10-Q 1 iaci-2014630x10q.htm 10-Q IACI-2014.6.30-10Q
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As filed with the Securities and Exchange Commission on July 31, 2014


 
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 June 30, 2014
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 July 25, 2014, the following shares of the registrant's common stock were outstanding:
Common Stock
77,597,075

Class B Common Stock
5,789,499

Total outstanding Common Stock
83,386,574

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of July 25, 2014 was $5,121,561,426. 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)
 
June 30, 2014
 
December 31, 2013
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
987,326

 
$
1,100,444

Marketable securities
81,611

 
6,004

Accounts receivable, net of allowance of $11,443 and $8,540 respectively
223,436

 
207,408

Other current assets
185,059

 
161,530

Total current assets
1,477,432

 
1,475,386

Property and equipment, net of accumulated depreciation and amortization of $277,966 and $265,298, respectively
291,289

 
293,964

Goodwill
1,720,650

 
1,675,323

Intangible assets, net of accumulated amortization of $85,407 and $83,310, respectively
470,361

 
445,336

Long-term investments
119,487

 
179,990

Other non-current assets
88,259

 
164,685

TOTAL ASSETS
$
4,167,478

 
$
4,234,684

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Accounts payable, trade
$
58,569

 
$
77,653

Deferred revenue
184,423

 
158,206

Accrued expenses and other current liabilities
344,738

 
351,038

Total current liabilities
587,730

 
586,897

Long-term debt
1,080,000

 
1,080,000

Income taxes payable
420,408

 
416,384

Deferred income taxes
327,957

 
320,748

Other long-term liabilities
52,419

 
58,393

 
 
 
 
Redeemable noncontrolling interests
24,137

 
42,861

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 251,393,985 and 250,982,079 shares, respectively and outstanding 77,579,984 and 76,404,552 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
11,358,763

 
11,562,567

Accumulated deficit
(14,846
)
 
(32,735
)
Accumulated other comprehensive loss
(9,906
)
 
(13,046
)
Treasury stock 184,182,001 and 184,945,527 shares, respectively
(9,661,350
)
 
(9,830,317
)
Total IAC shareholders' equity
1,672,928

 
1,686,736

Noncontrolling interests
1,899

 
42,665

Total shareholders' equity
1,674,827

 
1,729,401

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
4,167,478

 
$
4,234,684


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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
Revenue
$
756,315

 
$
799,411

 
$
1,496,562

 
$
1,541,660

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
211,100

 
272,822

 
420,294

 
528,671

Selling and marketing expense
272,786

 
247,153

 
571,498

 
490,067

General and administrative expense
109,719

 
103,515

 
204,535

 
199,239

Product development expense
38,357

 
34,052

 
77,373

 
69,169

Depreciation
15,257

 
17,036

 
30,075

 
31,052

Amortization of intangibles
13,406

 
18,137

 
25,385

 
32,215

Total operating costs and expenses
660,625

 
692,715

 
1,329,160

 
1,350,413

Operating income
95,690

 
106,696

 
167,402

 
191,247

Equity in losses of unconsolidated affiliates
(6,850
)
 
(1,078
)
 
(8,785
)
 
(1,169
)
Interest expense
(14,046
)
 
(7,658
)
 
(28,110
)
 
(15,321
)
Other (expense) income, net
(62,900
)
 
(4
)
 
(62,923
)
 
1,654

Earnings from continuing operations before income taxes
11,894

 
97,956

 
67,584

 
176,411

Income tax provision
(29,889
)
 
(39,416
)
 
(51,274
)
 
(65,162
)
(Loss) earnings from continuing operations
(17,995
)
 
58,540

 
16,310

 
111,249

Loss from discontinued operations, net of tax
(868
)
 
(1,068
)
 
(1,682
)
 
(2,012
)
Net (loss) earnings
(18,863
)
 
57,472

 
14,628

 
109,237

Net loss attributable to noncontrolling interests
867

 
818

 
3,261

 
2,690

Net (loss) earnings attributable to IAC shareholders
$
(17,996
)
 
$
58,290

 
$
17,889

 
$
111,927

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic (loss) earnings per share from continuing operations
$
(0.21
)
 
$
0.71

 
$
0.24

 
$
1.36

Diluted (loss) earnings per share from continuing operations
$
(0.21
)
 
$
0.69

 
$
0.22

 
$
1.31

Basic (loss) earnings per share
$
(0.22
)
 
$
0.70

 
$
0.22

 
$
1.33

Diluted (loss) earnings per share
$
(0.22
)
 
$
0.67

 
$
0.20

 
$
1.29

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.24

 
$
0.24

 
$
0.48

 
$
0.48

 
 
 
 
 
 
 
 
Non-cash compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
459

 
$
681

 
$
451

 
$
1,301

Selling and marketing expense
657

 
794

 
853

 
1,180

General and administrative expense
13,707

 
9,427

 
21,659

 
20,207

Product development expense
1,729

 
918

 
3,202

 
1,795

Total non-cash compensation expense
$
16,552

 
$
11,820

 
$
26,165

 
$
24,483

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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Net (loss) earnings
$
(18,863
)
 
$
57,472

 
$
14,628

 
$
109,237

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(187
)
 
(4,598
)
 
5,190

 
(13,021
)
Change in net unrealized (losses) gains on available-for-sale securities (net of tax benefits of $865 and $1,438 for the three and six months ended June 30, 2014, respectively, and tax provision of $740 and tax benefit of $84 for the three and six months ended June 30, 2013, respectively)
(2,139
)
 
17,187

 
(2,250
)
 
12,211

Total other comprehensive (loss) income, net of tax
(2,326
)
 
12,589

 
2,940

 
(810
)
Comprehensive (loss) income
(21,189
)
 
70,061

 
17,568

 
108,427

Comprehensive loss attributable to noncontrolling interests
984

 
138

 
3,461

 
3,482

Comprehensive (loss) income attributable to IAC shareholders
$
(20,205
)
 
$
70,199

 
$
21,029

 
$
111,909

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, 2013
$
42,861

 
 
$
251

 
250,982

 
$
16

 
16,157

 
$
11,562,567

 
$
(32,735
)
 
$
(13,046
)
 
$
(9,830,317
)
 
$
1,686,736

 
$
42,665

 
$
1,729,401

Net (loss) earnings for the six months ended June 30, 2014
(3,261
)
 
 

 

 

 

 

 
17,889

 

 

 
17,889

 

 
17,889

Other comprehensive (loss) income, net of tax
(299
)
 
 

 

 

 

 

 

 
3,140

 

 
3,140

 
99

 
3,239

Non-cash compensation expense

 
 

 

 

 

 
25,979

 

 

 

 
25,979

 
186

 
26,165

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

 
 

 
412

 

 

 
(182,702
)
 

 

 
168,967

 
(13,735
)
 

 
(13,735
)
Income tax benefit related to the exercise of stock options, vesting of restricted stock units and other

 
 

 

 

 

 
25,487

 

 

 

 
25,487

 

 
25,487

Dividends

 
 

 

 

 

 
(39,556
)
 

 

 

 
(39,556
)
 

 
(39,556
)
Purchase of redeemable noncontrolling interests
(38,893
)
 
 

 

 

 

 

 

 

 

 

 

 

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 
(50,347
)
 
(50,347
)
Adjustment of redeemable noncontrolling interests and noncontrolling interests to fair value
23,716

 
 

 

 

 

 
(33,012
)
 

 

 

 
(33,012
)
 
9,296

 
(23,716
)
Other
13

 
 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014
$
24,137

 
 
$
251

 
251,394

 
$
16

 
16,157

 
$
11,358,763

 
$
(14,846
)
 
$
(9,906
)
 
$
(9,661,350
)
 
$
1,672,928

 
$
1,899

 
$
1,674,827

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

6



IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
Six Months Ended June 30,
 
2014
 
2013
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
Net earnings
$
14,628

 
$
109,237

Less: loss from discontinued operations, net of tax
(1,682
)
 
(2,012
)
Earnings from continuing operations
16,310

 
111,249

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Non-cash compensation expense
26,165

 
24,483

Depreciation
30,075

 
31,052

Amortization of intangibles
25,385

 
32,215

Impairment of long-term investments
64,281

 

Excess tax benefits from stock-based awards
(32,889
)
 
(23,547
)
Deferred income taxes
5,849

 
(6,737
)
Equity in losses of unconsolidated affiliates
8,785

 
1,169

 Acquisition-related contingent consideration fair value adjustments
500

 
5,707

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(5,718
)
 
(9,754
)
Other assets
(19,238
)
 
(14,789
)
Accounts payable and other current liabilities
(31,242
)
 
23,438

Income taxes payable
29,299

 
45,529

Deferred revenue
25,851

 
(203
)
Other, net
5,358

 
8,451

Net cash provided by operating activities attributable to continuing operations
148,771

 
228,263

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired
(103,637
)
 
(36,913
)
Capital expenditures
(26,557
)
 
(47,819
)
Proceeds from maturities and sales of marketable debt securities
998

 
12,502

Purchases of marketable debt securities
(78,380
)
 

Proceeds from sales of long-term investments
2,803

 
310

Purchases of long-term investments
(14,701
)
 
(25,259
)
Other, net
(616
)
 
(1,443
)
Net cash used in investing activities attributable to continuing operations
(220,090
)
 
(98,622
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Principal payments on long-term debt

 
(15,844
)
Purchase of treasury stock

 
(162,660
)
Dividends
(40,086
)
 
(38,880
)
Issuance of common stock, net of withholding taxes
(13,823
)
 
(868
)
Excess tax benefits from stock-based awards
32,889

 
23,547

Purchase of noncontrolling interest
(30,000
)
 

Funds returned from escrow for Meetic tender offer
12,354

 

Acquisition-related contingent consideration payment
(7,373
)
 

Other, net
(141
)
 
(3,634
)
Net cash used in financing activities attributable to continuing operations
(46,180
)
 
(198,339
)
Total cash used in continuing operations
(117,499
)
 
(68,698
)
Total cash (used in) provided by discontinued operations
(157
)
 
2,335

Effect of exchange rate changes on cash and cash equivalents
4,538

 
(4,889
)
Net decrease in cash and cash equivalents
(113,118
)
 
(71,252
)
Cash and cash equivalents at beginning of period
1,100,444

 
749,977

Cash and cash equivalents at end of period
$
987,326

 
$
678,725

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 and Vimeo. Focused on the areas of search, applications, online dating, media and eCommerce, IAC's family of websites is one of the largest in the world, with over a billion monthly visits across more than 100 countries. IAC includes its Search & Applications, The Match Group, Media and eCommerce reportable 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.
Reportable Segments
During the first quarter of 2014, IAC realigned its reportable segments as follows:
The Company created a new segment called The Match Group that includes Match, which was previously reported as its own separate segment, and DailyBurn and Tutor, which were previously in the Media and Other segments, respectively.
The businesses within the Local segment (HomeAdvisor, Felix and, for periods prior to July 1, 2013, CityGrid Media) were moved to the eCommerce segment, formerly called the Other segment.
There were no changes to the Search & Applications segment.
Non-GAAP Measure
In addition, the Company introduced Adjusted EBITDA, a new non-GAAP financial measure, beginning with the first quarter of 2014. We believe Adjusted EBITDA is a useful measure for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments.
Refer to Note 8 to the consolidated financial statements for the reconciliation of Adjusted EBITDA to operating income (loss) by reportable segment.
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 the common stock or in-substance common stock of 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, 2013 included in our Current Report on Form 8-K dated July 2, 2014.

8


IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 these 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 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 six months ended June 30, 2014, revenue earned from Google is $349.5 million and $704.6 million, respectively. For the three and six months ended June 30, 2013, revenue earned from Google is $405.8 million and $781.9 million, respectively. This revenue is earned by the businesses comprising the Search & Applications segment. Accounts receivable related to revenue earned from Google totaled $114.5 million and $112.3 million at June 30, 2014 and December 31, 2013, respectively.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. The new guidance is effective for reporting periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or cumulative effect approach to adopt ASU No. 2014-09. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements or the method of adoption.
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The Company will adopt the new guidance effective January 1, 2015. The adoption of ASU No. 2014-08 will not have a material effect on the Company’s consolidated financial statements.
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 they 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

9


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

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 six months ended June 30, 2014, the Company recorded an income tax provision for continuing operations of $29.9 million and $51.3 million, respectively, which represents effective income tax rates of 251% and 76%, respectively. The effective rates for the three and six months ended June 30, 2014 are higher than the statutory rate of 35% due primarily to the largely unbenefited loss associated with the write-downs of certain of the Company's investments, interest on reserves for income tax contingencies, and state taxes, partially offset by foreign income taxed at lower rates. For the three and six months ended June 30, 2013, the Company recorded an income tax provision for continuing operations of $39.4 million and $65.2 million, respectively, which represents effective income tax rates of 40% and 37%, respectively. The effective rates for the three and six months ended June 30, 2013 are higher than the statutory rate of 35% due primarily to state taxes and interest on reserves for income tax contingencies, partially offset by foreign income taxed at lower rates.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Included in the income tax provision for continuing operations and discontinued operations for the three months ended June 30, 2014 is a $1.5 million and a $0.8 million expense, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. Included in the income tax provision for continuing operations and discontinued operations for the six months ended June 30, 2014 is a $3.1 million and a $1.6 million expense, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. At June 30, 2014 and December 31, 2013, the Company has accrued $140.7 million and $133.0 million, respectively, for the payment of interest. At June 30, 2014 and December 31, 2013, the Company has accrued $5.3 million and $5.1 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. In June 2014, the Internal Revenue Service notified the Company that it will audit the Company’s tax returns for the years ended December 31, 2010 through 2012. Various other 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 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.
At June 30, 2014 and December 31, 2013, unrecognized tax benefits, including interest, are $412.0 million and $408.8 million, respectively. Of the total unrecognized tax benefits at June 30, 2014, $409.5 million is included in "Income taxes payable," $2.1 million relates to deferred tax assets included in "Deferred income taxes" and $0.3 million is included in "Accrued expenses and other current liabilities" in the accompanying consolidated balance sheet. Included in unrecognized tax benefits at June 30, 2014 is $39.9 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.
The statute of limitations for federal income taxes for the years 2001 through 2009 expired on July 1, 2014. As a result, previously unrecognized tax benefits, including interest, totaling $374.8 million will be recognized in the third quarter of 2014. The income tax benefit to continuing operations and discontinued operations will be $88.3 million and $175.7 million, respectively. The remaining amount of $110.8 million will affect various balance sheet accounts, primarily non-current deferred tax assets, which will be reduced by $100.0 million. If the remaining balance of unrecognized tax benefits at June 30, 2014 is subsequently recognized, $32.5 million, net of related deferred tax assets and interest, would reduce income tax provision for continuing operations. Excluding the amounts related to the 2001-2009 period described above, the Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by an additional $11.6 million within twelve months of the current reporting date, of which approximately $8.3 million would decrease income tax provision for continuing operations, primarily due to expirations of statutes of limitations.

NOTE 3—MARKETABLE SECURITIES
At June 30, 2014, 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
 
Fair
Value
 
(In thousands)
Corporate debt securities
$
78,599

 
$
41

 
$
(59
)
 
$
78,581

Total debt securities
78,599

 
41

 
(59
)
 
78,581

Equity security
149

 
2,881

 

 
3,030

Total marketable securities
$
78,748

 
$
2,922

 
$
(59
)
 
$
81,611

At December 31, 2013, current available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Corporate debt security
$
1,004

 
$
4

 
$

 
$
1,008

Total debt security
1,004

 
4

 

 
1,008

Equity securities
216

 
4,780

 

 
4,996

Total marketable securities
$
1,220

 
$
4,784

 
$

 
$
6,004

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 current available-for-sale at June 30, 2014 are as follows:
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Due in one year or less
$
10,632

 
$
10,642

Due after one year through five years
67,967

 
67,939

Total
$
78,599

 
$
78,581

The following table summarizes investments in current available-for-sale marketable debt securities (22 in total at June 30, 2014) that have been in a continuous unrealized loss position for less than twelve months:
 
June 30, 2014
 
December 31, 2013
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In thousands)
Corporate debt securities
$
51,621

 
$
(59
)
 
$

 
$

Total
$
51,621

 
$
(59
)
 
$

 
$

At June 30, 2014 and December 31, 2013, there are no investments in current available-for-sale marketable securities that have been in a continuous unrealized loss position for twelve months or longer.

11


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

All of the Company’s marketable debt securities are rated investment grade. The gross unrealized losses on the marketable debt securities relate principally to changes in interest rates. Because the Company does not intend to sell any 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 June 30, 2014.
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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
3,462

 
$
2

 
$
3,462

 
$
12,502

Gross realized gains
2,299

 

 
2,299

 

There were no realized losses from the maturities and sales of available-for-sale marketable securities for the three and six months ended June 30, 2014 and 2013. Gross realized gains 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.
NOTE 4—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 determining the fair value of 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 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:

12


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

 
June 30, 2014
 
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
$
350,637

 
$

 
$

 
$
350,637

Commercial paper

 
246,620

 

 
246,620

Time deposits

 
59,006

 

 
59,006

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
78,581

 

 
78,581

   Equity security
3,030

 

 

 
3,030

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
9,250

 
9,250

Marketable equity security
9,516

 

 

 
9,516

Total
$
363,183

 
$
384,207

 
$
9,250

 
$
756,640

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(41,397
)
 
$
(41,397
)

 
December 31, 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
$
698,307

 
$

 
$

 
$
698,307

Commercial paper

 
12,000

 

 
12,000

Time deposits

 
32,325

 

 
32,325

Marketable securities:
 
 
 
 
 
 
 
Corporate debt security

 
1,008

 

 
1,008

Equity securities
4,996

 

 

 
4,996

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
8,920

 
8,920

Marketable equity securities
11,711

 

 

 
11,711

Total
$
715,014

 
$
45,333

 
$
8,920

 
$
769,267

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(45,828
)
 
$
(45,828
)

13


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

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 June 30,
 
2014
 
2013
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at April 1
$
9,150

 
$
(48,758
)
 
$
8,580

 
$
(44,577
)
Total net gains (losses):
 
 


 
 
 
 
Included in earnings (unrealized)

 
(527
)
 

 
(4,249
)
Included in other comprehensive income (loss)
100

 
499

 
180

 
(368
)
Settlements

 
7,389

 

 
12

Balance at June 30
$
9,250

 
$
(41,397
)
 
$
8,760

 
$
(49,182
)
 
Six Months Ended June 30,
 
2014
 
2013
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
8,920

 
$
(45,828
)
 
$
8,100

 
$
(1,909
)
Total net gains (losses):
 
 
 
 
 
 
 
Included in earnings (unrealized)

 
(500
)
 

 
(5,707
)
Included in other comprehensive income (loss)
330

 
136

 
660

 
(368
)
Fair value at date of acquisition

 
(2,835
)
 

 
(41,387
)
Settlements

 
7,630

 

 
189

Balance at June 30
$
9,250

 
$
(41,397
)
 
$
8,760

 
$
(49,182
)
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 $0.8 million and $1.1 million at June 30, 2014 and December 31, 2013, respectively. The unrealized losses are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. At June 30, 2014, 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 June 30, 2014, 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 Arrangements
As of June 30, 2014, there are six contingent consideration arrangements related to recent business acquisitions. Five of the contingent consideration arrangements have limits as to the maximum amount that can be paid; the maximum contingent payments related to these arrangements is $158.9 million and the fair value of these five arrangements at June 30, 2014 is $40.0 million. The fair value of the one contingent consideration arrangement without a limit on the maximum amount is $1.4 million at June 30, 2014. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company primarily uses probability-weighted analyses to determine the amount of the gross liability, and, to the extent the arrangement is long-term in nature, applies a discount rate, which captures the risks associated with the

14


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

obligation. The amount of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared for longer duration and more complex arrangements.
The most significant contingent consideration arrangement relates to the January 2013 acquisition of Massive Media, NV, which operates Twoo.com. The Twoo.com contingent consideration arrangement is payable in three annual installments beginning in 2014. The 2014, 2015 and 2016 payments are based upon 2013 EBITDA, 2014 EBITDA and monthly active users of Twoo.com at December 31, 2014 and 2015 EBITDA and monthly active users of Twoo.com at December 31, 2015, respectively. The 2014 installment in the amount of $7.4 million was paid in the second quarter of 2014. The remaining aggregate amount of the 2015 and 2016 installment payments cannot exceed €77.9 million ($105.9 million at June 30, 2014). The estimate of the fair value for the Twoo.com 2015 and 2016 installment payments is based upon the Company's multi-scenario forecasts of Twoo.com's EBITDA for 2014 and 2015 and the number of users at December 31, 2014 and 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. The fair value of this arrangement is determined using a discount rate of 15%.
The fair value of the contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements 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 June 30, 2014 includes a current portion of $10.4 million and non-current portion of $31.0 million, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.
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.
Cost method investments
At June 30, 2014 and December 31, 2013, the carrying values of the Company's investments accounted for under the cost method totaled $85.7 million and $137.3 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for impairment on a quarterly basis and 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.
In the second quarter of 2014, the Company recorded $64.2 million of other-than-temporary impairment charges for certain cost method investments as a result of our assessment of the near-term prospects and financial condition of the investees. This charge is included in "Other (expense) income, net" in the accompanying consolidated statement of operations.
Equity method investments
In the second quarter of 2014, the Company recorded a $4.2 million other-than-temporary impairment charge on an equity method investment following the sale of a majority of the investee's assets. This charge is included in "Equity in losses of unconsolidated affiliates" in the accompanying consolidated statement of operations.


15


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

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:
 
June 30, 2014
 
December 31, 2013
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Liabilities:
 
 
 
 
 
 
 
Long-term debt
$
(1,080,000
)
 
$
(1,109,517
)
 
$
(1,080,000
)
 
$
(1,058,396
)
The fair value of long-term debt 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 5—LONG-TERM DEBT
The balance of long-term debt is comprised of:
 
June 30,
2014
 
December 31, 2013
 
(In thousands)
4.875% Senior Notes due November 30, 2018 (the "2013 Senior Notes"); interest payable each May 30 and November 30, which commenced May 30, 2014
$
500,000

 
$
500,000

4.75% Senior Notes due December 15, 2022 (the "2012 Senior Notes"); interest payable each June 15 and December 15, which commenced June 15, 2013
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, which commenced March 1, 2006
80,000

 
80,000

Total long-term debt
$
1,080,000

 
$
1,080,000

The 2013 and 2012 Senior Notes were issued on November 15, 2013 and December 21, 2012, respectively. On December 21, 2012, the Company entered into a $300 million revolving credit facility, which expires on December 21, 2017. The annual fee to maintain the revolving credit facility is 25 basis points. At June 30, 2014 and December 31, 2013, there are no outstanding borrowings under the revolving credit facility.
The 2013 and 2012 Senior Notes are unconditionally guaranteed by certain domestic subsidiaries, which are designated as guarantor subsidiaries. The guarantor subsidiaries are the same for the 2013 and 2012 Senior Notes and IAC's obligation under the revolving credit; IAC's obligation under the revolving credit is also secured by the stock of certain of our domestic and foreign subsidiaries. See Note 10 for guarantor and non-guarantor financial information.
The indentures governing the 2013 and 2012 Senior Notes restrict our ability to incur additional indebtedness in the event we are not in compliance with the maximum leverage ratio of 3.0 to 1.0. In addition, the terms of the revolving credit facility require that we maintain a leverage ratio of not more than 3.0 to 1.0 and restrict our ability to incur additional indebtedness. As of June 30, 2014, the Company was in compliance with all of these covenants.

16


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

NOTE 6—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive (loss) income into earnings:
 
Three Months Ended June 30, 2014
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses)On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of April 1
$
(15,132
)
 
$
7,435

 
$
(7,697
)
Other comprehensive loss before reclassifications, net of tax benefit of $0.1 million related to unrealized losses on available-for-sale securities
(150
)
 
(799
)
 
(949
)
Amounts reclassified from accumulated other comprehensive loss, net of tax benefit of $0.8 million related to unrealized losses on available-for-sale securities

 
(1,260
)
 
(1,260
)
Net current period other comprehensive loss
(150
)
 
(2,059
)
 
(2,209
)
Balance as of June 30
$
(15,282
)
 
$
5,376

 
$
(9,906
)
 
Three Months Ended June 30, 2013
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of April 1
$
(32,024
)
 
$
(12,072
)
 
$
(44,096
)
Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized gains on available-for-sale securities
(5,278
)
 
17,187

 
11,909

Amounts reclassified from accumulated other comprehensive loss

 

 

Net current period other comprehensive (loss) income
(5,278
)
 
17,187

 
11,909

Balance as of June 30
$
(37,302
)
 
$
5,115

 
$
(32,187
)
 
Six Months Ended June 30, 2014
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses)On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of January 1
$
(20,352
)
 
$
7,306

 
$
(13,046
)
Other comprehensive income (loss) before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities
5,070

 
(670
)
 
4,400

Amounts reclassified from accumulated other comprehensive loss, net of tax benefit of $0.8 million related to unrealized losses on available-for-sale securities

 
(1,260
)
 
(1,260
)
Net current period other comprehensive income (loss)
5,070

 
(1,930
)
 
3,140

Balance as of June 30
$
(15,282
)
 
$
5,376

 
$
(9,906
)

17


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

 
Six Months Ended June 30, 2013
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of January 1
$
(25,073
)
 
$
(7,096
)
 
$
(32,169
)
Other comprehensive (loss) income before reclassifications, net of tax provision of $0.1 million related to unrealized losses on available-for-sale securities
(12,229
)
 
12,212

 
(17
)
Amounts reclassified from accumulated other comprehensive loss

 
(1
)
 
(1
)
Net current period other comprehensive (loss) income
(12,229
)
 
12,211

 
(18
)
Balance as of June 30
$
(37,302
)
 
$
5,115

 
$
(32,187
)
Unrealized gains and losses, 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 (expense) income, net" in the accompanying consolidated statement of operations.

NOTE 7—(LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share attributable to IAC shareholders.
 
Three Months Ended June 30,
 
2014
 
2013
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
(Loss) earnings from continuing operations
$
(17,995
)
 
$
(17,995
)
 
$
58,540

 
$
58,540

Net loss attributable to noncontrolling interests
867

 
867

 
818

 
818

(Loss) earnings from continuing operations attributable to IAC shareholders
(17,128
)
 
(17,128
)
 
59,358

 
59,358

Loss from discontinued operations attributable to IAC shareholders
(868
)
 
(868
)
 
(1,068
)
 
(1,068
)
Net (loss) earnings attributable to IAC shareholders
$
(17,996
)
 
$
(17,996
)
 
$
58,290

 
$
58,290

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
83,178

 
83,178

 
83,609

 
83,609

Dilutive securities including stock options and RSUs(a)

 

 

 
2,954

Denominator for earnings per share—weighted average shares(a)
83,178

 
83,178

 
83,609

 
86,563

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
(Loss) earnings per share from continuing operations
$
(0.21
)
 
$
(0.21
)
 
$
0.71

 
$
0.69

Discontinued operations
(0.01
)
 
(0.01
)
 
(0.01
)
 
(0.02
)
(Loss) earnings per share
$
(0.22
)
 
$
(0.22
)
 
$
0.70

 
$
0.67


18


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

 
Six Months Ended June 30,
 
2014
 
2013
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
16,310

 
$
16,310

 
$
111,249

 
$
111,249

Net loss attributable to noncontrolling interests
3,261

 
3,261

 
2,690

 
2,690

Earnings from continuing operations attributable to IAC shareholders
19,571

 
19,571

 
113,939

 
113,939

Loss from discontinued operations attributable to IAC shareholders
(1,682
)
 
(1,682
)
 
(2,012
)
 
(2,012
)
Net earnings attributable to IAC shareholders
$
17,889

 
$
17,889

 
$
111,927

 
$
111,927

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
82,833

 
82,833

 
83,912

 
83,912

Dilutive securities including stock options and RSUs(b)

 
5,150

 

 
3,058

Denominator for earnings per share—weighted average shares(b)
82,833

 
87,983

 
83,912

 
86,970

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
0.24

 
$
0.22

 
$
1.36

 
$
1.31

Discontinued operations
(0.02
)
 
(0.02
)
 
(0.03
)
 
(0.02
)
Earnings per share
$
0.22

 
$
0.20

 
$
1.33

 
$
1.29

_________________________________________
(a) 
For the three months ended June 30, 2014, the Company has a loss from continuing operations and as a result, approximately 11.5 million shares related to potentially dilutive securities were excluded for computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute all earnings per share amounts.
(b) 
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 vesting of restricted stock units ("RSUs"). For the six months ended June 30, 2014, there are no shares excluded from the calculation of diluted earnings per share. For the three and six months ended June 30, 2013, approximately 0.7 million and 3.8 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.

NOTE 8—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 eCommerce reportable segment, do not meet the quantitative thresholds that require presentation as separate operating segments.

19


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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Search & Applications
$
395,716

 
$
427,449

 
$
793,751

 
$
824,641

The Match Group
214,314

 
197,987

 
425,501

 
390,862

Media
36,656

 
57,495

 
73,011

 
102,490

eCommerce
109,949

 
116,591

 
204,791

 
223,888

Inter-segment elimination
(320
)
 
(111
)
 
(492
)
 
(221
)
Total
$
756,315

 
$
799,411

 
$
1,496,562

 
$
1,541,660

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Search & Applications
$
77,771

 
$
89,346

 
$
148,108

 
$
176,329

The Match Group
61,198

 
53,129

 
101,001

 
90,488

Media
(9,794
)
 
(2,033
)
 
(18,360
)
 
(9,190
)
eCommerce
8

 
(4,603
)
 
(1,553
)
 
(9,096
)
Corporate
(33,493
)
 
(29,143
)
 
(61,794
)
 
(57,284
)
Total
$
95,690

 
$
106,696

 
$
167,402

 
$
191,247

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Adjusted EBITDA:
 
 
 
 
 
 
 
Search & Applications
$
91,258

 
$
102,420

 
$
173,329

 
$
199,934

The Match Group
69,368

 
67,685

 
116,798

 
115,591

Media
(8,911
)
 
(1,003
)
 
(16,775
)
 
(7,183
)
eCommerce
4,523

 
4,467

 
7,327

 
5,190

Corporate
(14,806
)
 
(15,631
)
 
(31,152
)
 
(28,828
)
Total
$
141,432

 
$
157,938

 
$
249,527

 
$
284,704

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 June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
United States
$
511,862

 
$
551,880

 
$
1,016,265

 
$
1,066,494

All other countries
244,453

 
247,531

 
480,297

 
475,166

 Total
$
756,315

 
$
799,411

 
$
1,496,562

 
$
1,541,660


20


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

 
June 30,
2014
 
December 31,
2013
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets):
 
 
 
 United States
$
269,746

 
$
271,916

 All other countries
21,543

 
22,048

Total
$
291,289

 
$
293,964

The Company's primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) non-cash compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and goodwill and intangible asset impairments and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC's statement of operations of certain expenses. IAC endeavors to compensate for the limitations of the non-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-GAAP measure.
The following tables reconcile Adjusted EBITDA to operating income (loss) for the Company's reportable segments:
 
Three Months Ended June 30, 2014
 

Adjusted
EBITDA
 
Non-Cash
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
91,258

 
$

 
$
(5,082
)
 
$
(8,405
)
 
$

 
$
77,771

The Match Group
69,368

 
(170
)
 
(5,589
)
 
(1,684
)
 
(727
)
 
61,198

Media
(8,911
)
 
(161
)
 
(224
)
 
(698
)
 
200

 
(9,794
)
eCommerce
4,523

 

 
(1,896
)
 
(2,619
)
 

 
8

Corporate
(14,806
)
 
(16,221
)
 
(2,466
)
 

 

 
(33,493
)
Total
$
141,432

 
$
(16,552
)
 
$
(15,257
)
 
$
(13,406
)
 
$
(527
)
 
$
95,690


21


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

 
Three Months Ended June 30, 2013
 

Adjusted
EBITDA
 
Non-Cash
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
102,420

 
$

 
$
(6,413
)
 
$
(6,661
)
 
$

 
$
89,346

The Match Group
67,685

 
(363
)
 
(4,838
)
 
(5,106
)
 
(4,249
)
 
53,129

Media
(1,003
)
 
(213
)
 
(524
)
 
(293
)
 

 
(2,033
)
eCommerce
4,467

 

 
(2,993
)
 
(6,077
)
 

 
(4,603
)
Corporate
(15,631
)
 
(11,244
)
 
(2,268
)
 

 

 
(29,143
)
Total
$
157,938

 
$
(11,820
)
 
$
(17,036
)
 
$
(18,137
)
 
$
(4,249
)
 
$
106,696