10-Q 1 iaci-2012930x10q.htm 10-Q IACI-2012.9.30-10Q
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As filed with the Securities and Exchange Commission on November 8, 2012


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2012
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 0-20570
 
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
incorporation or organization)

59-2712887
(I.R.S. Employer
Identification No.)
 555 West 18th Street, New York, New York 10011
 (Address of registrant's principal executive offices)
 (212) 314-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
 (Do not check if a smaller
reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of October 19, 2012, the following shares of the registrant's common stock were outstanding:
Common Stock
82,665,959

Class B Common Stock
5,789,499

Total outstanding Common Stock
88,455,458

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of October 19, 2012 was $4,319,523,212. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant are assumed to be affiliates of the registrant.




PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
IAC/INTERACTIVECORP
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
September 30, 2012
 
December 31, 2011
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
501,779

 
$
704,153

Marketable securities
138,926

 
165,695

Accounts receivable, net of allowance of $8,071 and $7,309, respectively
220,735

 
177,030

Other current assets
126,787

 
112,255

Total current assets
988,227

 
1,159,133

Property and equipment, net
272,317

 
259,588

Goodwill
1,556,833

 
1,358,524

Intangible assets, net
491,485

 
378,107

Long-term investments
169,728

 
173,752

Other non-current assets
103,985

 
80,761

TOTAL ASSETS
$
3,582,575

 
$
3,409,865

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Current maturities of long-term debt
$
15,844

 
$

Accounts payable, trade
86,810

 
64,398

Deferred revenue
159,498

 
126,297

Accrued expenses and other current liabilities
362,917

 
343,490

Total current liabilities
625,069

 
534,185

Long-term debt, net of current maturities
80,000

 
95,844

Income taxes payable
479,693

 
450,533

Deferred income taxes
304,889

 
302,213

Other long-term liabilities
33,332

 
16,601

 
 
 
 
Redeemable noncontrolling interests
58,956

 
50,349

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 248,747,173 and 234,100,950 shares, respectively, and outstanding 82,646,948 and 77,126,881 shares, respectively
249

 
234

Class B convertible common stock $.001 par value; authorized 400,000,000 shares; issued 16,157,499 shares and outstanding 5,789,499 shares
16

 
16

Additional paid-in capital
11,627,593

 
11,280,173

Accumulated deficit
(359,258
)
 
(477,785
)
Accumulated other comprehensive loss
(11,891
)
 
(12,443
)
Treasury stock 176,468,225 and 167,342,069 shares, respectively
(9,308,315
)
 
(8,885,146
)
Total IAC shareholders' equity
1,948,394

 
1,905,049

Noncontrolling interests
52,242

 
55,091

Total shareholders' equity
2,000,636

 
1,960,140

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
3,582,575

 
$
3,409,865


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

2



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share data)
Revenue
$
714,470

 
$
516,884

 
$
2,035,682

 
$
1,462,501

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
261,932

 
188,642

 
722,193

 
542,832

Selling and marketing expense
236,763

 
153,296

 
669,671

 
426,764

General and administrative expense
94,876

 
84,628

 
278,895

 
241,472

Product development expense
24,504

 
21,556

 
71,101

 
56,558

Depreciation
13,150

 
17,484

 
37,490

 
43,373

Amortization of intangibles
5,212

 
4,538

 
18,058

 
9,195

Total costs and expenses
636,437

 
470,144

 
1,797,408

 
1,320,194

Operating income
78,033

 
46,740

 
238,274

 
142,307

Equity in losses of unconsolidated affiliates
(3,298
)
 
(15,078
)
 
(28,208
)
 
(25,677
)
Other (expense) income, net
(944
)
 
4,308

 
(1,267
)
 
10,697

Earnings from continuing operations before income taxes
73,791

 
35,970

 
208,799

 
127,327

Income tax (provision) benefit
(27,606
)
 
32,003

 
(83,360
)
 
6,444

Earnings from continuing operations
46,185

 
67,973

 
125,439

 
133,771

Loss from discontinued operations, net of tax
(5,624
)
 
(3,922
)
 
(6,581
)
 
(8,358
)
Net earnings
40,561

 
64,051

 
118,858

 
125,413

Net loss (earnings) attributable to noncontrolling interests
156

 
922

 
(331
)
 
54

Net earnings attributable to IAC shareholders
$
40,717

 
$
64,973

 
$
118,527

 
$
125,467

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings per share from continuing operations
$
0.52

 
$
0.81

 
$
1.46

 
$
1.52

Diluted earnings per share from continuing operations
$
0.49

 
$
0.73

 
$
1.35

 
$
1.41

Basic earnings per share
$
0.46

 
$
0.77

 
$
1.38

 
$
1.43

Diluted earnings per share
$
0.43

 
$
0.69

 
$
1.28

 
$
1.32

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.24

 
$

 
$
0.48

 
$

 
 
 
 
 
 
 
 
Non-cash compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
1,550

 
$
1,449

 
$
4,775

 
$
3,682

Selling and marketing expense
1,386

 
1,241

 
3,512

 
3,476

General and administrative expense
18,850

 
18,118

 
52,378

 
53,444

Product development expense
1,565

 
2,077

 
4,593

 
5,451

Total non-cash compensation expense
$
23,351

 
$
22,885

 
$
65,258

 
$
66,053

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

3



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Net earnings
$
40,561

 
$
64,051

 
$
118,858

 
$
125,413

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
14,609

 
(39,619
)
 
(4,940
)
 
(29,631
)
Change in net unrealized (losses) gains on available-for-sale securities
(8,758
)
 
(16,624
)
 
4,685

 
18,192

Total other comprehensive income (loss)
5,851

 
(56,243
)
 
(255
)
 
(11,439
)
Comprehensive income
46,412

 
7,808

 
118,603

 
113,974

Comprehensive (income) loss attributable to noncontrolling interests
(2,026
)
 
7,078

 
476

 
6,084

Comprehensive income attributable to IAC shareholders
$
44,386

 
$
14,886

 
$
119,079

 
$
120,058

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

4



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
 
 
 
 
IAC Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Class B
Convertible
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
Total IAC
Shareholders'
Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2011
$
50,349

 
 
$
234

 
234,101

 
$
16

 
16,157

 
$
11,280,173

 
$
(477,785
)
 
$
(12,443
)
 
$
(8,885,146
)
 
$
1,905,049

 
$
55,091

 
$
1,960,140

Net (loss) earnings for the nine months ended September 30, 2012
(1,311
)
 
 

 

 

 

 

 
118,527

 

 

 
118,527

 
1,642

 
120,169

Other comprehensive (loss) income, net of tax
(485
)
 
 

 

 

 

 

 

 
552

 

 
552

 
(322
)
 
230

Non-cash compensation expense

 
 

 

 

 

 
63,235

 

 

 

 
63,235

 
2,023

 
65,258

Issuance of common stock upon exercise of stock options, vesting of restricted stock units and other, net of withholding taxes

 
 
3

 
2,918

 

 

 
35,958

 

 

 

 
35,961

 

 
35,961

Income tax benefit related to the exercise of stock options, vesting of restricted stock units and other

 
 

 

 

 

 
18,865

 

 

 

 
18,865

 

 
18,865

Issuance of common stock upon the exercise of warrants

 
 
12

 
11,728

 

 

 
284,099

 

 

 

 
284,111

 

 
284,111

Dividends

 
 

 

 

 

 
(45,841
)
 

 

 

 
(45,841
)
 

 
(45,841
)
Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(423,169
)
 
(423,169
)
 

 
(423,169
)
Purchase of redeemable noncontrolling interests
(2,955
)
 
 

 

 

 

 

 

 

 

 

 

 

Fair value of redeemable noncontrolling interests adjustment
8,896

 
 

 

 

 

 
(8,896
)
 

 

 

 
(8,896
)
 

 
(8,896
)
Transfer from noncontrolling interests to redeemable noncontrolling interests
7,192

 
 

 

 

 

 

 

 

 

 

 
(7,192
)
 
(7,192
)
Other
(2,730
)
 
 

 

 

 

 

 

 

 

 

 
1,000

 
1,000

Balance as of September 30, 2012
$
58,956

 
 
$
249

 
248,747

 
$
16

 
16,157

 
$
11,627,593

 
$
(359,258
)
 
$
(11,891
)
 
$
(9,308,315
)
 
$
1,948,394

 
$
52,242

 
$
2,000,636

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

5



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2012
 
2011
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
Net earnings
$
118,858

 
$
125,413

Less: Discontinued operations, net of tax
(6,581
)
 
(8,358
)
Earnings from continuing operations
125,439

 
133,771

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Non-cash compensation expense
65,258

 
66,053

Depreciation
37,490

 
43,373

Amortization of intangibles
18,058

 
9,195

Deferred income taxes
5,410

 
(44,548
)
Equity in losses of unconsolidated affiliates
28,208

 
25,677

Gain on sales of investments
(1,876
)
 
(1,861
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(16,443
)
 
(27,494
)
Other current assets
(9,749
)
 
9,005

Accounts payable and other current liabilities
18,700

 
15,512

Income taxes payable
29,479

 
6,173

Deferred revenue
10,575

 
26,668

Other, net
13,058

 
8,042

Net cash provided by operating activities attributable to continuing operations
323,607

 
269,566

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired
(377,123
)
 
(278,469
)
Capital expenditures
(32,363
)
 
(27,346
)
Proceeds from maturities and sales of marketable debt securities
79,353

 
528,170

Purchases of marketable debt securities
(47,902
)
 
(154,718
)
Proceeds from sales of long-term investments
12,744

 
14,021

Purchases of long-term investments
(10,031
)
 
(84,441
)
Other, net
(12,264
)
 
(11,436
)
Net cash used in investing activities attributable to continuing operations
(387,586
)
 
(14,219
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Purchase of treasury stock
(434,041
)
 
(389,566
)
Issuance of common stock, net of withholding taxes
320,070

 
62,045

Dividends
(43,695
)
 

Excess tax benefits from stock-based awards
23,486

 
22,878

Other, net
(4,696
)
 
(3,699
)
Net cash used in financing activities attributable to continuing operations
(138,876
)
 
(308,342
)
Total cash used in continuing operations
(202,855
)
 
(52,995
)
Total cash used in discontinued operations
(1,866
)
 
(7,379
)
Effect of exchange rate changes on cash and cash equivalents
2,347

 
(2,414
)
Net decrease in cash and cash equivalents
(202,374
)
 
(62,788
)
Cash and cash equivalents at beginning of period
704,153

 
742,099

Cash and cash equivalents at end of period
$
501,779

 
$
679,311

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

6

IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
IAC is a leading media and internet company comprised of more than 150 brands and products, including Match.com, Ask.com, CollegeHumor.com, and CityGrid Media. Focused in the areas of search, personals, local and media, IAC's family of websites is one of largest in the world, with 1.2 billion monthly visits across more than 30 countries.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
Basis of Presentation
The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated. Investments in entities in which the Company has the ability to exercise significant influence over the operating and financial matters of the investee, but does not have a controlling financial interest, are accounted for using the equity method and are included in "Long-term investments" in the accompanying consolidated balance sheet.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Interim results are not necessarily indicative of the results that may be expected for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2011.
During the first and second quarters of 2012, the Company renamed and realigned its reportable segments. Search was renamed "Search & Applications". The Media & Other segment was separated into a "Media" segment and an "Other" segment. The Company created a new segment called "Local" that includes HomeAdvisor (formerly ServiceMagic), which was previously reported as its own separate segment, and CityGrid Media, which was previously included in the Search & Applications segment. In addition, DailyBurn was moved from the Search & Applications segment to the Media segment and Pronto was moved from the Media & Other segment to the Search & Applications segment. Certain prior year amounts have been reclassified to conform to the current year presentation.
Accounting Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the fair values of marketable securities and other investments; the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recovery of definite-lived intangible assets and property and equipment; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts and revenue reserves; the reserves for income tax contingencies; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Certain Risks and Concentrations
A substantial portion of the Company's revenue is derived from online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or changes in advertising spending behavior or in customer buying behavior could adversely affect our operating results. Most of the Company's online advertising revenue is attributable to a paid listing supply agreement with Google Inc. ("Google"), which expires on March 31, 2016. For the three and nine months ended September 30, 2012, revenue earned from Google was $357.2 million and $1.0 billion, respectively. For the three and nine months ended September 30, 2011, revenue earned from Google was $242.9 million and $679.1 million,

7



respectively. This revenue was earned by the businesses comprising the Search & Applications segment. Accounts receivable related to revenue earned from Google totaled $125.3 million at September 30, 2012 and $105.7 million at December 31, 2011.
NOTE 2—INCOME TAXES
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended September 30, 2012, the Company recorded an income tax provision for continuing operations of $27.6 million and $83.4 million, respectively, which represents effective income tax rates of 37% and 40%, respectively. The effective rate for the three months ended September 30, 2012 is higher than the statutory rate of 35% due primarily to state taxes and interest on reserves for tax contingencies, partially offset by foreign income taxed at lower rates. The effective rate for the nine months ended September 30, 2012 is higher than the statutory rate of 35% due primarily to an increase in reserves for and interest on reserves for tax contingencies, a valuation allowance on the deferred tax asset created by The Newsweek/Daily Beast Company ("Newsweek Daily Beast") non-cash re-measurement charge related to our acquisition of a controlling interest, and state taxes, partially offset by foreign income taxed at lower rates and a net decrease in the valuation allowance on the beginning of the year deferred tax assets related to investments in unconsolidated affiliates.
For the three and nine months ended September 30, 2011, the Company recorded an income tax benefit for continuing operations of $32.0 million and $6.4 million, respectively, despite pre-tax income of $36.0 million and $127.3 million , respectively. The income tax benefit for the three months ended September 30, 2011 is due principally to the reversal of a previously established deferred tax liability of $43.6 million associated with the 2009 gain that was recognized upon the exchange of Match Europe for a 27% interest in Meetic S.A. ("Meetic"). In connection with the acquisition of a controlling interest in Meetic in 2011, the Company concluded that it intends to indefinitely reinvest the earnings of Match's international operations related to Meetic, including the 2009 gain on the sale of Match Europe outside of the United States. This income tax benefit was partially offset by the non-deductible nature of the non-cash re-measurement charge related to Match's 27% equity method investment in Meetic that was recorded upon our acquisition of a controlling interest. The income tax benefit for the nine months ended September 30, 2011 is due principally to the release of a previously established deferred tax liability as described above in the three month discussion, foreign income taxed at lower rates, and the reduction in state tax accruals resulting from income tax provision to tax return reconciliations and expirations of statutes of limitations, partially offset by interest on reserves for tax contingencies, states taxes, and the non-deductible nature of the non-cash re-measurement charge as described above in the three month discussion.
At September 30, 2012 and December 31, 2011, unrecognized tax benefits, including interest, were $485.8 million and $462.8 million, respectively. Unrecognized tax benefits, including interest, at September 30, 2012 increased $23.0 million from December 31, 2011 due principally to a net increase in deductible timing differences and additions for tax positions related to prior years. Of the total unrecognized tax benefits at September 30, 2012, $468.5 million is included in "Income taxes payable," $12.1 million relates to deferred tax assets included in "Deferred income taxes" and $5.2 million is included in "Accrued expenses and other current liabilities" in the accompanying consolidated balance sheet. Included in unrecognized tax benefits at September 30, 2012 is $79.8 million relating to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. If unrecognized tax benefits at September 30, 2012 are subsequently recognized, $94.7 million and $226.4 million, net of related deferred tax assets and interest, would reduce income tax expense for continuing operations and discontinued operations, respectively.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax provision. Included in income tax provision for continuing operations and discontinued operations for the three months ended September 30, 2012 is a $1.6 million expense and a $0.4 million benefit, respectively, net of related deferred taxes, for interest

8


on unrecognized tax benefits. Included in income tax provision for continuing operations and discontinued operations for the nine months ended September 30, 2012 is a $3.3 million expense and a $3.8 million benefit, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. At September 30, 2012 and December 31, 2011, the Company has accrued $112.2 million and $111.2 million, respectively, for the payment of interest. At September 30, 2012 and December 31, 2011, the Company has accrued $2.8 million and $2.5 million, respectively, for penalties.
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") has substantially completed its audit of the Company's tax returns for the years ended December 31, 2001 through 2006. The settlement of these tax years has not yet been submitted to the Joint Committee of Taxation for approval. The IRS began its audit of the Company's tax returns for the years ended December 31, 2007 through 2009 in July 2011. The statute of limitations for the years 2001 through 2009 has been extended to December 31, 2013. Various state and local jurisdictions are currently under examination, the most significant of which are California, New York and New York City for various tax years beginning with 2005. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $68.9 million within twelve months of the current reporting date, of which approximately $13.3 million could decrease income tax provision, primarily due to settlements, expirations of statutes of limitations, and the reversal of deductible temporary differences that will primarily result in a corresponding decrease in net deferred tax assets. An estimate of other changes in unrecognized tax benefits, while potentially significant, cannot be made.
NOTE 3—BUSINESS COMBINATIONS
Acquisition of About, Inc.
On September 24, 2012, IAC completed its purchase of all the outstanding shares of About, Inc. (“The About Group”), an online content and reference library offering expert, quality content across 90,000 topics. The preliminary purchase price was $300 million, which was paid in cash, plus an amount equal to the estimated net working capital at closing.
The financial results of The About Group will be included in IAC's consolidated financial statements, within the Search & Applications segment, beginning October 1, 2012. The estimated fair values of the assets acquired and liabilities assumed of The About Group reflected in the accompanying consolidated balance sheet at September 30, 2012 are preliminary.
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
 
 
(In thousands)
Cash and cash equivalents
 
 
$
998

Other current assets
 
 
23,316

Property and equipment
 
 
14,681

Goodwill
 
 
176,127

Intangible assets
 
 
110,400

Other assets
 
 
1,613

Total assets
 
 
327,135

Current liabilities
 
 
(7,543
)
Other liabilities
 
 
(3,336
)
Net assets
 
 
$
316,256

The purchase price was based on the expected financial performance of The About Group, not on the value of the net identifiable assets at the time of acquisition, which resulted in a significant portion of the purchase price being attributed to goodwill. The expected financial performance of The About Group reflects that it is complementary and synergistic to the existing businesses of the Company's Search & Applications segment, particularly Ask.com.

9


Intangible assets are as follows:
 
(In thousands)
 
Weighted-average
Amortization Life
(Years)
Indefinite-lived trade names
$
37,000

 
Indefinite
Content
48,400

 
4.0
Technology
16,100

 
3.0
Advertiser relationships
7,400

 
2.0
Customer lists
1,500

 
3.0
   Total
$
110,400

 
3.6
The About Group's other current assets, property and equipment, other assets, current liabilities and other liabilities were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair value of trade names was determined using a relief from royalty method. The fair value of content was determined using an excess earnings method. The fair value of developed technology was determined using replacement cost. The fair value of advertiser relationships was determined using a "with or without" method, which determines the present value of profits that would be lost without the relationships. The fair value of customer lists was determined using an excess earnings method.The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. Substantially all of the amount attributed to goodwill is tax deductible.
The Company is in the process of completing its determination of the fair values of the assets acquired and liabilities assumed and the preliminary fair values are subject to revision. These fair values are expected to be finalized in the fourth quarter of 2012.
Acquisition of Meetic
In 2009, Match acquired a 27% ownership interest in Meetic. Match accounted for this interest under the equity method of accounting through August 31, 2011. During the third quarter of 2011, Match acquired an additional 12.5 million shares of Meetic for $272.0 million in cash pursuant to a tender offer. These additional shares increased Match's voting interest and ownership interest in Meetic to 79% and 81%, respectively, resulting in Match obtaining a controlling financial interest in Meetic. Accordingly, this purchase was accounted for under the acquisition method of accounting and the financial results of Meetic are included within IAC's consolidated financial statements and the Match operating segment beginning September 1, 2011.
Pro forma financial information
The unaudited pro forma financial information in the table below summarizes the combined results of IAC, Meetic and The About Group as if the acquisition of The About Group had occurred on January 1, 2011 and the acquisition of Meetic had occurred on January 1, 2010. The pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of what the results would have been had the acquisitions occurred on the dates stated above. For the three and nine months ended September 30, 2012, pro forma adjustments reflected below include an increase of $0.6 million and a decrease of $1.9 million in amortization of intangible assets, respectively. For the three and nine months ended September 30, 2011, pro forma adjustments reflected below include increases of $6.2 million and $19.0 million in amortization of intangible assets, respectively.

10


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share data)
Revenue
$
740,086

 
$
593,545

 
$
2,115,866

 
$
1,727,843

Net earnings attributable to IAC shareholders
$
47,146

 
$
83,899

 
$
144,997

 
$
161,890

Basic earnings per share attributable to IAC shareholders
$
0.53

 
$
0.99

 
$
1.69

 
$
1.84

Diluted earnings per share attributable to IAC shareholders
$
0.50

 
$
0.89

 
$
1.56

 
$
1.71

NOTE 4—GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill and intangible assets, net is as follows:
 
September 30,
2012
 
December 31,
2011
 
(In thousands)
Goodwill
$
1,556,833

 
$
1,358,524

Intangible assets with indefinite lives
388,031

 
351,488

Intangible assets with definite lives, net
103,454

 
26,619

   Total goodwill and intangible assets, net
$
2,048,318

 
$
1,736,631

The following table presents the balance of goodwill by reporting unit, including the changes in the carrying value of goodwill, for the nine months ended September 30, 2012:
 
Balance as of
December 31,
 2011
 
Additions
 
(Deductions)
 
Foreign
 Exchange
Translation
 
Balance as of
September 30,
2012
 
(In thousands)
   IAC Search & Media
$
526,444

 
$
182,969

 
$
(218
)
 
$

 
$
709,195

Search & Applications
526,444

 
182,969

 
(218
)
 

 
709,195

Match
667,073

 
13,347

 
(3,163
)
 
(10,216
)
 
667,041

   HomeAdvisor
109,947

 
1,880

 

 
(383
)
 
111,444

   CityGrid Media
17,751

 
14,093

 

 

 
31,844

Local
127,698

 
15,973

 

 
(383
)
 
143,288

   Connected Ventures
8,267

 

 

 

 
8,267

   DailyBurn
7,323

 

 

 

 
7,323

Media
15,590

 

 

 

 
15,590

   Shoebuy
21,719

 

 

 

 
21,719

Other
21,719

 

 

 

 
21,719

   Total
$
1,358,524

 
$
212,289

 
$
(3,381
)
 
$
(10,599
)
 
$
1,556,833

Additions primarily relate to the acquisition of The About Group. Both the December 31, 2011 and September 30, 2012 goodwill balances include accumulated impairment losses of $916.9 million, $28.0 million and $11.6 million at IAC Search & Media, Shoebuy and Connected Ventures, respectively.
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. At September 30, 2012, intangible assets with definite lives are as follows:

11


 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Amortization Life
(Years)
 
(In thousands)
Content
$
48,400

 
$

 
$
48,400

 
4.0
Technology
38,895

 
(8,146
)
 
30,749

 
3.0
Customer lists
22,767

 
(17,363
)
 
5,404

 
1.2
Advertiser and supplier relationships
17,046

 
(6,469
)
 
10,577

 
4.3
Other
13,662

 
(5,338
)
 
8,324

 
8.3
   Total
$
140,770

 
$
(37,316
)
 
$
103,454

 
3.7
At December 31, 2011, intangible assets with definite lives are as follows:
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Amortization Life
(Years)
 
(In thousands)
Customer lists
$
18,050

 
$
(8,837
)
 
$
9,213

 
1.0
Technology
16,145

 
(3,858
)
 
12,287

 
2.2
Supplier relationships
8,946

 
(5,298
)
 
3,648

 
6.4
Other
6,063

 
(4,592
)
 
1,471

 
3.4
   Total
$
49,204

 
$
(22,585
)
 
$
26,619

 
2.6
Amortization of intangible assets with definite lives is computed either on a straight-line basis or based on the period in which the economic benefits of the asset will be realized. At September 30, 2012, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
 
 
(In thousands)
Remainder of 2012
 
$
11,500

2013
 
38,943

2014
 
25,844

2015
 
16,551

2016
 
6,467

2017
 
1,426

Thereafter
 
2,723

   Total
 
$
103,454

NOTE 5—MARKETABLE SECURITIES
At September 30, 2012, current available-for-sale marketable securities are as follows:

12


 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Corporate debt securities
$
15,592

 
$
40

 
$

 
$
15,632

States of the U.S. and state political subdivisions
112,340

 
653

 
(2
)
 
112,991

Total debt securities
127,932

 
693

 
(2
)
 
128,623

Equity security

 
10,303

 

 
10,303

Total marketable securities
$
127,932

 
$
10,996

 
$
(2
)
 
$
138,926

At December 31, 2011, current available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Corporate debt securities
$
48,621

 
$
99

 
$
(15
)
 
$
48,705

States of the U.S. and state political subdivisions
111,758

 
587

 
(22
)
 
112,323

Total debt securities
160,379

 
686

 
(37
)
 
161,028

Equity security
4,656

 
11

 

 
4,667

Total marketable securities
$
165,035

 
$
697

 
$
(37
)
 
$
165,695

The net unrealized gains in the tables above are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.
The contractual maturities of debt securities classified as available-for-sale at September 30, 2012 are as follows:
 
Amortized
Cost
 
Estimated
Fair Value
 
(In thousands)
Due in one year or less
$
55,986

 
$
56,163

Due after one year through five years
71,946

 
72,460

Total
$
127,932

 
$
128,623

The following table summarizes investments in marketable debt securities (3 in total at September 30, 2012) that have been in a continuous unrealized loss position for less than twelve months:
 
September 30, 2012
 
December 31, 2011
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In thousands)
Corporate debt securities
$

 
$

 
$
12,920

 
$
(15
)
States of the U.S. and state political subdivisions
5,895

 
(2
)
 
11,711

 
(22
)
Total
$
5,895

 
$
(2
)
 
$
24,631

 
$
(37
)
At September 30, 2012 and December 31, 2011, there are no investments in marketable securities that have been in a continuous unrealized loss position for twelve months or longer.
Substantially all of the Company's marketable debt securities are rated investment grade. The gross unrealized losses on the marketable debt securities relate to changes in interest rates. Because the Company does not intend to sell any

13


marketable debt securities, and it is not more likely than not that the Company will be required to sell any marketable debt securities, before recovery of their amortized cost bases, which may be maturity, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired at September 30, 2012.
The following table presents the proceeds from maturities and sales of current and non-current available-for-sale marketable securities and the related gross realized gains and losses:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
40,570

 
$
128,287

 
$
88,347

 
$
542,191

Gross realized gains
241

 
387

 
2,039

 
2,303

Gross realized losses

 

 

 
(18
)
Gross realized gains and losses from the maturities and sales of available-for-sale marketable securities are included in "Other (expense) income, net" in the accompanying consolidated statement of operations.
The specific-identification method is used to determine the cost of securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income into earnings. Unrealized gains, net of tax, reclassified out of accumulated other comprehensive income (loss) into other (expense) income, net related to the maturities and sales of available-for-sale securities for the three and nine months ended September 30, 2012, were less than $0.1 million and $0.9 million, respectively. Unrealized gains, net of tax, reclassified out of accumulated other comprehensive income (loss) into other (expense) income, net related to the maturities and sales of available-for-sale securities for the three and nine months ended September 30, 2011, were $0.6 million and $2.0 million, respectively.
NOTE 6—FAIR VALUE MEASUREMENTS
The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See below for a discussion of fair value measurements made using Level 3 inputs.
The following tables present the Company's assets and liabilities that are measured at fair value on a recurring basis:

14


 
September 30, 2012
 
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
184,449

 
$

 
$

 
$
184,449

Commercial paper

 
84,443

 

 
84,443

Time deposits

 
4,400

 

 
4,400

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
15,632

 

 
15,632

States of the U.S. and state political subdivisions

 
112,991

 

 
112,991

   Equity security
10,303

 

 

 
10,303

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
7,330

 
7,330

Marketable equity securities
66,078

 

 

 
66,078

Total
$
260,830

 
$
217,466

 
$
7,330

 
$
485,626


 
December 31, 2011
 
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Treasury and government agency money market funds
$
321,314

 
$

 
$

 
$
321,314

Commercial paper

 
237,942

 

 
237,942

Time deposits

 
4,750

 

 
4,750

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
48,705

 

 
48,705

States of the U.S. and state political subdivisions

 
112,323

 

 
112,323

Equity security
4,667

 

 

 
4,667

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
5,870

 
5,870

Marketable equity securities
74,691

 

 

 
74,691

Total
$
400,672

 
$
403,720

 
$
5,870

 
$
810,262

Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangement
$

 
$

 
$
(10,000
)
 
$
(10,000
)
The following tables present the changes in the Company's assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

15


 
Three Months Ended September 30,
 
2012
 
2011
 
Auction Rate
Security
 
Auction Rate
Security
 
Contingent
Consideration
Arrangement
 
(In thousands)
Balance at July 1
$
6,730

 
$
8,680

 
$
(10,000
)
Total net gains (losses) (realized and unrealized):
 
 
 
 
 
Included in other comprehensive income
600

 
(2,820
)
 

Balance at September 30
$
7,330

 
$
5,860

 
$
(10,000
)

 
Nine Months Ended September 30,
 
2012
 
2011
 
Auction Rate
Security
 
Contingent
Consideration
Arrangement
 
Auction Rate
Securities
 
Contingent
Consideration
Arrangement
 
(In thousands)
Balance at January 1
$
5,870

 
$
(10,000
)
 
$
13,100

 
$

Total net gains (losses) (realized and unrealized):
 
 
 
 
 
 
 
Included in other comprehensive income
1,460

 

 
(2,240
)
 

Fair value at date of acquisition

 

 

 
(40,000
)
Settlements

 
10,000

 
(5,000
)
 
30,000

Balance at September 30
$
7,330

 
$

 
$
5,860

 
$
(10,000
)
There are no gains or losses included in earnings for the three and nine months ended September 30, 2012 and 2011, relating to the Company's assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs.
Auction rate security
The Company's auction rate security is valued by discounting the estimated future cash flow stream of the security over the life of the security. Credit spreads and other risk factors are also considered in establishing fair value. The cost basis of the auction rate security is $10.0 million, with gross unrealized losses of $2.7 million and $4.1 million at September 30, 2012 and December 31, 2011, respectively. The unrealized losses are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. At September 30, 2012, the auction rate security is rated A/WR and matures in 2035. The Company does not consider the auction rate security to be other-than-temporarily impaired at September 30, 2012, due to its high credit rating and because the Company does not intend to sell this security, and it is not more likely than not that the Company will be required to sell this security, before the recovery of its amortized cost basis, which may be maturity.
Contingent consideration arrangement
The fair value of the OkCupid contingent consideration arrangement at December 31, 2011 was based upon the achievement of the performance goals which required a $10.0 million payment.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as equity and cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
NOTE 7—FINANCIAL INSTRUMENTS
The fair values of the financial instruments listed below have been determined by the Company using available market information and appropriate valuation methodologies.

16


 
September 30, 2012
 
December 31, 2011
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
501,779

 
$
501,779

 
$
704,153

 
$
704,153

Marketable securities
138,926

 
138,926

 
165,695

 
165,695

Long-term marketable equity securities
66,078

 
66,078

 
74,691

 
74,691

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Current maturities of long-term debt
(15,844
)
 
(16,055
)
 

 

Long-term debt, net of current maturities
(80,000
)
 
(81,561
)
 
(95,844
)
 
(93,339
)
The carrying value of cash equivalents approximates fair value due to their short-term maturity. The fair value of long‑term debt, including current maturities, is estimated using quoted market prices or indices for similar liabilities and taking into consideration other factors such as credit quality and maturity. See Note 6 for description of the method used to determine the fair value of marketable securities. The fair value of long-term debt, including current maturities, is determined only for disclosure purposes and is based on Level 3 inputs.
The cost basis of the Company's long-term marketable equity securities at September 30, 2012 was $50.8 million, with gross unrealized gains of $24.2 million and a gross unrealized loss of $8.9 million, included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. The cost basis of the Company's long-term marketable equity securities at December 31, 2011 was $53.1 million, with gross unrealized gains of $29.8 million and a gross unrealized loss of $8.2 million. The Company evaluated the near-term prospects of the issuer of the equity security with the unrealized loss in relation to the severity and duration of the unrealized loss and based on that evaluation and the Company's ability and intent to hold this investment for a reasonable period of time sufficient for an expected recovery of fair value, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2012.
At September 30, 2012 and December 31, 2011, the carrying values of the Company's investments accounted for under the cost method totaled $88.1 million and $82.3 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for possible impairment on a quarterly basis and determines the fair value if indicators of impairment are deemed to be present; the Company recognizes an impairment loss if a decline in value is determined to be other-than-temporary. If the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so.
NOTE 8—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share attributable to IAC shareholders.

17


 
Three Months Ended September 30,
 
2012
 
2011
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
46,185

 
$
46,185

 
$
67,973

 
$
67,973

Net loss attributable to noncontrolling interests
156

 
156

 
922

 
922

Earnings from continuing operations attributable to IAC shareholders
46,341

 
46,341

 
68,895

 
68,895

Loss from discontinued operations attributable to IAC shareholders
(5,624
)
 
(5,624
)
 
(3,922
)
 
(3,922
)
Net earnings attributable to IAC shareholders
$
40,717

 
$
40,717

 
$
64,973

 
$
64,973

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
88,296

 
88,296

 
84,613

 
84,613

Dilutive securities including stock options, warrants, RSUs(a)(b)

 
6,394

 

 
9,129

Denominator for earnings per share—weighted average shares(a)(b)
88,296

 
94,690

 
84,613

 
93,742

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
0.52

 
$
0.49

 
$
0.81

 
$
0.73

Discontinued operations
(0.06
)
 
(0.06
)
 
(0.04
)
 
(0.04
)
Earnings per share
$
0.46

 
$
0.43

 
$
0.77

 
$
0.69

 
Nine Months Ended September 30,
 
2012
 
2011
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
125,439

 
$
125,439

 
$
133,771

 
$
133,771

Net (earnings) loss attributable to noncontrolling interests
(331
)
 
(331
)
 
54

 
54

Earnings from continuing operations attributable to IAC shareholders
125,108

 
125,108

 
133,825

 
133,825

Loss from discontinued operations attributable to IAC shareholders
(6,581
)
 
(6,581
)
 
(8,358
)
 
(8,358
)
Net earnings attributable to IAC shareholders
$
118,527

 
$
118,527

 
$
125,467

 
$
125,467

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
85,766

 
85,766

 
87,898

 
87,898

Dilutive securities including stock options, warrants, RSUs(a)(b)

 
7,026

 

 
6,992

Denominator for earnings per share—weighted average shares(a)(b)
85,766

 
92,792

 
87,898

 
94,890

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
1.46

 
$
1.35

 
$
1.52

 
$
1.41

Discontinued operations
(0.08
)
 
(0.07
)
 
(0.09
)
 
(0.09
)
Earnings per share
$
1.38

 
$
1.28

 
$
1.43

 
$
1.32

_______________________
(a)
If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and warrants and vesting of restricted stock units ("RSUs") and

18


performance-based stock units ("PSUs"). At September 30, 2012, there are no warrants outstanding. For the three and nine months ended September 30, 2012, approximately 0.3 million and 0.7 million shares, respectively, related to potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2011, approximately 0.8 million and 1.3 million shares, respectively, related to potentially dilutive securities are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

(b)
At September 30, 2012, there were approximately 2.3 million PSUs included in the calculation of diluted earnings per share, as their performance conditions have been met. Prior to September 30, 2012, no PSUs were included in diluted earnings per share. For the three and nine months ended September 30, 2012, approximately 0.6 million PSUs are excluded from the calculation of diluted earnings per share. For the three and nine months ended September 30, 2011, approximately 3.3 million PSUs are excluded from the calculation of diluted earnings per share.
NOTE 9—SEGMENT INFORMATION
The overall concept that IAC employs in determining its operating segments is to present the financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of services or products offered or the target market. Operating segments are combined for reporting purposes if they meet certain aggregation criteria, which principally relate to the similarity of their economic characteristics or, in the case of Other, do not meet the quantitative thresholds that require separate presentation.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Search & Applications
$
370,227

 
$
258,875

 
$
1,062,187

 
$
731,054

Match
178,190

 
132,328

 
530,883

 
360,354

Local
84,314

 
80,124

 
245,938

 
231,465

Media
52,736

 
18,692

 
107,015

 
51,811

Other
29,064

 
27,023

 
89,899

 
88,442

Inter-segment elimination
(61
)
 
(158
)
 
(240
)
 
(625
)
Total
$
714,470

 
$
516,884

 
$
2,035,682

 
$
1,462,501

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Search & Applications
$
69,036

 
$
45,508

 
$
216,593

 
$
144,780

Match
56,078

 
36,677

 
143,083

 
101,105

Local
7,343

 
7,324

 
22,802

 
22,484

Media
(13,178
)
 
(2,837
)
 
(27,152
)
 
(10,545
)
Other
(2,685
)
 
(1,648
)
 
(6,581
)
 
(3,891
)
Corporate
(38,561
)
 
(38,284
)
 
(110,471
)
 
(111,626
)
Total
$
78,033

 
$
46,740

 
$
238,274

 
$
142,307


19


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Operating Income Before Amortization:
 
 
 
 
 
 
 
Search & Applications
$
69,192

 
$
46,280

 
$
216,771

 
$
145,742

Match
59,980

 
40,207

 
159,953

 
107,530

Local
7,817

 
7,767

 
23,599

 
23,836

Media
(12,236
)
 
(2,651
)
 
(25,426
)
 
(10,301
)
Other
(2,259
)
 
(1,339
)
 
(5,412
)
 
(2,970
)
Corporate
(15,898
)
 
(16,101
)
 
(47,895
)
 
(46,282
)
Total
$
106,596

 
$
74,163

 
$
321,590

 
$
217,555

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Depreciation:
 
 
 
 
 
 
 
Search & Applications
$
3,343

 
$
9,824

 
$
10,019

 
$
21,389

Match
4,502

 
2,481

 
11,781