Quarterly Report




As filed with the Securities and Exchange Commission on August 4, 2017


 
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, 2017
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
 
IACLOGO2017630A01.JPG
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, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth 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
 
Emerging growth
company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 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 28, 2017 , the following shares of the registrant's common stock were outstanding:
Common Stock
73,964,732

Class B Common Stock
5,789,499

Total outstanding Common Stock
79,754,231


The aggregate market value of the voting common stock held by non-affiliates of the registrant as of July 28, 2017 was $7,775,761,795 . 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
 
 
Page
Number
 




2

Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.     Consolidated Financial Statements
IAC/INTERACTIVECORP
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
June 30, 2017
 
December 31, 2016
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
1,522,300

 
$
1,329,187

Marketable securities
14,984

 
89,342

Accounts receivable, net of allowance of $12,336 and $16,405, respectively
219,946

 
220,138

Other current assets
255,951

 
204,068

Total current assets
2,013,181

 
1,842,735

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $305,172 and $311,834, respectively
306,144

 
306,248

Goodwill
1,924,241

 
1,924,052

Intangible assets, net of accumulated amortization of $86,687 and $102,168, respectively
339,029

 
355,451

Long-term investments
122,055

 
122,810

Other non-current assets
81,417

 
94,577

TOTAL ASSETS
$
4,786,067

 
$
4,645,873

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

 
$
20,000

Accounts payable, trade
66,194

 
62,863

Deferred revenue
279,099

 
285,615

Accrued expenses and other current liabilities
338,522

 
344,910

Total current liabilities
683,815

 
713,388

 
 
 
 
Long-term debt, net of current portion
1,572,994

 
1,582,484

Income taxes payable
33,884

 
33,528

Deferred income taxes
248,777

 
228,798

Other long-term liabilities
34,087

 
44,178

 
 
 
 
Redeemable noncontrolling interests
38,538

 
32,827

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 257,475,143 and 255,672,125 shares, respectively and outstanding 73,679,714 and 72,595,470 shares, respectively
257

 
256

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
11,945,772

 
11,921,559

Retained earnings
382,591

 
290,114

Accumulated other comprehensive loss
(136,738
)
 
(166,123
)
Treasury stock 194,163,429 and 193,444,655 shares, respectively
(10,226,721
)
 
(10,176,600
)
Total IAC shareholders' equity
1,965,177

 
1,869,222

Noncontrolling interests
208,795

 
141,448

Total shareholders' equity
2,173,972

 
2,010,670

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
4,786,067

 
$
4,645,873

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,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
767,387

 
$
745,439

 
$
1,528,220

 
$
1,564,618

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
139,033

 
170,397

 
284,991

 
364,131

Selling and marketing expense
320,104

 
296,430

 
670,515

 
679,494

General and administrative expense
150,222

 
147,576

 
293,817

 
279,827

Product development expense
55,430

 
53,565

 
110,190

 
112,663

Depreciation
18,339

 
17,575

 
38,227

 
33,370

Amortization of intangibles
8,624

 
36,975

 
17,785

 
50,795

Goodwill impairment

 
275,367

 

 
275,367

Total operating costs and expenses
691,752

 
997,885

 
1,415,525

 
1,795,647

Operating income (loss)
75,635

 
(252,446
)
 
112,695

 
(231,029
)
Interest expense
(24,728
)
 
(27,644
)
 
(49,520
)
 
(55,504
)
Other income (expense), net
10,230

 
(7,192
)
 
2,516

 
8,705

Earnings (loss) before income taxes
61,137

 
(287,282
)
 
65,691

 
(277,828
)
Income tax benefit
19,420

 
96,740

 
43,329

 
95,220

Net earnings (loss)
80,557

 
(190,542
)
 
109,020

 
(182,608
)
Net earnings attributable to noncontrolling interests
(14,289
)
 
(4,233
)
 
(16,543
)
 
(3,885
)
Net earnings (loss) attributable to IAC shareholders
$
66,268

 
$
(194,775
)
 
$
92,477

 
$
(186,493
)
 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.84

 
$
(2.45
)
 
$
1.18

 
$
(2.31
)
Diluted earnings (loss) per share
$
0.70

 
$
(2.45
)
 
$
0.99

 
$
(2.31
)
 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
473

 
$
694

 
$
975

 
$
1,307

Selling and marketing expense
1,643

 
1,690

 
3,450

 
3,561

General and administrative expense
31,751

 
20,516

 
58,691

 
41,709

Product development expense
5,048

 
4,864

 
9,774

 
12,372

Total stock-based compensation expense
$
38,915

 
$
27,764

 
$
72,890

 
$
58,949

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

4




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net earnings (loss)
$
80,557

 
$
(190,542
)
 
$
109,020

 
$
(182,608
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment (a)
18,788

 
(3,341
)
 
40,698

 
12,404

Change in unrealized gains and losses of available-for-sale securities (net of tax benefit of $3,846 for both the three and six months ended June 30, 2017, and net of tax benefits of $482 and $783 for the three and six months ended June 30, 2016, respectively) (b)
(4,028
)
 
(3,782
)
 
(4,026
)
 
1,655

Total other comprehensive income (loss), net of tax
14,760

 
(7,123
)
 
36,672

 
14,059

Comprehensive income (loss)
95,317

 
(197,665
)
 
145,692

 
(168,549
)
Comprehensive income attributable to noncontrolling interests
(18,442
)
 
(3,553
)
 
(23,830
)
 
(4,379
)
Comprehensive income (loss) attributable to IAC shareholders
$
76,875

 
$
(201,218
)
 
$
121,862

 
$
(172,928
)
________________________
(a)  
The three and six months ended June 30, 2017 and 2016 include amounts reclassified out of other comprehensive income into earnings. See Note 6—Accumulated Other Comprehensive Loss for additional information.
(b)  
The three and six months ended June 30, 2017 and 2016 include unrealized gains reclassified out of other comprehensive income into earnings. See Note 3—Marketable Securities and Note 6—Accumulated Other Comprehensive Loss for additional information.




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

5




IAC/INTERACTIVECORP
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended June 30, 2017
(Unaudited)
 
 
 
 
IAC Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Class B
Convertible
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock $.001
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
(Loss) Income
 
 
 
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 at December 31, 2016
$
32,827

 
 
$
256

 
255,672

 
$
16

 
16,157

 
$
11,921,559

 
$
290,114

 
$
(166,123
)
 
$
(10,176,600
)
 
$
1,869,222

 
$
141,448

 
$
2,010,670

Net earnings
3,388

 
 

 

 

 

 

 
92,477

 

 

 
92,477

 
13,155

 
105,632

Other comprehensive income, net of tax
741

 
 

 

 

 

 

 

 
29,385

 

 
29,385

 
6,546

 
35,931

Stock-based compensation expense
1,134

 
 

 

 

 

 
36,350

 

 

 

 
36,350

 
25,945

 
62,295

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

 
 
1

 
1,803

 

 

 
(1,755
)
 

 

 

 
(1,754
)
 

 
(1,754
)
Purchase of treasury stock

 
 

 

 

 

 

 

 

 
(50,121
)
 
(50,121
)
 

 
(50,121
)
Purchase of redeemable noncontrolling interests
(11,991
)
 
 

 

 

 

 

 

 

 

 

 

 

Purchase of noncontrolling interests

 
 

 

 

 

 

 

 

 

 

 
(420
)
 
(420
)
Adjustment of redeemable noncontrolling interests to fair value
3,084

 
 

 

 

 

 
(3,084
)
 

 

 

 
(3,084
)
 

 
(3,084
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes

 
 

 

 

 

 

 

 

 

 

 
13,967

 
13,967

Changes in noncontrolling interests of Match Group due to the issuance of its common stock

 
 

 

 

 

 
(7,399
)
 

 

 

 
(7,399
)
 
7,399

 

Noncontrolling interests created in acquisitions
14,496

 
 

 

 

 

 

 

 

 

 

 

 

Other
(5,141
)
 
 

 

 

 

 
101

 

 

 

 
101

 
755

 
856

Balance at June 30, 2017
$
38,538

 
 
$
257

 
257,475

 
$
16

 
16,157

 
$
11,945,772

 
$
382,591

 
$
(136,738
)
 
$
(10,226,721
)
 
$
1,965,177

 
$
208,795

 
$
2,173,972

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,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
109,020

 
$
(182,608
)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
72,890

 
58,949

Depreciation
38,227

 
33,370

Amortization of intangibles
17,785

 
50,795

Goodwill impairment

 
275,367

Deferred income taxes
6,580

 
(90,902
)
Acquisition-related contingent consideration fair value adjustments
4,886

 
10,470

Gain from the sale of businesses and investments, net
(19,663
)
 
(13,137
)
Impairment of long-term investments
4,799

 
2,702

Acquisition-related contingent consideration payment
(11,140
)
 

Other adjustments, net
22,624

 
13,975

Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
(22,799
)
 
47,855

Other assets
(18,492
)
 
(20,053
)
Accounts payable and other current liabilities
(2,510
)
 
(88,150
)
Income taxes payable and receivable
(59,735
)
 
(48,028
)
Deferred revenue
15,234

 
32,589

Net cash provided by operating activities
157,706

 
83,194

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(49,164
)
 
(2,524
)
Capital expenditures
(41,821
)
 
(35,133
)
Investments in time deposits

 
(87,500
)
Proceeds from maturities of time deposits

 
87,500

Proceeds from maturities and sales of marketable debt securities
99,350

 
32,500

Purchases of marketable debt securities
(24,909
)
 
(79,366
)
Purchases of investments
(5,105
)
 
(5,056
)
Net proceeds from the sale of businesses and investments
119,697

 
103,735

Other, net
1,076

 
4,815

Net cash provided by investing activities
99,124

 
18,971

Cash flows from financing activities:
 
 
 
Purchase of IAC treasury stock
(56,424
)
 
(214,635
)
Proceeds from Match Group 2016 Senior Notes offering

 
400,000

Principal payment on Match Group Term Loan

 
(410,000
)
Debt issuance costs for Match Group 2016 Senior Notes offering

 
(4,621
)
Repurchases of IAC Senior Notes
(31,590
)
 
(61,110
)
Proceeds from the exercise of IAC stock options
48,146

 
10,951

Withholding taxes paid on behalf of IAC net settled stock-based awards
(49,900
)
 
(24,048
)
Proceeds from the exercise of Match Group stock options
39,403

 
8,671

Withholding taxes paid on behalf of Match Group net settled stock-based awards
(28,421
)
 
(6,495
)
Purchase of noncontrolling interests
(12,361
)
 
(2,411
)
Acquisition-related contingent consideration payments
(3,860
)
 
(2,150
)
Funds returned from escrow for MyHammer tender offer
10,604

 

Decrease (increase) in restricted cash related to bond redemptions
20,141

 
(30,002
)
Other, net
(4,873
)
 
(488
)
Net cash used in financing activities
(69,135
)
 
(336,338
)
Total cash provided (used)
187,695

 
(234,173
)
Effect of exchange rate changes on cash and cash equivalents
5,418

 
(1,290
)
Net increase (decrease) in cash and cash equivalents
193,113

 
(235,463
)
Cash and cash equivalents at beginning of period
1,329,187

 
1,481,447

Cash and cash equivalents at end of period
$
1,522,300

 
$
1,245,984


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 widely known consumer brands, such as HomeAdvisor, Vimeo, Dotdash (formerly About.com), Dictionary.com, The Daily Beast, Investopedia, and Match Group's online dating portfolio, which includes Match, Tinder, PlentyOfFish and OkCupid.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
On March 31, 2017, Match Group sold its non-dating business, consisting of The Princeton Review. The non-dating business does not meet the threshold to be reflected as a discontinued operation at the IAC level. The Company moved the non-dating business to its “Other” segment effective March 31, 2017 and prior period segment data has been recast to conform to this presentation.
On May 1, 2017, the Company announced that it had entered into a definitive agreement with Angie's List, Inc. ("Angie's List") to combine the businesses in the Company's HomeAdvisor segment and Angie’s List under a new publicly traded company to be called ANGI Homeservices Inc. IAC will own between approximately 87% and 90% of the economic interest (on a fully diluted basis) and approximately 98% of the total voting power of ANGI Homeservices Inc. common stock. This transaction is subject to the satisfaction of customary closing conditions, including the approval by Angie's List stockholders, and is expected to close in the fourth quarter of 2017.

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 Securities and Exchange Commission. 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 for the year ended December 31, 2016 included in the Company's Current Report on Form 8-K dated July 18, 2017.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. 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

8

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

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; the determination of revenue reserves; the fair value of acquisition-related contingent consideration arrangements; 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. Actual results could differ from these estimates.
Certain Risks and Concentrations
A meaningful 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"). For the three and six months ended June 30, 2017 , revenue from Google represents 23% and 24% , respectively, of the Company's consolidated revenue. For the three and six months ended June 30, 2016, revenue from Google represents 24% and 30% , respectively, of the Company's consolidated revenue.
The Company's services agreement became effective on April 1, 2016, following the expiration of the previous services agreement. The services agreement expires on March 31, 2020; however, the Company may choose to terminate the agreement effective March 31, 2019. The services agreement requires that we comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice, which could in turn require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which could be costly to address or otherwise have an adverse effect on our business, financial condition and results of operations.
For the three and six months ended June 30, 2017 , revenue earned from Google was $174.6 million and $362.4 million , respectively. For the three and six months ended June 30, 2016, revenue earned from Google was $181.5 million and $466.2 million , respectively. This revenue is earned by the businesses comprising the Applications and Publishing segments. For both the three and six months ended June 30, 2017 , revenue earned from Google represents 83% of Applications revenue and 70% of Publishing revenue. For the three and six months ended June 30, 2016, revenue earned from Google represents 85% and 88% of Applications revenue and 69% and 78% of Publishing revenue, respectively. Accounts receivable related to revenue earned from Google totaled $65.9 million and $65.8 million at June 30, 2017 and December 31, 2016 , respectively.
Recent Accounting Pronouncements
Accounting Pronouncements not yet adopted by the Company
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. ASU No. 2014-09 was subsequently amended during 2015 and 2016; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients.

ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application.

While the Company’s evaluation of the impact the adoption of ASU No. 2014-09 on its consolidated financial statements continues, it has progressed to the point where we have reached certain preliminary determinations. The Company does not

9

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

expect the adoption of ASU No. 2014-09 to have a material effect on its consolidated financial statements. The Company will adopt ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. Therefore, the cumulative effect of adoption will be reflected as an adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018. The adoption of ASU No. 2014-09 will primarily affect the Company’s HomeAdvisor and Applications segments. The effect on HomeAdvisor will be that sales commissions, which represent the incremental direct costs of obtaining a service professional contract, will be capitalized and amortized over the average life of a service professional. These costs are expensed as incurred today. Within Applications, the primary effect will be to accelerate the recognition of the portion of the revenue of certain desktop applications sold by SlimWare that qualify as functional intellectual property under ASU No. 2014-09. This revenue is currently deferred and recognized over the applicable subscription term.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which supersedes existing guidance on accounting for leases in  "Leases (Topic 840)"  and generally requires all leases to be recognized in the statement of financial position. The provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact the adoption of this standard update will have on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting , which provides guidance about the changes to the terms and conditions of a share-based payment award that require an entity to apply modification accounting in "Stock Compensation (Topic 718)." The provisions of ASU No. 2017-09 are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of this standard update to have a material impact on its consolidated financial statements and is currently evaluating the timing of adoption.

Accounting Pronouncements adopted by the Company

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable; early adoption is permitted. Upon adoption, cash payments made soon after the acquisition date of a business to settle a contingent consideration liability are classified as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. The Company early adopted the provisions of ASU No. 2016-15 on January 1, 2017. As a result, $11.1 million of an acquisition-related contingent consideration payment of $15.0 million , which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying consolidated statement of cash flows for the six months ended June 30, 2017.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The Company adopted the provisions of ASU No. 2016-09 on January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon the exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated statement of operations as a component of the provision for income taxes, rather than recognized in equity, and (ii) reflected as operating, rather than financing, cash flows in our consolidated statement of cash flows. Excess tax benefits for the six months ended June 30, 2017 were $57.3 million . Excess tax benefits of $21.9 million for the six months ended June 30, 2016 were reclassified in the consolidated statement of cash flows to conform to the current year presentation. Upon adoption, the calculation of fully diluted shares excludes excess tax benefits from the assumed proceeds in applying the treasury stock method; previously such benefits were included in the calculation. This change increased fully diluted shares by approximately 1.5 million and 1.4 million shares for the three and six months ended June 30, 2017 , respectively. The Company continues to account for forfeitures using an estimated forfeiture rate.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which is intended to simplify the accounting for goodwill impairment. The guidance eliminates the

10

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

requirement to calculate the implied fair value of goodwill under today’s two-step impairment test to measure a goodwill impairment charge. The provisions of ASU No. 2017-04 are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. The provisions of ASU No. 2017-04 are to be applied using a prospective approach. The Company early adopted the provisions of ASU No. 2017-04 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
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.
For the three and six months ended June 30, 2017 , the Company recorded an income tax benefit of $19.4 million and $43.3 million , respectively. The income tax benefit for the three and six months ended June 30, 2017 is due primarily to the effect of adopting the provisions of ASU No. 2016-09 on January 1, 2017. Under ASU No. 2016-09, excess tax benefits generated by the settlement or exercise of stock-based awards of $57.3 million for the six months ended June 30, 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital. For the three and six months ended June 30, 2016, the Company recorded an income tax benefit for continuing operations of $96.7 million and $95.2 million , respectively, which, in each case, represents an effective income tax rate of 34% . The effective tax rate each period is lower than the statutory rate of 35% due primarily to the non-deductible portion of the goodwill impairment at the Publishing segment, partially offset by state taxes.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At June 30, 2017 and December 31, 2016 , the Company has accrued $3.0 million and $2.6 million , respectively, for the payment of interest. At both June 30, 2017 and December 31, 2016 , the Company has accrued $1.7 million 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. The statute of limitations for the years 2010 through 2012 has been extended to June 30, 2018. Various other jurisdictions are open to examination for 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 income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
At June 30, 2017 and December 31, 2016 , unrecognized tax benefits, including interest and penalties, are $41.4 million and $41.0 million , respectively. If unrecognized tax benefits at June 30, 2017 are subsequently recognized, $38.0 million , net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2016 was $37.7 million . The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by

11

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

$2.6 million by June 30, 2018, due to expirations of statutes of limitations; $2.4 million of which would reduce the income tax provision.
NOTE 3—MARKETABLE SECURITIES
At June 30, 2017 , available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Commercial paper
$
14,984

 
$

 
$

 
$
14,984

Total marketable securities
$
14,984

 
$

 
$

 
$
14,984

The contractual maturities of debt securities classified as available-for-sale at June 30, 2017 are within one year. There are no investments in available-for-sale marketable debt securities that are in an unrealized loss position as of June 30, 2017 .
At December 31, 2016 , available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Commercial paper
$
49,797

 
$

 
$

 
$
49,797

Treasury discount notes
34,978

 

 
(4
)
 
34,974

Corporate debt securities
4,575

 
2

 
(6
)
 
4,571

Total debt securities
89,350

 
2

 
(10
)
 
89,342

Total marketable securities
$
89,350

 
$
2

 
$
(10
)
 
$
89,342

The aggregate fair value of available-for-sale marketable debt securities with unrealized losses is $37.0 million as of December 31, 2016. There are no investments in available-for-sale marketable debt securities that have been in a continuous unrealized loss position for longer than twelve months as of December 31, 2016.
The unrealized gains and losses in the above table at December 31, 2016 are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.
The following table presents the proceeds from maturities and sales of available-for-sale marketable securities and the related gross realized gains:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
24,000

 
$
44,216

 
$
99,350

 
$
54,216

Gross realized gains

 
3,125

 

 
3,125

Gross realized gains from the maturities and sales of available-for-sale marketable securities are included in "Other income (expense), net" in the accompanying consolidated statement of operations. There were no gross realized losses from the maturities and sales of available-for-sale marketable securities for the three and six months ended June 30, 2017 and 2016.


12

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

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 (loss) 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 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:
 
June 30, 2017
 
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
$
794,630

 
$

 
$

 
$
794,630

Commercial paper

 
187,380

 

 
187,380

Time deposits

 
105,596

 

 
105,596

Treasury discount notes
49,974

 

 

 
49,974

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
14,984

 

 
14,984

Total
$
844,604

 
$
307,960

 
$

 
1,152,564

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(24,829
)
 
$
(24,829
)

13

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

 
December 31, 2016
 
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
$
667,662

 
$

 
$

 
$
667,662

Commercial paper

 
123,640

 

 
123,640

Time deposits

 
79,000

 

 
79,000

Treasury discount notes
24,991

 

 

 
24,991

Marketable securities:
 
 
 
 
 
 
 
Commercial paper

 
49,797

 

 
49,797

Treasury discount notes
34,974

 

 

 
34,974

Corporate debt securities

 
4,571

 

 
4,571

Total
$
727,627

 
$
257,008

 
$

 
$
984,635

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(33,871
)
 
$
(33,871
)

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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):
 
Contingent
Consideration
Arrangements
 
Three Months Ended June 30,
 
2017
 
2016
 
(In thousands)
Balance at April 1
$
(21,821
)
 
$
(37,243
)
Total net (losses) gains:
 
 
 
Included in earnings:
 
 
 
Fair value adjustments
(2,994
)
 
(6,801
)
Included in other comprehensive loss
(14
)
 
(3,375
)
Fair value at date of acquisition

 
55

Settlements

 
1,838

Balance at June 30
$
(24,829
)
 
$
(45,526
)
 
Six Months Ended June 30,
 
2017
 
2016
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
(33,871
)
 
$
4,050

 
$
(33,873
)
Total net (losses) gains:
 
 
 
 
 
Included in earnings:
 
 
 
 
 
Fair value adjustments
(4,885
)
 

 
(10,470
)
Included in other comprehensive (loss) income
(1,073
)
 
5,950

 
(5,281
)
Fair value at date of acquisition

 

 
1,948

Settlements
15,000

 

 
2,150

Proceeds from sale

 
(10,000
)
 

Balance at June 30
$
(24,829
)
 
$

 
$
(45,526
)
Contingent Consideration Arrangements
As of June 30, 2017 , there are four contingent consideration arrangements related to business acquisitions. The maximum contingent payments related to these four arrangements are $91.2 million and the fair value of these arrangements at June 30, 2017 is $24.8 million .
The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company determines the fair value of the contingent consideration arrangements by using probability-weighted analyses to determine the amounts of the gross liability, and, if the arrangement is initially long-term in nature, applying a discount rate that appropriately captures the risks associated with the obligation to determine the net amount reflected in the consolidated financial statements. 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 both June 30, 2017 and December 31, 2016 reflect discount rates of 12% .
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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

consideration arrangements each reporting period, including the accretion of the discount, if applicable, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at June 30, 2017 and December 31, 2016 includes a current portion of $23.7 million and $33.4 million , respectively, and a non-current portion of $1.1 million and $0.4 million , respectively, 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, 2017 and December 31, 2016 , the carrying values of the Company's investments accounted for under the cost method totaled $115.2 million and $116.1 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.
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, 2017
 
December 31, 2016
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Current portion of long-term debt
$

 
$

 
$
(20,000
)
 
$
(20,311
)
Long-term debt, net of current portion
(1,572,994
)
 
(1,657,758
)
 
(1,582,484
)
 
(1,657,861
)
The fair value of long-term debt, including the current portion, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 5—LONG-TERM DEBT
Long-term debt consists of:
 
June 30, 2017
 
December 31, 2016
 
(In thousands)
Match Group Debt:
 
 
 
6.75% Senior Notes due December 15, 2022 (the "2015 Match Group Senior Notes"); interest payable each June 15 and December 15, which commenced June 15, 2016
$
445,172

 
$
445,172

6.375% Senior Notes due June 1, 2024 (the "2016 Match Group Senior Notes"); interest payable each June 1 and December 1, which commenced December 1, 2016
400,000

 
400,000

Match Group Term Loan due November 16, 2022 (a)
350,000

 
350,000

Total Match Group long-term debt
1,195,172

 
1,195,172

Less: Unamortized original issue discount and original issue premium, net
4,801

 
5,245

Less: Unamortized debt issuance costs
12,382

 
13,434

Total Match Group debt
1,177,989

 
1,176,493

 


 


IAC Debt:


 


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
361,874

 
390,214

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
34,859

 
38,109

Total IAC long-term debt
396,733

 
428,323

Less: Current portion of IAC long-term debt

 
20,000

Less: Unamortized debt issuance costs
1,728

 
2,332

Total IAC debt, net of current portion
395,005

 
405,991

 
 
 
 
Total long-term debt, net of current portion
$
1,572,994

 
$
1,582,484

________________________
(a)  
T he Match Group Term Loan matures on November 16, 2022; provided that, if any of the 2015 Match Group Senior Notes remain outstanding on the date that is 91 days prior to the maturity date of the 2015 Match Group Senior Notes, the Match Group Term Loan maturity date shall be the date that is 91 days prior to the maturity date of the 2015 Match Group Senior Notes.
Match Group Senior Notes
The 2016 Match Group Senior Notes were issued on June 1, 2016. The proceeds of $400 million were used to prepay a portion of indebtedness outstanding under the Match Group Term Loan. At any time prior to June 1, 2019, these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the notes, together with accrued and unpaid interest thereon to the applicable redemption date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The 2015 Match Group Senior Notes were issued on November 16, 2015, in exchange for a portion of the IAC 2012 Senior Notes (the "Match Exchange Offer"). At any time prior to December 15, 2017, the 2015 Match Group Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the notes, together with accrued and unpaid interest thereon to the applicable redemption date.
The indentures governing the 2016 and 2015 Match Group Senior Notes contain covenants that would limit Match Group's ability to pay dividends or to make distributions and repurchase or redeem Match Group stock in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0 . At June 30, 2017 there were no limitations pursuant thereto. There are additional covenants that limit Match Group's ability and the ability of its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event Match Group is not in compliance with the leverage ratio set forth in the indenture, and (ii) incur liens, enter into agreements restricting Match Group subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
Match Group Term Loan and Match Group Credit Facility
On November 16, 2015, under a credit agreement (the "Match Group Credit Agreement"), Match Group borrowed $800 million in the form of a term loan (the "Match Group Term Loan"). On June 30, 2016, Match Group made a $10 million principal payment on the Match Group Term Loan. On June 1, 2016, the $400 million in proceeds from the 2016 Match Group Senior Notes, described above, were used to prepay a portion of the Match Group Term Loan. On December 8, 2016, Match Group made an additional $40 million principal payment on the Match Group Term Loan and the remaining outstanding balance of $350 million , which is due at maturity, was repriced. The Match Group Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio contained in the Match Group Credit Agreement. The Match Group Term Loan bears interest, at Match Group's option, at a base rate or LIBOR, plus 2.25% or 3.25% , respectively, and in the case of LIBOR, a floor of 0.75% . The interest rate on the Match Group Term Loan at June 30, 2017 is 4.37% . Interest payments are due at least semi-annually through the term of the loan.
Match Group has a $500 million revolving credit facility (the "Match Group Credit Facility") that expires on October 7, 2020. At June 30, 2017 and December 31, 2016 , there were no outstanding borrowings under the Match Group Credit Facility. The annual commitment fee on undrawn funds based on the current leverage ratio is 30 basis points. Borrowings under the Match Group Credit Facility bear interest, at Match Group's option, at a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on Match Group's consolidated net leverage ratio. The terms of the Match Group Credit Facility require Match Group to maintain a consolidated net 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 (in each case as defined in the agreement).
There are additional covenants under the Match Group Credit Facility and the Match Group Term Loan that limit the ability of Match Group and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the Match Group Term Loan remains outstanding, these same covenants under the Match Group Credit Agreement are more restrictive than the covenants that are applicable to the Match Group Credit Facility. Obligations under the Match Group Credit Facility and Match Group Term Loan are unconditionally guaranteed by certain Match Group wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match Group domestic and foreign subsidiaries. The Match Group Term Loan and outstanding borrowings, if any, under the Match Group Credit Facility rank equally with each other, and have priority over the 2016 and 2015 Match Group Senior Notes to the extent of the value of the assets securing the borrowings under the Match Group Credit Agreement.
IAC Senior Notes
The 2013 and 2012 Senior Notes were issued by IAC on November 15, 2013 and December 21, 2012, respectively. The 2013 and 2012 Senior Notes are unconditionally guaranteed by certain wholly-owned domestic subsidiaries, which are designated as guarantor subsidiaries, except neither Match Group nor any of its subsidiaries guarantee any debt of IAC, or are subject to any of the covenants related to such debt. The guarantor subsidiaries are the same for the 2013 and 2012 Senior Notes. See " Note 11—Guarantor and Non-guarantor Financial Information " for financial information relating to guarantor and non-guarantor subsidiaries.

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

For the six months ended June 30, 2017 , the Company redeemed and repurchased $28.3 million of its 2013 Senior Notes and repurchased $3.3 million of its 2012 Senior Notes. For the six months ended June 30, 2016 , the Company redeemed and repurchased $55.0 million of its 2013 Senior Notes and repurchased $6.1 million of its 2012 Senior Notes.
The indenture governing the 2013 Senior Notes contains covenants that would limit our ability to pay dividends or to make distributions and repurchase or redeem our stock in the event a default has occurred or our leverage ratio (as defined in the indenture) exceeds 3.0 to 1.0 . At June 30, 2017 , there were no limitations pursuant thereto. There are additional covenants that limit the Company's ability and the ability of its restricted subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event we are not in compliance with the financial ratio set forth in the indenture, and (ii) incur liens, enter into agreements limiting our restricted subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of our assets. The indenture governing the 2012 Senior Notes was amended to eliminate substantially all of the restrictive covenants contained therein in connection with the Match Exchange Offer.
IAC Credit Facility
IAC has a $300.0 million revolving credit facility (the "IAC Credit Facility") that expires October 7, 2020. At June 30, 2017 and December 31, 2016 , there were no outstanding borrowings under the IAC Credit Facility. The annual commitment fee on undrawn funds is currently 35 basis points, and is based on the leverage ratio most recently reported. Borrowings under the IAC Credit Facility bear interest, at the Company's option, at a base rate or LIBOR, in each case, plus an applicable margin, which is determined by reference to a pricing grid based on the Company's leverage ratio. The terms of the IAC Credit Facility require that the Company maintains a leverage ratio (as defined in the agreement) of not more than 3.25 to 1.0 and restrict our ability to incur additional indebtedness. Borrowings under the IAC Credit Facility are unconditionally guaranteed by the same domestic subsidiaries that guarantee the 2013 and 2012 Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries. The 2013 and 2012 Senior Notes rank equally with each other, and are subordinate to outstanding borrowings under the IAC Credit Facility to extent of the value of the assets securing such borrowings.
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 into earnings:
 
Three Months Ended June 30, 2017
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of April 1
$
(151,373
)
 
$
4,028

 
$
(147,345
)
Other comprehensive income before reclassifications
14,664

 
5

 
14,669

Amounts reclassified to earnings  (a)
(29
)
 
(4,033
)
 
(4,062
)
Net current period other comprehensive income (loss)
14,635

 
(4,028
)
 
10,607

Balance as of June 30
$
(136,738
)
 
$

 
$
(136,738
)
___________________
(a)  
Amount includes a tax benefit of $3.8 million.

19

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

 
Three Months Ended June 30, 2016
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) On Available-For-Sale Securities
 
Accumulated Other Comprehensive Loss
 
(In thousands)
Balance as of April 1
$
(118,485
)
 
$
7,521

 
$
(110,964
)
Other comprehensive loss before reclassifications, net of tax benefit of $0.5 million related to unrealized losses on available-for-sale securities
(5,588
)
 
(683
)
 
(6,271
)
Amounts reclassified to earnings
2,461

 
(2,633
)
(b)  
(172
)
Net current period other comprehensive loss
(3,127
)
 
(3,316
)
 
(6,443
)
Balance as of June 30
$
(121,612
)
 
$
4,205

 
$
(117,407
)
___________________
(b)  
Amount is net of a tax provision of less than $0.1 million.
 
Six Months Ended June 30, 2017
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of January 1
$
(170,149
)
 
$
4,026

 
$
(166,123
)
Other comprehensive income before reclassifications
32,726

 
7

 
32,733

Amounts reclassified to earnings
685

 
(4,033
)
(c)  
(3,348
)
Net current period other comprehensive income (loss)
33,411

 
(4,026
)
 
29,385

Balance as of June 30 (d)
$
(136,738
)
 
$

 
$
(136,738
)
___________________
(c)  
Amount includes a tax benefit of $3.8 million.
(d)  
At June 30, 2017 there was no tax benefit or provision on other comprehensive income.
 
Six Months Ended June 30, 2016
 
Foreign Currency Translation Adjustment
 
Unrealized Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of January 1
$
(154,645
)
 
$
2,542

 
$
(152,103
)
Other comprehensive income before reclassifications, net of tax benefit of $0.8 million related to unrealized losses on available-for-sale securities
1,594

 
4,754

 
6,348

Amounts reclassified to earnings
9,850

 
(2,633
)
(e)  
7,217

Net current period other comprehensive income
11,444

 
2,121

 
13,565

Reallocation of accumulated other comprehensive loss (income) related to the noncontrolling interests created in the Match Group initial public offering
21,589

 
(458
)
 
21,131

Balance as of June 30
$
(121,612
)
 
$
4,205

 
$
(117,407
)
___________________
(e)  
Amount is net of a tax provision of less than $0.1 million.

20

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

NOTE 7—EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to IAC shareholders:
 
Three Months Ended June 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
80,557

 
$
80,557

 
$
(190,542
)
 
$
(190,542
)
Net earnings attributable to noncontrolling interests
(14,289
)
 
(14,289
)
 
(4,233
)
 
(4,233
)
Impact from Match Group's dilutive securities (a)

 
(7,925
)
 

 

Net earnings (loss) attributable to IAC shareholders
$
66,268

 
$
58,343

 
$
(194,775
)
 
$
(194,775
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
79,067

 
79,067

 
79,523

 
79,523

Dilutive securities including subsidiary denominated equity awards, stock options and RSUs (b)(c)(d)

 
4,711

 

 

Denominator for earnings per share—weighted average shares (b)(c)(d)
79,067

 
83,778

 
79,523

 
79,523

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings (loss) per share
$
0.84

 
$
0.70

 
$
(2.45
)
 
$
(2.45
)
 
Six Months Ended June 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings (loss)
$
109,020

 
$
109,020

 
$
(182,608
)
 
$
(182,608
)
Net earnings attributable to noncontrolling interests
(16,543
)
 
(16,543
)
 
(3,885
)
 
(3,885
)
Impact from Match Group's dilutive securities (a)

 
(10,355
)
 

 

Net earnings (loss) attributable to IAC shareholders
$
92,477

 
$
82,122

 
$
(186,493
)
 
$
(186,493
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
78,633

 
78,633

 
80,775

 
80,775

Dilutive securities including subsidiary denominated equity awards, stock options and RSUs (b)(c)(d)

 
4,510

 

 

Denominator for earnings per share—weighted average shares (b)(c)(d)
78,633

 
83,143

 
80,775

 
80,775

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to IAC shareholders:
 
 
 
 
 
 
 
Earnings (loss) per share
$
1.18

 
$
0.99

 
$
(2.31
)
 
$
(2.31
)
________________________
(a)  
The amount for the three and six months ended June 30, 2017 reflects the reduction in Match Group's earnings attributable to IAC from the assumed exercise of Match Group's dilutive securities under the if-converted method. For the three and six months ended June 30, 2016, the effect of Match Group's dilutive securities under the if-converted method is excluded because it would have been anti-dilutive due to the Company's net loss.

21

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

(b)  
If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of subsidiary denominated equity and stock options and vesting of restricted stock units ("RSUs"). For the three and six months ended June 30, 2017 , less than 0.1 million and 0.5 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
(c)  
For the three and six months ended June 30, 2016, the Company had a loss from operations and, as a result, approximately 9.8 million potentially dilutive securities were excluded from computing diluted earnings per share because the impact would have been anti-dilutive.
(d)  
Market-based awards and performance-based stock units (“PSUs”) are considered contingently issuable shares. Shares issuable upon exercise or vesting of market-based awards and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based awards and PSUs is dilutive for the respective reporting periods. For both the three and six months ended June 30, 2017 , 0.4 million shares underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met. For both the three and six months ended June 30, 2016, 1.0 million shares underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met.
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 Other reportable segment, do not meet the quantitative thresholds that require presentation as separate operating segments.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Match Group
$
309,572

 
$
275,309

 
$
608,336

 
$
535,710

HomeAdvisor
180,711

 
130,173

 
331,456

 
241,662

Video
55,182

 
47,311

 
105,759

 
102,406

Applications
143,969

 
143,157

 
302,866

 
302,953

Publishing
78,124

 
85,291

 
156,204

 
251,293

Other (a)

 
64,294

 
23,980

 
130,808

Inter-segment eliminations
(171
)
 
(96
)
 
(381
)
 
(214
)
Total
$
767,387

 
$
745,439

 
$
1,528,220

 
$
1,564,618

___________________
(a)  
The Other segment consists of the results of PriceRunner, ShoeBuy and The Princeton Review for periods prior to the sale of these businesses, which occurred on March 18, 2016, December 30, 2016 and March 31, 2017, respectively. Beginning in the second quarter of 2017, as a result of the sale of these businesses, the Other segment does not include any financial results.


22

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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Match Group
$
82,975

 
$
77,500

 
$
141,846

 
$
111,686

HomeAdvisor
8,264

 
11,910

 
14,284

 
13,824

Video
(7,829
)
 
(5,039
)
 
(23,418
)
 
(22,524
)
Applications
39,134

 
18,921

 
71,902

 
46,599

Publishing
(2,857
)
 
(316,934
)
 
(8,645
)
 
(310,158
)
Other

 
(5,518
)
 
(5,621
)
 
(10,618
)
Corporate
(44,052
)
 
(33,286
)
 
(77,653
)
 
(59,838
)
Total
$
75,635

 
$
(252,446
)
 
$
112,695

 
$
(231,029
)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Adjusted EBITDA: (b)
 
 
 
 
 
 
 
Match Group
$
109,910

 
$
101,459

 
$
196,141

 
$
168,733

HomeAdvisor
14,675

 
15,016

 
25,748

 
19,982

Video
(6,832
)
 
(3,975
)
 
(21,564
)
 
(20,876
)
Applications
40,546

 
29,082

 
75,479

 
60,140

Publishing
2,740

 
(11,845
)
 
3,919

 
(431
)
Other

 
(2,283
)
 
(1,532
)
 
(3,912
)
Corporate
(16,532
)
 
(15,418
)
 
(31,708
)
 
(25,714
)
Total
$
144,507

 
$
112,036

 
$
246,483

 
$
197,922

________________________
(b)  
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, if applicable, 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, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. 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.

23

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

The following table presents revenue of the Company's principal segments disaggregated by type of service:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Match Group