cash, cash equivalents and marketable securities and access to the capital markets is sufficient to fund its debt requirements.

As of June 30, 2007, LendingTree Loans had warehouse lines of credit totaling $1.0 billion, of which $212.6 million was outstanding. Borrowings under the warehouse lines of credit are used to fund, and are secured by, consumer residential loans that are held for sale. Interest rates under these lines of credit fall within a range of 30-day LIBOR plus 75 - 100 basis points, depending on the underlying quality of the loans in the borrowing base and the length of time the borrowings remain outstanding, but may exceed this range under certain circumstances. Under the terms of the committed warehouse lines of credit, LendingTree Loans is required to maintain various financial and other covenants. These financial covenants include maintaining (i) minimum levels of tangible net worth, cash on hand with a certain lender and liquid assets, (ii) a maximum ratio of total liabilities to net worth and (iii) a positive pre-tax net income. At June 30, 2007, LendingTree Loans was in compliance with all covenants. Borrowings under these lines of credit are non-recourse to IAC and LendingTree. As of June 30, 2007, LendingTree Loans had committed lines aggregating $750 million, of which $250 million expire on August 31, 2007 and $500 million expire on October 31, 2007, and uncommitted lines aggregating $250 million. The committed lines of credit can be canceled at the option of the lender without default upon ninety-to-one hundred eighty days notice. LendingTree Loans believes that the availability under these lines is sufficient to fund its operating needs in the foreseeable future and intends to extend the facilities on or prior to expiration. Loans under the warehouse lines of credit are repaid from proceeds from the sale of loans held for sale by LendingTree Loans.

In connection with the IAC Search & Media acquisition, IAC guaranteed $115 million principal amount of the Convertible Notes, which are convertible at the option of the holders into shares of both IAC common stock and Expedia common stock at an initial conversion price of $13.34 per share, subject to certain adjustments. Upon conversion, IAC and Expedia have the right, subject to certain conditions, to deliver cash (or a combination of cash and shares) in lieu of shares of its respective common stock. During the six months ended June 30, 2007, $7.5 million of Convertible Notes was converted into 0.3 million IAC common shares and 0.3 million Expedia common shares. The remaining outstanding principal amount of the Convertible Notes is $12.6 million at June 30, 2007.

In connection with the financing of the construction of IAC’s corporate headquarters, on August 31, 2005, the New York City Industrial Development Agency issued $80 million in aggregate principal amount of Liberty Bonds. Interest on the Liberty Bonds is payable semi-annually, at a rate of 5% per annum, on March 1 and September 1 of each year and commenced on March 1, 2006. IAC is obligated to make all principal, interest and other payments in respect of the Liberty Bonds, which mature on September 1, 2035. Liberty Bonds proceeds were used for certain expenditures relating to the construction of IAC’s corporate headquarters and not for general corporate purposes.

IAC anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its overall operations. The Company may make a number of acquisitions, which could result in the reduction of its cash balance or the incurrence of debt. The Company expects that 2007 capital expenditures will be approximately the same as in 2006. Furthermore, other expenditures are expected to be higher than current amounts over the next several years, primarily due to increased marketing and distribution expenses as well as the continued improvement and expansion of technology infrastructure, including data centers.

We believe that our financial situation would enable us to absorb a significant potential downturn in business. The Company has considered its anticipated operating cash flows in 2007, cash and cash equivalents and marketable securities, borrowing capacity under warehouse lines of credit and access to capital markets and believes that these are sufficient to fund its operating needs, including commitments and contingencies and capital and investing commitments for the foreseeable future.

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This excerpt taken from the IACI 10-Q filed May 10, 2007.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2007, the Company had $1.3 billion of cash and cash equivalents and restricted cash and cash equivalents and $787.4 million of marketable securities, including $275.2 million in funds representing amounts equal to the face value of tickets sold by Ticketmaster on behalf of its clients.

During the three months ended March 31, 2007 and 2006, IAC purchased 7.6 million and 4.2 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $288.2 million and $123.3 million, respectively. In 2006, the Company announced that its Board of Directors authorized the repurchase of up to 60 million shares of IAC common stock of which 58.8 million shares remain at April 27, 2007. IAC may purchase shares over an indefinite period of time, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

Net cash provided by operating activities attributable to continuing operations was $45.6 million and $121.1 million in 2007 and 2006, respectively. The decrease of $75.5 million in net cash provided by operating activities reflects an increase in loans held for sale of $65.1 million as well as an increase in net cash taxes paid of $44.2 million, partially offset by an increased contribution from Ticketmaster client funds of $26.7 million which is primarily due to timing of settlements with clients. The net change related to loans held for sale is offset by the net change in borrowings under the warehouse lines of credit which is included within the financing cash flows. During the three months ended March 31, 2007, inventory increased by $29.6 million to $391.8 million from $362.2 million at December 31, 2006 primarily due to increased merchandise purchases as well as lower than anticipated sales at the Retailing U.S. sector.

Net cash provided by investing activities attributable to continuing operations in 2007 of $9.5 million primarily resulted from the net proceeds of $117.1 million related to the purchases, sales and maturities of marketable securities, partially offset by acquisitions, net of cash acquired, of $54.6 million and capital expenditures of $52.8 million. Net cash provided by investing activities attributable to continuing operations in 2006 of $76.7 million primarily resulted from the net proceeds of $196.6 million related to the purchases, maturities and sales of marketable securities, partially offset by capital expenditures of $59.2 million and acquisitions, net of cash acquired, of $56.9 million.

Net cash used in financing activities attributable to continuing operations in 2007 of $259.9 million was primarily due to the purchase of treasury stock of $322.6 million, and principal payments on long-term obligations of $11.5 million, partially offset by net borrowings under various warehouse lines of credit of $62.4 million at LendingTree Loans. The increased borrowings under various warehouse lines of credit are directly related to the increase in loans held for sale included within cash flows from operations. These cash outflows were partially offset by the proceeds from the issuance of common stock pursuant to stock option exercises of $12.7 million and the excess tax benefits from stock-based awards of $6.9 million. Net cash used in financing activities attributable to continuing operations in 2006 of $88.8 million was primarily due to the purchase of treasury stock in the amount of $115.7 million and principal payments on long-term obligations of $10.6 million. These cash outflows were partially offset by the proceeds from the issuance of common stock pursuant to stock option exercises of $20.4 million, the excess tax benefits from stock-based awards of $7.0 million and increased borrowings under the warehouse lines of credit of $2.6 million at LendingTree Loans.

Net cash used in discontinued operations in 2007 of $5.8 million relates primarily to the operations of iBuy. Net cash used in discontinued operations in 2006 of $13.9 million relates primarily to the operations of PRC and iBuy. The Company does not expect future cash flows associated with existing discontinued operations to be significant.

As of March 31, 2007, the Company had $1.3 billion in short and long-term obligations, of which $432.1 million, consisting primarily of various warehouse lines of credit, are classified as current. Long-

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term debt consists primarily of the 7% Senior Notes due 2013 (the “2002 Senior Notes”), the New York City Industrial Development Agency Liberty Bonds due September 1, 2035 (“Liberty Bonds”) and the Ask Zero Coupon Convertible Subordinated Notes due June 1, 2008 (the “Convertible Notes”). The Company believes that its cash, cash equivalents and marketable securities and access to the capital markets is sufficient to fund its debt requirements.

As of March 31, 2007, LendingTree Loans had warehouse lines of credit totaling $1.0 billion, of which $400.9 million was outstanding. Borrowings under the warehouse lines of credit are used to fund, and are secured by, consumer residential loans that are held for sale. Interest rates under these lines of credit fall within a range of 30-day LIBOR plus 75 - 100 basis points, depending on the underlying quality of the loans in the borrowing base and the length of time the borrowings remain outstanding, but may exceed this range under certain circumstances. Under the terms of the committed warehouse lines of credit, LendingTree Loans is required to maintain various financial and other covenants. These financial covenants include maintaining (i) minimum levels of tangible net worth, cash on hand with a certain lender and liquid assets, (ii) a maximum ratio of total liabilities to net worth and (iii) a positive pre-tax net income.   At March 31, 2007, LendingTree Loans was in compliance with all covenants. Borrowings under these lines of credit are non-recourse to IAC and LendingTree. As of March 31, 2007, LendingTree Loans had committed lines aggregating $750 million, of which $250 million expire on August 31, 2007 and $500 million expire on October 31, 2007 and uncommitted lines aggregating $250 million. The committed lines of credit can be canceled at the option of the lender without default upon ninety-to-one hundred eighty days notice. LendingTree Loans believes that the availability under these lines is sufficient to fund its operating needs in the foreseeable future and intends to extend the facilities on or prior to expiration. Loans under the warehouse lines of credit are repaid from proceeds from the sale of loans held for sale by LendingTree Loans.

In connection with the IAC Search & Media acquisition, IAC guaranteed $115 million principal amount of the Convertible Notes, which are convertible at the option of the holders into shares of both IAC common stock and Expedia common stock at an initial conversion price of $13.34 per share, subject to certain adjustments. Upon conversion, IAC and Expedia have the right, subject to certain conditions, to deliver cash (or a combination of cash and shares) in lieu of shares of its respective common stock. During the three months ended March 31, 2007, $6.0 million of Convertible Notes was converted into 0.2 million IAC common shares and 0.2 million Expedia common shares. The remaining outstanding principal amount of the Convertible Notes is $14.1 million at March 31, 2007.

In connection with the financing of the construction of IAC’s corporate headquarters, on August 31, 2005, the New York City Industrial Development Agency issued $80 million in aggregate principal amount of Liberty Bonds. Interest on the Liberty Bonds is payable semi-annually, at a rate of 5% per annum, on March 1 and September 1 of each year and commenced on March 1, 2006. IAC is obligated to make all principal, interest and other payments in respect of the Liberty Bonds, which mature on September 1, 2035. Liberty Bonds proceeds were used for certain expenditures relating to the construction of IAC’s corporate headquarters and not for general corporate purposes.

IAC anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its overall operations. The Company may make a number of acquisitions, which could result in the reduction of its cash balance or the incurrence of debt. The Company expects that 2007 capital expenditures will be approximately the same as in 2006. Furthermore, other expenditures are expected to be higher than current amounts over the next several years, primarily due to increased marketing and distribution expenses as well as the continued improvement and expansion of technology infrastructure, including data centers.

We believe that our financial situation would enable us to absorb a significant potential downturn in business. The Company has considered its anticipated operating cash flows in 2007, cash and cash

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equivalents and marketable securities, borrowing capacity under warehouse lines of credit and access to capital markets and believes that these are sufficient to fund its operating needs, including commitments and contingencies and capital and investing commitments for the foreseeable future.

This excerpt taken from the IACI 10-K filed Mar 1, 2007.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

        All IAC common stock share information has been adjusted to reflect IAC's one-for-two reverse stock split in August 2005.

        As of December 31, 2006, the Company had $1.5 billion of cash and cash equivalents and restricted cash and cash equivalents, and $897.7 million of marketable securities on hand, including $229.4 million in funds representing amounts equal to the face value of tickets sold by Ticketing on behalf of its clients.

        During 2006 and 2005, IAC purchased 36.4 million and 50.6 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $999.7 million and $1.8 billion, respectively. IAC also repurchased an additional 7.6 million shares of IAC common stock from January 1, 2007 to February 2, 2007 for aggregate consideration of $288.2 million. On October 31, 2006, the Company announced that its Board of Directors authorized the repurchase of up to 60 million shares of IAC common stock of which 58.8 million shares remain at February 2, 2007. IAC may purchase shares over an indefinite period of time depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

        Net cash provided by operating activities attributable to continuing operations was $814.3 million in 2006 and net cash used in operating activities attributable to continuing operations was $82.5 million in 2005. This year over year comparison is affected by higher cash tax payments made in 2005, including $862.6 million related to the gain on the sale of the VUE interests and the net use of $166.3 million in cash in 2005 to fund the increase in loans held for sale. The net change related to loans held for sale is offset by the net change in the warehouse lines of credit which is included within financing cash flows. Cash provided by operating activities in 2006 was also favorably impacted by higher non-cash expenses. These positive factors in 2006 were partially offset by lower interest income and a smaller contribution from Ticketing client funds. The reduced contribution from Ticketing client funds of $2.6 million in 2006 compared with $70.9 million in 2005 is primarily due to timing of settlements with clients. There is a seasonal element to the inventory balances at HSN and the Discounts segment as inventory tends to be higher in the third quarter in anticipation of the fourth quarter selling season. Cornerstone Brands inventory levels tend to be higher in the second and third quarters to support their summer and fourth quarter selling seasons, respectively. During 2006, inventory increased by $26.3 million to $362.2 million from $335.9 million at December 31, 2005 primarily due to inventory increases at the Retailing sector.

        In accordance with the Company's adoption of SFAS 123R, excess tax benefits from stock-based awards of $18.0 million in 2006 are included as a component of cash flows from financing activities attributable to continuing operations. Excess tax benefits from stock-based awards in 2005 of $152.7 million were included as a component of cash flows from operating activities attributable to continuing operations. This change in classification negatively impacted the year over year comparison of 2006 and 2005 net cash provided by operating activities attributable to continuing operations. This change in classification reduced the amounts we report as net cash provided by operating activities attributable to continuing operations and increased the amount we report as net cash provided by financing activities attributable to continuing operations in 2006. Total cash flow will not be impacted from what would have been reported under the prior accounting rules. Total cash flow reflects net cash taxes paid of $98.5 million in 2006 compared to $883.9 million in 2005.

        Net cash provided by investing activities attributable to continuing operations in 2006 of $487.4 million resulted from the net proceeds of $609.0 million related to the sales and maturities of marketable securities and proceeds from the sale of PRC of $267.6 million, partially offset by capital expenditures of $251.4 million and acquisitions, net of cash acquired, of $117.6 million. Net cash provided by investing activities attributable to continuing operations in 2005 of $2.1 billion resulted primarily from the proceeds generated from the sale of IAC's common and preferred interests in VUE

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of $1.9 billion, net proceeds of $965.5 million related to the sales and maturities of marketable securities and proceeds from the sale of EUVÍA of $183.0 million. Partially offsetting these amounts were acquisitions, net of cash acquired, of $693.4 million and capital expenditures of $222.9 million. Cash acquisitions in 2005 primarily relate to Cornerstone Brands.

        Net cash used in financing activities attributable to continuing operations in 2006 of $893.2 million was primarily due to the purchase of treasury stock of $983.2 million, partially offset by the proceeds from the issuance of common stock pursuant to stock option exercises of $93.8 million. Net cash used in financing activities attributable to continuing operations in 2005 of $2.7 billion was primarily due to the purchase of treasury stock of $1.8 billion, the redemption of substantially all of IAC's convertible preferred stock of $655.7 million, as well as the repayment of $360.8 million of 1998 Senior Notes due November 15, 2005. These items were partially offset by increased net borrowings under various warehouse lines of credit of $162.8 million at LendingTree Loans and $80.0 million of borrowings under the Liberty Bond program. The borrowings under the warehouse lines of credit are directly related to the changes in loans held for sale included within cash flows from operations.

        Net cash provided by discontinued operations in 2006 of $0.7 million relates primarily to the operations of PRC through November 28, 2006, partially offset by iBuy and Quiz TV Limited. Net cash provided by discontinued operations in 2005 of $696.2 million relates primarily to the operations of Expedia through August 8, 2005 and EUVÍA through June 2, 2005. The Company does not expect future cash flows generated from existing discontinued operations to be significant.

        As of December 31, 2006, the Company had $1.2 billion in short and long-term obligations, of which $358.8 million, consisting primarily of various warehouse lines of credit, are classified as current. Long-term debt consists primarily of the 7% Senior Notes due 2013 (the "2002 Senior Notes"), the Convertible Notes due 2008 and the Liberty Bonds due 2035. The Company's cash, cash equivalents and marketable securities and access to the capital markets is believed to be sufficient to fund its debt payments.

        As of December 31, 2006, LendingTree Loans had warehouse lines of credit totaling $1.0 billion, of which $338.5 million was outstanding. Borrowings under the warehouse lines of credit are used to fund, and are secured by, consumer residential loans that are held for sale. Interest rates under these lines of credit fall within a range of 30-day LIBOR plus 75 - 100 basis points, depending on the underlying quality of the loans in the borrowing base and the length of time the borrowings remain outstanding, but may exceed this range under certain circumstances. Under the terms of the committed lines of credit, LendingTree Loans is required to maintain various financial and other covenants. Borrowings under these lines of credit are non-recourse to IAC and LendingTree. As of December 31, 2006, LendingTree Loans had committed lines aggregating $750 million, of which $250 million expire on August 31, 2007 and $500 million expire on October 31, 2007 and uncommitted lines aggregating $250 million. The committed lines of credit can be canceled at the option of the lender without default upon ninety-to-one hundred eighty days notice. LendingTree Loans believes that the availability under these lines is sufficient to fund its operating needs in the foreseeable future and intends to extend the facilities on or prior to expiration. Loans under the warehouse lines of credit are repaid from proceeds from the sale of loans held for sale by LendingTree Loans.

        In connection with the IAC Search & Media acquisition, IAC guaranteed $115.0 million par value of the Convertible Notes, which are convertible at the option of the holders into shares of both IAC common stock and Expedia common stock at an initial conversion price of $13.34 per share, subject to certain adjustments. Upon conversion, IAC and Expedia have the right, subject to certain conditions, to deliver cash (or a combination of cash and shares) in lieu of shares of its respective common stock. During 2006, $93.9 million of Convertible Notes was converted into 3.5 million IAC and 3.5 million Expedia common shares. The remaining outstanding principal amount of the Convertible Notes is

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$20.1 million at December 31, 2006. During January and February 2007, $6.0 million of Convertible Notes was converted into 0.2 million IAC common shares and 0.2 million Expedia common shares.

        In connection with the financing of the construction of IAC's corporate headquarters, on August 31, 2005, the New York City Industrial Development Agency issued $80 million in aggregate principal amount of Liberty Bonds. Interest on the Liberty Bonds is payable semi-annually at a rate of 5% per annum, on March 1 and September 1 of each year and commenced on March 1, 2006. IAC is obligated to make all principal, interest and other payments in respect of the Liberty Bonds, which mature on September 1, 2035. Liberty Bonds proceeds have only been used for certain expenditures relating to the construction of IAC's corporate headquarters and not for general corporate purposes.

        IAC anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its overall operations. The Company may make a number of acquisitions, which could result in the reduction of its cash balance or the incurrence of debt. The Company expects that 2007 capital expenditures will be approximately the same as in 2006. Furthermore, other expenditures are expected to be higher than current amounts over the next several years, primarily due to increased marketing and distribution expenses as well as the continued improvement and expansion of technology infrastructure, including data centers.

        We believe that our financial situation would enable us to absorb a significant potential downturn in business. The Company has considered its anticipated operating cash flows in 2007, cash and cash equivalents and marketable securities, borrowing capacity under warehouse lines of credit and access to capital markets and believes that these are sufficient to fund its operating needs, including commitments and contingencies and capital and investing commitments for the foreseeable future.

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