On August 20, 2008, IAC completed its previously announced plan to separate into five publicly traded companies:

º •
º IAC, which includes:

º •
º the businesses comprising its Media & Advertising segment;

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º the Match and ServiceMagic segments;

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º the businesses comprising its Emerging Businesses segment, including Shoebuy and ReserveAmerica, which were previously included in the former Retailing and Ticketmaster segments, respectively; and

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º certain investments in unconsolidated affiliates.

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º HSN, Inc. ("HSNi"), which includes HSN TV, HSN.com and the Cornerstone Brands, Inc. portfolio of catalogs, websites and retail locations;

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º Interval Leisure Group, Inc. ("ILG"), which includes the businesses that comprised the former Interval segment;

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º Ticketmaster, which includes its primary domestic and international operations as well as certain investments in unconsolidated affiliates; and

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º Tree.com, Inc. ("Tree.com"), which includes the businesses that comprised the former Lending and Real Estate segments.

We refer to this transaction as the "Spin-Off". Immediately subsequent to the Spin-Off, IAC effected a one-for-two reverse stock split. All share information, unless otherwise noted, has been adjusted to reflect the impact of the reverse stock split but has not been adjusted for the relative values of the spun-off businesses.

All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.

Discontinued Operations

During 2006, Quiz TV Limited, which was previously reported in IAC's Emerging Businesses segment, ceased operations, PRC, IAC's former Teleservices subsidiary, was sold and iBuy, which was also previously reported in IAC's Emerging Businesses segment, was classified as held for sale. During 2007, iBuy's assets were sold and HSNi's German TV and internet retailer, Home Shopping Europe GmbH & Co. KG, and its affiliated station HSE24 ("HSE"), which was previously reported in the International segment of IAC's former Retailing sector, was also sold. During 2008, IAC sold Entertainment Publications, Inc. ("EPI"), which previously comprised IAC's Entertainment segment, and completed the separation of HSNi, ILG, Ticketmaster and Tree.com into separate independent public companies.

Results

    Set forth below are the contributions made by our various segments and
corporate expenses to consolidated revenue, operating (loss) income and
Operating Income Before Amortization (as defined in IAC's Principles of
Financial Reporting) for the years ended December 31, 2008, 2007 and 2006
(Dollars in thousands, rounding differences may occur).

                                                  Years Ended December 31,
                                  2008        Growth        2007       Growth        2006
 Revenue:
 Media & Advertising           $   778,809          3 %  $   758,529        39 %  $   544,229
 Match                             365,505          5 %      348,733        12 %      311,227
 ServiceMagic                      123,914         33 %       93,385        47 %       63,700
 Emerging Businesses               196,589         35 %      145,300        70 %       85,649
 Inter-segment elimination         (19,722 )      (48 )%     (13,365 )    (217 )%      (4,212 )

         Total                 $ 1,445,095          8 %  $ 1,332,582        33 %  $ 1,000,593

                                                 Years Ended December 31,
                                   2008      Growth        2007       Growth        2006
    Operating (Loss) Income:
    Media & Advertising         $  100,748       237 %  $   29,899         NM    $   (5,986 )
    Match                           75,490        15 %      65,780         13 %      58,360
    ServiceMagic                    23,983        36 %      17,587         42 %      12,411
    Emerging Businesses            (55,970 )    (162 )%    (21,344 )       16 %     (25,459 )
    Corporate                     (206,212 )     (21 )%   (170,426 )      (13 )%   (150,632 )

         Total                  $  (61,961 )      21 %  $  (78,504 )       29 %  $ (111,306 )

                                                     Years Ended December 31,
                                        2008      Growth       2007       Growth       2006
 Operating Income Before
 Amortization:
 Media & Advertising                 $  139,603        58 %  $  88,199         51 %  $  58,275
 Match                                   91,266        16 %     78,367         24 %     63,395
 ServiceMagic                            26,244        26 %     20,764         29 %     16,151
 Emerging Businesses                    (35,493 )    (348 )%    (7,914 )       44 %    (14,051 )
 Corporate                             (121,522 )     (23 )%   (98,932 )      (12 )%   (88,362 )

         Total                       $  100,098        24 %  $  80,484        127 %  $  35,408

Refer to Note 12 to the consolidated financial statements for reconciliations by segment of Operating Income Before Amortization to Operating
(Loss) Income.

Sources of Revenue

For the years ended December 31, 2008, 2007 and 2006, Media & Advertising was our largest financial contributor. Our Media & Advertising businesses offer information and services via the internet and are compensated directly and indirectly by advertisers generally based on performance and volume related measures.

Our Match business offers subscription membership services and our ServiceMagic business is generally compensated on a fee basis by home service providers who participate in our services.

Strategic Partnerships, Advertiser Relationships and Online Advertising Spend

We market and offer our products and services directly to customers through branded websites and membership programs, allowing our customers to transact directly with us in a convenient manner. We

have made, and expect to continue to make, substantial investments in online and offline advertising to build our brands and drive traffic to our businesses.

We pay traffic acquisition costs which consist of revenue share payments to third parties that have distributed our toolbars and/or integrated paid listings into their websites and similar arrangements with third parties who direct traffic to our websites. We also pay to market and distribute our services on third party distribution channels, such as internet portals and search engines. In addition, some of our businesses manage affiliate programs, pursuant to which we pay commissions and fees to third parties based on revenue earned. These distribution channels might also offer their own products and services, as well as those of other third parties, that compete with those made available and offered by our businesses.

The cost of acquiring new customers through online and offline third party distribution channels has increased, particularly in the case of online channels as internet commerce continues to grow and competition in the segments in which IAC's businesses operate increases.

Our various businesses provide supplier partners with important customer acquisition channels and we believe that the ability of our supplier partners to reach a large qualified audience through our services is a significant benefit. While we aim to build and maintain strong relationships with our supplier partners, we may not succeed in these efforts and there is always the risk that certain supplier partners may not make their products and services available to us in the future, including advertisers on the businesses within Media & Advertising.

The substantial majority of the paid listings on our search properties is provided by Google Inc. ("Google") pursuant to a paid listing supply agreement effective January 1, 2008 which expires December 31, 2012. For the years ended December 31, 2008, 2007 and 2006, revenue earned from this arrangement was $610.8 million, $568.1 million and $379.0 million, respectively. Principally all of this revenue is earned by IAC Search & Media.

International Operations

We continue to seek to expand the presence of certain of our brands and businesses abroad, particularly in Europe, given the large consumer marketplace for the services and goods that our brands and businesses offer. We believe foreign markets generally exhibit similar characteristics of the U.S. in regards to customer acceptance of an online marketplace. As a percentage of total IAC revenue (which excludes revenue related to discontinued operations), international operations represented approximately 19% in 2008 and 15% in both 2007 and 2006. International revenue grew approximately 35% in 2008 from 2007.

Economic and Other Trends

Overall adverse economic conditions have affected IAC's businesses, particularly revenues derived from advertising services provided by the businesses in our Media & Advertising segment. This was reflected in decline in query volumes and slowing growth in monetization of queries at Ask and our toolbars business. Moreover, changes we made in the fourth quarter of 2008 to enhance our Ask.com website and make it more efficient for users has led to fewer queries and reduced monetization, as users are finding answers more quickly.

Going forward, we believe that the current economic environment will continue to adversely impact IAC's results as consumers cut back on discretionary spending, leading to fewer queries likely to generate revenue, and advertisers further pare their budgets. We believe, however, that the enhancements made to the Ask.com website, along with other strategies for growth in our search businesses, will result in increased retention and frequency offsetting, to some extent, the adverse economic impact.

During 2008, ServiceMagic experienced slowing growth in its higher margin home repair and improvement requests. In early 2009, we continue to see a reduction in the rate of growth of service requests while at the same time marketing costs have increased, thereby adversely affecting margins. It is likely that demand for ServiceMagic's services will continue to be adversely impacted if consumer confidence remains low and consumers delay spending on discretionary home repair and improvement projects. Lastly, while we have not seen any discernible impact from the current economic downturn at Match, a prolonged continuation, or worsening, of the recession could adversely affect this business.

Results of Operations for the Years Ended December 31, 2008, 2007 and 2006

IAC Consolidated Results

Revenue

Revenue in 2008 increased 8% or $112.5 million from 2007 primarily as a result of revenue increases of $51.3 million from Emerging Businesses, $30.5 million from ServiceMagic, $20.3 million from Media & Advertising and $16.8 million from Match. The contribution from Emerging Businesses was driven primarily by strong revenue growth at Pronto and Shoebuy. The increase at ServiceMagic reflected a more active service provider network and a 27% increase in service requests driven by increased marketing efforts throughout the year. Also contributing to the increased revenue was strong growth from proprietary search properties at Media & Advertising. Revenue per query on proprietary search properties grew primarily from improved economics associated with the renewed paid listing supply agreement with Google. Partially offsetting this increase in proprietary revenue was a sharp decline in network revenue, resulting from the discontinuation of relationships with certain partners that took place during 2008 in conjunction with the renewed Google agreement. The increase at Match was driven by a 5% increase in worldwide subscribers and a 3% increase in average revenue per subscriber.

Revenue in 2007 increased 33% or $332.0 million primarily as a result of revenue increases of $214.3 million from Media & Advertising, $59.7 million from Emerging Businesses, $37.5 million from Match and $29.7 million from ServiceMagic. The revenue growth from Media & Advertising was driven primarily by an increase in queries from distributed search and paid listings and an increase in both revenue per query and queries at Fun Web Products and Ask. The contribution from Emerging Businesses was driven primarily by strong revenue growth at Shoebuy and Pronto. The revenue increase from Match was driven by an 11% increase in average revenue per subscriber, primarily in North America, and a 1% increase in worldwide subscribers. Revenue growth from ServiceMagic was driven primarily by a 37% increase in customer service requests, improved monetization of service requests and a 9% increase in the number of service providers in the network.

Cost of Sales

                                                Years Ended December 31,
                               2008      % Change         2007      % Change         2006
                                                 (Dollars in thousands)
Cost of sales                $518,192           (7 )%   $554,321           50 %    $369,080
As a percentage of total       36%            (574 ) bp   42%             471  bp    37%
revenue
Gross margin                   64%             574  bp    58%            (471 ) bp   63%


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bp = basis points

Cost of sales consists primarily of traffic acquisition costs, compensation and other employee-related costs (including stock-based compensation) for personnel engaged in data center functions, the cost of products sold and shipping and handling costs. Traffic acquisition costs consist of revenue share payments to partners that have distributed toolbars and/or integrated paid listings into their websites and similar arrangements with third parties who direct traffic to our websites.

Cost of sales in 2008 decreased $36.1 million from 2007 primarily due to decreases of $52.2 million from Media & Advertising and $14.6 million from Match, partially offset by increases of $22.1 million from Emerging Businesses and $15.9 million from ServiceMagic. The decrease in cost of sales was primarily due to decreases of $43.7 million and $16.1 million in traffic acquisition costs from Media & Advertising and Match, respectively. Overall traffic acquisition costs from Media & Advertising during the year decreased as a direct result of a decrease in network revenue, partially offset by growth in distribution revenue included as a component of proprietary revenue at IAC Search & Media. As a

percentage of revenue, traffic acquisition costs associated with network revenue generated from integrated paid listings are lower than traffic acquisition costs associated with distribution revenue generated from partners who redirect traffic to the Ask.com landing page. The decrease in traffic acquisition costs from Match was due primarily to improved economics from agreements with certain domestic distribution partners. Partially offsetting these decreases was an increase in cost of sales from Emerging Businesses primarily due to an increase of $7.8 million in cost of products sold and $3.2 million in shipping and handling costs at Shoebuy. Cost of sales from Emerging Businesses was further impacted by a write-off of capitalized software, including game development costs, at InstantAction.com, increased costs associated with Gifts.com and costs incurred by various early stage businesses not in the year ago period. Also offsetting the overall decrease in cost of sales was increased traffic acquisition costs from ServiceMagic as it continued to focus its spend on driving higher margin home repair and improvement requests. However, during 2008, ServiceMagic experienced slowing growth in these high margin requests due, in part, to this weak economic environment.

Cost of sales in 2007 increased $185.2 million from 2006 primarily due to increases of $151.6 million from Media & Advertising and $29.7 million from Emerging Businesses. The increase in cost of sales from Media & Advertising was primarily due to an increase of $138.0 million in traffic acquisition costs which was a direct result from the growth in network revenue at IAC Search & Media. Cost of sales from Emerging Businesses increased primarily due to an increase of $15.6 million in cost of products sold and $4.3 million in shipping and handling costs at Shoebuy.

Selling and marketing expense

                                                  Years Ended December 31,
                                      2008     % Change     2007     % Change     2006
                                                   (Dollars in thousands)
 Selling and marketing expense      $433,332     11%      $391,522     21%      $322,520
 As a percentage of total revenue     30%       61 bp       29%      (285) bp     32%

Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-related costs (including stock-based compensation) for personnel engaged in customer service and sales functions. Advertising and promotional expenditures include online marketing, including fees paid to search engines, and offline marketing, including television, radio and print advertising.

Selling and marketing expense in 2008 increased $41.8 million from 2007, primarily due to increases of $24.9 million from Emerging Businesses, $12.8 million from Match and $4.6 million from ServiceMagic. The increase in selling and marketing expense from Emerging Businesses is primarily due to an increase of $20.3 million in online marketing from Pronto. Selling and marketing expense from Match increased primarily due to an increase of $11.7 million in advertising and promotional expenditures, including those associated with television advertising and online marketing related to Chemistry.com and various international marketing campaigns. Also contributing to the increase in selling and marketing expense is an increase of $4.9 million in compensation and other employee-related costs from ServiceMagic primarily related to the expansion of its sales force due in part to the opening of a new call center in Kansas City in the second quarter of 2007.

Selling and marketing expense in 2007 increased $69.0 million from 2006, primarily due to increases of $25.5 million from Media & Advertising, $19.1 million from Match, $16.0 million from Emerging Businesses and $8.2 million from ServiceMagic. The increase in selling and marketing expense from Media & Advertising was primarily due to an increase of $10.6 million in advertising and promotional expenditures related primarily to Ask.com's 2007 ad campaign, as well as an increase of $10.4 million in compensation and other employee-related costs. Advertising and promotional expenditures at Media & Advertising were favorably impacted by the reduction in 2007 marketing expense of $17.4 million, resulting from the net capitalization and amortization of costs associated with the distribution of toolbars, which began on April 1, 2007. These costs had previously been expensed as incurred. The increase in compensation and other employee-related costs is due in part to a 34% increase in average headcount from the prior year at Citysearch primarily related to the opening of a new call center in late 2006. Selling and marketing expense from Match increased primarily due to an increase of $22.0 million in advertising and promotional expenditures related to its domestic and international marketing campaigns. Also contributing to the increase in selling and marketing expense is increased expenses at Emerging Businesses primarily due to an increase of $8.9 million in online marketing at Pronto. In addition, selling and marketing expense increased at ServiceMagic primarily due to an increase in compensation and other employee-related costs associated with the expansion of the sales force and increased marketing expenses.

General and administrative expense

                                                   Years Ended December 31,
                                       2008     % Change     2007     % Change     2006
                                                    (Dollars in thousands)
General and administrative expense   $343,504     26%      $273,551      9%      $250,355
As a percentage of total revenue       24%       324 bp      21%      (449) bp     25%

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, human resources and executive management functions, facilities costs and fees for professional services.

General and administrative expense in 2008 increased $70.0 million from 2007 primarily due to increases of $36.7 million from corporate and $26.1 million from Emerging Businesses. The increase from corporate is principally due to an increase of $37.9 million in expenses related to the Spin-Off and an increase of $10.4 million in non-cash compensation expense, partially offset by a decrease of $5.8 million in professional fees, excluding Spin-Off related expenses noted above, a reduction of $3.7 million in insurance reserves due to favorable loss experience and a decrease of $3.5 million in rent expense. The increase in non-cash compensation expense is primarily due to the acceleration and modification of certain equity awards associated with the Spin-Off. General and administrative expense from Emerging Businesses increased primarily due to the inclusion in the prior year of an $8.2 million reimbursement of previously expensed advances related to the restructuring of our interests in a business venture as well as increased operating expenses associated with Connected Ventures, InstantAction.com, RushmoreDrive.com and various early stage businesses not in the year ago period.

As of December 31, 2008, there was $152.6 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.9 years.

General and administrative expense in 2007 increased $23.2 million from 2006 primarily due to increases of $12.8 million from corporate and $10.2 million from ServiceMagic. The increase in general and administrative expense at corporate was primarily due to an increase of $4.8 million in non-cash compensation expense, $4.1 million in expenses related to the Spin-Off and the inclusion of a favorable settlement of a lawsuit in the prior year period. The increase in non-cash compensation expense is

primarily due to equity grants issued in 2007, partially offset by a decrease in expense associated with unvested stock options assumed in the IAC Search & Media acquisition as well as the impact of expense relating to equity modifications recorded in the prior year. General and administrative expense from ServiceMagic in 2007 reflects an increase of $7.4 million in compensation and other employee-related costs, due in part, to an increase in headcount of 20%, resulting from growth in the business.

Product development expense

                                                  Years Ended December 31,
                                       2008     % Change    2007     % Change    2006
                                                   (Dollars in thousands)
   Product development expense        $65,457     41%      $46,428     23%      $37,687
   As a percentage of total revenue     5%       105 bp      3%      (28) bp      4%

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) that are not capitalized for personnel engaged in the design, development, testing and enhancement of technology at IAC Search & Media, Match and various Emerging Businesses.

Product development expense in 2008 increased $19.0 million from 2007, primarily due to increases of $5.7 million and $4.5 million in compensation and other employee-related costs from Media & Advertising and Match, respectively. The increases from Media & Advertising and Match are due in part to an approximate 8% and 30% increase in average headcount, respectively, as they continue to upgrade and enhance their technology and products.

Product development expense in 2007 increased $8.7 million from 2006, primarily due to an increase of $5.7 million in compensation and other employee-related costs at IAC Search & Media in 2007. The increase in compensation and other employee-related costs is primarily due to a 14% increase in headcount.

Depreciation

                                                  Years Ended December 31,
                                       2008     % Change    2007     % Change    2006
                                                   (Dollars in thousands)
   Depreciation                       $71,051     19%      $59,861     13%      $52,904
   As a percentage of total revenue     5%       42 bp       4%      (80) bp      5%

Depreciation in 2008 and 2007 increased $11.2 million and $7.0 million, respectively, primarily due to the incremental depreciation associated with capital expenditures made during 2007 and 2008 and various acquisitions, partially offset by certain fixed assets becoming fully depreciated during the period.

Operating Income Before Amortization

                                                    Years Ended December 31,
                                         2008     % Change    2007     % Change    2006
                                                     (Dollars in thousands)
Operating Income Before Amortization   $100,098     24%      $80,484     127%     $35,408
As a percentage of total revenue          7%       89 bp       6%       250 bp      4%

Operating Income Before Amortization in 2008 increased $19.6 million from 2007 primarily due to growth of $51.4 million, $12.9 million and $5.5 million from Media & Advertising, Match and ServiceMagic, respectively. These increases in Operating Income Before Amortization were partially offset by decreases of $27.6 million from Emerging Businesses and $22.6 million from corporate.

Contributing favorably to Operating Income Before Amortization is the impact of higher revenue and lower traffic acquisition costs from Media & Advertising. . . .