0000891103-15-000016.txt : 20151110 0000891103-15-000016.hdr.sgml : 20151110 20151109161605 ACCESSION NUMBER: 0000891103-15-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20150930 FILED AS OF DATE: 20151109 DATE AS OF CHANGE: 20151109 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: 151215794 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-2015930x10q.htm 10-Q 10-Q


As filed with the Securities and Exchange Commission on November 9, 2015


 
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, 2015
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 23, 2015, the following shares of the registrant's common stock were outstanding:
Common Stock
77,196,951

Class B Common Stock
5,789,499

Total outstanding Common Stock
82,986,450

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of October 23, 2015 was $5,269,037,616. 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, 2015
 
December 31, 2014
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
766,448

 
$
990,405

Marketable securities
53,937

 
160,648

Accounts receivable, net of allowance of $16,202 and $12,437, respectively
246,978

 
236,086

Other current assets
178,883

 
166,742

Total current assets
1,246,246

 
1,553,881

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $305,226 and $279,534, respectively
299,078

 
302,459

Goodwill
1,769,141

 
1,754,926

Intangible assets, net of accumulated amortization of $122,653 and $98,937 respectively
459,921

 
491,936

Long-term investments
138,825

 
114,983

Other non-current assets
114,107

 
56,693

TOTAL ASSETS
$
4,027,318

 
$
4,274,878

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Accounts payable, trade
$
68,448

 
$
81,163

Deferred revenue
237,947

 
194,988

Accrued expenses and other current liabilities
347,062

 
397,803

Total current liabilities
653,457

 
673,954

 
 
 
 
Long-term debt
1,000,000

 
1,080,000

Income taxes payable
23,641

 
32,635

Deferred income taxes
417,326

 
409,529

Other long-term liabilities
62,476

 
45,191

 
 
 
 
Redeemable noncontrolling interests
25,227

 
40,427

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 253,957,313 and 252,170,058 shares, respectively and outstanding 77,188,046 and 78,356,057 shares, respectively
254

 
252

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
11,459,267

 
11,415,617

Retained earnings
391,492

 
325,118

Accumulated other comprehensive loss
(144,488
)
 
(87,700
)
Treasury stock 187,137,267 and 184,182,001 shares, respectively
(9,861,350
)
 
(9,661,350
)
Total IAC shareholders' equity
1,845,191

 
1,991,953

Noncontrolling interests

 
1,189

Total shareholders' equity
1,845,191

 
1,993,142

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
4,027,318

 
$
4,274,878


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,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share data)
Revenue
$
838,561

 
$
782,231

 
$
2,382,205

 
$
2,278,793

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
205,261

 
224,695

 
580,090

 
644,659

Selling and marketing expense
337,226

 
278,321

 
1,014,289

 
849,410

General and administrative expense
134,122

 
106,987

 
378,265

 
311,973

Product development expense
46,859

 
40,691

 
138,546

 
118,352

Depreciation
15,625

 
14,133

 
46,693

 
44,208

Amortization of intangibles
12,338

 
16,451

 
39,304

 
41,836

Total operating costs and expenses
751,431

 
681,278

 
2,197,187

 
2,010,438

Operating income
87,130

 
100,953

 
185,018

 
268,355

Equity in earnings (losses) of unconsolidated affiliates
398

 
(612
)
 
(78
)
 
(9,397
)
Interest expense
(15,992
)
 
(14,009
)
 
(45,270
)
 
(42,119
)
Other income (expense), net
34,000

 
4,113

 
39,826

 
(58,810
)
Earnings from continuing operations before income taxes
105,536

 
90,445

 
179,496

 
158,029

Income tax (provision) benefit
(40,510
)
 
59,816

 
(34,722
)
 
8,542

Earnings from continuing operations
65,026

 
150,261

 
144,774

 
166,571

Earnings (loss) from discontinued operations, net of tax
17

 
175,730

 
(11
)
 
174,048

Net earnings
65,043

 
325,991

 
144,763

 
340,619

Net loss attributable to noncontrolling interests
568

 
821

 
6,558

 
4,082

Net earnings attributable to IAC shareholders
$
65,611

 
$
326,812

 
$
151,321

 
$
344,701

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings per share from continuing operations
$
0.79

 
$
1.81

 
$
1.82

 
$
2.05

Diluted earnings per share from continuing operations
$
0.74

 
$
1.70

 
$
1.71

 
$
1.93

Basic earnings per share
$
0.79

 
$
3.91

 
$
1.82

 
$
4.15

Diluted earnings per share
$
0.74

 
$
3.68

 
$
1.71

 
$
3.91

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.34

 
$
0.34

 
$
1.02

 
$
0.82

 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
307

 
$
453

 
$
846

 
$
904

Selling and marketing expense
2,442

 
775

 
7,284

 
1,628

General and administrative expense
21,683

 
14,094

 
56,320

 
35,753

Product development expense
2,577

 
2,010

 
7,419

 
5,212

Total stock-based compensation expense
$
27,009

 
$
17,332

 
$
71,869

 
$
43,497

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,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net earnings
$
65,043

 
$
325,991

 
$
144,763

 
$
340,619

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(10,603
)
 
(36,759
)
 
(58,604
)
 
(31,569
)
Change in unrealized gains and losses of available-for-sale securities (net of tax benefits of $277 and $95 for the three and nine months ended September 30, 2015, respectively, and net of tax benefits of $245 and $1,683 for the three and nine months ended September 30, 2014, respectively)
(3,617
)
 
(389
)
 
632

 
(2,639
)
Total other comprehensive loss, net of tax
(14,220
)
 
(37,148
)
 
(57,972
)
 
(34,208
)
Comprehensive income
50,823

 
288,843

 
86,791

 
306,411

Comprehensive loss attributable to noncontrolling interests
595

 
1,107

 
7,742

 
4,568

Comprehensive income attributable to IAC shareholders
$
51,418

 
$
289,950

 
$
94,533

 
$
310,979

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
 
 Retained Earnings
 
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
 
$
 
Shares
 
$
 
Shares
 
 
 
 
 
 
(In thousands)
 
 
Balance as of December 31, 2014
$
40,427

 
 
$
252

 
252,170

 
$
16

 
16,157

 
$
11,415,617

 
$
325,118

 
$
(87,700
)
 
$
(9,661,350
)
 
$
1,991,953

 
$
1,189

 
$
1,993,142

Net (loss) earnings for the nine months ended September 30, 2015
(6,558
)
 
 

 

 

 

 

 
151,321

 

 

 
151,321

 

 
151,321

Other comprehensive loss, net of tax
(1,184
)
 
 

 

 

 

 

 

 
(56,788
)
 

 
(56,788
)
 

 
(56,788
)
Stock-based compensation expense
5,066

 
 

 

 

 

 
62,611

 

 

 

 
62,611

 

 
62,611

Issuance of common stock pursuant to stock-based awards, net of withholding taxes

 
 
2

 
1,787

 

 

 
(39,512
)
 

 

 

 
(39,510
)
 

 
(39,510
)
Income tax benefit related to stock-based awards

 
 

 

 

 

 
37,298

 

 

 

 
37,298

 

 
37,298

Dividends

 
 

 

 

 

 

 
(84,947
)
 

 

 
(84,947
)
 

 
(84,947
)
Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(200,000
)
 
(200,000
)
 

 
(200,000
)
Purchase of redeemable noncontrolling interests
(29,899
)
 
 

 

 

 

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to fair value
15,903

 
 

 

 

 

 
(15,903
)
 

 

 

 
(15,903
)
 

 
(15,903
)
Transfer from noncontrolling interests to redeemable noncontrolling interests
1,189

 
 

 

 

 

 

 

 

 

 

 
(1,189
)
 
(1,189
)
Other
283

 
 

 

 

 

 
(844
)
 

 

 

 
(844
)
 

 
(844
)
Balance as of September 30, 2015
$
25,227

 
 
$
254

 
253,957

 
$
16

 
16,157

 
$
11,459,267

 
$
391,492

 
$
(144,488
)
 
$
(9,861,350
)
 
$
1,845,191

 
$

 
$
1,845,191

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,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
Net earnings
$
144,763

 
$
340,619

Less: (loss) earnings from discontinued operations, net of tax
(11
)
 
174,048

Earnings from continuing operations
144,774

 
166,571

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Stock-based compensation expense
71,869

 
43,497

Depreciation
46,693

 
44,208

Amortization of intangibles
39,304

 
41,836

Impairment of long-term investments
1,304

 
64,281

Excess tax benefits from stock-based awards
(49,147
)
 
(41,320
)
Deferred income taxes
(7,851
)
 
88,739

Equity in losses of unconsolidated affiliates
78

 
9,397

Acquisition-related contingent consideration fair value adjustments
(17,906
)
 
(13,781
)
Gain on real estate transaction
(33,586
)
 

Other adjustments, net
13,852

 
10,080

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(25,822
)
 
(12,779
)
Other assets
(13,746
)
 
(8,735
)
Accounts payable and other current liabilities
(17,453
)
 
(24,183
)
Income taxes payable
(13,748
)
 
(114,584
)
Deferred revenue
45,674

 
41,667

Other changes in assets and liabilities, net
(182
)
 
(233
)
Net cash provided by operating activities attributable to continuing operations
184,107

 
294,661

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired
(43,286
)
 
(244,196
)
Capital expenditures
(44,558
)
 
(39,033
)
Proceeds from maturities and sales of marketable debt securities
192,928

 
998

Purchases of marketable debt securities
(93,134
)
 
(110,886
)
Purchases of long-term investments
(25,073
)
 
(17,703
)
Other, net
4,456

 
11,924

Net cash used in investing activities attributable to continuing operations
(8,667
)
 
(398,896
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Purchase of treasury stock
(200,000
)
 

Dividends
(84,947
)
 
(68,505
)
Principal payment on long-term debt
(80,000
)
 

Issuance of common stock, net of withholding taxes
(40,197
)
 
(4,823
)
Excess tax benefits from stock-based awards
49,147

 
41,320

Purchase of noncontrolling interests
(29,899
)
 
(30,328
)
Funds returned from escrow for Meetic tender offer

 
12,354

Acquisition-related contingent consideration payments
(5,712
)
 
(7,659
)
Other, net
512

 
(1,397
)
Net cash used in financing activities attributable to continuing operations
(391,096
)
 
(59,038
)
Total cash used in continuing operations
(215,656
)
 
(163,273
)
Total cash used in discontinued operations
(190
)
 
(171
)
Effect of exchange rate changes on cash and cash equivalents
(8,111
)
 
(5,288
)
Net decrease in cash and cash equivalents
(223,957
)
 
(168,732
)
Cash and cash equivalents at beginning of period
990,405

 
1,100,444

Cash and cash equivalents at end of period
$
766,448

 
$
931,712


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. The Company is organized into four segments: The Match Group, which consists of dating, education and fitness businesses with brands such as Match, OkCupid, Tinder, The Princeton Review and DailyBurn; Search & Applications, which includes brands such as About.com, Ask.com, Dictionary.com and Investopedia; Media, which consists of businesses such as Vimeo, Electus, The Daily Beast and CollegeHumor; and eCommerce, which includes HomeAdvisor and ShoeBuy. IAC's brands and products are among the most recognized in the world reaching users in over 200 countries.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
Match Group, Inc. Initial Public Offering and Acquisition of PlentyOfFish
On November 9, 2015, Match Group, Inc. filed a registration statement on Form S-1 with the Securities and Exchange Commission ("SEC") relating to the proposed initial public offering ("IPO") of less than 20% of its common stock. The IPO is expected to be completed during the fourth quarter of 2015.
On October 28, 2015, Match Group, Inc. completed its previously announced purchase of Plentyoffish Media Inc., or PlentyOfFish, for $575 million in cash.
Basis of Presentation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
Basis of Consolidation and Accounting for Investments
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 GAAP for interim financial information and with the rules and regulations of the SEC. Accordingly, they do not include all of the information and notes required by 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 the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
Accounting Estimates
The preparation of consolidated financial statements in accordance with 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

8

IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

lives and recoverability 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 liabilities for uncertain tax positions; 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"). On October 26, 2015, the Company and Google entered into a services agreement that is effective as of April 1, 2016, following the expiration of the current services agreement, and expires on March 31, 2020. The Company may choose to terminate the agreement effective March 31, 2019. These services agreements require 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 nine months ended September 30, 2015, revenue earned from Google is $332.0 million and $979.8 million, respectively. For the three and nine months ended September 30, 2014, revenue earned from Google is $351.4 million and $1.1 billion, respectively. This revenue is earned by the businesses comprising the Search & Applications segment. Accounts receivable related to revenue earned from Google totaled $112.2 million and $118.7 million at September 30, 2015 and December 31, 2014, respectively.
Recent Accounting Pronouncement
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. In July 2015, the FASB decided to defer the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning on the original effective date of December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its consolidated financial statements or the method and timing of adoption.
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 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 the liabilities for uncertain tax positions 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 realization 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.

9

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

For the three and nine months ended September 30, 2015, the Company recorded an income tax provision for continuing operations of $40.5 million and $34.7 million, respectively, which represents effective income tax rates of 38% and 19%, respectively. The effective tax rate for the three months ended September 30, 2015 is higher than the statutory rate of 35% due primarily to state taxes, partially offset by foreign income taxed at lower rates. The effective tax rate for the nine months ended September 30, 2015 is lower than the statutory rate of 35% due primarily to the realization of certain deferred tax assets, a reduction in tax reserves and related interest due to the expiration of statutes of limitations and the non-taxable gain on contingent consideration fair value adjustments in the current year period. For the three and nine months ended September 30, 2014, the Company recorded an income tax benefit for continuing operations of $59.8 million and $8.5 million, respectively, despite pre-tax income of $90.4 million and $158.0 million, respectively. The income tax benefit for the three and nine months ended September 30, 2014 is due principally to a reduction in tax reserves and related interest due to the expiration of statutes of limitations for federal income taxes for 2001 through 2009 of $88.2 million.
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 for the three and nine months ended September 30, 2015, is a less than $0.1 million expense and a $0.2 million benefit, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. At September 30, 2015 and December 31, 2014, the Company has accrued $2.2 million and $2.8 million, respectively, for the payment of interest. At September 30, 2015 and December 31, 2014, the Company has accrued $2.1 million and $2.9 million, respectively, for penalties.
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2012. Various other jurisdictions are open to examination for various tax years beginning with 2009. 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 uncertain tax positions and the amounts owed by the Company are recorded in the period they become known.
At September 30, 2015 and December 31, 2014, unrecognized tax benefits, including interest and penalties, are $24.8 million and $33.2 million, respectively. If unrecognized tax benefits at September 30, 2015 are subsequently recognized, $22.8 million, net of related deferred tax assets and interest, would reduce income tax provision for continuing operations. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $7.7 million within twelve months of September 30, 2015 primarily due to expiration of statutes of limitations and settlements.
NOTE 3—MARKETABLE SECURITIES
At September 30, 2015, current available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Corporate debt securities
$
53,600

 
$
7

 
$
(129
)
 
$
53,478

Equity security
98

 
361

 

 
459

Total marketable securities
$
53,698

 
$
368

 
$
(129
)
 
$
53,937


10

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


At December 31, 2014, current available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Corporate debt securities
$
159,418

 
$
34

 
$
(255
)
 
$
159,197

Equity security
98

 
1,353

 

 
1,451

Total marketable securities
$
159,516

 
$
1,387

 
$
(255
)
 
$
160,648

The unrealized gains and losses in the tables above are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. The gross unrealized losses on the marketable debt securities relate primarily to changes in interest rates. The Company does not consider the gross unrealized losses to be other-than-temporary because the Company does not intend to sell the marketable debt securities that generated the gross unrealized losses at September 30, 2015, and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized costs bases, which may be maturity.
The contractual maturities of debt securities classified as current available-for-sale at September 30, 2015 are as follows:
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Due in one year or less
$
4,374

 
$
4,370

Due after one year through five years
49,226

 
49,108

Total
$
53,600

 
$
53,478

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,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
178,315

 
$
1,114

 
$
192,928

 
$
4,576

Gross realized gains
17

 
1,063

 
22

 
3,362

There were no gross realized losses from the maturities and sales of available-for-sale marketable securities for the three and nine months ended September 30, 2015 and 2014. However, during the second quarter of 2015, the Company recognized $0.3 million in losses that were deemed to be other-than-temporary related to various corporate debt securities that were expected to be sold by the Company, in part, to fund its cash needs related to Match Group, Inc.'s acquisition of PlentyOfFish for $575 million.
Gross realized gains from the maturities and sales of available-for-sale marketable securities and gross unrealized losses that were deemed to be other-than-temporary are included in "Other income (expense), 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.

11

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

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 pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level 2: Other inputs, which are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See below for a discussion of fair value measurements made using Level 3 inputs.
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
 
September 30, 2015
 
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
$
375,094

 
$

 
$

 
$
375,094

Time deposits

 
45,005

 

 
45,005

Commercial paper

 
8,999

 

 
8,999

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
53,478

 

 
53,478

   Equity security
459

 

 

 
459

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
5,010

 
5,010

Marketable equity security
9,594

 

 

 
9,594

Total
$
385,147

 
$
107,482

 
$
5,010

 
$
497,639

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(31,470
)
 
$
(31,470
)


12

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

 
December 31, 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
$
174,720

 
$

 
$

 
$
174,720

Time deposits

 
42,914

 

 
42,914

Commercial paper

 
388,801

 

 
388,801

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities

 
159,197

 

 
159,197

Equity security
1,451

 

 

 
1,451

Long-term investments:
 
 
 
 
 
 
 
Auction rate security

 

 
6,070

 
6,070

Marketable equity security
7,410

 

 

 
7,410

Total
$
183,581

 
$
590,912

 
$
6,070

 
$
780,563

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(30,140
)
 
$
(30,140
)
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,
 
2015
 
2014
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at July 1
$
6,630

 
$
(31,858
)
 
$
9,250

 
$
(41,397
)
Total net gains (losses):
 
 


 
 
 
 
Included in earnings:
 
 
 
 
 
 
 
Fair value adjustments

 
960

 

 
14,281

Included in other comprehensive (loss) income
(1,620
)
 
(579
)
 
(670
)
 
1,918

Settlements

 
7

 

 
29

Balance at September 30
$
5,010

 
$
(31,470
)
 
$
8,580

 
$
(25,169
)


13

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

 
Nine Months Ended September 30,
 
2015
 
2014
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
6,070

 
$
(30,140
)
 
$
8,920

 
$
(45,828
)
Total net gains (losses):
 
 
 
 
 
 
 
Included in earnings:
 
 
 
 
 
 
 
Fair value adjustments

 
17,906

 

 
13,781

Foreign currency exchange gains

 
626

 

 

Included in other comprehensive (loss) income
(1,060
)
 
1,538

 
(340
)
 
2,054

Fair value at date of acquisition

 
(27,112
)
 

 
(2,835
)
Settlements

 
5,712

 

 
7,659

Balance at September 30
$
5,010

 
$
(31,470
)
 
$
8,580

 
$
(25,169
)
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 $5.0 million and $3.9 million at September 30, 2015 and December 31, 2014, respectively. The unrealized losses are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. At September 30, 2015, the auction rate security is rated BBB- and matures in 2035. The Company does not consider the auction rate security to be other-than-temporarily impaired at September 30, 2015, due to its 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 September 30, 2015, there are nine contingent consideration arrangements related to business acquisitions. Eight 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 $242.8 million and the fair value of these arrangements at September 30, 2015 is $31.0 million. The fair value of the one contingent consideration arrangement without a limit on the maximum amount is $0.5 million at September 30, 2015. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics such as monthly active users. The Company determines the fair value of the contingent consideration arrangements by using a probability-weighted analysis to determine the amount of the gross liability, and, if the arrangement is long-term in nature, applying a discount rate that captures the risks associated with the obligation. The number of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared for longer duration and more complex arrangements. The fair values of the contingent consideration arrangements at September 30, 2015 reflect discount rates ranging from 12-25%.
The fair values of the contingent consideration arrangements are 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 September 30, 2015 includes a current portion of $0.7 million and non-current portion of $30.8 million, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.

14

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

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 September 30, 2015 and December 31, 2014, the carrying values of the Company's investments accounted for under the cost method totaled $113.7 million and $90.9 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 income (expense), 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 earnings (losses) of unconsolidated affiliates" in the accompanying consolidated statement of operations.
Long-term marketable equity security
The cost basis of the Company's long-term marketable equity security at September 30, 2015 and December 31, 2014 is $8.7 million, with a gross unrealized gain of $0.9 million and a gross unrealized loss of $1.2 million at September 30, 2015 and December 31, 2014, respectively. The gross unrealized gain at September 30, 2015 and gross unrealized loss at December 31, 2014 are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.
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, 2015
 
December 31, 2014
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Long-term debt
$
(1,000,000
)
 
$
(990,050
)
 
$
(1,080,000
)
 
$
(1,099,813
)
The fair value of long-term debt is estimated using market prices or indices for similar liabilities and takes into consideration other factors such as credit quality and maturity, which are Level 3 inputs.

15

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

NOTE 5—LONG-TERM DEBT
Long-term debt consists of:
 
September 30, 2015
 
December 31, 2014
 
(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 (the "Liberty Bonds"); interest payable each March 1 and September 1, which commenced March 1, 2006

 
80,000

Total long-term debt
$
1,000,000

 
$
1,080,000

The 2013 and 2012 Senior Notes were issued on November 15, 2013 and December 21, 2012, respectively. On December 21, 2012, IAC entered into a $300 million revolving credit facility (the "IAC credit facility"). On October 7, 2015, the IAC credit facility agreement was amended and restated, and now expires October 7, 2020. At September 30, 2015 and December 31, 2014, there are no outstanding borrowings under the IAC credit facility. The annual fee to maintain the IAC credit facility is 35 basis points. Also, on October 7, 2015, Match Group, Inc. entered into a $500 million revolving credit facility, which expires on October 7, 2020 (the "Match credit facility"). The annual fee to maintain the Match credit facility is 35 basis points.
On October 16, 2015, Match Group, Inc. commenced a private exchange offer to eligible holders to exchange any and all of the 2012 Senior Notes for up to $500 million aggregate principal amount of new 6.75% Senior Notes due 2022 (the "Match Notes") to be issued by Match Group, Inc. ("Match Exchange Offer"). The Company expects to exchange $443.5 million of the 2012 Senior Notes for $443.5 million of the Match Notes pursuant to the Match Exchange Offer. Based on the results of the Match Exchange Offer, IAC does not expect to accept any 2013 Senior Notes for payment in the cash tender offer, which commenced on October 16, 2015.
The 2013 and 2012 Senior Notes are unconditionally guaranteed by certain IAC domestic subsidiaries, which are designated as guarantor subsidiaries. The guarantor subsidiaries are the same for the 2013 and 2012 Senior Notes and the IAC credit facility; any borrowings under the IAC credit facility would also be secured by the stock of certain of our domestic and foreign subsidiaries. See Note 11 for guarantor and non-guarantor financial information. The Match credit facility is guaranteed by the same entities that guarantee the 2013 and 2012 Senior Notes and the IAC credit facility, and also secured by the stock of certain Match Group, Inc. domestic and foreign subsidiaries. The Company expects that, promptly following the closing of the Match Exchange Offer, Match Group, Inc. will be designated an unrestricted subsidiary of IAC for purposes of the indentures governing the 2013 and 2012 Senior Notes and the IAC credit facility. Upon such designation, neither Match Group, Inc. nor any of its subsidiaries will guarantee any debt of the Company.
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 IAC credit facility require that we maintain a leverage ratio of not more than 3.25 to 1.0 and restrict our ability to incur additional indebtedness. The Company was in compliance with all applicable covenants at September 30, 2015. The terms of the Match credit facility require Match Group, Inc. to maintain a leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.5 to 1.0, and restrict Match Group, Inc.'s ability to incur additional indebtedness.

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.
 
Three Months Ended September 30, 2015
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of July 1
$
(133,895
)
 
$
3,600

 
$
(130,295
)
Other comprehensive loss, net of tax benefit of $0.1 million related to unrealized losses on available-for-sale securities
(8,420
)
 
(3,501
)
 
(11,921
)
Amounts reclassified to earnings
(2,191
)
 
(81
)
(a) 
(2,272
)
Net current period other comprehensive loss
(10,611
)
 
(3,582
)
 
(14,193
)
Balance as of September 30
$
(144,506
)
 
$
18

 
$
(144,488
)
_________________________________________

(a) Amount is net of a tax provision of $0.1 million.
 
Three Months Ended September 30, 2014
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of July 1
$
(15,282
)
 
$
5,376

 
$
(9,906
)
Other comprehensive (loss) income before reclassifications, net of tax provision of $0.2 million related to unrealized losses on available-for-sale securities
(36,428
)
 
231

 
(36,197
)
Amounts reclassified to earnings related to unrealized gains on available-for-sale securities, net of tax provision of $0.4 million

 
(665
)
 
(665
)
Net current period other comprehensive loss
(36,428
)
 
(434
)
 
(36,862
)
Balance as of September 30
$
(51,710
)
 
$
4,942

 
$
(46,768
)

 
Nine Months Ended September 30, 2015
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of January 1
$
(86,848
)
 
$
(852
)
 
$
(87,700
)
Other comprehensive (loss) income, net of tax benefit of $0.3 million related to unrealized losses on available-for-sale securities
(55,467
)
 
788

 
(54,679
)
Amounts reclassified to earnings
(2,191
)
 
82

(b) 
(2,109
)
Net current period other comprehensive (loss) income
(57,658
)
 
870

 
(56,788
)
Balance as of September 30
$
(144,506
)
 
$
18

 
$
(144,488
)
_________________________________________

(b) Amount is net of a tax benefit of $0.1 million.

17

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

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

 
$
(13,046
)
Other comprehensive loss before reclassifications, net of tax benefit of $0.5 million related to unrealized losses on available-for-sale securities
(31,358
)
 
(439
)
 
(31,797
)
Amounts reclassified to earnings related to unrealized gains on available-for-sale securities, net of tax provision of $1.2 million

 
(1,925
)
 
(1,925
)
Net current period other comprehensive loss
(31,358
)
 
(2,364
)
 
(33,722
)
Balance as of September 30
$
(51,710
)
 
$
4,942

 
$
(46,768
)

NOTE 7—EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share attributable to IAC shareholders.
 
Three Months Ended September 30,
 
2015
 
2014
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
65,026

 
$
65,026

 
$
150,261

 
$
150,261

Net loss attributable to noncontrolling interests
568

 
568

 
821

 
821

Earnings from continuing operations attributable to IAC shareholders
65,594

 
65,594

 
151,082

 
151,082

Earnings from discontinued operations attributable to IAC shareholders
17

 
17

 
175,730

 
175,730

Net earnings attributable to IAC shareholders
$
65,611

 
$
65,611

 
$
326,812

 
$
326,812

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
82,910

 
82,910

 
83,591

 
83,591

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

 
5,990

 

 
5,199

Denominator for earnings per share—weighted average shares(a)(b)
82,910

 
88,900

 
83,591

 
88,790

 
 
 
 
 
 
 
 
Earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
0.79

 
$
0.74

 
$
1.81

 
$
1.70

Discontinued operations

 

 
2.10

 
1.98

Earnings per share
$
0.79

 
$
0.74

 
$
3.91

 
$
3.68



18

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

 
Nine Months Ended September 30,
 
2015
 
2014
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Earnings from continuing operations
$
144,774

 
$
144,774

 
$
166,571

 
$
166,571

Net loss attributable to noncontrolling interests
6,558

 
6,558

 
4,082

 
4,082

Earnings from continuing operations attributable to IAC shareholders
151,332

 
151,332

 
170,653

 
170,653

(Loss) earnings from discontinued operations attributable to IAC shareholders
(11
)
 
(11
)
 
174,048

 
174,048

Net earnings attributable to IAC shareholders
$
151,321

 
$
151,321

 
$
344,701

 
$
344,701

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
82,924

 
82,924

 
83,088

 
83,088

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

 
5,323

 

 
5,167

Denominator for earnings per share—weighted average shares(a)(b)
82,924

 
88,247

 
83,088

 
88,255

 
 
 
 
 
 
 
 
Earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
1.82

 
$
1.71

 
$
2.05

 
$
1.93

Discontinued operations

 

 
2.10

 
1.98

Earnings per share
$
1.82

 
$
1.71

 
$
4.15

 
$
3.91

_________________________________________

(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 vesting of restricted stock units ("RSUs"). For the three and nine months ended September 30, 2015, 1.0 million and 1.3 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For both the three and nine months ended September 30, 2014, 0.3 million shares 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 both the three and nine months ended September 30, 2015, 0.2 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. For both the three and nine months ended September 30, 2014, less than 0.1 million PSUs 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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Search & Applications
$
377,142

 
$
394,659

 
$
1,111,406

 
$
1,188,410

The Match Group
274,231

 
230,198

 
768,132

 
655,699

Media
57,278

 
49,895

 
137,100

 
122,906

eCommerce
130,031

 
107,825

 
366,027

 
312,616

Inter-segment eliminations
(121
)
 
(346
)
 
(460
)
 
(838
)
Total
$
838,561

 
$
782,231

 
$
2,382,205

 
$
2,278,793

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Search & Applications
$
65,391

 
$
80,384

 
$
198,283

 
$
228,492

The Match Group
71,912

 
66,393

 
148,665

 
167,394

Media
(8,252
)
 
(8,723
)
 
(37,379
)
 
(27,083
)
eCommerce
4,243

 
(1,585
)
 
(3,615
)
 
(3,138
)
Corporate
(46,164
)
 
(35,516
)
 
(120,936
)
 
(97,310
)
Total
$
87,130

 
$
100,953

 
$
185,018

 
$
268,355

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Adjusted EBITDA:
 
 
 
 
 
 
 
Search & Applications
$
74,391

 
$
93,127

 
$
226,202

 
$
266,456

The Match Group
84,339

 
61,371

 
175,017

 
178,169

Media
(7,746
)
 
(7,702
)
 
(37,781
)
 
(24,477
)
eCommerce
7,713

 
3,865

 
7,257

 
11,192

Corporate
(17,555
)
 
(16,073
)
 
(45,717
)
 
(47,225
)
Total
$
141,142

 
$
134,588

 
$
324,978

 
$
384,115

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,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
United States
$
619,297

 
$
544,486

 
$
1,755,534

 
$
1,560,751

All other countries
219,264

 
237,745

 
626,671

 
718,042

 Total
$
838,561

 
$
782,231

 
$
2,382,205

 
$
2,278,793


20

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

 
September 30,
2015
 
December 31,
2014
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets):
 
 
 
 United States
$
278,970

 
$
281,879

 All other countries
20,108

 
20,580

Total
$
299,078

 
$
302,459

The Company's primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets 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.
The following tables reconcile Adjusted EBITDA to operating income (loss) for the Company's reportable segments:
 
Three Months Ended September 30, 2015
 

Adjusted
EBITDA
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
74,391

 
$

 
$
(3,777
)
 
$
(6,736
)
 
$
1,513

 
$
65,391

The Match Group
84,339

 
(1,147
)
 
(6,173
)
 
(4,352
)
 
(755
)
 
71,912

Media
(7,746
)
 
(50
)
 
(280
)
 
(378
)
 
202

 
(8,252
)
eCommerce
7,713

 
(410
)
 
(2,188
)
 
(872
)
 

 
4,243

Corporate
(17,555
)
 
(25,402
)
 
(3,207
)
 

 

 
(46,164
)
Total
$
141,142

 
$
(27,009
)
 
$
(15,625
)
 
$
(12,338
)
 
$
960

 
$
87,130

 
Three Months Ended September 30, 2014
 

Adjusted
EBITDA
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Operating
Income
(Loss)
 
(In thousands)
Search & Applications
$
93,127

 
$

 
$
(3,596
)
 
$
(9,147
)
 
$

 
$
80,384

The Match Group
61,371

 
(145
)
 
(5,794
)
 
(3,320
)
 
14,281

 
66,393

Media
(7,702
)
 
(161
)
 
(225
)
 
(635
)
 

 
(8,723
)
eCommerce
3,865

 
(138
)
 
(1,963
)
 
(3,349
)
 

 
(1,585
)
Corporate
(16,073
)
 
(16,888
)
 
(2,555
)
 

 

 
(35,516
)
Total
$
134,588

 
$
(17,332
)
 
$
(14,133
)
 
$
(16,451
)
 
$
14,281

 
$
100,953


21

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

 
Nine Months Ended S