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Match Group, Inc. - Quarter Report: 2016 June (Form 10-Q)



As filed with the Securities and Exchange Commission on August 9, 2016


 
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, 2016
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 0-20570
 
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
incorporation or organization)
 
59-2712887
(I.R.S. Employer
Identification No.)
 555 West 18th Street, New York, New York 10011
 (Address of registrant's principal executive offices)
 (212) 314-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
 (Do not check if a smaller
reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of July 22, 2016, the following shares of the registrant's common stock were outstanding:
Common Stock
73,786,540

Class B Common Stock
5,789,499

Total outstanding Common Stock
79,576,039

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of July 22, 2016 was $4,393,601,209. 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
 




Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
IAC/INTERACTIVECORP
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
June 30, 2016
 
December 31, 2015
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
1,245,984

 
$
1,481,447

Marketable securities
79,208

 
39,200

Accounts receivable, net of allowance of $16,802 and $16,528, respectively
189,491

 
250,077

Other current assets
278,185

 
174,286

Total current assets
1,792,868

 
1,945,010

 
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $312,916 and $284,494, respectively
306,999

 
302,817

Goodwill
1,937,675

 
2,245,364

Intangible assets, net
395,262

 
440,828

Long-term investments
127,318

 
137,386

Other non-current assets
99,900

 
117,286

TOTAL ASSETS
$
4,660,022

 
$
5,188,691

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES:
 
 
 
Current portion of long-term debt
$
50,000

 
$
40,000

Accounts payable, trade
61,749

 
86,883

Deferred revenue
285,733

 
258,412

Accrued expenses and other current liabilities
294,724

 
383,251

Total current liabilities
692,206

 
768,546

 
 
 
 
Long-term debt, net of current portion
1,655,259

 
1,726,954

Income taxes payable
33,083

 
33,692

Deferred income taxes
259,738

 
348,773

Other long-term liabilities
82,382

 
64,510

 
 
 
 
Redeemable noncontrolling interests
38,421

 
30,391

 
 
 
 
Commitments and contingencies

 

 
 
 
 
SHAREHOLDERS' EQUITY:
 
 
 
Common stock $.001 par value; authorized 1,600,000,000 shares; issued 255,255,243 and 254,014,976 shares, respectively and outstanding 73,752,254 and 77,245,709 shares, respectively
255

 
254

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
11,862,670

 
11,486,315

Retained earnings
144,901

 
331,394

Accumulated other comprehensive loss
(117,407
)
 
(152,103
)
Treasury stock 191,870,989 and 187,137,267 shares, respectively
(10,075,985
)
 
(9,861,350
)
Total IAC shareholders' equity
1,814,450

 
1,804,526

Noncontrolling interests
84,483

 
411,299

Total shareholders' equity
1,898,933

 
2,215,825

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
4,660,022

 
$
5,188,691

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,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Revenue
$
745,439

 
$
771,132

 
$
1,564,618

 
$
1,543,644

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
170,397

 
177,963

 
364,131

 
364,700

Selling and marketing expense
295,525

 
324,710

 
677,866

 
687,192

General and administrative expense
152,135

 
129,349

 
288,377

 
244,143

Product development expense
49,911

 
46,430

 
105,741

 
91,687

Depreciation
17,575

 
15,500

 
33,370

 
31,068

Amortization of intangibles
36,975

 
14,411

 
50,795

 
26,966

Goodwill impairment
275,367

 
—

 
275,367

 
—

Total operating costs and expenses
997,885

 
708,363

 
1,795,647

 
1,445,756

Operating (loss) income
(252,446
)
 
62,769

 
(231,029
)
 
97,888

Interest expense
(27,644
)
 
(15,214
)
 
(55,504
)
 
(29,278
)
Other (expense) income, net
(7,192
)
 
(1,638
)
 
8,705

 
5,350

(Loss) earnings from continuing operations before income taxes
(287,282
)
 
45,917

 
(277,828
)
 
73,960

Income tax benefit
96,740

 
11,968

 
95,220

 
5,788

(Loss) earnings from continuing operations
(190,542
)
 
57,885

 
(182,608
)
 
79,748

Loss from discontinued operations, net of tax
—

 
(153
)
 
—

 
(28
)
Net (loss) earnings
(190,542
)
 
57,732

 
(182,608
)
 
79,720

Net (earnings) loss attributable to noncontrolling interests
(4,233
)
 
1,573

 
(3,885
)
 
5,990

Net (loss) earnings attributable to IAC shareholders
$
(194,775
)
 
$
59,305

 
$
(186,493
)
 
$
85,710

 
 
 
 
 
 
 
 
Per share information attributable to IAC shareholders:
 
 
 
 
 
 
Basic (loss) earnings per share from continuing operations
$
(2.45
)
 
$
0.72

 
$
(2.31
)
 
$
1.03

Diluted (loss) earnings per share from continuing operations
$
(2.45
)
 
$
0.68

 
$
(2.31
)
 
$
0.98

Basic (loss) earnings per share
$
(2.45
)
 
$
0.72

 
$
(2.31
)
 
$
1.03

Diluted (loss) earnings per share
$
(2.45
)
 
$
0.68

 
$
(2.31
)
 
$
0.97

 
 
 
 
 
 
 
 
Dividends declared per share
$
—

 
$
0.34

 
$
—

 
$
0.68

 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
694

 
$
294

 
$
1,307

 
$
539

Selling and marketing expense
1,690

 
3,119

 
3,561

 
4,842

General and administrative expense
20,516

 
20,039

 
41,709

 
34,637

Product development expense
4,864

 
2,497

 
12,372

 
4,842

Total stock-based compensation expense
$
27,764

 
$
25,949

 
$
58,949

 
$
44,860

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,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net (loss) earnings
$
(190,542
)
 
$
57,732

 
$
(182,608
)
 
$
79,720

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment (a)
(3,341
)
 
8,613

 
12,404

 
(48,001
)
Change in unrealized gains and losses of available-for-sale securities (net of tax benefits of $482 and $783 for the three and six months ended June 30, 2016, respectively, and net of tax benefits of $126 and $182 for the three and six months ended June 30, 2015, respectively) (b)
(3,782
)
 
3,615

 
1,655

 
4,249

Total other comprehensive (loss) income, net of tax
(7,123
)
 
12,228

 
14,059

 
(43,752
)
Comprehensive (loss) income
(197,665
)
 
69,960

 
(168,549
)
 
35,968

Comprehensive (income) loss attributable to noncontrolling interests
(3,553
)
 
2,323

 
(4,379
)
 
7,147

Comprehensive (loss) income attributable to IAC shareholders
$
(201,218
)
 
$
72,283

 
$
(172,928
)
 
$
43,115

________________________
(a) The three and six months ended June 30, 2016 include amounts reclassified out of other comprehensive income into earnings. See Note 8 - Accumulated Other Comprehensive Loss for additional information.
(b) The three and six months ended June 30, 2016 and June 2015 include unrealized gains reclassified out of other comprehensive income into earnings. See Note 5 - Marketable Securities and Note 8 - 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
(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 of December 31, 2015
$
30,391

 
 
$
254

 
254,015

 
$
16

 
16,157

 
$
11,486,315

 
$
331,394

 
$
(152,103
)
 
$
(9,861,350
)
 
$
1,804,526

 
$
411,299

 
$
2,215,825

Net (loss) earnings for the six months ended June 30, 2016
(2,584
)
 
 
—

 
—

 
—

 
—

 
—

 
(186,493
)
 
—

 
—

 
(186,493
)
 
6,469

 
(180,024
)
Other comprehensive income, net of tax
22

 
 
—

 
—

 
—

 
—

 
—

 
—

 
13,565

 
—

 
13,565

 
472

 
14,037

Stock-based compensation expense
816

 
 
—

 
—

 
—

 
—

 
27,937

 
—

 
—

 
—

 
27,937

 
26,510

 
54,447

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

 
 
1

 
1,240

 
—

 
—

 
(12,705
)
 
—

 
—

 
—

 
(12,704
)
 
—

 
(12,704
)
Income tax benefit related to stock-based awards
—

 
 
—

 
—

 
—

 
—

 
20,327

 
—

 
—

 
—

 
20,327

 
—

 
20,327

Purchase of treasury stock
—

 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(214,635
)
 
(214,635
)
 
—

 
(214,635
)
Purchase of redeemable noncontrolling interests
(2,411
)
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Adjustment of redeemable noncontrolling interests to fair value
13,388

 
 
—

 
—

 
—

 
—

 
(12,966
)
 
—

 
—

 
—

 
(12,966
)
 
—

 
(12,966
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes
—

 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,857

 
2,857

Reallocation of shareholders' equity balances related to the noncontrolling interests created in the Match Group initial public offering
—

 
 
—

 
—

 
—

 
—

 
342,507

 
—

 
21,131

 
—

 
363,638

 
(363,638
)
 
—

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

 
 
—

 
—

 
—

 
—

 
(937
)
 
—

 
—

 
—

 
(937
)
 
937

 
—

Noncontrolling interests created in a recent acquisition
—

 
 
—

 
—

 
—

 
—

 
12,222

 
—

 
—

 
—

 
12,222

 
—

 
12,222

Other
(1,201
)
 
 
—

 
—

 
—

 
—

 
(30
)
 
—

 
—

 
—

 
(30
)
 
(423
)
 
(453
)
Balance as of June 30, 2016
$
38,421

 
 
$
255

 
255,255

 
$
16

 
16,157

 
$
11,862,670

 
$
144,901

 
$
(117,407
)
 
$
(10,075,985
)
 
$
1,814,450

 
$
84,483

 
$
1,898,933

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,
 
2016
 
2015
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
(Loss) earnings from continuing operations
$
(182,608
)
 
$
79,748

Adjustments to reconcile (loss) earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Stock-based compensation expense
58,949

 
44,860

Depreciation
33,370

 
31,068

Amortization of intangibles
50,795

 
26,966

Goodwill impairment
275,367

 
—

Excess tax benefits from stock-based awards
(21,871
)
 
(36,465
)
Deferred income taxes
(90,902
)
 
7,260

Equity in losses of unconsolidated affiliates
414

 
477

Acquisition-related contingent consideration fair value adjustments
10,470

 
(16,946
)
Gains on sale of businesses and investments, net
(13,137
)
 
(144
)
Other adjustments, net
20,869

 
9,013

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

 
2,710

Other assets
(20,053
)
 
(6,458
)
Accounts payable and other current liabilities
(88,150
)
 
(33,413
)
Income taxes payable
(48,028
)
 
(63,304
)
Deferred revenue
32,589

 
40,407

Net cash provided by operating activities attributable to continuing operations
65,929

 
85,779

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired
(2,524
)
 
(43,286
)
Capital expenditures
(35,133
)
 
(26,816
)
Purchase of time deposits
(87,500
)
 
—

Proceeds from maturities of time deposits
87,500

 
—

Proceeds from maturities and sales of marketable debt securities
32,500

 
14,613

Purchases of marketable debt securities
(79,366
)
 
(93,134
)
Purchases of investments
(5,056
)
 
(12,840
)
Net proceeds from the sale of businesses and investments
103,735

 
6,203

Other, net
4,815

 
2,396

Net cash provided by (used in) investing activities attributable to continuing operations
18,971

 
(152,864
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Purchase of treasury stock
(214,635
)
 
(200,000
)
Proceeds from Match Group 2016 Senior Notes offering
400,000

 
—

Principal payments on Match Group Term Loan
(410,000
)
 
—

Debt issuance costs
(4,621
)
 
—

Repurchase of Senior Notes
(61,110
)
 
—

Dividends
—

 
(56,729
)
Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes
(13,097
)
 
(20,656
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes
2,176

 
—

Excess tax benefits from stock-based awards
21,871

 
36,465

Purchase of noncontrolling interests
(2,411
)
 
(15,338
)
Acquisition-related contingent consideration payments
(2,150
)
 
(5,705
)
Increase in restricted cash related to bond redemptions
(30,002
)
 
—

Other, net
(488
)
 
430

Net cash used in financing activities attributable to continuing operations
(314,467
)
 
(261,533
)
Total cash used in continuing operations
(229,567
)
 
(328,618
)
Total cash used in discontinued operations
—

 
(243
)
Effect of exchange rate changes on cash and cash equivalents
(5,896
)
 
(5,135
)
Net decrease in cash and cash equivalents
(235,463
)
 
(333,996
)
Cash and cash equivalents at beginning of period
1,481,447

 
990,405

Cash and cash equivalents at end of period
$
1,245,984

 
$
656,409

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

7
Table of Contents
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 some of the world's most recognized brands and products, such as HomeAdvisor, Vimeo, About.com, Dictionary.com, The Daily Beast, Investopedia, and Match Group's online dating portfolio, which includes Match, OkCupid, Tinder and PlentyOfFish.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
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 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
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. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the fair values of marketable securities and other investments; the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and 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.

8
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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"). The Company's service agreement became effective on April 1, 2016, following the expiration of the previous services agreement. This services agreement expires on March 31, 2020; the Company may choose to terminate the agreement effective March 31, 2019. This services agreement requires that we comply with certain guidelines promulgated by Google. Google may generally unilaterally update its own 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, 2016, revenue earned from Google was $181.5 million and $466.2 million, respectively. For the three and six months ended June 30, 2015, revenue earned from Google was $308.2 million and $647.8 million, respectively. This revenue is earned by the businesses comprising the Publishing and Applications segments. For the three and six months ended June 30, 2016, revenue earned from Google represents 69% and 78% of Publishing revenue and 85% and 88% of Applications revenue, respectively. For the three and six months ended June 30, 2015, revenue earned from Google represents 82% and 83% of Publishing revenue and 94% and 94% of Applications revenue, respectively. Accounts receivable related to revenue earned from Google totaled $57.2 million and $97.2 million at June 30, 2016 and December 31, 2015, respectively.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payments Accounting (Topic 718). The update is intended to simplify existing guidance on various aspects of the accounting and presentation of employee share-based payments in financial statements including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification on the statement of cash flows. The provisions of ASU 2016-09 are effective for reporting periods beginning after December 15, 2016; early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard update will have on its consolidated financial statements.
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 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 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 April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, and in August 2015, the FASB issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Together, this guidance requires that deferred debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, while debt issuance costs related to line-of-credit arrangements may still continue to be classified as assets. The Company adopted the provisions of ASU 2015-03 and ASU 2015-15 in the first quarter of 2016 and applied the provisions retrospectively, resulting in $21.3 million of deferred debt issuance costs being reclassified from other non-current assets to long-term debt, net of current portion, in the accompanying December 31, 2015 consolidated balance sheet.
In May 2014, the FASB issued 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. In March, April and May 2016, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. Early adoption is permitted beginning on the original effective date of December 15, 2016. Upon adoption, ASU 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 impact the adoption of this standard update will have on its consolidated financial statements, and the method and timing of adoption.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Reallocation of Noncontrolling Interests
During the quarter ended March 31, 2016, the Company reallocated amounts within the accounts comprising shareholders' equity to correct the amount of noncontrolling interests that was initially recorded following the initial public offering ("IPO") of Match Group, which occurred on November 24, 2015. The noncontrolling interests should have been recorded using the net book value of Match Group rather than the net IPO proceeds. In addition, the adjustment allocates the proportionate share of the accumulated other comprehensive loss to the noncontrolling interests balance. The reallocation has no effect on net income or earnings per share. Based on our assessment of both qualitative and quantitative factors, the reallocation was not considered material to the consolidated financial statements of the Company as of and for: (i) the year ended December 31, 2015, (ii) the three months ended March 31, 2016; and (iii) the six months ended June 30, 2016. Therefore, the adjustment was initially reflected in the consolidated financial statements of the Company as of and for the three months ended March 31, 2016 and will, therefore, also be reflected in the year-to-date consolidated financial statements of each subsequent interim period in 2016 and the annual consolidated financial statements for the year ending December 31, 2016.
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, 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. For the three and six months ended June 30, 2015, the Company recorded an income tax benefit for continuing operations of $12.0 million and $5.8 million, respectively. The income tax benefit for each period is 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, 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, 2016 and December 31, 2015, the Company has accrued $2.8 million and $2.5 million, respectively, for the payment of interest. At June 30, 2016 and December 31, 2015, the Company has accrued $1.9 million and $2.2 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 has substantially completed its audit of 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 March 31, 2017. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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, 2016 and December 31, 2015, unrecognized tax benefits, including interest, are $42.4 million and $43.4 million, respectively. If unrecognized tax benefits at June 30, 2016 are subsequently recognized, $39.4 million, net of related deferred tax assets and interest, would reduce the income tax provision for continuing operations. The comparable amount as of December 31, 2015 was $41.0 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $10.6 million within twelve months of June 30, 2016, primarily due to expirations of statutes of limitations; $10.2 million of which would reduce the income tax provision for continuing operations.
NOTE 3—BUSINESS COMBINATION
On October 28, 2015, Match Group completed the acquisition of Plentyoffish Media Inc. ("PlentyOfFish"), a leading provider of subscription-based and ad-supported online personals servicing North America, Europe, Latin America and Australia. Services are provided through websites and mobile applications that PlentyOfFish owns and operates. The purchase price was $574.1 million in cash and is net of a $0.9 million working capital adjustment paid to Match Group in the second quarter of 2016. The financial results of PlentyOfFish are included in the Company's consolidated financial statements, within the Match Group segment, beginning October 28, 2015.
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
(In thousands)
Cash and cash equivalents
$
4,626

Other current assets
4,460

Computer and other equipment
2,990

Goodwill
488,644

Intangible assets
84,100

Other non-current assets
1,073

Total assets
585,893

Current liabilities
(6,418
)
Other long-term liabilities
(5,325
)
Net assets acquired
$
574,150

The purchase price was based on the expected financial performance of PlentyOfFish, not on the value of the net identifiable assets at the time of acquisition, which resulted in a significant portion of the purchase price being attributed to goodwill. The expected financial performance of PlentyOfFish reflects that it is complementary and synergistic to the existing Match Group dating businesses.
Intangible assets are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
(In thousands)
 
Weighted-Average Useful Life
(Years)
Indefinite-lived trade name
$
66,300

 
Indefinite
Customer relationships
10,100

 
Less than 1
New registrants
3,100

 
Less than 1
Non-compete agreement
3,000

 
5
Developed technology
1,600

 
2
    Total intangible assets acquired
$
84,100

 
 
PlentyOfFish's other current assets, property and equipment, other non-current assets, current liabilities and other long-term liabilities were reviewed and adjusted to their fair values at the date of acquisition, as necessary. The fair values of trade names, customer relationships and the non-compete agreement were determined using variations of the income approach; specifically, in respective order, the relief from royalty, excess earnings and with or without methodologies. The fair values of new registrants and developed technology were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
Pro forma Financial Information
The unaudited pro forma financial information in the table below presents the combined results of the Company and PlentyOfFish as if the acquisition of PlentyOfFish had occurred on January 1, 2015. The pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of what the results would have been had the acquisition actually occurred on January 1, 2015. For the three and six months ended June 30, 2015, pro forma adjustments reflected below include decreases to revenue of $1.7 million and $8.3 million, respectively, related to the write-off of deferred revenue at the date of acquisition and increases of $5.2 million and $9.0 million, respectively, in amortization of intangible assets.
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
 
(In thousands, except
 per share data)
Revenue
$
790,486

 
$
1,575,155

Net earnings attributable to IAC shareholders
$
62,746

 
$
89,947

Basic earnings per share attributable to IAC shareholders
$
0.76

 
$
1.08

Diluted earnings per share attributable to IAC shareholders
$
0.72

 
$
1.02


NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
 
June 30,
 
December 31,
 
2016
 
2015
 
(In thousands)
Goodwill
$
1,937,675

 
$
2,245,364

Intangible assets with indefinite lives
336,078

 
380,137

Intangible assets with definite lives, net
59,184

 
60,691

Total goodwill and intangible assets, net
$
2,332,937

 
$
2,686,192


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

The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the six months ended June 30, 2016:
 
Balance at
December 31, 2015
 
Additions
 
Deductions
 
Impairment
 
Foreign
Exchange
Translation
 
Balance at
June 30, 2016
 
(In thousands)
Match Group
$
1,293,109

 
$
603

 
$
(2,983
)
 
$
—

 
$
16,448

 
$
1,307,177

HomeAdvisor
150,251

 
—

 
—

 
—

 
103

 
150,354

Publishing
277,192

 
—

 
(1,968
)
 
(275,367
)
 
143

 
—

Applications
447,242

 
—

 
—

 
—

 
—

 
447,242

Video
15,590

 
9,649

 
—

 
—

 
—

 
25,239

Other
61,980

 
—

 
(55,117
)
 
—

 
800

 
7,663

Total
$
2,245,364

 
$
10,252

 
$
(60,068
)
 
$
(275,367
)
 
$
17,494

 
$
1,937,675

The June 30, 2016 goodwill balance includes accumulated impairment losses of $598.0 million, $529.1 million, $11.6 million and $42.1 million at Publishing, Applications, Connected Ventures (included in the Video segment), and ShoeBuy (included in the Other segment), respectively.
The additions primarily relate to the acquisition of VHX (included in the Video segment). The deductions primarily relate to the sale of PriceRunner (included in the Other segment).
The Company performs its annual impairment assessment of goodwill and indefinite-lived intangible assets as of October 1. In each reporting period, the Company assesses whether any events have occurred or circumstances have changed that would make it more likely than not that the carrying values of its reporting units and indefinite-lived intangible assets are in excess of their respective fair values. If the Company so concludes, the Company updates its estimate of the fair value of the applicable reporting unit and/or indefinite-lived intangible asset. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying value of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its carrying value to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to the excess. Similarly, if the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment is recorded equal to the excess.
The Company concluded that it was more likely than not that the carrying value of the Publishing reporting unit and its indefinite-lived intangible assets were in excess of their respective fair values as of June 30, 2016 and, therefore, updated its estimated fair values of these assets as of that date. This conclusion was based upon the impact of new Google contract, traffic trends and monetization challenges and the anticipated corresponding impact on our estimate of fair value. In performing the first step of the goodwill impairment assessment, the Company determined the fair value of the Publishing reporting unit using both an income approach based on discounted cash flows ("DCF") and a market approach. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including judgment about the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the Publishing DCF analysis were based on the Company's most recent forecast for the second half of 2016 and each of the years in the forecast period, which were updated to include the effects of the new Google contract, traffic trends and monetization challenges and the cost savings from our restructuring efforts. For years beyond the forecast period, the Company's estimated cash flows were based on forecasted growth rates. The discount rate used in the DCF analysis reflects the risks inherent in the expected future cash flows of the Publishing reporting unit. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple was determined which was applied to financial metrics to estimate the fair value of the Publishing reporting unit. To determine a peer group of companies for Publishing, we considered companies relevant in

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

terms of consumer use, monetization model, margin and growth characteristics and brand strength operating in their respective sectors.
The second step of the impairment calculation is to determine the fair value of the goodwill of the Publishing reporting unit. The estimated fair value of the Publishing reporting unit was allocated to all of its assets and liabilities (which included unrecognized intangible assets) as if the Publishing reporting unit had been acquired in a business combination on June 30, 2016 and the fair value of the reporting unit was the purchase price paid. Publishing's other current assets, property and equipment, other non-current assets, current liabilities and other long-term liabilities were reviewed and adjusted to their fair values at June 30, 2016 as necessary. The fair values of trade names, advertiser relationships, and certain existing content at About.com were determined using variations of the income approach; specifically, in respective order, the relief from royalty, with or without and excess earnings methodologies. The fair values of developed technology and certain existing content at Investopedia were determined using a cost approach that utilized the cost to replace methodology. The valuations of the intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates. The fair value of the goodwill of the Publishing reporting unit was determined to be zero and an impairment of the entire goodwill balance of $275.4 million was recognized in the second quarter of 2016. The goodwill impairment charge is a preliminary estimate that will be finalized in the third quarter of 2016.
The Company also recorded impairments of $11.6 million of certain trade names and trademarks in the second quarter of 2016. The impairments were due to reduced level of revenue and profits, which, in turn, also led to a reduction in the assumed royalty rates for these assets. The royalty rates used to value the trade names that were impaired ranged from 2% to 6% and the discount rate that was used reflects the risks inherent in the expected future cash flows of the trade names and trademarks.
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2015:
 
Balance at
December 31, 2014
 
Additions
 
Impairment
 
Foreign
Exchange
Translation
 
Allocation of IAC's former Search & Applications Segment Goodwill Based on Relative Fair Value
 
Balance at
December 31, 2015
 
(In thousands)
Search & Applications (a)
$
774,822

 
$
1,450

 
$
—

 
$
(1,230
)
 
$
(775,042
)
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Match Group
791,474

 
547,910

 
—

 
(46,275
)
 
—

 
1,293,109

HomeAdvisor
151,321

 
—

 
—

 
(1,070
)
 
—

 
150,251

Publishing
—

 
3,504

 
—

 
963

 
272,725

 
277,192

Applications
—

 
—

 
—

 
—

 
447,242

 
447,242

Video
15,590

 
—

 
—

 
—

 
—

 
15,590

Other
21,719

 
—

 
(14,056
)
 
(758
)
 
55,075

 
61,980

Total
$
1,754,926

 
$
552,864

 
$
(14,056
)
 
$
(48,370
)
 
$
—

 
$
2,245,364

________________________
(a) Prior to the fourth quarter of 2015, Search & Applications was a reportable segment consisting of one operating segment and one reporting unit. In the fourth quarter of 2015, Search &Applications was split into three new operating segments and reporting units: Publishing, Applications and PriceRunner (included in the Other segment). The goodwill of Search & Applications was allocated to these three reporting units based upon their relative fair values as of October 1, 2015. It is not possible to reflect this allocation on a retrospective basis because of acquisitions and dispositions during the three years in the period ended December 31, 2015.
The additions primarily relate to Match Group's acquisitions of PlentyOfFish and Eureka. The goodwill impairment charge at ShoeBuy (included in the Other segment) was due to increased investment and the seasonal effect of high inventory levels as of October 1, 2015.

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

The December 31, 2015 goodwill balance includes accumulated impairment losses of $322.6 million, $529.1 million and $65.2 million, which were re-allocated from the former Search & Applications segment, to Publishing, Applications and PriceRunner (included in the Other segment), respectively, based on their relative fair values as of October 1, 2015 following the change in reportable segments that occurred during the fourth quarter of 2015. The goodwill balance at December 31, 2015 also includes accumulated impairment losses of $11.6 million and $42.1 million at Connected Ventures (included in the Video segment) and ShoeBuy (included in the Other segment), respectively.
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. During the second quarter of 2016, the Company changed the classification of certain intangibles from indefinite-lived to definite-lived at Publishing. In addition, in connection with the goodwill impairment charge at Publishing described above, the Company recorded an $11.6 million impairment charge on certain indefinite-lived trade names. The impairment charge is included in "Amortization of intangibles" in the accompanying consolidated statement of operations. At June 30, 2016 and December 31, 2015, intangible assets with definite lives are as follows:
 
June 30, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(Years)
 
(In thousands)
 
 
Trade names
$
65,746

 
$
(42,385
)
 
$
23,361

 
3.2
Content
62,082

 
(53,228
)
 
8,854

 
4.1
Technology
56,474

 
(39,205
)
 
17,269

 
3.3
Customer lists
28,443

 
(22,709
)
 
5,734

 
2.2
Advertiser and supplier relationships and other
10,346

 
(6,380
)
 
3,966

 
4.3
Total
$
223,091

 
$
(163,907
)
 
$
59,184

 
3.4
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(Years)
 
(In thousands)
 
 
Content
$
62,082

 
$
(48,937
)
 
$
13,145

 
4.1
Technology
55,487

 
(37,012
)
 
18,475

 
3.2
Trade names
32,123

 
(26,268
)
 
5,855

 
2.5
Customer lists
28,836

 
(13,078
)
 
15,758

 
2.1
Advertiser and supplier relationships and other
15,709

 
(8,251
)
 
7,458

 
4.2
Total
$
194,237

 
$
(133,546
)
 
$
60,691

 
3.3
At June 30, 2016, amortization of intangible assets with definite lives for each of the next five years is estimated to be as follows:
For the twelve months ending June 30,
(In thousands)
2017
$
32,581

2018
14,896

2019
7,044

2020
4,463

2021
200

Total
$
59,184



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

NOTE 5—MARKETABLE SECURITIES
At June 30, 2016, current available-for-sale marketable securities are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Corporate debt securities
$
29,614

 
$
45

 
$
(15
)
 
$
29,644

Treasury discount notes
44,949

 
23

 
—

 
44,972

Total debt securities
74,563

 
68

 
(15
)
 
74,616

Equity security
4,385

 
207

 
—

 
4,592

Total marketable securities
$
78,948

 
$
275

 
$
(15
)
 
$
79,208

At December 31, 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
$
27,765

 
$
—

 
$
(187
)
 
$
27,578

Equity security
8,659

 
2,963

 
—

 
11,622

Total marketable securities
$
36,424

 
$
2,963

 
$
(187
)
 
$
39,200

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 June 30, 2016, and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity. The aggregate fair value of available-for-sale marketable debt securities with unrealized losses is $17.3 million as of June 30, 2016. There is one investment in current available-for-sale marketable debt securities that has been in a continuous unrealized loss position for longer than twelve months as of June 30, 2016.
The contractual maturities of debt securities classified as current available-for-sale at June 30, 2016 are as follows:
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Due in one year or less
$
69,536

 
$
69,551

Due after one year through five years
5,027

 
5,065

Total
$
74,563

 
$
74,616


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

The following table presents the proceeds from maturities and sales of current and non-current available-for-sale marketable securities:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Proceeds from maturities and sales of available-for-sale marketable securities
$
44,216

 
$
8,563

 
$
54,216

 
$
14,613

Gross realized gains
3,125

 
5

 
3,125

 
5

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, 2016 and 2015.
Gross realized gains from the maturities and sales of available-for-sale marketable securities and losses that were deemed to be other-than-temporary are included in "Other (expense) income, net" in the accompanying consolidated statement of operations.
The specific-identification method is used to determine the cost of securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings.
NOTE 6—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:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
June 30, 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
$
523,659

 
$
—

 
$
—

 
$
523,659

Time deposits
—

 
125,192

 
—

 
125,192

Treasury discount notes
62,496

 
—

 
—

 
62,496

Commercial paper
—

 
93,989

 
—

 
93,989

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
—

 
29,644

 
—

 
29,644

Treasury discount notes
44,972

 
—

 
—

 
44,972

Equity security
4,592

 
—

 
—

 
4,592

Total
$
635,719

 
$
248,825

 
$
—

 
$
884,544

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$
—

 
$
—

 
$
(45,526
)
 
$
(45,526
)
 
December 31, 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
$
601,848

 
$
—

 
$
—

 
$
601,848

Time deposits
—

 
125,038

 
—

 
125,038

Commercial paper
—

 
302,418

 
—

 
302,418

Marketable securities:
 
 
 
 
 
 
 
Corporate debt securities
—

 
27,578

 
—

 
27,578

Equity security
11,622

 
—

 
—

 
11,622

Long-term investments:
 
 
 
 
 
 
 
Auction rate security
—

 
—

 
4,050

 
4,050

Marketable equity security
7,542

 
—

 
—

 
7,542

Total
$
621,012

 
$
455,034

 
$
4,050

 
$
1,080,096

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$
—

 
$
—

 
$
(33,873
)
 
$
(33,873
)

18
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following tables present the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Three Months Ended June 30,
 
2016
 
2015
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at April 1
$
(37,243
)
 
$
6,190

 
$
(20,964
)
Total net (losses) gains:


 
 
 
 
Included in earnings:
 
 
 
 
 
Fair value adjustments
(6,801
)
 
—

 
9,950

Foreign currency exchange losses
—

 
—

 
(4
)
Included in other comprehensive (loss) income
(3,375
)
 
440

 
384

Fair value at date of acquisition
55

 
—

 
(26,749
)
Settlements
1,838

 
—

 
5,525

Balance at June 30
$
(45,526
)
 
$
6,630

 
$
(31,858
)
 
Six Months Ended June 30,
 
2016
 
2015
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
Auction Rate
Security
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
4,050

 
$
(33,873
)
 
$
6,070

 
$
(30,140
)
Total net (losses) gains:
 
 
 
 
 
 
 
Included in earnings:
 
 
 
 
 
 
 
Fair value adjustments
—

 
(10,470
)
 
—

 
16,946

Foreign currency exchange gains
—

 
—

 
—

 
626

Included in other comprehensive income (loss)
5,950

 
(5,281
)
 
560

 
2,117

Fair value at date of acquisition


 
1,948

 
—

 
(27,112
)
Settlements
—

 
2,150

 
—

 
5,705

Proceeds from sale
(10,000
)
 
—

 
—

 
—

Balance at June 30
$
—

 
$
(45,526
)
 
$
6,630

 
$
(31,858
)
Contingent Consideration Arrangements
As of June 30, 2016, there are eight contingent consideration arrangements related to business acquisitions. Seven of the contingent consideration arrangements have limits as to the maximum amount that can be paid; the maximum contingent payments related to these arrangements are $141.8 million and the fair value of these arrangements at June 30, 2016 is $45.4 million. The fair value of the one contingent consideration arrangement without a limit on the maximum amount is $0.1 million at June 30, 2016.
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 probability-weighted analyses to determine the amounts of the gross liability, and, if the arrangement is 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;

19
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

generally, more scenarios are prepared for longer duration and more complex arrangements. The fair values of the contingent consideration arrangements at June 30, 2016 reflect discount rates ranging from 12% to 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, 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, 2016 and December 31, 2015 includes a current portion of $10.8 million and $2.6 million, respectively, and non-current portion of $34.7 million and $31.2 million, respectively, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.
Marketable equity security
The cost basis of the Company's long-term marketable equity security at December 31, 2015 was $5.0 million, with gross unrealized gains of $2.6 million. The gross unrealized gains at December 31, 2015 was included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet. During the second quarter of 2016 this marketable equity security was classified as short-term due to the Company's decision to sell this security.
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. See Note 4 for additional information on the Publishing goodwill and indefinite-lived intangible asset impairment charges.
Cost method investments
At June 30, 2016 and December 31, 2015, the carrying values of the Company's investments accounted for under the cost method totaled $116.5 million and $114.5 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, 2016
 
December 31, 2015
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(In thousands)
Current portion of long-term debt
$
(50,000
)
 
$
(52,025
)
 
$
(40,000
)
 
$
(39,850
)
Long-term debt, net of current portion
(1,655,259
)
 
(1,722,286
)
 
(1,726,954
)
 
(1,761,601
)
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.
NOTE 7—LONG-TERM DEBT
Long-term debt consists of:

20
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
June 30, 2016
 
December 31, 2015
 
(In thousands)
Match Group Debt:
 
 
 
6.375% Senior Notes due June 1, 2024 (the "2016 Match Group Senior Notes"); interest payable each June 1 and December 1, which commences December 1, 2016
$
400,000

 
$
—

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

Match Group Term Loan due November 16, 2022(a)
390,000

 
800,000

Total Match Group long-term debt
1,235,172

 
1,245,172

Less: Current maturities of Match Group long-term debt
—

 
40,000

Less: Unamortized original issue discount and original issue premium, net
5,308

 
11,691

Less: Unamortized debt issuance costs
15,076

 
16,610

Total Match Group debt, net of current maturities
1,214,788

 
1,176,871

 


 


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
445,003

 
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
48,619

 
54,732

Total IAC long-term debt
493,622

 
554,732

Less: Current portion of IAC long-term debt
50,000

 
—

Less: Unamortized debt issuance costs
3,151

 
4,649

Total IAC debt, net of current portion
440,471

 
550,083

 

 

Total long-term debt, net of current portion
$
1,655,259

 
$
1,726,954

________________________
(a) The 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 repay 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 the redemption prices set forth below, together with accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 1 of the years indicated below:
Year
 
Percentage
2019
 
104.781
%
2020
 
103.188
%
2021
 
101.594
%
2022 and thereafter
 
100.000
%

21
Table of Contents
IAC/INTERACTIVECORP
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").
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, 2016, 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 financial 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"), the Match Group borrowed $800 million in the form of a term loan (the "Match Group Term Loan"). On March 31, 2016, the Company made a $10 million principal payment on the Match Group Term Loan. In addition, on June 1, 2016, the $400 million in proceeds from the 2016 Match Group Senior Notes were used to repay a portion of the Match Group Term Loan. The remaining principal balance at June 30, 2016 of $390 million is due at maturity. The Match Group Term Loan would require 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 our option, at a base rate or LIBOR, plus 3.50% or 4.50%, respectively, and in the case of LIBOR, a floor of 1.00%. 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, 2016 and December 31, 2015, 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 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.
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. The guarantor subsidiaries are the same for the 2013 and 2012 Senior Notes. See Note 14 for guarantor and non-guarantor financial information.
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, 2016, 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

22
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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 million revolving credit facility (the "IAC Credit Facility") that expires October 7, 2020. At June 30, 2016 and December 31, 2015, 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 Senior Notes and 2012 Senior Notes rank equally with each other, and are subordinate to outstanding borrowings under the IAC Credit Facility.
NOTE 8—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, 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
)
(a) 
(172
)
Net current period other comprehensive loss
(3,127
)
 
(3,316
)
 
(6,443
)
Balance as of June 30
$
(121,612
)
 
$
4,205

 
$
(117,407
)
________________________
(a) Amount is net of a tax provision of less than $0.1 million.
 
Three Months Ended June 30, 2015
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance as of April 1
$
(143,182
)
 
$
(91
)
 
$
(143,273
)
Other comprehensive income, net of tax benefit of $0.2 million related to unrealized losses on available-for-sale securities
9,287

 
3,528

 
12,815

Amounts reclassified to earnings related to unrealized losses on available-for-sale securities, net of a tax benefit of $0.1 million
—

 
163

 
163

Net current period other comprehensive income
9,287

 
3,691

 
12,978

Balance as of June 30
$
(133,895
)
 
$
3,600

 
$
(130,295
)

23
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
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
)
(b) 
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
)
________________________
(b) Amount is net of a tax provision of less than $0.1 million.
 
Six Months Ended June 30, 2015
 
Foreign Currency Translation Adjustment
 
Unrealized (Losses) Gains On Available-For-Sale Securities
 
Accumulated Other Comprehensive (Loss) Income
 
(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
(47,047
)
 
4,289

 
(42,758
)
Amounts reclassified to earnings related to unrealized losses on available-for-sale securities, net of a tax benefit of $0.1 million
—

 
$
163

 
163

Net current period other comprehensive (loss) income
(47,047
)
 
4,452

 
(42,595
)
Balance as of June 30
$
(133,895
)
 
$
3,600

 
$
(130,295
)


24
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE 9—(LOSS) EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted (loss) earnings per share attributable to IAC shareholders.
 
Three Months Ended June 30,
 
2016
 
2015
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
(Loss) earnings from continuing operations
$
(190,542
)
 
$
(190,542
)
 
$
57,885

 
$
57,885

Net (earnings) loss attributable to noncontrolling interests
(4,233
)
 
(4,233
)
 
1,573

 
1,573

Impact from Match Group's dilutive securities(a)(b)
—

 
—

 
—

 
—

(Loss) earnings from continuing operations attributable to IAC shareholders
(194,775
)
 
(194,775
)
 
59,458

 
59,458

Loss from discontinued operations attributable to IAC shareholders
—

 
—

 
(153
)
 
(153
)
Net (loss) earnings attributable to IAC shareholders
$
(194,775
)
 
$
(194,775
)
 
$
59,305

 
$
59,305

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
79,523

 
79,523

 
82,416

 
82,416

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

 
—

 
—

 
4,674

Denominator for earnings per share—weighted average shares(c)(d)
79,523

 
79,523

 
82,416

 
87,090

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
(Loss) earnings per share from continuing operations
$
(2.45
)
 
$
(2.45
)
 
$
0.72

 
$
0.68

Discontinued operations
—

 
—

 
—

 
—

(Loss) earnings per share
$
(2.45
)
 
$
(2.45
)
 
$
0.72

 
$
0.68


25
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Six Months Ended June 30,
 
2016
 
2015
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
(Loss) earnings from continuing operations
$
(182,608
)
 
$
(182,608
)
 
$
79,748

 
$
79,748

Net (earnings) loss attributable to noncontrolling interests
(3,885
)
 
(3,885
)
 
5,990

 
5,990

Impact from Match Group's dilutive securities(a)(b)
—

 
—

 
—

 
—

(Loss) earnings from continuing operations attributable to IAC shareholders
(186,493
)
 
(186,493
)
 
85,738

 
85,738

Loss from discontinued operations attributable to IAC shareholders
—

 
—

 
(28
)
 
(28
)
Net (loss) earnings attributable to IAC shareholders
$
(186,493
)
 
$
(186,493
)
 
$
85,710

 
$
85,710

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average basic shares outstanding
80,775

 
80,775

 
82,932

 
82,932

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

 
—

 
—

 
4,989

Denominator for earnings per share—weighted average shares(c)(d)
80,775

 
80,775

 
82,932

 
87,921

 
 
 
 
 
 
 
 
(Loss) earnings per share attributable to IAC shareholders:
 
 
 
 
 
 
 
(Loss) earnings per share from continuing operations
$
(2.31
)
 
$
(2.31
)
 
$
1.03

 
$
0.98

Discontinued operations
—

 
—

 
—

 
(0.01
)
(Loss) earnings per share
$
(2.31
)
 
$
(2.31
)
 
$
1.03

 
$
0.97

________________________
(a) The impact on earnings of Match Group's dilutive securities is not applicable for the three and six months ended June 30, 2015 as it was a wholly-owned subsidiary of the Company until its IPO on November 24, 2015.
(b) For the three and six months ended June 30, 2016, the impact on earnings related to Match Group's dilutive securities under the if-converted method are excluded as the impact is anti-dilutive.
(c) For the three and six months ended June 30, 2016, the Company had a loss from continuing operations and as a result, approximately 10.1 million potentially dilutive securities were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute all earnings per share amounts.
(d) 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, 2015, 1.0 million and 1.2 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

NOTE 10—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.

26
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Match Group
$
301,119

 
$
248,817

 
$
586,402

 
$
483,886

HomeAdvisor
130,173

 
94,150

 
241,662

 
169,994

Publishing
85,291

 
154,447

 
251,293

 
333,472

Applications
143,157

 
190,801

 
302,953

 
388,268

Video
47,311

 
40,720

 
102,406

 
87,192

Other
38,484

 
42,318

 
80,116

 
81,171

Inter-segment eliminations
(96
)
 
(121
)
 
(214
)
 
(339
)
Total
$
745,439

 
$
771,132

 
$
1,564,618

 
$
1,543,644

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Operating Income (Loss):
 
 
 
 
 
 
 
Match Group
$
73,668

 
$
40,522

 
$
102,856

 
$
67,562

HomeAdvisor
11,910

 
1,589

 
13,824

 
(2,408
)
Publishing
(316,934
)
 
10,160

 
(310,158
)
 
29,536

Applications
18,921

 
52,631

 
46,599

 
91,537

Video
(5,039
)
 
(10,457
)
 
(22,524
)
 
(30,926
)
Other
(1,686
)
 
(399
)
 
(1,788
)
 
(940
)
Corporate
(33,286
)
 
(31,277
)
 
(59,838
)
 
(56,473
)
Total
$
(252,446
)
 
$
62,769

 
$
(231,029
)
 
$
97,888

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Adjusted EBITDA:(a)
 
 
 
 
 
 
 
Match Group
$
100,120

 
$
63,448

 
$
164,706

 
$
96,698

HomeAdvisor
15,016

 
4,700

 
19,982

 
3,864

Publishing
(11,845
)
 
17,337

 
(431
)
 
43,990

Applications
29,082

 
49,095

 
60,140

 
94,644

Video
(3,975
)
 
(12,135
)
 
(20,876
)
 
(31,841
)
Other
(944
)
 
878

 
115

 
1,600

Corporate
(15,418
)
 
(14,644
)
 
(25,714
)
 
(25,119
)
Total
$
112,036

 
$
108,679

 
$
197,922

 
$
183,836


27
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
June 30, 2016
 
December 31, 2015
 
(In thousands)
Segment Assets:(b)
 
 
 
Match Group
$
411,832

 
$
329,269

HomeAdvisor
51,937

 
32,112

Publishing
457,116

 
390,951

Applications
94,192

 
108,997

Video
92,268

 
90,671

Other
26,229

 
64,550

Corporate
1,193,511

 
1,485,949

Total
$
2,327,085

 
$
2,502,499

________________________
(a) 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. 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.
(b) Consistent with the Company's primary metric (described in (a) above), the Company excludes, if applicable, goodwill and intangible assets from the measure of segment assets presented above.
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
United States
$
549,725

 
$
566,224

 
$
1,154,216

 
$
1,136,237

All other countries
195,714

 
204,908

 
410,402

 
407,407

 Total
$
745,439

 
$
771,132

 
$
1,564,618

 
$
1,543,644

 
June 30,
2016
 
December 31,
2015
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets):
 
 
 
 United States
$
283,208

 
$
279,913

 All other countries
23,791

 
22,904

Total
$
306,999

 
$
302,817

The following tables reconcile operating income (loss) for the Company's reportable segments and net earnings attributable to IAC shareholders to Adjusted EBITDA:

28
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended June 30, 2016
 
Operating
Income
(Loss)
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Goodwill
Impairment
 

Adjusted
EBITDA
 
(In thousands)
Match Group
$
73,668

 
$
12,698

 
$
8,090

 
$
6,419

 
$
(755
)
 
$
—

 
$
100,120

HomeAdvisor
11,910

 
408

 
1,925

 
773

 
—

 
—

 
15,016

Publishing
(316,934
)
 
—

 
2,148

 
27,574

 
—

 
275,367

 
(11,845
)
Applications
18,921

 
—

 
1,082

 
1,523

 
7,556

 
—

 
29,082

Video
(5,039
)
 
—

 
477

 
587

 
—

 
—

 
(3,975
)
Other
(1,686
)
 
—

 
643

 
99

 
—

 
—

 
(944
)
Corporate
(33,286
)
 
14,658

 
3,210

 
—

 
—

 
—

 
(15,418
)
Total
(252,446
)
 
$
27,764

 
$
17,575

 
$
36,975

 
$
6,801

 
$
275,367

 
$
112,036

Interest expense
(27,644
)
 
 
 
 
 
 
 
 
 
 
 
 
Other expense, net
(7,192
)
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations before income taxes
(287,282
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit
96,740

 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
(190,542
)
 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
—

 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(190,542
)
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings attributable to noncontrolling interests
(4,233
)
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to IAC shareholders
$
(194,775
)
 
 
 
 
 
 
 
 
 
 
 
 

29
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Three Months Ended June 30, 2015
 
Operating
Income
(Loss)
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 

Adjusted
EBITDA
 
(In thousands)
Match Group
$
40,522

 
$
11,626

 
$
6,622

 
$
5,901

 
$
(1,223
)
 
$
63,448

HomeAdvisor
1,589

 
420

 
1,589

 
1,102

 
—

 
4,700

Publishing
10,160

 
—

 
2,423

 
4,754

 
—

 
17,337

Applications
52,631

 
—

 
1,188

 
1,573

 
(6,297
)
 
49,095

Video
(10,457
)
 
147

 
226

 
379

 
(2,430
)
 
(12,135
)
Other
(399
)
 
—

 
575

 
702

 
—

 
878

Corporate
(31,277
)
 
13,756

 
2,877

 
—

 
—

 
(14,644
)
Total
62,769

 
$
25,949

 
$
15,500

 
$
14,411

 
$
(9,950
)
 
$
108,679

Interest expense
(15,214
)
 
 
 
 
 
 
 
 
 
 
Other expense, net
(1,638
)
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations before income taxes
45,917

 
 
 
 
 
 
 
 
 
 
Income tax benefit
11,968

 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations
57,885

 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
(153
)
 
 
 
 
 
 
 
 
 
 
Net earnings
57,732

 
 
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
1,573

 
 
 
 
 
 
 
 
 
 
Net earnings attributable to IAC shareholders
$
59,305

 
 
 
 
 
 
 
 
 
 

30
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Six Months Ended June 30, 2016
 
Operating
Income
(Loss)
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 
Goodwill
Impairment
 

Adjusted
EBITDA
 
(In thousands)
Match Group
$
102,856

 
$
30,196

 
$
14,577

 
$
14,671

 
$
2,406

 
$
—

 
$
164,706

HomeAdvisor
13,824

 
815

 
3,798

 
1,545

 
—

 
—

 
19,982

Publishing
(310,158
)
 
—

 
4,337

 
30,023

 
—

 
275,367

 
(431
)
Applications
46,599

 
—

 
2,231

 
3,054

 
8,256

 
—

 
60,140

Video
(22,524
)
 
—

 
875

 
965

 
(192
)
 
—

 
(20,876
)
Other
(1,788
)
 
—

 
1,366

 
537

 
—

 
—

 
115

Corporate
(59,838
)
 
27,938

 
6,186

 
—

 
—

 
—

 
(25,714
)
Total
(231,029
)
 
$
58,949

 
$
33,370

 
$
50,795

 
$
10,470

 
$
275,367

 
$
197,922

Interest expense
(55,504
)
 
 
 
 
 
 
 
 
 
 
 
 
Other income, net
8,705

 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations before income taxes
(277,828
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit
95,220

 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
(182,608
)
 
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
—

 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(182,608
)
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings attributable to noncontrolling interests
(3,885
)
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to IAC shareholders
$
(186,493
)
 
 
 
 
 
 
 
 
 
 
 
 

31
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
Six Months Ended June 30, 2015
 
Operating
Income
(Loss)
 
Stock-Based
Compensation
Expense
 
Depreciation
 
Amortization
of Intangibles
 
Acquisition-related Contingent Consideration Fair Value Adjustments
 

Adjusted
EBITDA
 
(In thousands)
Match Group
$
67,562

 
$
17,925

 
$
13,667

 
$
9,778

 
$
(12,234
)
 
$
96,698

HomeAdvisor
(2,408
)
 
840

 
3,140

 
2,292

 
—

 
3,864

Publishing
29,536

 
—

 
4,930

 
9,524

 
—

 
43,990

Applications
91,537

 
—

 
2,230

 
3,154

 
(2,277
)
 
94,644

Video
(30,926
)
 
294

 
424

 
802

 
(2,435
)
 
(31,841
)
Other
(940
)
 
—

 
1,124

 
1,416

 
—

 
1,600

Corporate
(56,473
)
 
25,801

 
5,553

 
—

 
—

 
(25,119
)
Total
97,888

 
$
44,860

 
$
31,068

 
$
26,966

 
$
(16,946
)
 
$
183,836

Interest expense
(29,278
)
 
 
 
 
 
 
 
 
 
 
Other income, net
5,350

 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations before income taxes
73,960

 
 
 
 
 
 
 
 
 
 
Income tax benefit
5,788

 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations
79,748

 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax
(28
)
 
 
 
 
 
 
 
 
 
 
Net earnings
79,720

 
 
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
5,990

 
 
 
 
 
 
 
 
 
 
Net earnings attributable to IAC shareholders
$
85,710

 
 
 
 
 
 
 
 
 
 

32
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following tables reconcile segment assets to total assets:
 
June 30, 2016
 
Segment Assets
 
Goodwill
 
Indefinite-Lived
Intangible Assets
 
Definite-Lived
Intangible Assets
 
Total Assets
 
(In thousands)
Match Group
$
411,832

 
$
1,307,177

 
$
246,894

 
$
18,241

 
$
1,984,144

HomeAdvisor
51,937

 
150,354

 
600

 
4,193

 
207,084

Publishing
457,116

 
—

 
15,004

 
24,362

 
496,482

Applications
94,192

 
447,242

 
60,600

 
4,910

 
606,944

Video
92,268

 
25,239

 
1,800

 
7,378

 
126,685

Other
26,229

 
7,663

 
11,180

 
100

 
45,172

Corporate(a)
1,193,511

 
—

 
—

 
—

 
1,193,511

Total
$
2,327,085

 
$
1,937,675

 
$
336,078

 
$
59,184

 
$
4,660,022

 
December 31, 2015
 
Segment Assets
 
Goodwill
 
Indefinite-Lived
Intangible Assets
 
Definite-Lived
Intangible Assets
 
Total Assets
 
(In thousands)
Match Group
$
329,269

 
$
1,293,109

 
$
243,697

 
$
32,711

 
$
1,898,786

HomeAdvisor
32,112

 
150,251

 
600

 
5,727

 
188,690

Publishing
390,951

 
277,192

 
59,805

 
7,849

 
735,797

Applications
108,997

 
447,242

 
60,600

 
7,964

 
624,803

Video
90,671

 
15,590

 
1,800

 
3,343

 
111,404

Other
64,550

 
61,980

 
13,635

 
3,097

 
143,262

Corporate(a)
1,485,949

 
—

 
—

 
—

 
1,485,949

Total
$
2,502,499

 
$
2,245,364

 
$
380,137

 
$
60,691

 
$
5,188,691

________________________
(a) Corporate assets consist primarily of cash and cash equivalents, marketable securities and IAC's headquarters building.
NOTE 11—CONSOLIDATED FINANCIAL STATEMENT DETAILS
Other (expense) income, net consists of:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
(Losses) gains on sale of businesses and investments
$
(1,563
)
 
$
(42
)
 
$
13,137

(a) 
$
144

Foreign currency exchange gains (losses)
8,644

 
(1,311
)
 
13,139

 
4,537

Interest income
1,116

 
1,242

 
2,762

 
2,473

Impairment on long-term investments
(400
)
 
(500
)
 
(2,702
)
 
(500
)
Loss on bond redemption
(1,714
)
 
—

 
(3,113
)
 
—

Loss on partial extinguishment of Match Group Term Loan
(11,056
)
 
—

 
(11,056
)
 
—

Other
(2,219
)
 
(1,027
)
 
(3,462
)
 
(1,304
)
Total
$
(7,192
)
 
$
(1,638
)
 
$
8,705

 
$
5,350

________________________

33
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(a) Includes a gain of $12.0 million related to PriceRunner, which was sold on March 18, 2016 and a loss of $3.7 million related to ASKfm, which was sold on June 30, 2016. PriceRunner's full year 2015 revenue, operating income and Adjusted EBITDA were $32.3 million, $9.7 million and $13.0 million, respectively. Included in PriceRunner's operating income were $2.9 million of depreciation and $0.4 million of amortization of intangibles. ASKfm's full year 2015 revenue, operating loss and Adjusted EBITDA loss were $10.9 million, $9.1 million and $6.1 million, respectively. Included in ASKfm's operating loss were $2.0 million of amortization of intangibles and $1.0 million of depreciation.
NOTE 12—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Non-Cash Transactions:
The Company recorded acquisition-related contingent consideration liabilities of $27.1 million during the six months ended June 30, 2015. See Note 6 for additional information on contingent consideration arrangements.

NOTE 13—CONTINGENCIES
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See Note 2 for additional information related to income tax contingencies.
NOTE 14—GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The 2013 and 2012 Senior Notes are unconditionally guaranteed, jointly and severally, by certain domestic subsidiaries, which are 100% owned by the Company. The following tables present condensed consolidating financial information at June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 for: IAC, on a stand-alone basis; the combined guarantor subsidiaries of IAC; the combined non-guarantor subsidiaries of IAC; and IAC on a consolidated basis.

34
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Balance sheet at June 30, 2016:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Cash and cash equivalents
$
680,859

 
$
—

 
$
565,125

 
$
—

 
$
1,245,984

Marketable securities
79,208

 
—

 
—

 
—

 
79,208

Accounts receivable, net
—

 
88,726

 
100,765

 
—

 
189,491

Other current assets
124,877

 
44,075

 
109,233

 
—

 
278,185

Intercompany receivables
—

 
634,253

 
1,157,945

 
(1,792,198
)
 
—

Property and equipment, net
5,190

 
193,923

 
107,886

 
—

 
306,999

Goodwill
—

 
529,403

 
1,408,272

 
—

 
1,937,675

Intangible assets, net
—

 
106,734

 
288,528

 
—

 
395,262

Investment in subsidiaries
3,520,513

 
597,981

 
—

 
(4,118,494
)
 
—

Other non-current assets
51,803

 
104,751

 
179,700

 
(109,036
)
 
227,218

Total assets
$
4,462,450

 
$
2,299,846

 
$
3,917,454

 
$
(6,019,728
)
 
$
4,660,022

 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
50,000

 
$
—

 
$
—

 
$
—

 
$
50,000

Accounts payable, trade
3,089

 
37,191

 
21,469

 
—

 
61,749

Other current liabilities
28,622

 
105,392

 
446,443

 
—

 
580,457

Long-term debt, net of current portion
440,471

 
—

 
1,214,788

 
—

 
1,655,259

Income taxes payable
445

 
3,937

 
28,701

 
—

 
33,083

Intercompany liabilities
1,792,198

 
—

 
—

 
(1,792,198
)
 
—

Other long-term liabilities
333,175

 
18,671

 
99,310

 
(109,036
)
 
342,120

Redeemable noncontrolling interests
—

 
—

 
38,421

 
—

 
38,421

IAC shareholders' equity
1,814,450

 
2,134,655

 
1,983,839

 
(4,118,494
)
 
1,814,450

Noncontrolling interests
—

 
—

 
84,483

 
—

 
84,483

Total liabilities and shareholders' equity
$
4,462,450

 
$
2,299,846

 
$
3,917,454

 
$
(6,019,728
)
 
$
4,660,022


35
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Balance sheet at December 31, 2015:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Cash and cash equivalents
$
1,073,053

 
$
—

 
$
408,394

 
$
—

 
$
1,481,447

Marketable securities
27,578

 
—

 
11,622

 
—

 
39,200

Accounts receivable, net
33

 
115,280

 
134,764

 
—

 
250,077

Other current assets
30,813

 
46,128

 
97,345

 
—

 
174,286

Intercompany receivables
—

 
637,324

 
963,146

 
(1,600,470
)
 
—

Property and equipment, net
4,432

 
198,890

 
99,495

 
—

 
302,817

Goodwill
—

 
776,569

 
1,468,795

 
—

 
2,245,364

Intangible assets, net
—

 
135,817

 
305,011

 
—

 
440,828

Investment in subsidiaries
3,128,765

 
466,601

 
—

 
(3,595,366
)
 
—

Other non-current assets
84,368

 
11,258

 
174,038

 
(14,992
)
 
254,672

Total assets
$
4,349,042

 
$
2,387,867

 
$
3,662,610

 
$
(5,210,828
)
 
$
5,188,691

 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
—

 
$
40,000

 
$
—

 
$
40,000

Accounts payable, trade
4,711

 
42,104

 
40,068

 
—

 
86,883

Other current liabilities
62,833

 
140,077

 
438,753

 
—

 
641,663

Long-term debt, net of current portion
550,083

 
—

 
1,176,871

 
—

 
1,726,954

Income taxes payable
152

 
3,435

 
30,105

 
—

 
33,692

Intercompany liabilities
1,600,470

 
—

 
—

 
(1,600,470
)
 
—

Other long-term liabilities
326,267

 
18,160

 
83,848

 
(14,992
)
 
413,283

Redeemable noncontrolling interests
—

 
—

 
30,391

 
—

 
30,391

IAC shareholders' equity
1,804,526

 
2,184,091

 
1,411,275

 
(3,595,366
)
 
1,804,526

Noncontrolling interests
—

 
—

 
411,299

 
—

 
411,299

Total liabilities and shareholders' equity
$
4,349,042

 
$
2,387,867

 
$
3,662,610

 
$
(5,210,828
)
 
$
5,188,691


36
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of operations for the three months ended June 30, 2016:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Revenue
$
—

 
$
322,969

 
$
426,355

 
$
(3,885
)
 
$
745,439

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
381

 
69,374

 
101,274

 
(632
)
 
170,397

Selling and marketing expense
871

 
162,835

 
135,080

 
(3,261
)
 
295,525

General and administrative expense
24,860

 
43,842

 
83,425

 
8

 
152,135

Product development expense
1,739

 
20,098

 
28,074

 
—

 
49,911

Depreciation
415

 
7,215

 
9,945

 
—

 
17,575

Amortization of intangibles
—

 
27,098

 
9,877

 
—

 
36,975

Goodwill impairment
—

 
253,245

 
22,122

 
—

 
275,367

Total operating costs and expenses
28,266

 
583,707

 
389,797

 
(3,885
)
 
997,885

Operating (loss) income
(28,266
)
 
(260,738
)
 
36,558

 
—

 
(252,446
)
Equity in losses of unconsolidated affiliates
(150,210
)
 
(18,821
)
 
—

 
169,031

 
—

Interest expense
(6,996
)
 
—

 
(20,648
)
 
—

 
(27,644
)
Other (expense) income, net
(18,989
)
 
1,874

 
9,923

 
—

 
(7,192
)
(Loss) earnings from continuing operations before income taxes
(204,461
)
 
(277,685
)
 
25,833

 
169,031

 
(287,282
)
Income tax benefit (provision)
9,686

 
93,393

 
(6,339
)
 
—

 
96,740

(Loss) earnings from continuing operations
(194,775
)
 
(184,292
)
 
19,494

 
169,031

 
(190,542
)
Earnings from discontinued operations, net of tax
—

 
—

 
—

 
—

 
—

Net (loss) earnings
(194,775
)
 
(184,292
)
 
19,494

 
169,031

 
(190,542
)
Net earnings attributable to noncontrolling interests
—

 
—

 
(4,233
)
 
—

 
(4,233
)
Net (loss) earnings attributable to IAC shareholders
$
(194,775
)
 
$
(184,292
)
 
$
15,261

 
$
169,031

 
$
(194,775
)
Comprehensive (loss) income attributable to IAC shareholders
$
(201,218
)
 
$
(171,896
)
 
$
8,957

 
$
162,939

 
$
(201,218
)

37
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of operations for the three months ended June 30, 2015:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Revenue
$
—

 
$
397,941

 
$
376,079

 
$
(2,888
)
 
$
771,132

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
294

 
81,348

 
96,514

 
(193
)
 
177,963

Selling and marketing expense
1,010

 
204,791

 
121,611

 
(2,702
)
 
324,710

General and administrative expense
33,942

 
39,149

 
56,251

 
7

 
129,349

Product development expense
2,330

 
20,974

 
23,126

 
—

 
46,430

Depreciation
426

 
6,755

 
8,319

 
—

 
15,500

Amortization of intangibles
—

 
4,182

 
10,229

 
—

 
14,411

Total operating costs and expenses
38,002

 
357,199

 
316,050

 
(2,888
)
 
708,363

Operating (loss) income
(38,002
)
 
40,742

 
60,029

 
—

 
62,769

Equity in earnings of unconsolidated affiliates
75,197

 
14,415

 
—

 
(89,612
)
 
—

Interest expense
(12,992
)
 
(2,160
)
 
(62
)
 
—

 
(15,214
)
Other (expense) income, net
(7,506
)
 
16,177

 
(10,309
)
 
—

 
(1,638
)
Earnings from continuing operations before income taxes
16,697

 
69,174

 
49,658

 
(89,612
)
 
45,917

Income tax benefit (provision)
42,761

 
(21,597
)
 
(9,196
)
 
—

 
11,968

Earnings from continuing operations
59,458

 
47,577

 
40,462

 
(89,612
)
 
57,885

(Loss) earnings from discontinued operations, net of tax
(153
)
 
—

 
3

 
(3
)
 
(153
)
Net earnings
59,305

 
47,577

 
40,465

 
(89,615
)
 
57,732

Net loss attributable to noncontrolling interests
—

 
—

 
1,573

 
—

 
1,573

Net earnings attributable to IAC shareholders
$
59,305

 
$
47,577

 
$
42,038

 
$
(89,615
)
 
$
59,305

Comprehensive income attributable to IAC shareholders
$
72,283

 
$
48,886

 
$
51,085

 
$
(99,971
)
 
$
72,283


38
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of operations for the six months ended June 30, 2016:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Revenue
$
—

 
$
707,479

 
$
863,902

 
$
(6,763
)
 
$
1,564,618

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
592

 
142,191

 
222,591

 
(1,243
)
 
364,131

Selling and marketing expense
1,760

 
371,606

 
310,036

 
(5,536
)
 
677,866

General and administrative expense
43,833

 
83,714

 
160,814

 
16

 
288,377

Product development expense
3,118

 
44,516

 
58,107

 
—

 
105,741

Depreciation
852

 
14,188

 
18,330

 
—

 
33,370

Amortization of intangibles
—

 
29,083

 
21,712

 
—

 
50,795

Goodwill impairment
—

 
253,245

 
22,122

 
—

 
275,367

Total operating costs and expenses
50,155

 
938,543

 
813,712

 
(6,763
)
 
1,795,647

Operating (loss) income
(50,155
)
 
(231,064
)
 
50,190

 
—

 
(231,029
)
Equity in losses of unconsolidated affiliates
(116,667
)
 
(10,961
)
 
—

 
127,628

 
—

Interest expense
(14,414
)
 
—

 
(41,090
)
 
—

 
(55,504
)
Other (expense) income, net
(28,972
)
 
5,978

 
31,699

 
—

 
8,705

(Loss) earnings from continuing operations before income taxes
(210,208
)
 
(236,047
)
 
40,799

 
127,628

 
(277,828
)
Income tax benefit (provision)
23,715

 
80,177

 
(8,672
)
 
—

 
95,220

(Loss) earnings from continuing operations
(186,493
)
 
(155,870
)
 
32,127

 
127,628

 
(182,608
)
Earnings from discontinued operations, net of tax
—

 
—

 
—

 
—

 
—

Net (loss) earnings
(186,493
)
 
(155,870
)
 
32,127

 
127,628

 
(182,608
)
Net earnings attributable to noncontrolling interests
—

 
—

 
(3,885
)
 
—

 
(3,885
)
Net (loss) earnings attributable to IAC shareholders
$
(186,493
)
 
$
(155,870
)
 
$
28,242

 
$
127,628

 
$
(186,493
)
Comprehensive (loss) income attributable to IAC shareholders
$
(172,928
)
 
$
(136,977
)
 
$
37,659

 
$
99,318

 
$
(172,928
)

39
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of operations for the six months ended June 30, 2015:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
IAC Consolidated
 
(In thousands)
Revenue
$
—

 
$
812,355

 
$
736,508

 
$
(5,219
)
 
$
1,543,644

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
539

 
166,787

 
197,814

 
(440
)
 
364,700

Selling and marketing expense
2,065

 
418,156

 
271,764

 
(4,793
)
 
687,192

General and administrative expense
58,006

 
74,083

 
112,040

 
14

 
244,143

Product development expense
4,507

 
41,572

 
45,608

 
—

 
91,687

Depreciation
827

 
13,380

 
16,861

 
—

 
31,068

Amortization of intangibles
—

 
8,363

 
18,603

 
—

 
26,966

Total operating costs and expenses
65,944

 
722,341

 
662,690

 
(5,219
)
 
1,445,756

Operating (loss) income
(65,944
)
 
90,014

 
73,818

 
—

 
97,888

Equity in earnings of unconsolidated affiliates
137,931

 
2,868

 
—

 
(140,799
)
 
—

Interest expense
(25,982
)
 
(3,198
)
 
(98
)
 
—

 
(29,278
)
Other (expense) income, net
(16,859
)
 
25,633

 
(3,424
)
 
—

 
5,350

Earnings from continuing operations before income taxes
29,146

 
115,317

 
70,296

 
(140,799
)
 
73,960

Income tax benefit (provision)
56,592

 
(44,375
)
 
(6,429
)
 
—

 
5,788

Earnings from continuing operations
85,738

 
70,942

 
63,867

 
(140,799
)
 
79,748

(Loss) earnings from discontinued operations, net of tax
(28
)
 
—

 
3

 
(3
)
 
(28
)
Net earnings
85,710

 
70,942

 
63,870

 
(140,802
)
 
79,720

Net loss attributable to noncontrolling interests
—

 
—

 
5,990

 
—

 
5,990

Net earnings attributable to IAC shareholders
$
85,710

 
$
70,942

 
$
69,860

 
$
(140,802
)
 
$
85,710

Comprehensive income attributable to IAC shareholders
$
43,115

 
$
66,457

 
$
22,172

 
$
(88,629
)
 
$
43,115


40
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of cash flows for the six months ended June 30, 2016:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
IAC Consolidated
 
(In thousands)
Net cash (used in) provided by operating activities attributable to continuing operations
$
(83,685
)
 
$
76,888

 
$
72,726

 
$
65,929

Cash flows from investing activities attributable to continuing operations:
 
 
 
 
 
 
 
Acquisitions, net of cash acquired
—

 
—

 
(2,524
)
 
(2,524
)
Capital expenditures
(299
)
 
(11,256
)
 
(23,578
)
 
(35,133
)
Purchase of time deposits
—

 
—

 
(87,500
)
 
(87,500
)
Proceeds from maturities of time deposits
—

 
—

 
87,500

 
87,500

 Proceeds from maturities and sales of marketable debt securities
32,500

 
—

 
—

 
32,500

Purchases of marketable debt securities
(79,366
)
 
—

 
—

 
(79,366
)
Purchases of investments
—

 
—

 
(5,056
)
 
(5,056
)
Net proceeds from the sale of businesses and investments
10,000

 
—

 
93,735

 
103,735

Other, net
—

 
158

 
4,657

 
4,815

Net cash (used in) provided by investing activities attributable to continuing operations
(37,165
)
 
(11,098
)
 
67,234

 
18,971

Cash flows from financing activities attributable to continuing operations:
 
 
 
 
 
 
 
Purchase of treasury stock
(214,635
)
 
—

 
—

 
(214,635
)
Proceeds from Match Group 2016 Senior Notes offering
—

 
—

 
400,000

 
400,000

Principal payments on Match Group Term Loan
—

 
—

 
(410,000
)
 
(410,000
)
Debt issuance costs
—

 
—

 
(4,621
)
 
(4,621
)
Repurchase of Senior Notes
(61,110
)
 
—

 
—

 
(61,110
)
Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes
(13,097
)
 
—

 
—

 
(13,097
)
Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes
—

 
—

 
2,176

 
2,176

Excess tax benefits from stock-based awards
16,651

 
—

 
5,220

 
21,871

Purchase of noncontrolling interests
(1,400
)
 
—

 
(1,011
)
 
(2,411
)
Acquisition-related contingent consideration payments
—

 
(321
)
 
(1,829
)
 
(2,150
)
Increase in restricted cash related to bond redemptions
(30,002
)
 
—

 
—

 
(30,002
)
Intercompany
31,974

 
(65,469
)
 
33,495

 
—

Other, net
275

 
—

 
(763
)
 
(488
)
Net cash (used in) provided by financing activities attributable to continuing operations
(271,344
)
 
(65,790
)
 
22,667

 
(314,467
)
Total cash (used in) provided by continuing operations
(392,194
)
 
—

 
162,627

 
(229,567
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(5,896
)
 
(5,896
)
Net (decrease) increase in cash and cash equivalents
(392,194
)
 
—

 
156,731

 
(235,463
)
Cash and cash equivalents at beginning of period
1,073,053

 
—

 
408,394

 
1,481,447

Cash and cash equivalents at end of period
$
680,859

 
$
—

 
$
565,125

 
$
1,245,984


41
Table of Contents
IAC/INTERACTIVECORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Statement of cash flows for the six months ended June 30, 2015:
 
IAC
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
IAC Consolidated
 
(In thousands)
Net cash (used in) provided by operating activities attributable to continuing operations
$
(107,149
)
 
$
129,741

 
$
63,187

 
$
85,779

Cash flows from investing activities attributable to continuing operations:
 
 
 
 
 
 
 
Acquisitions, net of cash acquired
—

 
(2,574
)
 
(40,712
)
 
(43,286
)
Capital expenditures
(988
)
 
(11,533
)
 
(14,295
)
 
(26,816
)
Proceeds from maturities and sales of marketable debt securities
14,613

 
—

 
—

 
14,613

Purchases of marketable debt securities
(93,134
)
 
—

 
—

 
(93,134
)
Purchases of investments
—

 
—

 
(12,840
)
 
(12,840
)
Net proceeds from the sale of businesses and investments
—

 
—

 
6,203

 
6,203

Other, net
3,613

 
48

 
(1,265
)
 
2,396

Net cash used in investing activities attributable to continuing operations
(75,896
)
 
(14,059
)
 
(62,909
)
 
(152,864
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
 
 
 
 
Purchase of treasury stock
(200,000
)
 
—

 
—

 
(200,000
)
Dividends
(56,729
)
 
—

 
—

 
(56,729
)
Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes
(20,656
)
 
—

 
—

 
(20,656
)
Excess tax benefits from stock-based awards
19,064

 
—

 
17,401

 
36,465

Purchase of noncontrolling interests
—

 
—

 
(15,338
)
 
(15,338
)
Acquisition-related contingent consideration payments
—

 
(195
)
 
(5,510
)
 
(5,705
)
Intercompany
107,529

 
(115,487
)
 
7,958

 
—

Other, net
166

 
—

 
264

 
430

Net cash (used in) provided by financing activities attributable to continuing operations
(150,626
)
 
(115,682
)
 
4,775

 
(261,533
)
Total cash (used in) provided by continuing operations
(333,671
)
 
—

 
5,053

 
(328,618
)
Total cash (used in) provided by discontinued operations
(246
)
 
—

 
3

 
(243
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(5,135
)
 
(5,135
)
Net decrease in cash and cash equivalents
(333,917
)
 
—

 
(79
)
 
(333,996
)
Cash and cash equivalents at beginning of period
762,231

 
—

 
228,174

 
990,405

Cash and cash equivalents at end of period
$
428,314

 
$
—

 
$
228,095

 
$
656,409



42
Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:
•
Reportable Segments
◦
Match Group - consists of Dating, which includes all Dating businesses globally, and Non-dating, which consists of The Princeton Review.
◦
HomeAdvisor - is a leading nationwide home services digital marketplace that helps connect consumers with home professionals.
◦
Publishing - consists of Premium Brands, which includes About.com, Dictionary.com, Investopedia and The Daily Beast; and Ask & Other, which includes Ask.com, CityGrid and ASKfm. ASKfm was sold on June 30, 2016.
◦
Applications - consists of Consumer, which includes our direct-to-consumer downloadable desktop applications, including SlimWare, and Apalon, which houses our mobile operations; and Partnerships, which includes our business-to-business partnership operations.
◦
Video - consists primarily of Vimeo and Daily Burn, as well as Electus, IAC Films, CollegeHumor and Notional.
◦
Other - consists of ShoeBuy and PriceRunner. PriceRunner was sold on March 18, 2016.
•
Dating North America - consists of the financial results of the Dating businesses for customers located in the United States and Canada.
•
Dating International - consists of the financial results of the Dating businesses for customers located outside of the United States and Canada.
•
Direct Revenue - is revenue that is directly received by Match Group from an end user of its products.
•
Average PMC - is calculated by summing the number of paid subscribers, or paid member count ("PMC"), at the end of each day in the relevant measurement period and dividing it by the number of calendar days in that period.
•
Average Revenue per Paying User ("ARPPU") - is Direct Revenue in the relevant measurement period divided by the Average PMC in such period divided by the number of calendar days in such period.
•
Service Requests - are fully completed and submitted customer service requests on HomeAdvisor.
•
Paying Service Professionals ("Paying SPs") - are the number of service professionals that had an active membership or paid for leads in the last month of the period.
•
Cost of revenue - consists primarily of traffic acquisition costs and includes payments made to partners who distribute our Partnerships customized browser-based applications, integrate our paid listings into their websites and fees related to the distribution and the facilitation of in-app purchase of product features. These payments include amounts based on revenue share and other arrangements. Cost of revenue also includes ShoeBuy's cost of products sold and shipping and handling costs, production costs related to media produced by Electus and other businesses within our Video segment, expenses associated with the operation of the Company's data centers, including compensation (including stock-based compensation) and other employee-related costs, hosting fees, credit card processing fees and content acquisition costs and rent.

43



•
Selling and marketing expense - consists primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in selling and marketing, sales support and customer service functions. Advertising expenditures include online marketing, including fees paid to search engines and third parties that distribute our Consumer downloadable desktop applications, offline marketing, which is primarily television advertising and partner-related payments to those who direct traffic to the Match Group brands.
•
General and administrative expense - consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources, fees for professional services and facilities costs.
•
Product development expense - consists primarily of compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.
•
2012 Senior Notes - IAC's 4.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15, which commenced June 15, 2013; a portion of which were exchanged for the 2015 Match Group Senior Notes on November 16, 2015.
•
2013 Senior Notes - IAC's 4.875% Senior Notes due November 30, 2018, with interest payable each May 30 and November 30, which commenced May 30, 2014.
•
Match Exchange Offer - Match Group exchanged $445 million of 2015 Match Group Senior Notes for a substantially like amount of 2012 Senior Notes on November 16, 2015.
•
2015 Match Group Senior Notes - Match Group's 6.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15; which were issued in exchange for 2012 Senior Notes on November 16, 2015.
•
Match Group Term Loan - an $800 million, seven-year term loan received by Match Group on November 16, 2015. On March 31, 2016, a $10 million principal payment was made. On June 1, 2016, Match Group issued $400 million of 6.375% Senior Notes (described below). The proceeds from the offering were used to repay a portion of the $790 million of indebtedness outstanding under the Match Group Term Loan. At June 30, 2016, a balance of $390 million is outstanding.
•
2016 Match Group Senior Notes - Match Group's 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1, commencing on December 1, 2016.
Management Overview
IAC is a leading media and Internet company comprised of some of the world's most recognized brands and products, such as HomeAdvisor, Vimeo, About.com, Dictionary.com, The Daily Beast, Investopedia, and Match Group's online dating portfolio, which includes Match, OkCupid, Tinder and PlentyOfFish.
For a more detailed description of the Company's operating businesses, see the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
Substantially all of the revenue from our Publishing and Applications segment is derived from online advertising. Most of the Company's online advertising revenue is attributable to our services agreement with Google Inc. ("Google"). The Company's service agreement became effective on April 1, 2016, following the expiration of the previous services agreement. This services agreement expires on March 31, 2020; the Company may choose to terminate the agreement effective March 31, 2019. This services agreement requires that we comply with certain guidelines promulgated by Google. Google may generally unilaterally update its own 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, 2016, revenue earned from Google was $181.5 million and $466.2 million, respectively. For the three and six months ended June 30, 2015, revenue earned from Google was $308.2 million and $647.8 million, respectively. This revenue is earned by the businesses comprising the Publishing and Applications segments. For the three and six months ended June 30, 2016, revenue earned from Google represents 69% and 78% of Publishing revenue and 85% and 88% of Applications revenue,

44



respectively. For the three and six months ended June 30, 2015, revenue earned from Google represents 82% and 83% of Publishing revenue and 94% and 94% of Applications revenue, respectively.
Recent Developments
On July 29, 2016, the Company purchased $50.0 million of the 2013 Senior Notes.
On June 30, 2016, ASKfm, which was part of the Publishing segment, was sold resulting in a pre-tax loss of $3.7 million.
On June 1, 2016, Match Group issued $400 million aggregate principal amount of 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1, which commences on December 1, 2016. The proceeds were used to repay a portion of the Match Group Term Loan.
During the first six months of 2016, the Company purchased $55.0 million of its 2013 Senior Notes and $6.1 million of its 2012 Senior Notes.
During the first six months of 2016, the Company repurchased 4.7 million shares of common stock at an average price of $45.34 per share.
On March 18, 2016, PriceRunner, which was part of the Other segment, was sold for $98.0 million resulting in a pre-tax gain of $12.0 million.
Second Quarter and Year to Date June 2016 Consolidated Results
For the three months ended June 30, 2016, the Company's revenue declined 3% and operating income declined $315.2 million to a loss of $252.4 million; however, the Company delivered 3% Adjusted EBITDA growth. Revenue declined primarily due to decreases from the Publishing and Applications segments, partially offset by growth at the Match Group, HomeAdvisor and Video segments. The operating income decline, despite higher Adjusted EBITDA, was due primarily to a goodwill impairment charge of $275.4 million at Publishing, an increase of $22.6 million in amortization of intangibles and expense in the current year period of $6.8 million from acquisition-related contingent consideration fair value adjustments compared to income of $10.0 million in the prior year period. The Adjusted EBITDA increase was primarily driven by strong growth from the Match Group, HomeAdvisor and Video segments; partially offset by the declines from the Publishing and Applications segments.
For the six months ended June 30, 2016, revenue increased 1%, operating income declined $328.9 million to a loss of $231.0 million and Adjusted EBITDA grew 8%. The revenue increase was due primarily to the growth at the Match Group, HomeAdvisor and Video segments, partially offset by the declines from the Applications and Publishing segments. The operating income decline and the Adjusted EBITDA increase were due primarily to the factors described above in the three-month discussion. Operating loss was further impacted by an increase of $14.1 million in stock-based compensation expense ($12.3 million at Match Group and $2.1 million at Corporate).

45



Results of Operations for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015
Revenue
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Match Group
$
301,119

 
$
52,302

 
21
 %
 
$
248,817

 
$
586,402

 
$
102,516

 
21
 %
 
$
483,886

HomeAdvisor
130,173

 
36,023

 
38
 %
 
94,150

 
241,662

 
71,668

 
42
 %
 
169,994

Publishing
85,291

 
(69,156
)
 
(45
)%
 
154,447

 
251,293

 
(82,179
)
 
(25
)%
 
333,472

Applications
143,157

 
(47,644
)
 
(25
)%
 
190,801

 
302,953

 
(85,315
)
 
(22
)%
 
388,268

Video
47,311

 
6,591

 
16
 %
 
40,720

 
102,406

 
15,214

 
17
 %
 
87,192

Other
38,484

 
(3,834
)
 
(9
)%
 
42,318

 
80,116

 
(1,055
)
 
(1
)%
 
81,171

Inter-segment eliminations
(96
)
 
25

 
20
 %
 
(121
)
 
(214
)
 
125

 
37
 %
 
(339
)
Total
$
745,439

 
$
(25,693
)
 
(3
)%
 
$
771,132

 
$
1,564,618

 
$
20,974

 
1
 %
 
$
1,543,644

For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
Match Group revenue increased 21% driven by a 23% increase in Dating revenue attributable to 23% higher Direct revenue. Direct revenue growth was primarily driven by higher Average PMC at both North America and International, up 23% and 46%, respectively, due mainly to strong contributions from Tinder and PlentyOfFish, which was acquired on October 28, 2015. This revenue growth was partially offset by 5% lower ARPPU due to the continued mix shift towards lower ARPPU brands including Tinder and PlentyOfFish, both of which have lower price points compared to Match Group's more established brands. Non-dating revenue remained flat year-over-year.
HomeAdvisor revenue increased 38% due primarily to 44% growth at the HomeAdvisor domestic business and 16% growth at the HomeAdvisor International business. HomeAdvisor domestic revenue growth was driven by a 54% increase in Paying SPs and a 32% increase in service requests.
Publishing revenue decreased 45% due to 62% lower Ask & Other revenue and 25% lower Premium Brands revenue. Ask & Other revenue decreased due to a decline in revenue at Ask.com primarily as a result of the new Google contract, which became effective April 1, 2016, as well as declines from certain other legacy businesses. Premium Brands revenue decreased due primarily to declines in search traffic at About.com, mainly attributable to the new Google contract, partially offset by strong growth at Investopedia and The Daily Beast.
Applications revenue decreased 25% due to a 43% decline in Partnerships and a 17% decline in Consumer. Partnerships revenue decreased due primarily to the loss of certain partners. The Consumer decline was driven by lower search revenue from our downloadable desktop applications due primarily to lower revenue per query, partially offset by strong growth at Apalon and SlimWare.
Video revenue increased 16% due primarily to strong growth at Electus, Vimeo and Daily Burn, partially offset by $4.0 million lower revenue from IAC Films as the prior year benefited from the release of the movie While We're Young.
Other revenue decreased 9% due to the sale of PriceRunner, which was sold on March 18, 2016, partially offset by growth at ShoeBuy.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
Match Group revenue increased 21% driven by a 24% increase in Dating revenue attributable to 23% higher Direct revenue. Direct revenue growth was primarily driven by higher Average PMC at both North America and International, up 24% and 51%, respectively, partially offset by 8% lower ARPPU, all of which were driven by the factors described above in the three-month discussion. Non-dating revenue remained flat year-over-year.

46



HomeAdvisor revenue increased 42% due primarily to 51% growth at the HomeAdvisor domestic business and 14% growth at the HomeAdvisor International business. HomeAdvisor domestic revenue growth was driven by an increase in Paying SPs and service requests.
Publishing revenue decreased 25% due to 37% lower Ask & Other revenue and 10% lower Premium Brands revenue. Both Ask & Other revenue and Premium Brands revenue decreased due to the factors described above in the three-month discussion.
Applications revenue decreased 22% due to a 39% decline in Partnerships and a 14% decline in Consumer. Both Partnerships revenue and Consumer revenue decreased due to the factors described above in the three-month discussion.
Video revenue increased 17% and Other revenue decreased 1% due primarily to the factors described above in the three-month discussion.
Cost of revenue
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Cost of revenue (exclusive of depreciation shown separately below)
$170,397
 
$(7,566)
 
(4)%
 
$177,963
As a percentage of revenue
23%
 
 
 
 
 
23%
Cost of revenue in 2016 decreased from 2015 due to decreases of $15.6 million from Applications and $10.0 million from Publishing, partially offset by increases of $12.0 million from Match Group and $3.3 million from Video.
•
The Applications decrease was due primarily to a reduction of $15.0 million in traffic acquisition costs driven by a decline in revenue at Partnerships.
•
The Publishing decrease was due primarily to a reduction of $8.1 million in traffic acquisition costs driven by a decline in revenue at Ask.com and certain legacy businesses.
•
The Match Group increase was due primarily to a significant increase in in-app purchase fees across multiple brands, including Tinder, and the acquisitions of PlentyOfFish (acquired October 2015) and Eureka (acquired April 2015).
•
The Video increase was due primarily to a net increase in production costs at our media and video businesses and an increase in hosting fees related to Vimeo's subscription growth and expanded On Demand catalog.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Cost of revenue (exclusive of depreciation shown separately below)
$364,131
 
$(569)
 
—%
 
$364,700
As a percentage of revenue
23%
 
 
 
 
 
24%
Cost of revenue in 2016 decreased from 2015 due to decreases of $32.6 million from Applications and $10.3 million from Publishing, partially offset by increases of $26.7 million from Match Group, $9.6 million from Video and $3.9 million from Other.
•
The Applications and Publishing decreases and the Match Group and Video increases were due primarily to the factors described above in the three-month discussion.
•
The Match Group increase was further impacted by higher hosting fees driven by growth in users and product features.

47



•
The Other increase was due primarily to an increase in cost of products sold at ShoeBuy resulting from increased sales, partially offset by the sale of PriceRunner.
Selling and marketing expense
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Selling and marketing expense
$295,525
 
$(29,185)
 
(9)%
 
$324,710
As a percentage of revenue
40%
 
 
 
 
 
42%
Selling and marketing expense in 2016 decreased from 2015 due to decreases of $28.3 million from Publishing, $11.7 million from Applications and $6.1 million from Video, partially offset by an increase of $19.1 million from HomeAdvisor.
•
The Publishing decrease was due primarily to a reduction of $31.8 million in online marketing, resulting from a decline in revenue, partially offset by $1.9 million in restructuring costs in the current year period.
•
The Applications decrease was due primarily to a decline of $11.6 million in online marketing, principally related to lower anticipated search revenue from our downloadable desktop applications at Consumer.
•
The Video decrease was due primarily to a reduction of $5.4 million in online marketing driven primarily by Vimeo.
•
The HomeAdvisor increase was due primarily to higher online and offline marketing of $10.6 million and $8.2 million in compensation due, in part, to an increase in the sales force at HomeAdvisor domestic.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Selling and marketing expense
$677,866
 
$(9,326)
 
(1)%
 
$687,192
As a percentage of revenue
43%
 
 
 
 
 
45%
Selling and marketing expense in 2016 decreased from 2015 due to decreases of $26.8 million from Publishing, $17.7 million from Applications and $6.1 million from Video, partially offset by an increase of $42.4 million from HomeAdvisor.
•
The Publishing, Applications and Video decreases and the HomeAdvisor increase were due primarily to the factors described above in the three-month discussion.
General and administrative expense
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
General and administrative expense
$152,135
 
$22,786
 
18%
 
$129,349
As a percentage of revenue
20%
 
 
 
 
 
17%
General and administrative expense in 2016 increased from 2015 due to increases of $15.2 million from Applications, $5.3 million from HomeAdvisor and $3.7 million from Video, partially offset by a decrease of $3.0 million from Publishing.

48



•
The Applications increase was due primarily to expense of $7.6 million included in the current year period related to the amount of contingent consideration expected to be paid in connection with an acquisition, which is now exceeding our previous expectations, versus income of $6.3 million in the prior year period. General and administrative expense was further impacted by $2.0 million in restructuring costs in the current year period.
•
The HomeAdvisor increase was due primarily to higher compensation due, in part, to increased headcount and an increase in bad debt expense.
•
The Video increase was due primarily to income of $2.4 million in the prior year period related to acquisition-related contingent consideration fair value adjustments and an increase in compensation at Vimeo due, in part, to increased headcount.
•
The Publishing decrease was due primarily to a reduction in bad debt expense.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
General and administrative expense
$288,377
 
$44,234
 
18%
 
$244,143
As a percentage of revenue
18%
 
 
 
 
 
16%
General and administrative expense in 2016 increased from 2015 due to increases of $23.3 million from Match Group, $11.5 million from Applications, $10.4 million from HomeAdvisor and $3.0 million from Video, partially offset by a decrease of $4.6 million from Publishing.
•
The Match Group increase was due primarily to a change in acquisition-related contingent consideration fair value adjustments and a $6.9 million increase in stock-based compensation expense due to the issuance of new equity awards since the prior year. The change in the acquisition-related contingent consideration fair value adjustments was due to expense of $2.4 million in the amount of contingent consideration expected to be paid in connection with the Eureka acquisition, compared to income of $12.2 million in the amount of contingent consideration expected to be paid in connection with the acquisition of Twoo, which was included in the prior year.
•
The Applications, HomeAdvisor and Video increases and the Publishing decrease were due primarily to the factors described above in the three-month discussion.
Product development expense
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Product development expense
$49,911
 
$3,481
 
7%
 
$46,430
As a percentage of revenue
7%
 
 
 
 
 
6%
Product development expense in 2016 increased from 2015 due to an increase of $3.5 million from Match Group.
•
The Match Group increase was primarily related to an increase of $1.6 million in stock-based compensation expense, investment in headcount at Tinder, and from the acquisitions of PlentyOfFish and Eureka in 2015.

49



For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Product development expense
$105,741
 
$14,054
 
15%
 
$91,687
As a percentage of revenue
7%
 
 
 
 
 
6%
Product development expense in 2016 increased from 2015 due to increases of $9.9 million from Match Group and $3.8 million from Publishing.
•
The Match Group increase was due primarily to the factors described above in the three-month discussion. Stock based compensation was impacted by the issuance of new equity awards since the prior year and the modification of certain equity awards.
•
The Publishing increase was due primarily to an increase in compensation due, in part, to restructuring costs in the current year period.
Depreciation
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Depreciation
$17,575
 
$2,075
 
13%
 
$15,500
As a percentage of revenue
2%
 
 
 
 
 
2%
Depreciation in 2016 increased from 2015 due primarily to acquisitions and incremental depreciation associated with capital expenditures, partially offset by certain fixed assets becoming fully depreciated.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Depreciation
$33,370
 
$2,302
 
7%
 
$31,068
As a percentage of revenue
2%
 
 
 
 
 
2%
Depreciation in 2016 increased from 2015 due primarily to the factors described above in the three-month discussion.

50



Operating income (loss)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Match Group
$
73,668

 
$
33,146

 
82%
 
$
40,522

 
$
102,856

 
$
35,294

 
52%
 
$
67,562

HomeAdvisor
11,910

 
10,321

 
650%
 
1,589

 
13,824

 
16,232

 
NM
 
(2,408
)
Publishing
(316,934
)
 
(327,094
)
 
NM
 
10,160

 
(310,158
)
 
(339,694
)
 
NM
 
29,536

Applications
18,921

 
(33,710
)
 
(64)%
 
52,631

 
46,599

 
(44,938
)
 
(49)%
 
91,537

Video
(5,039
)
 
5,418

 
52%
 
(10,457
)
 
(22,524
)
 
8,402

 
27%
 
(30,926
)
Other
(1,686
)
 
(1,287
)
 
(323)%
 
(399
)
 
(1,788
)
 
(848
)
 
(90)%
 
(940
)
Corporate
(33,286
)
 
(2,009
)
 
(6)%
 
(31,277
)
 
(59,838
)
 
(3,365
)
 
(6)%
 
(56,473
)
Total
$
(252,446
)
 
$
(315,215
)
 
NM
 
$
62,769

 
$
(231,029
)
 
$
(328,917
)
 
NM
 
$
97,888

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As a percentage of revenue
NM
 
 
 
 
 
8%
 
NM
 
 
 
 
 
6%
________________________
NM = not meaningful
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
Operating income in 2016 decreased to a loss from 2015 despite an increase of $3.4 million in Adjusted EBITDA described below, due primarily to a goodwill impairment charge of $275.4 million at Publishing and increases of $22.6 million in amortization of intangibles and $16.8 million in changes from acquisition-related contingent consideration fair value adjustments. The goodwill impairment charge at Publishing was driven by the impact from the new Google contract, traffic trends and monetization challenges and the corresponding impact on the current estimate of fair value. The goodwill impairment charge is a preliminary estimate that will be finalized in third quarter of 2016. The increase in amortization of intangibles was due primarily to the change in classification of a Publishing trade name from an indefinite-lived intangible asset to a definite-lived intangible asset, effective April 1, 2016, and an impairment charge of $11.6 million related to certain Publishing indefinite-lived trade names. The change in acquisition-related contingent consideration fair value adjustments was primarily the result of expense in the current year period of $7.6 million in the amount of contingent consideration expected to be paid in connection with an acquisition in the Applications segment, which is now exceeding our previous expectations, versus income of $6.3 million in the prior year period. The change in acquisition-related contingent consideration fair value adjustments resulted from an update of the future forecast of earnings and operating metrics.
See Note 4 to the consolidated financial statements for a detailed description of the Publishing goodwill and indefinite-lived intangible asset impairments.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
Operating income in 2016 decreased to a loss from 2015 despite an increase of $14.1 million in Adjusted EBITDA described below, due primarily to a goodwill impairment charge of $275.4 million at Publishing, increases of $23.8 million in amortization of intangibles, $14.1 million in stock-based compensation expense and $27.4 million in changes from acquisition-related contingent consideration fair value adjustments. The goodwill impairment charge, increase in amortization of intangibles and changes in acquisition-related contingent consideration fair value adjustments are driven by the factors described above in the three-month discussion. The increase in stock-based compensation expense was due primarily to the issuance of equity awards since the prior year and charges associated with the modification of certain equity awards in the current year period.
At June 30, 2016, there was $207.9 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.7 years.

51



Adjusted EBITDA
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Match Group
$
100,120

 
$
36,672

 
58%
 
$
63,448

 
$
164,706

 
$
68,008

 
70%
 
$
96,698

HomeAdvisor
15,016

 
10,316

 
219%
 
4,700

 
19,982

 
16,118

 
417%
 
3,864

Publishing
(11,845
)
 
(29,182
)
 
NM
 
17,337

 
(431
)
 
(44,421
)
 
NM
 
43,990

Applications
29,082

 
(20,013
)
 
(41)%
 
49,095

 
60,140

 
(34,504
)
 
(36)%
 
94,644

Video
(3,975
)
 
8,160

 
67%
 
(12,135
)
 
(20,876
)
 
10,965

 
34%
 
(31,841
)
Other
(944
)
 
(1,822
)
 
NM
 
878

 
115

 
(1,485
)
 
(93)%
 
1,600

Corporate
(15,418
)
 
(774
)
 
(5)%
 
(14,644
)
 
(25,714
)
 
(595
)
 
(2)%
 
(25,119
)
Total
$
112,036

 
$
3,357

 
3%
 
$
108,679

 
$
197,922

 
$
14,086

 
8%
 
$
183,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As a percentage of revenue
15%
 
 
 
 
 
14%
 
13%
 
 
 
 
 
12%
See Note 10 to the consolidated financial statements for reconciliations of operating income (loss) by reportable segment and net earnings attributable to IAC's shareholders to Adjusted EBITDA.
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
Match Group Adjusted EBITDA increased 58% due primarily to higher revenue, reduced selling and marketing expense as a percentage of revenue as the revenue mix continues to shift towards brands with lower marketing spend, $7.5 million of lower costs in the current year period related to the consolidation and streamlining of technology systems and European operations at our Dating businesses ($1.4 million in 2016 as compared to $9.0 million in 2015) and reduced losses from Non-dating.
HomeAdvisor Adjusted EBITDA increased 219% due primarily to higher revenue, partially offset by an increase in selling and marketing expense due to continued investment.
Publishing Adjusted EBITDA decreased to a loss of $11.8 million in the current year period due primarily to lower revenue and $4.5 million in restructuring costs.
Applications Adjusted EBITDA decreased 41% due primarily to lower revenue and $1.9 million in restructuring costs, partially offset by decreases in cost of revenue and selling and marketing expense.
Video Adjusted EBITDA loss improved 67% due primarily to reduced losses at Electus and Vimeo and a swing to profits at Daily Burn versus a loss in the prior year period.
Other Adjusted EBITDA declined $1.8 million to a loss in the current year period due primarily to lower revenue which resulted from the sale of PriceRunner.
Corporate Adjusted EBITDA loss increased 5% due to an increase in professional fees.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
Match Group Adjusted EBITDA increased 70% due primarily to the factors described above in the three-month discussion.
HomeAdvisor Adjusted EBITDA increased 417% due primarily to the factors described above in the three-month discussion. Adjusted EBITDA was further impacted by higher compensation due, in part, to increased headcount and an increase in bad debt expense.

52



Publishing Adjusted EBITDA declined to a loss in the current year period due primarily to lower revenue, partially offset by decreases in selling and marketing expense, cost of revenue and general and administrative expense. Adjusted EBITDA was further impacted by $5.9 million in restructuring costs.
Applications Adjusted EBITDA decreased 36% due primarily to lower revenue, partially offset by decreases in cost of revenue and selling and marketing expense. Adjusted EBITDA was further impacted by $2.6 million in restructuring costs.
Video Adjusted EBITDA loss improved 34% due primarily to reduced losses at Electus, Vimeo and Daily Burn and a profit at IAC Films in the current year period.
Other Adjusted EBITDA decreased 93% due to the sale of PriceRunner in the first quarter of the current year, partially offset by Adjusted EBITDA improvement at ShoeBuy.
Corporate Adjusted EBITDA loss increased 2% due to the factor described above in the three-month discussion.
Interest expense
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Interest expense
$(27,644)
 
$12,430
 
82%
 
$(15,214)
Interest expense in 2016 increased from 2015 due to the borrowings under the Match Group Term Loan as well as the 2% higher interest rate associated with the exchange of $445 million of 2015 Match Group Senior Notes for a substantially like amount of 2012 Senior Notes and interest on the 2016 Match Group Senior Notes issued June 1, 2016.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Interest expense
$(55,504)
 
$26,226
 
90%
 
$(29,278)
Interest expense in 2016 increased from 2015 due primarily to the factors described above in the three-month discussion.
Other (expense) income, net
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Other expense, net
$(7,192)
 
$(5,554)
 
(339)%
 
$(1,638)
Other expense, net in 2016 includes a non-cash charge of $11.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs associated with the prepayment of $400 million of the Match Group Term Loan and a pre-tax loss of $3.7 million related to the sale of ASKfm, partially offset by $8.6 million in net foreign currency exchange gains.
Other expense, net in 2015 includes $1.3 million in net foreign currency exchange losses.

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For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Other income, net
$8,705
 
$3,355
 
63%
 
$5,350
Other income, net in 2016 includes $13.1 million in net foreign currency exchange gains, a $12.0 million pre-tax gain related to the sale of PriceRunner and a $3.1 million pre-tax gain related to the sale of a marketable equity security, partially offset by a non-cash charge of $11.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs as described above in the three-month discussion, a pre-tax loss of $3.7 million related to the sale of ASKfm, a $3.4 million mark-to-market adjustment pertaining to subsidiary denominated equity awards issued to non-employees, a $3.1 million loss on the 2012 and 2013 Senior Note redemptions and $2.7 million in other-than-temporary impairment charges related to certain cost method investments as a result of our assessment of the near-term prospects and financial condition of the investees.
Other income, net in 2015 includes $4.5 million in net foreign currency exchange gains.
Income tax benefit
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015
 
Three Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Income tax benefit
$96,740
 
NM
 
NM
 
$11,968
Effective income tax rate
34%
 
 
 
 
 
NM
The 2016 effective income tax rate 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 2015 income tax benefit was 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, partially offset by state taxes.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015
 
Six Months Ended June 30,
 
2016
 
$ Change
 
% Change
 
2015
 
(Dollars in thousands)
Income tax benefit
$95,220
 
NM
 
NM
 
$5,788
Effective income tax rate
34%
 
 
 
 
 
NM
The 2016 effective income tax rate is lower than the statutory rate of 35% due primarily to the factors described above in the three-month discussion.
The 2015 income tax benefit was due primarily to the factors described above in the three-month discussion.
For further details of income tax matters see Note 2 to the consolidated financial statements.

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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Financial Position
 
 
June 30, 2016
 
December 31, 2015
 
 
(In thousands)
Cash and cash equivalents:
 
 
 
 
United States (1)
 
$
754,768

 
$
1,109,331

All other countries (2) (3)
 
491,216

 
372,116

Total cash and cash equivalents
 
1,245,984

 
1,481,447

Marketable securities (United States) (4)
 
79,208

 
39,200

Total cash and cash equivalents and marketable securities (5)
 
$
1,325,192

 
$
1,520,647

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

 
$
—

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

Match Group Term Loan due November 16, 2022 (6) (7)
 
390,000

 
800,000

Total Match Group long-term debt
 
1,235,172

 
1,245,172

Less: Current maturities of Match Group long-term debt
 
—

 
40,000

Less: Unamortized original issue discount and original issue premium, net
 
5,308

 
11,691

Less: Unamortized debt issuance costs
 
15,076

 
16,610

Total Match Group debt, net of current maturities
 
1,214,788

 
1,176,871

 
 
 
 
 
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
 
445,003

 
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
 
48,619

 
54,732

Total IAC long-term debt
 
493,622

 
554,732

Less: Current portion of IAC long-term debt
 
50,000

 
—

Less: Unamortized debt issuance costs
 
3,151

 
4,649

Total IAC debt, net of current portion
 
440,471

 
550,083

 
 
 
 
 
Total long-term debt, net of current portion
 
$
1,655,259

 
$
1,726,954

(1) Domestically, cash equivalents primarily consist of AAA rated money market funds, commercial paper rated A1/P1 or better and treasury discount notes.
(2) Internationally, cash equivalents primarily consist of AAA rated money market funds and time deposits with maturities of less than 91 days from the date of purchase.
(3) If needed for our U.S. operations, most of the cash and cash equivalents held by the Company's foreign subsidiaries could be repatriated; however, under current law, would be subject to U.S. federal and state income taxes. We have not provided for any such tax because the Company currently does not anticipate a need to repatriate these funds to finance our U.S. operations and it is the Company's intent to indefinitely reinvest these funds outside of the U.S.

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(4) Marketable securities consist of treasury discount notes, short-to-medium-term debt securities issued by investment grade corporate issuers and an equity security. The Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. The Company also invests in equity securities as part of its investment strategy.
(5) At June 30, 2016, cash and cash equivalents includes Match Group's domestic and international cash and cash equivalents of $73.5 million and $100.5 million, respectively. At December 31, 2015, cash and cash equivalents includes Match Group's domestic and international cash and cash equivalents of $34.4 million and $53.8 million, respectively. Marketable securities at December 31, 2015 include $11.6 million at Match Group. There are no marketable securities at June 30, 2016 at Match Group. Agreements governing Match Group’s indebtedness limit the payment of dividends or distributions, loans or advances to stockholders, including the Company. In addition, Match Group is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, we may not freely access the cash of Match Group and its subsidiaries. Match Group generated $113.9 million and $93.5 million of operating cash flows for the six months ended June 30, 2016 and 2015, respectively.
(6) Proceeds from the 2016 Match Group Senior Notes were used to repay a portion of the Match Group Term Loan. Principal payments of $10 million under the Match Group Term Loan are no longer due quarterly through maturity. A final principal payment of $390 million is due at maturity.
(7) The 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:
On June 1, 2016, Match Group issued $400 million aggregate principal amount of the 2016 Match Group Senior Notes due June 1, 2024.
On November 16, 2015, Match Group issued $445.2 million of 2015 Match Group Senior Notes in exchange for a portion of IAC 2012 Senior Notes (the "Match Exchange Offer"). Promptly following the closing of the Match Exchange Offer, Match Group and its subsidiaries were designated as unrestricted subsidiaries of IAC for purposes of the indentures governing the 2013 and 2012 Senior Notes and the IAC Credit Facility. Following the designation, neither Match Group nor any of its subsidiaries guaranteed any debt of IAC, or are subject to any of the covenants related to such debt.
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. As of June 30, 2016, Match Group was in compliance with all applicable covenants.
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 proceeds of the 2016 Match Group Senior Notes, described above, were used to repay a portion of the Match Group Term Loan and quarterly principal payments of $10 million under the Match Group Term Loan are no longer due; at maturity, a final principal payment of $390 million is due. Additionally, the Match Group Term Loan would require 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 set forth 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 3.50% or 4.50%, respectively, and in the case of LIBOR, a floor of 1.00%. Interest payments are due at least semi-annually through the term of the loan.
Match Group has a $500 million revolving credit facility that expires on October 7, 2020 (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 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.

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There are additional covenants under the Match Group Credit Facility and the Match Group Term Loan that limit Match Group's ability and the ability of 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 wholly-owned Match Group 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 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. The restrictive covenants of the indenture governing the 2012 Senior Notes were substantially eliminated following the Match Exchange Offer. As of June 30, 2016, IAC was in compliance with all applicable covenants.
IAC Credit Facility:
IAC has a $300 million revolving credit facility that expires October 7, 2020 (the "IAC Credit Facility"). The annual commitment fee on undrawn funds is currently 35 basis points 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. The obligations under the IAC Credit Facility are secured by the stock of certain IAC domestic and foreign subsidiaries and unconditionally guaranteed by certain wholly-owned domestic subsidiaries.
Cash Flow Information
In summary, the Company's cash flows attributable to continuing operations are as follows:
 
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
(In thousands)
Net cash provided by operating activities
 
$
65,929

 
$
85,779

Net cash provided by (used in) investing activities
 
18,971

 
(152,864
)
Net cash used in financing activities
 
(314,467
)
 
(261,533
)
2016
Net cash provided by operating activities attributable to continuing operations consists of earnings from continuing operations, adjusted for stock-based compensation expense, depreciation, amortization of intangibles, goodwill impairment, deferred income taxes, acquisition-related contingent consideration fair value adjustments, excess tax benefits, adjustments related to gains on the sale of businesses and investments, and the effect of changes in working capital. Adjustments to earnings primarily consist of $275.4 million of goodwill impairment at the Publishing segment, $58.9 million of stock-based compensation expense, $50.8 million of amortization of intangibles and $33.4 million of depreciation, $90.9 million of deferred income taxes, $21.9 million in excess tax benefits, $13.1 million of net gains on the sale of businesses and investments, $10.5 million of acquisition-related contingent consideration fair value adjustments, and $20.9 million in other adjustments that consist mostly of non-cash losses on the extinguishment of Match Group and IAC debt. The decrease from changes in working capital consist primarily of a decrease in accounts payable and other current liabilities of $88.2 million and a decrease in income taxes payable of $48.0 million, partially offset by a decrease in accounts receivable of $47.9 million and an increase in deferred revenue of $32.6 million. The decrease in accounts payable and other current liabilities is due to (i) a decrease in accrued advertising and revenue share expense at Publishing and Applications mainly due to the effect of the new services

57



agreement with Google in the second quarter of 2016, (ii) a decrease in accrued employee compensation and benefits mainly related to the payment of 2015 cash bonuses in 2016, (iii) a decrease in payables at Match Group due to timing of payments, and (iv) a decrease in VAT payables related mainly to timing of payments. The decrease in income taxes payable is primarily due to the payment of 2015 tax liabilities in 2016. The decrease in accounts receivable is mainly due to a decrease at Publishing due to lower revenue related to the new services agreement with Google, partially offset by an increase at HomeAdvisor due to revenue growth. The increase in deferred revenue is mainly due to growth in prepaid revenue at Match Group, HomeAdvisor, SlimWare (in the Applications segment) and Vimeo.
Net cash provided by investing activities attributable to continuing operations in 2016 includes net proceeds from the sale of businesses and investments of $103.7 million, which mainly consists of proceeds from the sale of PriceRunner, partially offset by purchases (net of sales and maturities) of marketable debt securities of $46.9 million, capital expenditures of $35.1 million, primarily related to Match Group and HomeAdvisor investments in internal development of software to support their products and services, as well as leasehold improvements and computer hardware, and cash used in investments and acquisitions of $7.6 million.
Net cash used in financing activities attributable to continuing operations in 2016 includes $214.6 million for the repurchase of 4.7 million shares of common stock at an average price of $45.34 per share, $61.1 million for the purchase of a portion of the 2012 and 2013 Senior Notes, a $30.0 million increase in restricted cash that relates to unsettled IAC bond redemptions, $13.1 million in net payments related to the issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes, $4.6 million in debt issuance costs related to the 2016 Match Group Senior Notes, $2.4 million for the purchase of noncontrolling interests, and $2.2 million in acquisition-related contingent consideration payments, partially offset by excess tax benefits from stock-based awards of $21.9 million. Additionally, a payment of $410.0 million was made toward the Match Group Term Loan, of which $400.0 million was financed by the issuance of the 2016 Match Group Senior Notes.
2015
Adjustments to earnings from continuing operations primarily consist of $44.9 million of stock-based compensation expense, $31.1 million of depreciation and $27.0 million of amortization of intangibles, partially offset by $36.5 million of excess tax benefits from stock-based awards and $16.9 million in acquisition-related contingent consideration fair value adjustments. The decrease from changes in working capital consists primarily of a decrease in income taxes payable of $63.3 million and a decrease of $33.4 million in accounts payable and other current liabilities, partially offset by an increase in deferred revenue of $40.4 million. The decrease in income taxes payable is primarily due to the payment of 2014 tax liabilities in 2015 and the realization of a capital loss in the current year. The decrease in accounts payable and other current liabilities is due mainly to a decrease in accrued advertising expense and accrued revenue share at Publishing and Applications, respectively, partially offset by an increase in accrued advertising at Match Group. The decrease in accrued advertising at Publishing is due mainly to lower fees paid to search engines and timing of payments. The decrease in accrued revenue at Applications is due mainly to lower Partnerships revenue. The increase in accrued advertising at Match Group is due mainly to increased online spending. The increase in deferred revenue is due mainly to growth in subscription revenue at Match Group, Vimeo, and HomeAdvisor, as well as an increase at Electus due to the timing of cash received related to various production deals.
Net cash used in investing activities attributable to continuing operations in 2015 includes the purchase of marketable debt securities, net of proceeds from maturities and sales, of $78.5 million, the purchase of investments and acquisitions of $56.1 million and capital expenditures of $26.8 million, primarily related to the internal development of software to support our products and services, and computer hardware.
Net cash used in financing activities attributable to continuing operations in 2015 includes $200.0 million for the repurchase of 3.0 million shares of common stock at an average price of $67.68 per share, $56.7 million related to the payment of cash dividends to IAC shareholders, $20.7 million in net payments related to the issuance of common stock pursuant to stock-based awards, net of withholding taxes, $15.3 million for the purchase of noncontrolling interests and $5.7 million in acquisition-related contingent consideration payments, partially offset by excess tax benefits from stock-based awards of $36.5 million.

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Liquidity and Capital Resources
The Company's principal sources of liquidity are its cash and cash equivalents and marketable securities as well as cash flows generated from operations. IAC has a $300 million revolving credit facility that expires on October 7, 2020. Match Group has a $500 million revolving credit facility that expires on October 7, 2020. At June 30, 2016, there were no outstanding borrowings under the IAC Credit Facility or the Match Group Credit Facility.
At June 30, 2016, IAC had 10.9 million shares remaining in its share repurchase authorization. IAC may purchase shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
IAC's consolidated cash and cash equivalents at June 30, 2016 were $1.246 billion, of which $174.0 million was owned by Match Group. The Company generated $65.9 million of operating cash flows for the six months ended June 30, 2016, of which $113.9 million was generated by Match Group. Agreements governing Match Group's indebtedness limit the payment of dividends or distributions and loans or advances to stockholders, including the Company. In addition, Match Group is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, we may not freely access the cash of the Match Group and its subsidiaries.
The Company anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its operations. The Company expects that 2016 capital expenditures will be higher than 2015 by approximately 25% to 35%, driven mostly by leasehold improvements related to a new lease for Match Group's corporate headquarters, as well costs related to a new Match Group data center, and HomeAdvisor's sales center expansion.
The Company believes its existing cash, cash equivalents, time deposits and marketable securities and expected positive cash flows generated from operations will be sufficient to fund our normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes on behalf of employees for net-settled stock-based awards, and investing and other commitments for the foreseeable future. The Company's liquidity could be negatively affected by a decrease in demand for our respective products and services. The Company’s indebtedness could limit our ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditure or debt service or other requirements; and (ii) use operating cash flow to make acquisitions, capital expenditures, invest in other areas, such as developing properties and exploiting business opportunities. The Company may make additional acquisitions and investments and, as a result, the Company may need to raise additional capital through future debt or equity financing to provide for greater financial flexibility. Additional financing may not be available at all or on terms favorable to us.


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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
At June 30, 2016, except as noted below, there have been no material changes to the Company's contractual obligations, commercial commitments and off-balance sheet arrangements since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2015.
The Company has total long-term debt of $1.7 billion at both June 30, 2016 and December 31, 2015. However, on June 1, 2016, Match Group issued $400 million of 6.375% Senior Notes. The proceeds from the offering were used to repay a portion of the $790 million of indebtedness outstanding under the Match Group Term Loan. The Match Group Term Loan currently bears interest at LIBOR plus 4.50%, with a LIBOR floor of 1.00%. Based on this transaction, the Company will incur approximately $100 million of additional interest expense over the term of its debt obligations due to the higher interest rate and the longer maturity of the 6.375% Senior Notes, due June 1, 2024, as compared to the Match Group Term Loan, due November 16, 2022. The amount of interest ultimately paid on the Match Group Term Loan may differ based on future changes in interest rates.


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IAC'S PRINCIPLES OF FINANCIAL REPORTING

IAC reports Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. IAC endeavors to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure, which we discuss below.

Definition of IAC's Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") 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. We believe 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.

Non-Cash Expenses That Are Excluded From IAC's Non-GAAP Measure
Stock-based compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions, of stock options, restricted stock units ("RSUs") and performance-based RSUs. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding using the treasury stock method; however, performance-based RSUs are included only to the extent the performance criteria have been met (assuming the end of the reporting period is the end of the contingency period). Upon the exercise of certain stock options and vesting of RSUs and performance-based RSUs, the awards are settled, at the Company's discretion, on a net basis, with the Company remitting the required tax-withholding amount from its current funds.
Depreciation is a non-cash expense relating to our property and equipment and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives.
Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses related primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as content, technology, customer lists, advertiser and supplier relationships, are valued and amortized over their estimated lives. Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. We believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairment charges of intangible assets or goodwill, if applicable, are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or ongoing costs of doing business.

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RECONCILIATION OF ADJUSTED EBITDA
For a reconciliation of operating income (loss) by reportable segment and net earnings attributable to IAC shareholders to Adjusted EBITDA for the three and six months ended June 30, 2016 and 2015, see Note 10 to the consolidated financial statements.


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Table of Contents

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

At June 30, 2016, except as noted below, there have been no material changes to the Company's instruments or positions that are sensitive to market risk since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2015.

Interest Rate Risk
At June 30, 2016, the Company's outstanding debt was $1.7 billion (including $50.0 million of 2013 Senior Notes classified as current, pending purchase) of which $1.3 billion bears interest at fixed rates and $390 million bears interest at variable rates. If market rates decline, the Company runs the risk that the related required payments on the fixed rate debt will exceed those based on market rates. A 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by $59.4 million. Such potential increase or decrease in fair value is based on certain simplifying assumptions, including a constant level and rate of fixed-rate debt for all maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. The Match Group Term Loan currently bears interest at LIBOR plus 4.50%, with a LIBOR floor of 1.00%.  LIBOR at June 30, 2016 for similar borrowings of three months was approximately 65 basis points. If LIBOR were to increase by 100 basis points then the annual interest payments on the Match Group Term Loan would increase by 65 basis points, or $2.6 million, in 2016. If LIBOR decreased 65 basis points to zero, annual interest payments on the Match Group Term Loan would remain the same. Such potential changes in interest payments are based on quarterly amortization and certain simplifying assumptions, including a constant rate of variable-rate debt for all maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.


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Table of Contents

Item 4.    Controls and Procedures

The Company monitors and evaluates on an ongoing basis its disclosure controls and internal control over financial reporting in order to improve its overall effectiveness. In the course of these evaluations, the Company modifies and refines its internal processes as conditions warrant.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), IAC management, including our principal executive and principal financial officers, or persons performing similar functions, evaluated the effectiveness of the Company's disclosure controls and procedures as defined by Rule 13a-15(e) under the Exchange Act. Based on this evaluation, management has concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report in providing reasonable assurance that information we are required to disclose in our filings with the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and Forms, and include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There were no changes to the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II
OTHER INFORMATION
Item 1. Legal Proceedings

Overview

In the ordinary course of business, the Company and its subsidiaries are parties to litigation involving property, personal injury, contract, intellectual property and other claims, as well as stockholder derivative actions, class action lawsuits and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. Although the results of legal proceedings and claims cannot be predicted with certainty, neither the Company nor any of our subsidiaries is currently a party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.
 
Rules of the Securities and Exchange Commission require the description of material pending legal proceedings (other than ordinary, routine litigation incident to the registrant’s business) and advise that proceedings ordinarily need not be described if they primarily involve damages claims for amounts (exclusive of interest and costs) not exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of IAC management, none of the pending litigation matters which we are defending, including those described below, involves or is likely to involve amounts of that magnitude. The litigation matters described below involve issues or claims that may be of particular interest to our stockholders, regardless of whether any of these matters may be material to our financial position or operations based upon the standard set forth in the rules of the Securities and Exchange Commission.

Securities Class Action Litigation against Match Group

As previously disclosed in our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2016, on February 26, 2016, a putative nationwide class action was filed in federal court in Texas against Match Group, five of its officers and directors, and twelve underwriters of Match Group's Company’s initial public offering in November 2015.  See David M. Stein v. Match Group, Inc. et al., No. 3:16-cv-549 (U.S. District Court, Northern District of Texas).  The complaint alleges that Match Group's registration statement and prospectus issued in connection with its initial public offering were materially false and misleading given their failure to state that: (i) Match Group's Non-dating business would miss its revenue projection for the quarter ended December 31, 2015, and (ii) ARPPU (as defined in "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations—General—Key Terms") would decline substantially in the quarter ended December 31, 2015.  The complaint asserts that these alleged failures to timely disclose material information caused Match Group's stock price to drop after the announcement of its earnings for the quarter ended December 31, 2015.  The complaint pleads claims under the Securities Act of 1933 for untrue statements of material fact in, or omissions of material facts from, the registration statement, the prospectus, and related communications in violation of Sections 11 and 12 and, as to the officer/director defendants only, control-person liability under Section 15 for the Company’s alleged violations.  The complaint seeks class certification, damages in an unspecified amount and attorneys’ fees.  On March 9, 2016, a virtually identical class action complaint was filed in the same court against the same defendants by a different named plaintiff.  See Stephany Kam-Wan Chan v. Match Group, Inc. et al., No. 3:16-cv-668 (U.S. District Court, Northern District of Texas).  On April 25, 2016, Judge Boyle in the Chan case issued an order granting the parties’ joint motion to transfer that case to Judge Lindsay, who is presiding over the earlier-filed Stein case.  On April 27, 2016, various current or former shareholders in Match Group and their respective law firms filed motions seeking appointment as lead plaintiff(s) and lead or liaison counsel for the putative class.  On April 28, 2016, the Court issued orders: (i) consolidating the Chan case into the Stein case, (ii) approving the parties’ stipulation to extend the defendants’ time to respond to the complaint until after the Court has appointed a lead plaintiff and lead counsel for the putative class and has set a schedule for the plaintiff’s filing of a consolidated complaint and the defendants’ response to that pleading, and (iii) referring the various motions for appointment of lead plaintiff(s) and lead or liaison counsel for the putative class to a United States Magistrate Judge for determination.  On June 9, 2016, the Magistrate Judge issued an order appointing two lead plaintiffs, two law firms as co-lead plaintiffs’ counsel, and a third law firm as plaintiffs’ liaison counsel.  In accordance with this order, the consolidated case is now captioned Mary McCloskey et ano. v. Match Group, Inc. et al., No. 3:16-CV-549-L.  On July 27, 2016, the parties submitted to the Court a joint status report proposing a schedule for the plaintiffs’ filing of a consolidated amended complaint and the parties’ briefing of the defendants’ contemplated motion to dismiss the consolidated complaint. We and Match Group believe that the allegations in these lawsuits are without merit and will defend vigorously against them.


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Item 1A.    Risk Factors

Cautionary Statement Regarding Forward-Looking Information

This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipates," "estimates," "expects," "plans" and "believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC's future financial performance, IAC's business prospects and strategy, anticipated trends and prospects in the industries in which IAC's businesses operate and other similar matters. These forward-looking statements are based on IAC management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others: changes in senior management at IAC and/or its businesses, changes in our relationship with, or policies implemented by, Google, adverse changes in economic conditions, either generally or in any of the markets or industries in which IAC's businesses operate, adverse trends in the online advertising industry or the advertising industry generally, our ability to convert visitors to our various websites into users and customers, our ability to offer new or alternative products and services in a cost-effective manner and consumer acceptance of these products and services, changes in industry standards and technology, actual tax liabilities that differ materially from our estimates, operational and financial risks relating to acquisitions, our ability to expand successfully into international markets and regulatory changes. Certain of these and other risks and uncertainties are discussed in IAC's filings with the SEC, including in Part I "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Other unknown or unpredictable factors that could also adversely affect IAC's business, financial condition and operating results may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of IAC management as of the date of this quarterly report. IAC does not undertake to update these forward-looking statements.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities
During the quarter ended June 30, 2016, the Company did not issue or sell any shares of its common stock or any other equity securities pursuant to unregistered transactions.
Issuer Purchases of Equity Securities
The following table sets forth purchases by the Company of its common stock during the quarter ended June 30, 2016:
Period
(a)
Total
Number of Shares
Purchased
 
(b)
Average
Price Paid
Per Share
 
(c)
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs(1)
 
(d)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under Publicly
Announced
Plans or
Programs(2)
April 2016
1,299,864

 
 
$
46.60

 
 
1,299,864

 
 
1,084,462

May 2016
211,280

 
 
$
49.83

 
 
211,280

 
 
10,873,182

June 2016
—

 
 
 
—

 
 
—

 
 
—

  Total
1,511,144

 
 
$
47.05

 
 
1,511,144

 
 
10,873,182

_______________________________________________________________________________
(1)
Reflects repurchases made pursuant to the repurchase authorization previously announced in April 2013.
(2)
Represents the total number of shares of common stock that remained available for repurchase as of June 30, 2016 pursuant to the April 2013 and/or May 2016 repurchase authorizations, as applicable. IAC may purchase shares pursuant to these repurchase authorizations over an indefinite period of time in the open market and in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

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Item 6.    Exhibits
The documents set forth below, numbered in accordance with Item 601 of Regulation S-K, are filed herewith, incorporated by reference to the location indicated or furnished herewith.
Exhibit
Number
Description
Location
3.1

Restated Certificate of Incorporation of IAC/InterActiveCorp.
Exhibit 3.1 to the Registrant's Registration Statement on Form 8-A/A, filed on August 12, 2005.
3.2

Certificate of Amendment of the Restated Certificate of Incorporation of IAC/InterActiveCorp.
Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on August 22, 2008.
3.3

Amended and Restated By-Laws of IAC/InterActiveCorp.
Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on December 6, 2010.
4.1

Indenture, dated as of June 1, 2016, between Match Group, Inc. and Computershare Trust Company, N.A., as trustee.

Exhibit 4.1 to Match Group, Inc.'s Current Report on Form 8-K, filed on June 2, 2016.

4.2

Registration Rights Agreement, dated as of June 1, 2016, between Match Group, Inc. and J.P. Morgan Securities LLC.

Exhibit 4.2 to Match Group, Inc.'s Current Report on Form 8-K, filed on June 2, 2016.

10.1

Amendment No.1 to Employee Matters Agreement, dated as of April 13, 2016, by and between Match Group, Inc. and IAC/InterActiveCorp.
Exhibit 99.2 to the Schedule 13D filed by IAC/InterActiveCorp on April 14, 2016.
10.2

Employment Agreement, dated as of April 7, 2016, by and between Glenn H. Schiffman and IAC/InterActiveCorp.(1)(2)
 
31.1

Certification of the Chairman and Senior Executive pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.(2)
 
31.2

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.(2)
 
31.3

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.(2)
 
32.1

Certification of the Chairman and Senior Executive pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.(3)
 
32.2

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.(3)
 
32.3

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.(3)
 
101.INS

XBRL Instance
 
101.SCH

XBRL Taxonomy Extension Schema
 
101.CAL

XBRL Taxonomy Extension Calculation
 
101.DEF

XBRL Taxonomy Extension Definition
 
101.LAB

XBRL Taxonomy Extension Labels
 
101.PRE

XBRL Taxonomy Extension Presentation
 
_______________________________________________________________________________
(1) 
Reflects management contract and compensatory plan.

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(2) 
Filed herewith.
(3) 
Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:
August 9, 2016
 
 
 
 
 
IAC/INTERACTIVECORP
 
 
 
 
 
 
 
By:
 
/s/ GLENN H. SCHIFFMAN
 
 
 
 
Glenn H. Schiffman
 
 
 
 
Executive Vice President and Chief Financial Officer




 
 
 
 
Signature
Title
 
Date
 
 
 
 
/s/ GLENN H. SCHIFFMAN
Executive Vice President and
 Chief Financial Officer
 
August 9, 2016
Glenn H. Schiffman
 
 
 

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