ServiceMagic 2013 Annual Report Download - page 45

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 and impairment of intangibles, (3) goodwill impairment, (4) acquisition-related contingent consideration fair value adjustments
and (5) 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 and acquisition-related accounting.
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. GAAP results include one-time items. For the periods presented in this report, there are no
adjustments for 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 ("RSUs") and performance-
based RSUs. These expenses are not paid in cash, and we include
the related shares in our fully diluted shares outstanding which, for stock options and RSUs, are included on a treasury method basis, and for
performance-based RSUs are included on a treasury method basis once the performance conditions are met. Upon the exercise of certain stock
options and vesting of RSUs and performance-
based RSUs, 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 intangibles (including impairment of intangibles, if applicable) and goodwill impairment (if applicable) are non-cash
expenses relating primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired
company, such as content, technology, customer lists, advertiser and supplier relationships, are valued and amortized over their estimated lives.
Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not
subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. While it is
likely that we will have significant intangible amortization expense as we continue to acquire companies, we believe that intangible assets
represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairment charges of
intangible assets or goodwill, if applicable, are not ongoing costs of doing business.
Acquisition-related contingent consideration fair value adjustments are accounting adjustments to record contingent consideration
liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are
considered non-operational in nature and, therefore, are not indicative of current or future performance or ongoing costs of doing business.
RECONCILIATION OF OPERATING INCOME BEFORE AMORTIZATION
For a reconciliation of Operating Income Before Amortization to operating income (loss) by reportable segment for the years ended
December 31, 2013, 2012 and 2011, see Note 15 to the consolidated financial statements.
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