0000891103-13-000020.txt : 20131108 0000891103-13-000020.hdr.sgml : 20131108 20131108082836 ACCESSION NUMBER: 0000891103-13-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20130930 FILED AS OF DATE: 20131108 DATE AS OF CHANGE: 20131108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IAC/INTERACTIVECORP CENTRAL INDEX KEY: 0000891103 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 592712887 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20570 FILM NUMBER: 131202617 BUSINESS ADDRESS: STREET 1: 555 WEST 18TH STREET CITY: NEW YORK STATE: NY ZIP: 10011 BUSINESS PHONE: 2123147300 MAIL ADDRESS: STREET 1: 555 WEST 18TH STREET CITY: NEW YORK STATE: NY ZIP: 10011 FORMER COMPANY: FORMER CONFORMED NAME: INTERACTIVECORP DATE OF NAME CHANGE: 20030623 FORMER COMPANY: FORMER CONFORMED NAME: USA INTERACTIVE DATE OF NAME CHANGE: 20020508 FORMER COMPANY: FORMER CONFORMED NAME: USA NETWORKS INC DATE OF NAME CHANGE: 19980223 10-Q 1 iaci-2013930x10q.htm 10-Q IACI-2013.9.30-10Q
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As filed with the Securities and Exchange Commission on November 8, 2013


 
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, 2013
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.
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 25, 2013, the following shares of the registrant's common stock were outstanding:
Common Stock
77,504,390

Class B Common Stock
5,789,499

Total outstanding Common Stock
83,293,889

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of October 25, 2013 was $4,316,591,180. For the purpose of the foregoing calculation only, all directors and executive officers of the registrant are assumed to be affiliates of the registrant.



TABLE OF CONTENTS







PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
IAC/INTERACTIVECORP
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
September 30, 2013
 
December 31, 2012
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
741,652

 
$
749,977

Marketable securities
26,340

 
20,604

Accounts receivable, net of allowance of $10,439 and $11,088, respectively
209,949

 
229,830

Other current assets
151,980

 
156,339

Total current assets
1,129,921

 
1,156,750

Property and equipment, net of accumulated depreciation and amortization of $257,338 and $232,911, respectively
290,470

 
270,512

Goodwill
1,672,705

 
1,616,154

Intangible assets, net
458,371

 
482,904

Long-term investments
164,170

 
161,278

Other non-current assets
89,145

 
118,230

TOTAL ASSETS
$
3,804,782

 
$
3,805,828

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

 
$
15,844

Accounts payable, trade
72,966

 
98,314

Deferred revenue
161,950

 
155,499

Accrued expenses and other current liabilities
366,635

 
355,232

Total current liabilities
601,551

 
624,889

Long-term debt, net of current maturities
580,000

 
580,000

Income taxes payable
411,172

 
479,945

Deferred income taxes
326,109

 
323,403

Other long-term liabilities
65,175

 
31,830

 
 
 
 
Redeemable noncontrolling interests
32,779

 
58,126

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 250,982,079 shares, and outstanding 77,480,330 and 78,471,784 shares, respectively
251

 
251

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
11,585,545

 
11,607,367

Accumulated deficit
(109,652
)
 
(318,519
)
Accumulated other comprehensive loss
(6,625
)
 
(32,169
)
Treasury stock 183,869,749 and 182,878,295 shares, respectively
(9,734,479
)
 
(9,601,218
)
Total IAC shareholders' equity
1,735,056

 
1,655,728

Noncontrolling interests
52,940

 
51,907

Total shareholders' equity
1,787,996

 
1,707,635

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
3,804,782

 
$
3,805,828


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

3



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands, except per share data)
Revenue
$
756,872

 
$
714,470

 
$
2,298,532

 
$
2,035,682

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
248,856

 
262,275

 
777,527

 
722,879

Selling and marketing expense
248,282

 
235,130

 
738,349

 
665,168

General and administrative expense
75,977

 
93,074

 
275,216

 
271,185

Product development expense
35,232

 
27,596

 
104,401

 
82,628

Depreciation
13,489

 
13,150

 
44,541

 
37,490

Amortization of intangibles
13,032

 
5,212

 
45,247

 
18,058

Total costs and expenses
634,868

 
636,437

 
1,985,281

 
1,797,408

Operating income
122,004

 
78,033

 
313,251

 
238,274

Equity in losses of unconsolidated affiliates
(3,253
)
 
(3,298
)
 
(4,422
)
 
(28,208
)
Interest expense
(7,623
)
 
(1,391
)
 
(22,944
)
 
(4,102
)
Other income, net
16,719

 
447

 
18,373

 
2,835

Earnings from continuing operations before income taxes
127,847

 
73,791

 
304,258

 
208,799

Income tax provision
(36,126
)
 
(27,606
)
 
(101,288
)
 
(83,360
)
Earnings from continuing operations
91,721

 
46,185

 
202,970

 
125,439

Earnings (loss) from discontinued operations, net of tax
3,914

 
(5,624
)
 
1,902

 
(6,581
)
Net earnings
95,635

 
40,561

 
204,872

 
118,858

Net loss (earnings) attributable to noncontrolling interests
1,305

 
156

 
3,995

 
(331
)
Net earnings attributable to IAC shareholders
$
96,940

 
$
40,717

 
$
208,867

 
$
118,527

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings per share from continuing operations
$
1.12

 
$
0.52

 
$
2.47

 
$
1.46

Diluted earnings per share from continuing operations
$
1.08

 
$
0.49

 
$
2.39

 
$
1.35

Basic earnings per share
$
1.17

 
$
0.46

 
$
2.50

 
$
1.38

Diluted earnings per share
$
1.13

 
$
0.43

 
$
2.41

 
$
1.28

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.24

 
$
0.24

 
$
0.72

 
$
0.48

 
 
 
 
 
 
 
 
Non-cash compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
700

 
$
1,550

 
$
2,001


$
4,775

Selling and marketing expense
820

 
1,386

 
2,000

 
3,512

General and administrative expense
11,478

 
18,850

 
31,685

 
52,378

Product development expense
1,367

 
1,565

 
3,162

 
4,593

Total non-cash compensation expense
$
14,365

 
$
23,351

 
$
38,848

 
$
65,258

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

4



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013

2012
 
2013
 
2012
 
(In thousands)
Net earnings
$
95,635

 
$
40,561

 
$
204,872

 
$
118,858

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
16,724

 
14,609

 
3,703

 
(4,940
)
Change in net unrealized gains (losses) on available-for-sale securities (net of tax provision of $1,732 and $1,648 for the three and nine months ended September 30, 2013, respectively, and tax benefit of $6,220 and tax provision of $883 for the three and nine months ended September 30, 2012, respectively)
12,182

 
(8,758
)
 
24,393

 
4,685

Total other comprehensive income (loss)
28,906

 
5,851

 
28,096

 
(255
)
Comprehensive income
124,541

 
46,412

 
232,968

 
118,603

Comprehensive (income) loss attributable to noncontrolling interests
(2,039
)
 
(2,026
)
 
1,443

 
476

Comprehensive income attributable to IAC shareholders
$
122,502

 
$
44,386

 
$
234,411

 
$
119,079

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

5



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, 2012
$
58,126

 
 
$
251

 
250,982

 
$
16

 
16,157

 
$
11,607,367

 
$
(318,519
)
 
$
(32,169
)
 
$
(9,601,218
)
 
$
1,655,728

 
$
51,907

 
$
1,707,635

Net (loss) earnings for the nine months ended September 30, 2013
(4,039
)
 
 

 

 

 

 

 
208,867

 

 

 
208,867

 
44

 
208,911

Other comprehensive income, net of tax
1,730

 
 

 

 

 

 

 

 
25,544

 

 
25,544

 
822

 
26,366

Non-cash compensation expense

 
 

 

 

 

 
38,305

 

 

 

 
38,305

 
543

 
38,848

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

 
 

 

 

 

 
1,653

 

 

 
2

 
1,655

 

 
1,655

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

 
 

 

 

 

 
26,329

 

 

 

 
26,329

 

 
26,329

Dividends

 
 

 

 

 

 
(57,624
)
 

 

 

 
(57,624
)
 

 
(57,624
)
Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(133,263
)
 
(133,263
)
 

 
(133,263
)
Purchase of redeemable noncontrolling interests
(56,498
)
 
 

 

 

 

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to fair value
33,038

 
 

 

 

 

 
(33,038
)
 

 

 

 
(33,038
)
 

 
(33,038
)
Transfer from noncontrolling interests to redeemable noncontrolling interests
376

 
 

 

 

 

 

 

 

 

 

 
(376
)
 
(376
)
Other
46

 
 

 

 

 

 
2,553

 

 

 

 
2,553

 

 
2,553

Balance as of September 30, 2013
$
32,779

 
 
$
251

 
250,982

 
$
16

 
16,157

 
$
11,585,545

 
$
(109,652
)
 
$
(6,625
)
 
$
(9,734,479
)
 
$
1,735,056

 
$
52,940

 
$
1,787,996

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

6



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
Net earnings
$
204,872

 
$
118,858

Less: earnings (loss) from discontinued operations, net of tax
1,902

 
(6,581
)
Earnings from continuing operations
202,970

 
125,439

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Non-cash compensation expense
38,848

 
65,258

Depreciation
44,541

 
37,490

Amortization of intangibles
45,247

 
18,058

Excess tax benefits from stock-based awards
(26,430
)
 
(23,486
)
Deferred income taxes
(5,939
)
 
5,410

Equity in losses of unconsolidated affiliates
4,422

 
28,208

 Acquisition-related contingent consideration fair value adjustment
6,339

 

 Gain on sales of long-term investments
(18,141
)
 
(1,876
)
 Gain on sales of assets
(14,755
)
 

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
10,810

 
(16,443
)
Other current assets
(19,916
)
 
(9,749
)
Accounts payable and other current liabilities
(6,159
)
 
18,700

Income taxes payable
48,136

 
52,965

Deferred revenue
(1,406
)
 
10,575

Other, net
15,763

 
13,058

Net cash provided by operating activities attributable to continuing operations
324,330

 
323,607

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired
(39,457
)
 
(377,123
)
Capital expenditures
(64,114
)
 
(32,363
)
Proceeds from maturities and sales of marketable debt securities
12,502

 
79,353

Purchases of marketable debt securities

 
(47,902
)
Proceeds from sales of long-term investments
42,286

 
12,744

Purchases of long-term investments
(26,605
)
 
(10,031
)
Other, net
8,904

 
(12,264
)
Net cash used in investing activities attributable to continuing operations
(66,484
)
 
(387,586
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Purchase of treasury stock
(168,376
)
 
(434,041
)
Issuance of common stock, net of withholding taxes
6,456

 
320,070

Dividends
(58,882
)
 
(43,695
)
Excess tax benefits from stock-based awards
26,430

 
23,486

Purchase of noncontrolling interests
(55,561
)
 
(4,891
)
Principal payments on long-term debt
(15,844
)
 

Other, net
(3,386
)
 
195

Net cash used in financing activities attributable to continuing operations
(269,163
)
 
(138,876
)
Total cash used in continuing operations
(11,317
)
 
(202,855
)
Total cash provided by (used in) discontinued operations
2,257

 
(1,866
)
Effect of exchange rate changes on cash and cash equivalents
735

 
2,347

Net decrease in cash and cash equivalents
(8,325
)
 
(202,374
)
Cash and cash equivalents at beginning of period
749,977

 
704,153

Cash and cash equivalents at end of period
$
741,652

 
$
501,779

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

7


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 Ask.com, About.com, Match.com, HomeAdvisor.com and Vimeo.com. Focused in the areas of search, applications, online dating, local and media, IAC's network of websites is one of the largest in the world, with more than a billion monthly visits across more than 30 countries. IAC includes the businesses comprising its Search & Applications, Match, Local, Media and Other segments, as well as investments in unconsolidated affiliates.
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 for the year ended December 31, 2012 included in our Current Report on Form 8-K dated May 3, 2013.
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 fair value of acquisition-related contingent consideration; 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 services agreement with Google Inc. ("Google"), which expires on March 31, 2016. Our services agreement requires that we comply with certain guidelines promulgated by Google. Subject to certain limitations, Google may unilaterally update its policies and guidelines, which could in turn require modifications to, or prohibit and/or render obsolete certain of, our products, services and/or business practices, which could be costly to address or otherwise have an adverse effect on our business, financial condition and results of operations. For the three and nine months ended September 30, 2013, revenue earned from Google is $369.9 million and $1.2 billion, respectively. For the three and nine months ended September 30, 2012, revenue earned from Google is $357.2 million and $1.0 billion, respectively. This revenue is earned by the businesses

8


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

comprising the Search & Applications segment. Accounts receivable related to revenue earned from Google totaled $115.0 million at September 30, 2013 and $125.3 million at December 31, 2012.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
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, 2013, the Company recorded an income tax provision for continuing operations of $36.1 million and $101.3 million, respectively, which represents effective income tax rates of 28% and 33%, respectively. The effective rates for the three and nine months ended September 30, 2013 are lower than the statutory rate of 35% due primarily to the realization of certain beginning of the year deferred tax assets in the current period and foreign income taxed at lower rates, partially offset by state taxes. 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 News_Beast (formerly The Newsweek/DailyBeast Company) 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.
On August 28, 2013, the Joint Committee of Taxation completed its review and approved the audit settlement previously agreed to with the Internal Revenue Service ("IRS") for the years ended December 31, 2001 through 2009. The statute of limitations for the years 2001 through 2009 is extended through June 30, 2014. The resolution of this IRS examination resulted in a net liability to the IRS of $7.1 million. At September 30, 2013 and December 31, 2012, unrecognized tax benefits, including interest, are $415.5 million and $496.8 million, respectively. Unrecognized tax benefits, including interest, at September 30, 2013 decreased by $81.3 million due principally to the settlement of the audit of the federal income tax returns for the years ended December 31, 2001 through 2009. The reduction of unrecognized tax benefits was substantially offset by a reduction of receivables related to the same period. Of the total unrecognized tax benefits at September 30, 2013, $401.0 million is included in "Income taxes payable," $14.0 million relates to deferred tax assets included in "Deferred income taxes" and $0.5 million is included in "Accrued expenses and other current liabilities" in the accompanying consolidated balance sheet. Included in unrecognized tax benefits at September 30, 2013 is $47.9 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, 2013 are subsequently recognized, $119.6 million and $170.2 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 the income tax provision for continuing operations and discontinued operations for the three months ended September 30, 2013 is a $0.5 million expense and a $1.4 million benefit, respectively, net of related deferred taxes, for

9


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

interest on unrecognized tax benefits. Included in the income tax provision for continuing operations and discontinued operations for the nine months ended September 30, 2013 is a $3.4 million and a $0.6 million expense, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. At September 30, 2013 and December 31, 2012, the Company has accrued $125.3 million and $117.5 million, respectively, for the payment of interest. At September 30, 2013 and December 31, 2012, the Company has accrued $4.9 million and $5.0 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. Various jurisdictions are currently under examination, the most significant of which are France, California, New York and New York City for various tax years beginning with 2006. 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 change within twelve months of the current reporting date. An estimate of changes in unrecognized tax benefits, while potentially significant, cannot be made.
NOTE 3—BUSINESS COMBINATIONS
Acquisition of Twoo
On January 4, 2013, Meetic S.A., a Match subsidiary, purchased all the outstanding shares of Massive Media NV, which operates Twoo, a social discovery website that allows its users to meet new people. The purchase price was $25.0 million in cash, plus potential additional consideration of up to €83.2 million (or $112.2 million using the September 30, 2013 exchange rate) that is contingent upon a combination of earnings performance and user growth through December 31, 2015. The fair value of the contingent consideration arrangement at the acquisition date was $40.8 million. See Note 5 for additional information related to the fair value measurement of the contingent consideration arrangement.
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 purchase price was $300 million in cash, plus an amount equal to the net working capital of $17.1 million at closing. The financial results of The About Group are included in IAC's consolidated financial statements, within the Search & Applications segment, beginning October 1, 2012.
The unaudited pro forma financial information in the table below summarizes the combined results of IAC and The About Group as if the acquisition of The About Group had occurred on January 1, 2012. 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 acquisition occurred on January 1, 2012. For the three and nine months ended September 30, 2012, pro forma adjustments reflected below include an increase of $4.6 million and $14.1 million, respectively, in amortization of intangible assets.
 
 
Three Months Ended September 30, 2012
 
Nine Months Ended September 30, 2012
 
 
(In thousands, except per share data)
Revenue
 
$
740,086

 
$
2,110,653

Net earnings attributable to IAC shareholders
 
$
43,909

 
$
125,722

Basic earnings per share attributable to IAC shareholders
 
$
0.50

 
$
1.47

Diluted earnings per share attributable to IAC shareholders
 
$
0.46

 
$
1.35

NOTE 4—MARKETABLE SECURITIES
At September 30, 2013, current available-for-sale marketable securities are as follows:

10


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Corporate debt security
$
1,007

 
$
8

 
$

 
$
1,015

Total debt security
1,007

 
8

 

 
1,015

Equity securities
7,927

 
17,398

 

 
25,325

Total marketable securities
$
8,934

 
$
17,406

 
$

 
$
26,340

The contractual maturity of the debt security classified as available-for-sale at September 30, 2013 is less than one year.
At December 31, 2012, 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
$
13,608

 
$
19

 
$

 
$
13,627

Total debt securities
13,608

 
19

 

 
13,627

Equity security

 
6,977

 

 
6,977

Total marketable securities
$
13,608

 
$
6,996

 
$

 
$
20,604

The net unrealized gains in the tables above are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.
At September 30, 2013 and December 31, 2012, there are no investments in current available-for-sale marketable securities that are in an unrealized loss position.
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:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013

2012
 
2013
 
2012
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
41,976

 
$
40,570

 
$
54,478

 
$
88,347

Gross realized gains
17,977

 
241

 
17,977

 
2,039

Gross realized gains from the maturities and sales of available-for-sale marketable securities are included in "Other 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.
NOTE 5—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The Company categorizes its financial instruments 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.

11


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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 value 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 financial instruments that are measured at fair value on a recurring basis:
 
September 30, 2013
 
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
$
347,345

 
$

 
$

 
$
347,345

Commercial paper

 
81,890

 

 
81,890

Time deposits

 
92,446

 

 
92,446

Marketable securities:
 
 
 
 
 
 
 
Corporate debt security

 
1,015

 

 
1,015

   Equity securities
25,325

 

 

 
25,325

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
9,300

 
9,300

Marketable equity securities
12,360

 

 

 
12,360

Total
$
385,030

 
$
175,351

 
$
9,300

 
$
569,681

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangement
$

 
$

 
$
(48,931
)
 
$
(48,931
)


12


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
December 31, 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
$
545,290

 
$

 
$

 
$
545,290

Time deposits

 
11,994

 

 
11,994

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
13,627

 

 
13,627

Equity security
6,977

 

 

 
6,977

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
8,100

 
8,100

Marketable equity securities
31,244

 

 

 
31,244

Total
$
583,511

 
$
25,621

 
$
8,100

 
$
617,232

The cost basis of the Company's long-term marketable equity securities at September 30, 2013 is $8.8 million, with gross unrealized gains of $3.6 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, 2012 is $42.1 million, with a gross unrealized loss of $10.8 million included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.
The following tables present the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Three Months Ended September 30,
 
2013
 
2012
 
Auction Rate
Security
 
Contingent
Consideration
Arrangement
 
Auction Rate
Security
 
(In thousands)
Balance at July 1
$
8,760

 
$
(46,912
)
 
$
6,730

Total net gains (losses) (unrealized):
 
 


 
 
Included in earnings

 
(632
)
 

Included in other comprehensive income (loss)
540

 
(1,387
)
 
600

Balance at September 30
$
9,300

 
$
(48,931
)
 
$
7,330


13


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Nine Months Ended September 30,
 
2013
 
2012
 
Auction Rate
Security
 
Contingent
Consideration
Arrangement
 
Auction Rate
Security
 
Contingent
Consideration
Arrangement
 
(In thousands)
Balance at January 1
$
8,100

 
$

 
$
5,870

 
$
(10,000
)
Total net gains (losses) (unrealized):

 

 

 

Included in earnings

 
(6,339
)
 

 

Included in other comprehensive income (loss)
1,200

 
(1,755
)
 
1,460

 

Fair value at date of acquisition

 
(40,837
)
 

 

Settlements

 

 

 
10,000

Balance at September 30
$
9,300

 
$
(48,931
)
 
$
7,330

 
$

There are no gains or losses included in earnings for the three and nine months ended September 30, 2012 relating to the Company's financial instruments 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 streams 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 $0.7 million and $1.9 million at September 30, 2013 and December 31, 2012, respectively. The unrealized losses are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. At September 30, 2013, 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, 2013, 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 contingent consideration arrangement entered into in 2013 arose from the acquisition of Twoo (see Note 3 for additional information). The fair value of the contingent consideration arrangement was determined using a probability-weighted analysis, and reflects a discount rate of 15%, which captures the risks associated with the obligation. The probability-weighted analysis consists of the Company's multi-scenario forecasts of Twoo's earnings and the number of users of Twoo.com in accordance with the contingent consideration arrangement through December 31, 2015, and the Company's estimate of the probability of each scenario occurring. These multi-scenario forecasts and related probability assessments were based primarily on management's internal projections and strategic plans, with limited additional consideration given to growth trends of similarly situated businesses. The fair value of the contingent consideration arrangement is sensitive to changes in the discount rate and changes in the forecasts of earnings and website users. The Company remeasures the fair value of the contingent consideration arrangement each reporting period, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at September 30, 2013 includes a current portion of $3.9 million and non-current portion of $45.0 million, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.
The contingent consideration arrangement in 2012 related to OkCupid, acquired in January 2011.
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.

14


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

At September 30, 2013 and December 31, 2012, the carrying values of the Company's investments accounted for under the cost method totaled $119.2 million and $113.8 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.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
 
September 30, 2013
 
December 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Current maturities of long-term debt
$

 
$

 
$
(15,844
)
 
$
(15,875
)
Long-term debt, net of current maturities
(580,000
)
 
(538,891
)
 
(580,000
)
 
(581,994
)
The fair value of long-term debt, including current maturities, is estimated using market prices or indices for similar liabilities and taking into consideration other factors such as credit quality and maturity, which are Level 3 inputs.
NOTE 6—LONG-TERM DEBT
The balance of long-term debt is comprised of:
 
September 30,
2013
 
December 31,
2012
 
(In thousands)
7.00% Senior Notes due January 15, 2013 (the "2002 Senior Notes"); interest payable each January 15 and July 15
$

 
$
15,844

4.75% Senior Notes due December 15, 2022 (the "2012 Senior Notes"); interest payable each June 15 and December 15
500,000

 
500,000

5% New York City Industrial Development Agency Liberty Bonds due September 1, 2035; interest payable each March 1 and September 1
80,000

 
80,000

Total long-term debt
580,000

 
595,844

Less current maturities

 
(15,844
)
Long-term debt, net of current maturities
$
580,000

 
$
580,000

On December 21, 2012, the Company issued $500.0 million aggregate principal amount of 4.75% Senior Notes due December 15, 2022. The 2012 Senior Notes were issued at par. Certain domestic subsidiaries have unconditionally guaranteed the 2012 Senior Notes. See Note 12 for guarantor and non-guarantor financial information.
The indenture governing the 2012 Senior Notes contains covenants that would limit our ability to pay dividends or make other distributions and repurchase or redeem our stock in the event a default has occurred or we are not in compliance with the financial ratio set forth in the indenture. At September 30, 2013, there were no limitations pursuant thereto. There are additional covenants that limit our ability and the ability of our subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event we are not in compliance with the financial ratio set forth in the indenture, and (ii) incur liens, enter into agreements restricting our subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of our assets.
On December 21, 2012, the Company entered into a $300.0 million revolving credit facility, which expires on December 21, 2017. The annual fee to maintain the revolving credit facility is currently 25 basis points. At September 30, 2013 and December 31, 2012, there were no outstanding borrowings under the revolving credit facility. IAC's obligation under the

15


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

revolving credit facility is unconditionally guaranteed by certain domestic subsidiaries and is also secured by the stock of certain of our domestic and foreign subsidiaries.
NOTE 7—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive loss and items reclassified out of accumulated other comprehensive loss into earnings:
 
Three Months Ended September 30, 2013
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance at July 1
$
(37,302
)
 
$
5,115

 
$
(32,187
)
Other comprehensive income
13,976

 
16,899

 
30,875

Amounts reclassified from accumulated other comprehensive loss

 
(5,313
)
 
(5,313
)
Net current period other comprehensive income
13,976

 
11,586

 
25,562

Balance at September 30
$
(23,326
)
 
$
16,701

 
$
(6,625
)
 
Nine Months Ended September 30, 2013
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance at January 1
$
(25,073
)
 
$
(7,096
)
 
$
(32,169
)
Other comprehensive income
1,747

 
19,691

 
21,438

Amounts reclassified from accumulated other comprehensive loss

 
4,106

 
4,106

Net current period other comprehensive income
1,747

 
23,797

 
25,544

Balance at September 30
$
(23,326
)
 
$
16,701

 
$
(6,625
)
Unrealized gains, net of tax, reclassified out of accumulated other comprehensive loss related to the maturities and sales of available-for-sale securities are included in "Other income, net" in the accompanying consolidated statement of operations. Unrealized gains, net of tax, reclassified out of accumulated other comprehensive loss into other (expense) income, net for the three and nine months ended September 30, 2012 were less than $0.1 million and $0.9 million, respectively.

NOTE 8—EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share attributable to IAC shareholders.

16


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended September 30,
 
2013
 
2012
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
91,721

 
$
91,721

 
$
46,185

 
$
46,185

Net loss attributable to noncontrolling interests
1,305

 
1,305

 
156

 
156

Earnings from continuing operations attributable to IAC shareholders
93,026

 
93,026

 
46,341

 
46,341

Earnings (loss) from discontinued operations attributable to IAC shareholders
3,914

 
3,914

 
(5,624
)
 
(5,624
)
Net earnings attributable to IAC shareholders
$
96,940

 
$
96,940

 
$
40,717

 
$
40,717

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
83,094

 
83,094

 
88,296

 
88,296

Dilutive securities including stock options and RSUs(a)(b)

 
2,978

 

 
6,394

Denominator for earnings per share—weighted average shares(a)(b)
83,094

 
86,072

 
88,296

 
94,690

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
1.12

 
$
1.08

 
$
0.52

 
$
0.49

Discontinued operations
0.05

 
0.05

 
(0.06
)
 
(0.06
)
Earnings per share
$
1.17

 
$
1.13

 
$
0.46

 
$
0.43

 
Nine Months Ended September 30,
 
2013
 
2012
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
202,970

 
$
202,970

 
$
125,439

 
$
125,439

Net loss (earnings) attributable to noncontrolling interests
3,995

 
3,995

 
(331
)
 
(331
)
Earnings from continuing operations attributable to IAC shareholders
206,965

 
206,965

 
125,108

 
125,108

Earnings (loss) from discontinued operations attributable to IAC shareholders
1,902

 
1,902

 
(6,581
)
 
(6,581
)
Net earnings attributable to IAC shareholders
$
208,867

 
$
208,867

 
$
118,527

 
$
118,527

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
83,636

 
83,636

 
85,766

 
85,766

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

 
3,032

 

 
7,026

Denominator for earnings per share—weighted average shares(a)(b)
83,636

 
86,668

 
85,766

 
92,792

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
2.47

 
$
2.39

 
$
1.46

 
$
1.35

Discontinued operations
0.03

 
0.02

 
(0.08
)
 
(0.07
)
Earnings per share
$
2.50

 
$
2.41

 
$
1.38

 
$
1.28


17


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

____________________________________________
(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"). As of May 8, 2012, there are no warrants outstanding. For the three and nine months ended September 30, 2013, 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, 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.

(b)
Performance-based stock units ("PSUs") are included in the denominator for earnings per share if (i) the applicable performance condition(s) has been met and (ii) the inclusion of the PSUs is dilutive for the respective reporting periods. For the three and nine months ended September 30, 2013, approximately 0.1 million PSUs that are probable of vesting were excluded from the calculation of diluted earnings per share because the performance conditions had not been met. At September 30, 2012, there were approximately 2.3 million PSUs included in the calculation of diluted earnings per share, as their performance conditions had been met. For the three and nine months ended September 30, 2012, approximately 0.6 million PSUs that were probable of vesting were excluded from the calculation of diluted earnings per share because the performance conditions had not been met.
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 views 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 the "Other" reportable segment, do not meet the quantitative thresholds that require presentation as separate operating segments.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013

2012
 
2013
 
2012
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Search & Applications
$
407,291

 
$
370,227

 
$
1,231,932

 
$
1,062,187

Match
201,069

 
178,190

 
584,251

 
530,883

Local
62,805

 
84,314

 
222,484

 
245,938

Media
50,974

 
52,736

 
154,303

 
107,015

Other
35,085

 
29,064

 
106,135

 
89,899

Inter-segment elimination
(352
)
 
(61
)
 
(573
)
 
(240
)
Total
$
756,872

 
$
714,470

 
$
2,298,532

 
$
2,035,682

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013

2012
 
2013
 
2012
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Search & Applications
$
87,756

 
$
69,036

 
$
264,085

 
$
216,593

Match
64,823

 
56,078

 
164,169

 
143,083

Local
9,853

 
7,343

 
2,492

 
22,802

Media
(8,475
)
 
(13,178
)
 
(21,331
)
 
(27,152
)
Other
(2,529
)
 
(2,685
)
 
(9,848
)
 
(6,581
)
Corporate
(29,424
)
 
(38,561
)
 
(86,316
)
 
(110,471
)
Total
$
122,004

 
$
78,033

 
$
313,251

 
$
238,274


18


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Operating Income Before Amortization:
 
 
 
 
 
 
 
Search & Applications
$
94,647

 
$
69,192

 
$
284,303

 
$
216,771

Match
68,447

 
59,980

 
182,358

 
159,953

Local
12,417

 
7,817

 
13,384

 
23,599

Media
(7,984
)
 
(12,236
)
 
(19,880
)
 
(25,426
)
Other
(1,880
)
 
(2,259
)
 
(7,797
)
 
(5,412
)
Corporate
(15,614
)
 
(15,898
)
 
(48,683
)
 
(47,895
)
Total
$
150,033

 
$
106,596

 
$
403,685

 
$
321,590

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Depreciation:
 
 
 
 
 
 
 
Search & Applications
$
3,865

 
$
3,343

 
$
14,143

 
$
10,019

Match
4,985

 
4,502

 
14,438

 
11,781

Local
1,346

 
2,463

 
6,399

 
7,739

Media
526

 
424

 
1,573

 
898

Other
360

 
286

 
1,010

 
787

Corporate
2,407

 
2,132

 
6,978

 
6,266

Total
$
13,489

 
$
13,150

 
$
44,541

 
$
37,490

Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
United States
$
527,675

 
$
499,409

 
$
1,594,169

 
$
1,417,622

All other countries
229,197

 
215,061

 
704,363

 
618,060

Total
$
756,872

 
$
714,470

 
$
2,298,532

 
$
2,035,682

 
 
September 30,
2013
 
December 31,
2012
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets):
 
 
 
United States
$
268,725

 
$
251,379

All other countries
21,745

 
19,133

Total
$
290,470

 
$
270,512


The Company's primary metric is Operating Income Before Amortization, which 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. The Company believes this measure is useful to investors because it represents the consolidated operating results from IAC's segments, taking

19


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

into account depreciation, which it believes 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. IAC endeavors to compensate for the limitations of the non-U.S. GAAP measure presented by providing the comparable U.S. GAAP measure with equal or greater prominence, financial statements prepared in accordance with U.S. GAAP, and descriptions of the reconciling items, including quantifying such items, to derive the non-U.S. GAAP measure.

The following tables reconcile Operating Income Before Amortization to operating income (loss) for the Company's reportable segments:
 
Three Months Ended September 30, 2013
 
Operating
Income Before
Amortization
 
Non-Cash
Compensation
Expense
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
94,647

 
$

 
$
(6,891
)
 
$

 
$
87,756

Match
68,447

 
(336
)
 
(2,656
)
 
(632
)
 
64,823

Local
12,417

 

 
(2,564
)
 

 
9,853

Media
(7,984
)
 
(219
)
 
(272
)
 

 
(8,475
)
Other
(1,880
)
 

 
(649
)
 

 
(2,529
)
Corporate
(15,614
)
 
(13,810
)
 

 

 
(29,424
)
Total
$
150,033

 
$
(14,365
)
 
$
(13,032
)
 
$
(632
)
 
$
122,004

 
Three Months Ended September 30, 2012
 
Operating
Income Before
Amortization
 
Non-Cash
Compensation
Expense
 
Amortization
of Intangibles
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
69,192

 
$
(9
)
 
$
(147
)
 
$
69,036

Match
59,980

 
(560
)
 
(3,342
)
 
56,078

Local
7,817

 

 
(474
)
 
7,343

Media
(12,236
)
 
(62
)
 
(880
)
 
(13,178
)
Other
(2,259
)
 
(57
)
 
(369
)
 
(2,685
)
Corporate
(15,898
)
 
(22,663
)
 

 
(38,561
)
Total
$
106,596

 
$
(23,351
)
 
$
(5,212
)
 
$
78,033


20


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Nine Months Ended September 30, 2013
 
Operating
Income Before
Amortization
 
Non-Cash
Compensation
Expense
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
284,303

 
$
(3
)
 
$
(20,215
)
 
$

 
$
264,085

Match
182,358

 
(542
)
 
(11,308
)
 
(6,339
)
 
164,169

Local
13,384

 

 
(10,892
)
 

 
2,492

Media
(19,880
)
 
(637
)
 
(814
)
 

 
(21,331
)
Other
(7,797
)
 
(33
)
 
(2,018
)
 

 
(9,848
)
Corporate
(48,683
)
 
(37,633