ServiceMagic 2010 Annual Report Download - page 48

Table of Contents
IAC'S PRINCIPLES OF FINANCIAL REPORTING
IAC reports Operating Income Before Amortization as a supplemental measure to generally accepted accounting principles ("GAAP"). This
measure is one of the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by
which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that
we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but
should not be considered a substitute for or superior to GAAP results. IAC endeavors to compensate for the limitations of the non-GAAP
measure presented by providing the comparable GAAP measure with equal or greater prominence, financial statements prepared in accordance
with GAAP, and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage
investors to examine the reconciling adjustments between the GAAP and non-GAAP measure which we discuss below.
Definition of IAC's Non-GAAP Measure
Operating Income Before Amortization is defined as operating income excluding, if applicable: (1) non-cash compensation expense,
(2) amortization of non-cash marketing, (3) amortization and impairment of intangibles, (4) goodwill impairment, (5) pro forma adjustments for
significant acquisitions, and (6) 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. Operating Income Before Amortization has certain limitations in that it does not take into account the impact to
IAC's statement of operations of certain expenses, including non-cash compensation, non-cash marketing, and acquisition-related accounting.
Pro Forma Results
We will only present Operating Income Before Amortization on a pro forma basis if we view a particular transaction as significant in size or
transformational in nature. For the periods presented in this report, there are no transactions that we have included on a pro forma basis.
One-Time Items
Operating Income Before Amortization is presented before one-time items, if applicable. These items are truly one-time in nature and non-
recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance
with the Securities and Exchange Commission rules. For the periods presented in this report, there are no one-time items.
Non-Cash Expenses That Are Excluded From IAC's Non-GAAP Measure
Non-cash compensation expense consists principally of expense associated with the grants, including unvested grants assumed in
acquisitions, of stock options, restricted stock units and restricted stock. These expenses are not paid in cash, and we include the related shares in
our fully diluted shares outstanding which, for stock options and restricted stock units, are included on a treasury method basis. Upon the
exercise of certain stock options and vesting of restricted stock units and restricted stock, the awards are settled, at the Company's discretion, on
a net basis, with the Company remitting the required tax withholding amount from its current funds.
Amortization of non-cash marketing consists of non-cash advertising credits secured from Universal Television as part of the transaction
pursuant to which VUE was created, and the subsequent transaction by which IAC sold its partnership interests in VUE (collectively referred to
as "NBC Universal Advertising"). The NBC Universal Advertising was available for television advertising on
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